Zillow to Resume Risky iBuying Business in the Face of Coronavirus-Related Uncertainty

No-moat-rated Zillow Group reported better-than-expected first-quarter earnings with impressive top-line results despite swirling uncertainty in the real estate market due to the COVID-19 pandemic. Revenue increased 148% year over year, beating S&P Capital IQ consensus estimates. Although adjusted EBITDA declined 79% year over year, this result still surpassed management's expectations, with the Internet, media, and technology segment's EBITDA margin improving 540 basis points. While Zillow had halted iBuying in March in light of the coronavirus crisis and government-mandated stay-at-home orders, management announced its intent to resume home purchases in the upcoming weeks due to encouraging housing market indicators. Accordingly, we are raising our fair value estimate to $35 per share from $33 to account for a slightly improved housing market. We caution that shares currently appear overvalued, with investors reacting far too optimistically to the positive first-quarter results.