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Zillow Group Inc (Z) Q1 Loss Wider than Expected As Revenues Fall Short; Time to Sell

Zillow Group Inc (NASDAQ:Z) reported first-quarter fiscal 2015 adjusted loss per share (excluding all one-time items but including stock based compensation expenses) of 42 cents, wider than the Zacks Consensus Estimate of a loss of 38 cents. Adjusted loss also widened from the year-ago loss of 16 cents per share.

Quarter Details

Revenues surged 92.1% year over year to $127.3 million but lagged the Zacks Consensus Estimate of $142 million.

The significant year-over-year increase was primarily due to the Trulia acquisition. Also, a 102.8% surge in Marketplace revenues and a 46.5% jump in Display revenues to $108.9 million and $18.3 million, respectively, drove the quarter’s results.

Within Zillow’s Marketplace segment, Real Estate marketplace (consists of Premier Agent, Diverse Solutions, Rentals and StreetEasy product lines) revenues soared 100% year over year to $93.3 million driven by strong agent additions.

Mortgages marketplace revenues increased 34.1% to $9.6 million and the division received approximately 13 million loan requests.

Moving to the operating results, Zillow’s operating expenses were up 95.3% year over year to $134.6 million, primarily due to 68.7%, 123% and 158.7% increase in sales & marketing, technology and development and general and administrative expenses, respectively. As a percentage of revenues, operating expenses increased 169 basis points on a year-over-year basis

Zillow’s operating loss per share came in at $57.9 million compared with a loss of $6.5 million in the year-ago quarter. Adjusted net loss (excluding all one-time items but including stock based compensation expenses) was $20.8 million as against net loss of $6.3 million in the comparable quarter last year.

Zillow exited the first quarter with $628.4 million in cash & cash equivalents and short-term investments compared with $372.6 million in the previous quarter. The company has long-term debt of $230 million. Cash flow from operations during the quarter came in at $1.5 million.


For the second quarter of 2015, Zillow expects revenues in the range of $168 to $169 million, while the Zacks Consensus Estimate is pegged at $171 million. EBITDA is expected in the range of $3.5 to $4.5 million.

The company provided fiscal 2015 outlook. Revenues are now expected to be roughly $690 million. The Zacks Consensus Estimate is pegged at $682 million. Adjusted EBITDA is projected in the range of $80 to $85 million.

Our Take

Zillow offers mobile and web solutions that enable users to find important information about homes. The company reported dismal first quarter results, with the top line missing the Zacks Consensus Estimate and the bottom line comparing unfavorably with the consensus mark. The company also provided a tepid revenue guidance for the second quarter.

However, we believe that strong traffic growth, frequent product launches and the growing Agent business are positives, going forward. In particular, product launches like Zillow Real Estate and Zillow Digs App for Apple Inc.’s iPhone and iPad are positives.

Moreover, the Trulia acquisition will not only make Zillow the number one online real estate information provider in the U.S., but also help it to compete against Move Inc., which has now been acquired by News Corp.

Apart from acquisitions, Zillow entered into several partnerships with real estate listing companies and real estate brokers to enhance its product portfolio. However, the company is currently in the high investment phase and therefore profitability might be an issue in the near term.

Currently, Zillow has a Zacks Rank #4 (Sell).

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