Zillow may be bringing new technology to the housing sector but there's another way it might be compared to Tesla: A parabolic rise that may be in part due to a short squeeze.
Two stocks that tripled in price since the start of 2013 are real estate websites Zillow and Trulia.
Are sunny days ahead for real estate search sites or are dark clouds on the horizon?
Higher interest rates should mean fewer people interested in buying a home. Yet these two companies are up more than 50% in the last three months. Meanwhile, mortgage rates have been rising.
Since December, rates on a 30-year fixed mortgage have gone up 100 basis points (one percent) to 4.36%, with half of that increase happening since the first week of summer. And, with the Fed potentially tapering its $85 billion per month bond buying program as soon as next month, it doesn’t look like rates will return to their lows any time soon.
One line of thinking is that the quick hike in mortgage rates over the last couple of months should mean homebuyers are getting off the fence and buying. But, the data do not seem to support that theory, at least in the short term. According to the Mortgage Bankers Association, applications fell 6.6% in the month of July as rates began scaring away potential buyers.
With that as a backdrop, Zillow is now planning on raising money by selling an additional 2.5 million shares of stock. That would have been worth $228 million if shares had stayed at Friday’s closing price of $91.22. But, the new offering comes as the company plans on letting current shareholders sell an additional 2.52 million shares. News of 5 million shares potentially hitting the market helped bring Zillow’s stock down 4.5% today. The company is valued at over $3 billion.
Zillow isn’t just taking in money from new investors, it’s also spending it. Today the company also announced that it was acquiring New York City real estate website StreetEasy for $50 million in cash. With 1.2 million monthly users, StreetEasy isn’t going to add tremendously to Zillow’s 30 million monthly users. However, the acquisition may have to do with how StreetEasy does what it does with the key to modern real estate – data.
“No one has yet matched StreetEasy’s ability to refine pure data from the morass that is the New York City real estate market,” notes Lockhart Steele, founder of the New York-based real estate news site Curbed.com.
A company’s use of technology to give it the upper hand in an old industry sounds quite familiar to some. Tesla has seen successes in the auto market with its electric luxury cars.
What’s more, shares of both Zillow and Tesla have had a great 2013. Tesla’s stock has quadrupled since the start of the year.
But, there’s also an worrying comparison of the two – a high amount of short interest. Tesla’s short interest, a frequent topic of discussion throughout the year, is now about 32% of its total float. Zillow’s short interest is nearly 43% of its float.
So, is Zillow like Tesla in the good way or in the bad way?
We talk numbers with Talking Numbers contributor Enis Taner, Global Macro Editor at RiskReversal.com. He says the fundamentals should give you reason to beware. Fellow Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, believes the charts paint a different picture – but says Zillow isn’t for the faint of heart.
To decide who is correct, watch the video above to see Taner and Ross analyze Zillow.