Zillow’s SWOT analysis: stock faces headwinds amid housing market volatility

Zillow Group, Inc. (NASDAQ:ZG), a leading player in the online real estate market with a market capitalization of $16.7 billion, finds itself navigating a complex landscape of opportunities and challenges as it seeks to maintain its dominant position in the industry. With a comprehensive suite of tools and services for buyers, sellers, and renters, Zillow has established itself as a go-to platform for real estate transactions. According to InvestingPro analysis, the company maintains a "Fair" overall financial health score, though its stock performance has been notably volatile. Currently trading below its InvestingPro Fair Value, the company faces headwinds from macroeconomic uncertainties and a volatile housing market, which have led to mixed analyst opinions on its future prospects.

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Business segments and strategy

Zillow operates through three main segments: Residential, Rentals, and Mortgages. The company’s Residential segment, which includes its core for-sale listings business, has shown resilience in the face of market challenges. In the second quarter of 2025, the segment reported a 6% year-over-year growth, outpacing industry volumes. This performance demonstrates Zillow’s ability to capture market share even in difficult conditions.

The Rentals segment has emerged as a particularly bright spot for the company. With revenue growth exceeding 30% year-over-year in recent quarters, Zillow is making significant strides in the multifamily market. The company’s platform has seen a 38% increase in multifamily properties listed, indicating strong momentum in this area. Analysts expect the Rentals segment to grow by over 40% for the full year 2025, highlighting its importance to Zillow’s overall growth strategy.

Zillow’s Mortgage segment has also shown promise, with purchase loan originations totaling $1.1 billion in the second quarter of 2025, up 48% year-over-year. This growth suggests that the company’s efforts to integrate mortgage services into its broader real estate ecosystem are gaining traction.

A key element of Zillow’s strategy is its Enhanced Markets initiative. This approach aims to provide a more comprehensive and integrated experience for users across its various services. By the end of 2025, Zillow expects over 35% of its connections to come from Enhanced Markets, indicating significant progress in this strategic direction.

Financial performance and outlook

Zillow’s financial performance has been a mixed bag, reflecting the challenging market conditions. While the company has managed to beat revenue expectations in recent quarters, concerns remain about its ability to maintain growth in the face of macroeconomic headwinds.

For the full year 2025, Zillow has maintained its guidance for low to mid-teens revenue growth, aligning with its current revenue growth rate of 15.3%. This outlook suggests confidence in the company’s ability to navigate the current market challenges. The company’s strong gross profit margin of 75.8% and healthy current ratio of 3.34 provide some cushion against market headwinds. However, some analysts have expressed concern about the potential for margin compression due to increased marketing expenses and costs associated with strategic partnerships.

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Earnings per share (EPS) estimates for Zillow vary among analysts, with projections for fiscal year 2025 ranging from $1.50 to $1.62, and estimates for fiscal year 2026 between $1.75 and $1.99. These figures indicate expectations for continued earnings growth, albeit with some uncertainty about the pace of improvement.

Market dynamics and competitive landscape

The real estate market remains volatile, with fluctuating demand influenced by interest rates and broader economic factors. Zillow’s performance is closely tied to these market dynamics, and the company must navigate challenges such as affordability issues and uncertain macroeconomic conditions.

Interest rates play a crucial role in shaping the housing market, and by extension, Zillow’s business. Some analysts believe that a potential decrease in interest rates could lead to a rebound in first-time home buyers, which would be a positive development for Zillow’s business model of connecting buyers with agents.

Competition in the real estate technology space is intensifying. Zillow faces challenges from both established players and new entrants. The recent acquisition of Redfin by Rocket Companies has added a new dimension to the competitive landscape, potentially creating a stronger, more integrated competitor once the deal is fully implemented.

Despite these challenges, Zillow maintains a strong position in terms of traffic and user engagement. The company’s platform continues to attract significantly more visits than competitors in the multifamily industry, and its brand remains strong among consumers.

Bear Case

How might persistent macroeconomic uncertainty and high interest rates impact Zillow’s growth prospects?

