Shares of Zillow Group (Z, ZG) split in 2015, fulfilling the promise of the real estate portal made to create new classes of shares that give it access to new revenues while also providing a vehicle for further investment.
Zillow created a non-voting Class C stock that was divvied up between its Class A and B shareholders, who got two shares each of the new stock for each share they owned. The C shares trade under the old "Z" ticker on the Nasdaq exchange, while the A shares now trade as ZG. The company wants to use the new stock to make acquisitions and compensate executives.
- Zillow underwent a stock split in 2015 while generating new share classes and now trades under the tickers Z and ZG.
- Z is for the new class of non-voting stock, C shares, while the A shares trade under the symbol ZG.
- Stock splits often have to do more with financial engineering than with company fundamentals.
- Many tech companies are forming new share classes, such as Google, to help fund stock-based acquisitions without diluting voting rights.
- Due to fallout from the failure of its home buying services, in the week beginning Nov. 1, 2021, the price of Z and ZG shares fell by 36% and 37% respectively by Friday.
The Impact of Stock Splits
Stock splits are pieces of financial engineering that often have little impact on a company's bottom line, and splits do not technically impact shareholder wealth.
Recall that Google underwent a similar stock split in 2014. The company now trades under the tickers GOOG and GOOGL to represent the two classes of shares. The idea is that these technology companies, such as Zillow and Google, can use these share classes for stock-based acquisitions and compensation plans.
Putting the Stock Split to Work
In 2015, Zillow closed on its $2.5 billion acquisition of rival Trulia. The integration of software between the retail ends of the two businesses and the industry-facing ones is seen as the greatest challenge, even by management.
The stock split changes none of that, other than providing Zillow with the means to conduct more such transactions, meaning investors should concern themselves with whether they think the real estate portal can make good on its growth promises. However, Zillow hasn’t been active in making major acquisitions since the buyout.
Although the stock split appeared to be performing well above the rest of the S&P 500 in the first half of 2021, both stocks incurred major losses in November 2021 due to fallout from the company's failure in its home buying service, iBuying. Zillow announced it would be laying off 25% of its employees and winding down iBuying, plummeting the share prices of Z and ZG.
The Bottom Line
Zillow took a major hit in its revenue and general reputation in November 2021. How the company handles its fallout in the months following will reveal the future stability and rebound potential of Z and ZG.