Does Zillow Have a Profitable Business Model?

Mid-cap Business Services company Zillow is down -2.7% during this morning's trading session, while the S&P 500 moved 0.0%. With last year's reported gross margins at 6.8%, you might be wondering if today's drop is an opportunity to pick up shares of a profitable company at a discount.

Gross margins give insight into the basic economics of the company' product line and its pricing power in the target market, yet it's essential to balance this with a review of Zillow's operating margins. Operating margins take into account the company's fixed overhead costs, in addition to the cost of revenue used to calculate gross margins.

Is Zillow plagued with bloated overhead expenses that are eating away at an otherwise profitable business? Or is the company currently unprofitable because it is in a growth phase? A combined analysis of both gross and operating margins can help answer these questions, so that you understand what kind of business you are investing in.

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023 1,893,000 1,765,000 7 -50.0
2022 1,958,000 1,684,000 14 -46.15
2021 2,132,000 1,570,000 26 18.18
2020 1,624,000 1,260,000 22 -50.0
2019 2,742,837 1,544,099 44 540.0
2018 1,333,554 1,462,529 -10
Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023 1,893,000 1,765,000 -9 -125.0
2022 1,958,000 1,684,000 -4 -136.36
2021 2,132,000 1,570,000 11 57.14
2020 1,624,000 1,260,000 7 177.78
2019 2,742,837 1,446,223 -9 10.0
2018 1,333,554 1,462,529 -10

The table above tells us that, on average, Zillow has not been profitable over the last four years, which should be a warning sign to prospective investors. One bright spot, however, is that the company's operating margins are growing at an average yearly rate of 1.6%.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.