Persistent macroeconomic uncertainty and high interest rates pose significant challenges to Zillow’s growth prospects. The housing market is highly sensitive to economic conditions and interest rate fluctuations. High interest rates make mortgages more expensive, potentially reducing demand for home purchases and refinancing. This could lead to a decrease in transaction volumes on Zillow’s platform, affecting both its Residential and Mortgage segments.

Moreover, economic uncertainty may cause potential buyers and sellers to delay their real estate decisions, further impacting Zillow’s transaction-based revenue. The company’s advertising revenue could also suffer if real estate agents and other industry professionals reduce their marketing budgets in response to a slower market.

Zillow’s ability to maintain its projected low to mid-teens revenue growth in this environment may be challenged. The company might need to increase its marketing spend to maintain market share, potentially compressing margins and affecting profitability. Additionally, if the housing market remains subdued for an extended period, Zillow may struggle to achieve the expected growth in its Enhanced Markets initiative, which is a key part of its long-term strategy.

What are the potential consequences of ongoing legal challenges for Zillow’s operations and investor sentiment?

Ongoing legal challenges pose risks to Zillow’s operations and could negatively impact investor sentiment. The real estate industry is subject to complex regulations, and as a technology company operating in this space, Zillow must navigate a variety of legal and regulatory issues.

One significant concern is the potential for lawsuits related to fair housing practices or antitrust issues. Any legal action against Zillow could result in financial penalties, operational restrictions, or damage to the company’s reputation. This could lead to decreased user trust and potentially impact Zillow’s market share.

Moreover, legal challenges often generate negative headlines, which can affect investor sentiment even if the ultimate outcome is favorable to the company. Uncertainty surrounding legal issues may cause some investors to view Zillow as a riskier investment, potentially leading to stock price volatility or a lower valuation multiple.

The costs associated with defending against legal challenges can also be substantial, diverting resources from growth initiatives and potentially impacting Zillow’s profitability. If legal issues persist or escalate, they could distract management from executing on the company’s core strategy, potentially slowing Zillow’s progress in key areas such as Enhanced Markets or the expansion of its Rentals business.

Bull Case

How could Zillow’s Enhanced Markets strategy drive long-term growth and market share gains?

Zillow’s Enhanced Markets strategy has the potential to be a significant driver of long-term growth and market share gains for the company. This initiative aims to provide a more integrated and comprehensive experience for users across Zillow’s various services, including home buying, selling, renting, and financing.

By the end of 2025, Zillow expects over 35% of its connections to come from Enhanced Markets. This increased integration could lead to higher user engagement and improved conversion rates. As users become more accustomed to utilizing multiple Zillow services within a single ecosystem, the company may be able to capture a larger share of the real estate transaction value chain.

The Enhanced Markets strategy could also help Zillow differentiate itself from competitors by offering a more seamless and user-friendly experience. This could be particularly appealing to millennials and first-time home buyers who value convenience and digital-first solutions.

Furthermore, the strategy may enable Zillow to gather more comprehensive data on user behavior and preferences, allowing for more targeted marketing and personalized services. This could lead to increased efficiency in customer acquisition and higher lifetime value per user.

As the Enhanced Markets strategy matures, Zillow may be able to expand its revenue streams and improve its margins. For instance, by increasing the adoption of its mortgage services within Enhanced Markets, Zillow could boost its higher-margin Mortgage segment while also providing added value to users.

What impact could a potential rebound in first-time home buyers have on Zillow’s performance?

A rebound in first-time home buyers could have a significant positive impact on Zillow’s performance. First-time buyers are a crucial segment of the real estate market, and their increased participation could drive growth across several of Zillow’s business segments.

In the Residential segment, more first-time buyers entering the market would likely lead to increased traffic and engagement on Zillow’s platform. This could result in higher advertising revenue from real estate agents and other industry professionals looking to connect with these potential buyers. Additionally, increased transaction volumes could boost Zillow’s Premier Agent program, which is a key revenue driver for the company.

