2 Stocks to Buy That Could Dominate the Real Estate Transformation
With people changing rapidly when buying and selling houses, the real estate market is in the midst of upheaval. Some consumers prefer to buy a home through an online transaction with a virtual agent – also known as the iBuying experience, and others want a personal agent to work alongside them. As we’ve seen in the housing market this year, one thing will stay the same, people will buy real estate. An industry like real estate could always be a strong long-term investment.
eXp World Holdings (NASDAQ: EXPI) and Zillow group (NASDAQ: Z) (NASDAQ: ZG) have unique offerings that take advantage of the changing market demand for a digital experience. Although the strategies are different, both companies have long growth trajectories if they are successful. Investors should consider buying these two property disruptors and holding them for the next five years.
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1. Zillow group
In the past year the term “Zillow” was searched more often than “real estate”, which shows how dominant the Zillow brand has become. While this software-as-a-service company spends only 17.5% of its total revenue on sales and marketing in the second quarter of 2021, it has built a strong brand known for providing a convenient platform for consumers to buy and sell from To create houses. The company achieved this through iBuying, among other things, which gives customers instant quotes for their home.
The “Zestimate” – Zillow’s home valuation tool – is now officially Zillow’s offer to buy a client’s home that appears to attract customers and generate $ 777 million in revenue with Zillow Offers. In the second quarter of 2021, 3,805 apartments were bought and 2,086 sold. The company is trying to gain market share in the iBuying space by investing $ 450 million in Zillow Offers, which is expected to grow with more home purchases online. iBuying accounted for only 1% of all home purchases in the second quarter, with some urban areas accounting for 5%.
Competition in the online real estate market is increasing. Red woman (NASDAQ: RDFN) has become a tough competitor, but has much less website traffic and brand awareness than Zillow – giving Zillow a strong competitive advantage. This moat is strengthened by its financial performance. Redfin sees itself as a discount broker who might appeal to some in the market, but its financial performance pales in comparison to Zillow. In the first half of 2021, the companies reported total sales of $ 740 million and $ 2.5 billion for Redfin and Zillow, respectively. The revenues generated resulted in Redfin posting a net loss of $ 64 million and Zillow posting a net income of $ 62 million for that period.
Knowing that both are vying for iBuying space, the ability to invest more in the business would decide who could hit the market. Zillow appears to be the obvious choice.
Zillow’s stock is flat year over year, but the odds haven’t changed. Zillow’s phenomenal website traffic – with over 2.8 billion website visits in the second quarter and its well-known brand and expansion into iBuying – offers the company potentially significant growth opportunity over the next five years. Today Zillow is valued at 6x its twelve month sales, now could be a good time to buy.
2. eXp World Holdings
Some homeowners are still unwilling to sell their homes without going through the traditional process and eXp World Holdings is there for these customers. Rooted in the online world, eXp has built an online brokerage that has some of the best real estate agents out there. With Virbela – a fully online workspace that eXp acquired for $ 11 million in 2018, real estate agents around the world can help homeowners buy and sell their homes.
eXp has managed to attract some of the best agents in the world through unique offers that are unmatched by its competitors. The company grants agents a generous 80/20 gross commission income (GCI) breakdown with a cap, while most brokers like Keller Williams typically take 30% of an agent’s total GCI. After the agent reaches a GCI of $ 80,000, they will receive 100% of everything they earn through eXp, while many traditional brokers have no cap on their GCI split.
Because of its incentives, eXp brought the best agents to the platform. In the second quarter of 2021, eXp increased its agent count by 87% to over 58,000 agents. Bringing leading agents to eXp has paid off: eXp posted revenue of $ 1 billion in the second quarter, a year-over-year growth of 183%. The company also reported net income of $ 37 million for the second quarter, up 350% year over year.
Driven by its virtual platform, eXp could easily expand in the international market. eXp is active in 15 countries as well as in Hong Kong. In India and Mexico, the number of agents is increasing dramatically. The international real estate market has grown 60% since 2010, and as eXp integrates with emerging markets, the company could benefit from future market growth.
EXp’s shares have more than doubled in the past year, yet the company is still trading 2.1 times after twelve months of sales, which is amazingly cheap. With the international opportunity ahead of eXp, the share is trading at relatively low levels.
One possible reason for the low rating is eXp’s gross margin, which was only 8% in the second quarter of 2021. This may not excite investors, but it is the price eXp is willing to pay to generate such strong sales and profit growth. EXp’s rapid growth and international acceleration could enable the company to become the best place for homeowners who want the traditional experience of selling and buying a home.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.