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Zillow Group Closes Additional Senior Notes Offering Due 2024

Zacks Equity Research

Zillow Group ZG concluded the previously announced additional offering of a $73-million principal amount of 0.75% Senior Notes due 2024. These additional notes once placed will be an unsecured senior liability of Zillow Group.

Consequently, this will take the total principal amount outstanding to $673 million. Notably, interest for these notes will be paid semi-annually. The notes have been offered to qualified institutional buyers under Rule 144A, which is exempted from registration requirements under the United States Securities Act of 1933.

Per the company, the net proceeds from this additional offering will be around $72 million, after the initial purchasers optimally exercise their option, deducted discounts, commissions and estimated offering expenses.

Zillow Group intends to utilize the net proceeds of approximately $9.1 million from the aforementioned offerings to pay the capped call transaction costs. It also intends to utilize the remaining of the net proceeds for general corporate purposes, acquisitions and working capital.

We believe that these notes will provide financial flexibility to the company and fuel long-term growth.

Zillow Group, Inc. Price and Consensus

Zillow Group, Inc. Price and Consensus

Zillow Group, Inc. price-consensus-chart | Zillow Group, Inc. Quote

Cash Position

We believe that the company has a strong balance sheet, which will help it capitalize on investment opportunities and pursue acquisitions to improve prospects. Moreover, the senior notes offering will lower Zillow Group’s cost of capital along with strengthening the balance sheet and supporting growth.

The company exhibited an impressive cash position in the recently reported second-quarter fiscal 2019 results. As of Jun 30, cash & cash equivalents and short-term investments were more than $1.4 billion compared with more than $1.5 billion reported in the previous quarter.

Bottom Line

Zillow Group is working toward enhancing the growth of emerging marketplaces. The company’s focus on robust initiatives, including partnerships and product rollouts which are aimed at making home shopping convenient, is a key catalyst.

The company regularly adds features to bolster the experience for property managers and consumers. With the combination of machine learning and personalization, it anticipates aligning consumer interest with the listed properties.

The company’s application that enables agents to create 3D home tours is quintessential in this regard. This enables buyers to narrow down their searches before a personal visit.

Moreover, strength in offerings that include Rental Inforum and ‘My Agent’ bodes well. These initiatives mainly target property managers to make them better understand consumer preferences.

Zillow Group’s growth can be attributed to its Premier Agent Business, new construction marketplaces, and increasing traffic at its mobile apps and websites.

However, intense competition from similar online real estate platforms, increasing mortgage interest rates and higher advertising spend are headwinds. Moreover, product enhancement investments are likely to hinder margin growth at least in the near term.

Zacks Rank and Key Picks

Zillow Group carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the broader technology sector are Keysight Technologies Inc. KEYS, Cirrus Logic, Inc. CRUS and Synopsys, Inc. SNPS, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Keysight, Cirrus Logic and Synopsys is currently pegged at 10%, 15% and 12%, respectively.

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