2 rising stocks worth buying for a real estate boom

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The combination of years of extremely low interest rates and economic stimulus from the federal government fueled by the pandemic has helped warm the U.S. residential property market to a continuous boil.

In the United States, it is estimated that more than five million homes do not meet the demand of potential home buyers, which means that prices for many promising ones are dropping out of the market.

Fortunately for both buyers and sellers, real estate tech companies have made buying a home cheaper and more convenient in recent years. Zillow Group (NASDAQ: ZG)(NASDAQ: Z) now buys homes directly from sellers, saving them the costly and time-consuming process of selling. He has also developed tools to help people sell homes with or without traditional agents.

The digital real estate giant Redfin (NASDAQ: RDFN) recently boasted that it has saved consumers $ 1 billion in transaction fees to date. He did this by scaling up, hiring an army of his own agents, and charging listing fees of 1% to 1.5%, up from the industry standard of 2.5% to 3%.

The Zillow Group Case

Zillow has digitized virtually every aspect of the residential real estate market. It has nine major brands under its umbrella, each covering a distinct segment of a complex industry.

The family outside their new home talks to their broker.

Image Source: Getty Images

Direct purchases make the largest contribution to revenue, accounting for about 59% of total revenue. When a homeowner is looking for a quick deal without the hassle of a traditional sale that can often last for months, they can simply sell their home directly to Zillow. It’s as simple as entering their address on a website and waiting for an offer one to three days. If the seller likes the price the company is offering, Zillow will pay in cash after the deal is closed.

Zillow sold 2,086 homes for a total of $ 772 million in the second quarter and bought 3,085 more homes. She paid an average of $ 348,766 per house (after deducting costs) and generated an average $ 19,636 profit on the sale.

For sellers who choose to go the traditional route, Zillow can put them in touch with a local real estate agent or help them sell their home online without one, which means the seller will host their own open houses and save on commissions.

Metric

Q2 2020

Q2 2021

Change

Income

USD 768.3 million USA

$ 1.3 billion

70%

Earnings per share

(US $ 0.38)

US $ 0.04

N / A

SOURCE OF DATA: COMPANY DOCUMENTS.

While overall revenue growth has been incredibly strong, there are even stronger strengths in individual segments. The premier agent, providing real estate agents with the tools to help them expand their networks, grew 82% year over year. It accounted for more than 26% of total revenues, underscoring Zillow’s truly end-to-end solution, which even attracts independent operators’ businesses.

Small segments such as Zillow Closing Services (which provides title and escrow services) and Zillow Home Loans also grew significantly, growing by 1073% and 68%, respectively. Although they represent only 4.7% of total revenues, they can be an important source of growth in the future.

Zillow is expected to bring in $ 1.04 per share in 2021 and grow 38% in 2022. attractive long-term opportunity

Redfin case

Redfin offers sellers a direct buy service like Zillow, but it is significantly smaller in size. This company is focused on the traditional real estate agent model, but with one twist – sheer scale. Its goal is to launch a transaction large enough to enable it to maintain lower commissions for clients, and use this advantage to gain an increasing market share.

A beautiful two-storey house surrounded by greenery from a bird's eye view.

Image Source: Getty Images

In the second quarter, Redfin represented sellers in 1.18% of all existing US home sales in value terms, and more than 48 million people use its app each month on average. The company also completed the RentPath acquisition in April, making it one of the top online destinations for both rental and shopping.

Metric

Q2 2020

Q2 2021

Growth

Income

USD 213.6 million USA

USD 471.3 million USA

121%

Gross profit

USD 46.0 million USA

USD 126.1 million USA

174%

Net loss per share

($ 0.08)

($ 0.29)

N / A

SOURCE OF DATA: COMPANY DOCUMENTS

The company reports revenue in two categories – services and products. The first covers her brokerage business, reflecting commissions on sales made by hired real estate agents Redfin and its partner network. Revenue from this segment grew more than 111% year-on-year during the quarter and accounted for 63% of revenue.

Product income is generated from the sale of homes that were purchased directly by the company. In the second quarter, 292 properties were sold at an average price of US $ 570,930 and this segment has significantly improved its performance. gross profit – which was negative in the previous period – into positive territory, having dropped by 2.9%. As he sells more units and builds the scale, this figure should improve.

Analysts expect the company to post a loss of $ 0.69 a share this year, but improvement should come in 2022 as it gradually approaches breakeven. Amid skyrocketing demand for residential properties and record prices, Redfin’s growing share of secondary home sales should significantly increase revenue by the end of the year, and the company may even exceed expectations.

This article represents the opinion of an author who may disagree with the “official” position of the Motley Fool premium advisory service. We are colorful! Bidding on an investment thesis – even our own – helps us all to be critical about investing and make decisions that help us become smarter, happier, and richer.



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