Zillow Surges 13% On Better-Than-Feared Earnings; Analyst Urges Caution

Online real estate company Zillow Group (ZG) is surging 13% in Friday’s pre-market trading after posting better-than-feared earning results for the second quarter.

Specifically, Q2 Non-GAAP EPS of -$0.17 beat Street estimates by $0.38 while GAAP EPS of -$0.38 also topped analyst expectations by $0.43. Revenue impressed at $768.35M- which beat Street expectations by $153.16M- and represented a 28.2% increase year-over-year. Upside was mainly driven mostly by the Homes segment (31% above the Street).

Meanwhile Q2 Adjusted EBITDA of ($60.9M) came in slightly below consensus of ($58.2M) but fell within prior guidance of ($72M)-($49M). EBITDA of $16M was nicely better than Street, with the beat coming mostly from IMT (internet, media and technology) and partially from Homes.

“Zillow’s second quarter results are even better than we had hoped, and firm up our belief that powerful tailwinds in both real estate and technology are rapidly converging,” said Zillow Group CEO Rich Barton.

COVID and work-from-home policies are inspiring people to rethink their homes and consider moving, he noted, adding that real estate, like other industries, is experiencing an acceleration in technology adoption.

According to Zillow, online traffic and requests returned to pre- COVID levels in late April, with Visits ending the quarter up 14% year-over-year, a 9pt acceleration vs. Q1.

For the third quarter, Zillow is now guiding to revenue of $543M-$581M (vs $745M a year ago) and EBITDA of $59M-$82M. Downside to Q3 Revenue guide was driven by Homes Revenue expectation (down 40% at the midpoint), as the company enters Q3 with low inventory.

“All in, Fundamentals for Zillow’s core business were better-than-feared, with IMT Revenue declining -17% Y/Y, a 17-pt deceleration, Home Revenue growing 82% Y/Y, with Homes EBITDA Margins improving 9pts Y/Y” commented RBC Capital analyst Mark Mahaney post-print.

However the analyst reiterated a hold rating on the stock with a price target of $74 up from $58 previously. “Currently trading at ~24x EV/22 EBITDA (ex- Homes), valuation seems slightly on the optimistic side, therefore we remain Sector Perform” he explained. (See ZG stock analysis on TipRanks).

Overall, Zillow scores a cautiously optimistic Moderate Buy Street consensus with an average analyst price target of $65- indicating shares can pull back from current levels.

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