No “rout” about it: Real estate tech stocks rebound

Zillow, CoStar and Redfin posted gains after Nasdaq’s 10% drop earlier in week

TRD NATIONAL /
Sep.September 10, 2020 07:00 AM
Daniel Schreiber, Glen Sanford, Andy Florance, Rich Barton, and Glenn Kelman

Clockwise from top left: Daniel Schreiber, Rich Barton, Glenn Kelman, Andy Florance and Glen Sanford.

Real estate tech stocks rallied Wednesday after a three-day tech rout roiled the market.

After the market closed yesterday, Zillow stock was up 2 percent while CoStar climbed 1.44 percent. Redfin rose 6.85 percent and eXp World Holdings was up 10.55 percent. Two SoftBank-backed companies that went public this summer — Lemonade, an insurance tech firm, and KE Holdings, a Chinese real estate platform also known as Beike Zhaofang — were up 6.36 percent and 3.9 percent, respectively.

The Nasdaq Composite Index rose 2.7 percent Wednesday, the Dow Jones Industrial Average was up 1.6 percent and the S&P 500 climbed 2 percent.

Tuesday was a different story as Apple, Amazon and Tesla led a selloff, prompting the Nasdaq to plunge 10 percent.

Although tech has led the Covid recovery, sky-high valuations have stoked concerns about long-term economic prospects, prompting the selloff.

“Those gains didn’t make a lot of sense,” Donald Calcagni, chief investment officer with Mercer Advisors, told MarketWatch. “When you have Amazon trading at 120 times earnings and the economy is contracting 32 percent, that just doesn’t make sense.”

Before Wednesday’s rebound, Lemonade’s stock price was down 17.9 percent since Sept. 1, and KE Holdings was down 12.6 percent. For the same period, eXp’s stock price was down 10.4 percent, Zillow’s was down 4.1 percent, CoStar was down 6.6 percent and Redfin was down 3.8 percent.

Even with the selloff, the market is up around 50 percent from its March low. Some segments of real estate, including industrial and residential, have benefitted from a better-than-expected economic recovery. Proptech firms and portals are seeing accelerated adoption of their products.

Shares of Zillow began trading at $82.39 on Wednesday, triple its March 23 opening price of $27.19 per share. Redfin opened at $45.82, up from $11.50 on March 23, and CoStar traded at $797.56 Wednesday morning, up from $552.44.

Yousuf Hafuda, a Morningstar analyst, said that companies like CoStar and Zillow had been “significantly” overvalued before the selloff. The recent volatility reflects the “perceived winners and losers of the pandemic,” he noted, with tech valuations skyrocketing even as non-tech stocks languish.

“The growth and bright prospects are certainly there,” he said, referring to CoStar, “but investor giddiness has simply overwhelmed the company’s intrinsic value.”

But not everyone agrees.

On Sept. 2, Deutsche Bank upgraded Zillow’s stock with a target price of $106 per share, up from $88 per share earlier that day. Analysts noted significant “upside potential” to its core business, not to mention value from its instant home-buying operation, which CEO Rich Barton has called a “moonshot” opportunity.

“We see a path for the homes segment to drive more shareholder value … but we do not believe it needs to work for us to be bullish on Zillow’s shares,” they wrote.

Zillow’s stock shot up on Aug. 6 after the company beat analysts’ second-quarter estimates. Revenue rose 28 percent year-over-year, topping $768 million. Last week, Zillow economists predicted that new remote work options could add nearly 2 million buyers to the market if renters move to cheaper cities.

In general, the residential sector has been boosted by a stronger-than-expected housing market. Existing home sales shot up 25 percent in July, compared to a month earlier, according to the National Association of Realtors.






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