It’s been a volatile week for investors in the tech space as the Nasdaq-100 Index (QQQ) fell more than 10% from its highs in just two days, with the correction taking a bite out of several market leaders…
Fortunately, for investors that were taking profits into the rally and harvesting cash, this massive correction could end up being an excellent buying opportunity once the dust does settle. However, the key is navigating through the rubble to find the best names that still have a long-term runway for growth.
Two names stand out as leaders in their respective industries, with both names growing market share and producing exponential sales growth. Therefore, investors should keep them at the top of their shopping lists going forward.
For DocuSign, the company’s revolutionary Esignature has transformed the way agreements are signed worldwide and has seen increased traction with the move towards social distancing due to COVID-19. For Zillow Group, it is the company’s recent foray into the Homes category.
The company’s vision is that its new ‘Offers’ will speed up the lengthy home buying and selling process and make it much more convenient. Let’s take a closer look at both companies below:
Beginning with Zillow, the company has recently taken a bold approach, attempting to disrupt one of the world’s largest industries: real estate. The company’s new Zillow Offers is the “HOV Lane” to buying and selling homes for consumers, with a cash offer for your home in as little as 24 hours. This not only saves time and money related to staging and fixing up a house and getting it ready to list, but it also makes moving more flexible, as you’re able to choose your closing date.
While some might think that Zillow’s fees it charges (6% on average) are high, they are much less significant when one factor in real estate fees, staging fees, and the cost to pay final mortgage payments before moving out. Thus far, the service is gaining traction, with a gross profit of $23 million or $16,000~ per home.
While this doesn’t seem like much, it’s exceptional for a company that just entered a new market, and gross profit should increase over time as the company benefits from economies of scale and learnings in the sector.
If we look at the company’s earnings trend below, it’s much less attractive than the typical growth stock, but there’s a reason for this. Zillow was previously focused on becoming the #1 brand in the real estate advertising market, connecting potential buyers with agents, lenders, and landlords.
The company has amassed over 200 million monthly unique users on its platform and has decided to use its profits in this business to move into a much larger opportunity: home transactions.
This segment has an exponentially larger TAM than its previous TAM, and Zillow has sacrificed profits to make this leap. Therefore, while we see net losses per share in FY-2019, FY-2020, and FY-2021 based on estimates, it’s crucial to put in context why this is occurring.
The good news is that FY2022 estimates are projecting an annual EPS of $0.40, suggesting that the company is well on its path to moving back to positive annual earnings per share. If we couple this move towards positive earnings with the company’s trailing-twelve-month average sales growth of 112%, Zillow is on its way to becoming a powerhouse if this bet pays off.
Thus far, the market seems to like the shift, as Zillow soared to new all-time highs following the Q2 results on well above-average volume. This is a very bullish development as stocks coming out of their primary IPO bases often see a new uptrend that lasts at least 9 months and up to 24 months in most cases. Given that we’re in the second month of this breakout and the new highs were coupled with massive volume, I would expect this breakout to hold.
Therefore, for investors looking for an investment in a…
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