I figure there’s a lot for me to learn from the stocks I’ve gotten out of. I’ve been in and out of Zillow several times. This time I bought in mostly from Jan to June of 2014 at prices ranging from $82 to $113. Eyeballing it, it looks like an average price of $90 to $93. I then sold out in September, starting at $142 and finishing my selling later in the month at about $126. They closed today just under $103.
I’m sure you are all familiar with Zillow. It’s the dominant player in the internet real estate information market, and it’s growing very rapidly. The problem is that they aren’t making any money. For the last quarter GAAP earnings were a loss of 40 cents and non-Gaap or adjusted earnings were 13 cents. That’s 13 CENTS! – and the stock was selling at about $130 per share at the time!
I know that they have stated that they are spending money to grow and gain market share. But I have plenty of other companies I can invest in that are growing and gaining market share AND making more and more money. I don’t buy it. They will make adjusted earnings of 50-60 cents at most this year and have a PE of 200 or so. (GAAP earnings will be enormously negative, but I take them with a grain of salt, as you know).
At the time I sold out, I had decided to reduce my exposure to stocks selling at wildly ridiculous prices (and sold out of most of my 3-D printing stocks for instance). Zillow will continue to grow, I’m sure, and may start actually making a significant profit. I have no argument with their actual business. The price was just too high for me, although I’d be glad to stimulate a discussion with contrary points of view.