The Mortgage segment could also benefit substantially from a surge in first-time buyers. Many of these buyers would likely be seeking mortgage pre-approvals and financing options, providing opportunities for Zillow Home Loans to capture market share. The company has reported double-digit adoption rates for its mortgage services in Enhanced Markets, suggesting that it is well-positioned to capitalize on increased demand.

A rebound in first-time buyers could also accelerate the adoption of Zillow’s Enhanced Markets strategy. These buyers, who may be less familiar with the home-buying process, could find particular value in Zillow’s integrated approach, potentially leading to higher engagement across multiple services.

Moreover, increased activity from first-time buyers could stimulate the overall housing market, potentially leading to more listings and transactions. This broader market activity would benefit Zillow’s core business model of connecting buyers, sellers, and real estate professionals.

SWOT Analysis

Strengths

• Leading position in online real estate market with strong brand recognition
• Robust performance in rentals segment, with over 30% year-over-year growth
• Successful implementation of Enhanced Markets strategy, driving increased user engagement
• Comprehensive suite of services covering buying, selling, renting, and financing
• Strong traffic and user engagement metrics compared to competitors

Weaknesses

• Exposure to volatile housing market conditions and macroeconomic factors
• Potential for margin compression due to increased marketing expenses and partnership costs
• Dependence on real estate professionals for significant portion of revenue
• Ongoing legal challenges that could impact operations and investor sentiment

Opportunities

• Expansion of Enhanced Markets strategy to capture larger share of real estate transaction value
• Continued growth in rentals and mortgage segments
• Potential rebound in first-time home buyers as interest rates stabilize or decrease
• Leveraging data and AI to provide more personalized and efficient services
• Expansion into new geographic markets or adjacent real estate services

Threats

• Macroeconomic uncertainty and interest rate fluctuations affecting housing market
• Increasing competition from both established players and new entrants in real estate technology
• Regulatory changes that could impact business model or increase compliance costs
• Potential for disruptive technologies to alter the real estate transaction process
• Cybersecurity risks and data privacy concerns

Analysts Targets

1. Barclays - September 24, 2025: $66.00 (Underweight)

2. JMP Securities - August 8, 2025: $87.00 (Market Outperform)

3. Barclays - August 7, 2025: $66.00 (Underweight)

4. Barclays - July 18, 2025: $60.00 (Underweight)

5. JMP Securities - July 14, 2025: $87.00 (Outperform)

6. Piper Sandler - May 20, 2025: $82.00 (Overweight)

7. Cantor Fitzgerald - May 8, 2025: $60.00 (Neutral)

8. Piper Sandler - May 8, 2025: $82.00 (Overweight)

9. RBC Capital Markets - May 8, 2025: $88.00 (Outperform)

10. RBC Capital Markets - May 5, 2025: $88.00 (Outperform)

11. JMP Securities - April 16, 2025: $92.00 (Market Outperform)

12. JMP Securities - April 11, 2025: $92.00 (Market Outperform)

13. Barclays - March 31, 2025: $64.00 (Underweight)

14. JMP Securities - March 20, 2025: $92.00 (Market Outperform)

15. Barclays - March 18, 2025: $64.00 (Underweight)

16. JMP Securities - March 13, 2025: $92.00 (Market Outperform)

17. Barclays - March 11, 2025: $64.00 (Underweight)

Analyst opinions on Zillow Group, Inc. remain divided, with price targets ranging from $60.00 to $92.00. The most recent analysis from Barclays maintains an Underweight rating with a $66.00 target, while JMP Securities holds a more optimistic view with a Market Outperform rating and an $87.00 target. This disparity reflects the uncertainty surrounding Zillow’s ability to navigate the current market challenges while capitalizing on its growth initiatives.

As Zillow continues to evolve its business model and adapt to changing market conditions, investors will be closely watching the company’s ability to execute on its Enhanced Markets strategy and maintain growth across its various segments. With analyst price targets ranging from $66 to $105 per share and the next earnings report due on October 30, 2025, the coming quarters will be crucial in determining whether Zillow can overcome the headwinds it faces and deliver on its long-term potential in the dynamic real estate technology landscape.

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This analysis is based on

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