Purchased Zillow

I bought some shares in Zillow Inc (NASDAQ:Z) today.  I may end up regretting it.  We'll see.

Zillow helped me find a new house last Spring.  I've been very impressed with the site, and I find myself looking at it on occasion, still, even though I am not at all in the market for real estate at this time.  I used to prefer realtor.com, but Zillow has made a convert of me.

Real Estate is a seasonal business.  It's slow in the winter and active during the other seasons, especially spring and summer.

Here's a two-year graph for Zillow.

 

As you can see, each of the last 2 years Zillow has generally climbed until the Fall, at which time it declines a bit.  In 2012 it declined from a high of $46.17 on 20 September to $23.36 on 15 November.  That's nearly a 50% decline, but it made up for that decline very nicely the following year.  In 2013 it hit a high of $103 in early September, but it declined to $71.28 by 4 December.  Since then it's started to climb again.

I told friends and family in December that I expected Zillow to climb back up to $100 a share, but I didn't buy at the time.  I've been alternately kicking myself and patting myself on the back since then.  A week ago, on 16 January, it hit an intra-day high of $92.50 a share and I engaged in much self-flagellation.

That said, it's not consistently making money.  Have a look at this chart from ycharts.com:

 

This is a chart showing quarterly net income.  It goes back to March of 2010.  As you can see, Zillow was making money for all of 2012, but it took a BIG dip in 2013.  That's worrisome, and it's especially worrisome that the quarter ending on 30 June was so unprofitable.  One would think that for the real estate biz the Spring quarter would be a happening time.

Looking at statements from that time, it looks like Zillow spent more on sales and marketing than they were able to offset with revenue.  Again, worrisome.

Zillow has millions on hand in cash, though, and they have no debt to speak of.

I like the product.  I think that this market is cyclical and that 2014 will be a good year for real estate.  The stock was on the decline today and I was sitting on some cash.  I took the plunge.

I purchased 24 shares of Zillow for $83.25 each.  With fees that's $2,007.99.  As long as the stock goes back up to$84.09 then I'll break even.  I've already got my sell order in for $100 a share, though.

I don't plan to hang onto this stock forever, but I should have it for a few months.  If history is anything to go by, though, then I should sell it no later than September.