It has been about a month since the last earnings report for Zillow Group (ZG). Shares have added about 0.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zillow due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Zillow Group Tops Q4 Earnings & Revenue Estimates
Zillow Group reported stellar fourth-quarter 2018 results. The company delivered non-GAAP earnings of 1 cent per share, which came ahead of the Zacks Consensus Estimate which called for in-line results. However, earnings decreased from the year-ago figure of 19 cents per share.
Total revenues increased 29% year over year to $365.3 million and outpaced the Zacks Consensus Estimate of $349 million. The figure surpassed management’s guided range of $340-$357 million.
Strong improvement of the company’s Premier Agent Business along with the addition of Home revenues primarily drove year-over-year revenue growth. New construction marketplaces and Rentals also aided growth. Zillow Group is striving to increase audience size and improving consumer engagement via advertising and other related marketing initiatives.
In second-quarter 2018, the company started reporting results in two segments; namely Internet, Media & Technology ("IMT") and Homes.
The IMT segment will comprise the Premier Agent, Mortgages, Rentals, dotloop and display revenues. Revenues from new construction marketplaces, marketing, and business products and services catering to real estate professionals will also be reported under IMT.
The Homes segment will comprise the company's buying and selling of homes directly.
Revenue Details
IMT segment revenue increased 15% year over year and came in at $324 million during the reported quarter.
Zillow Group delivered Premier Agent revenues of $221 million (60.5% of total revenues), increasing approximately 11% year over year.
In the fourth quarter, Rentals revenues surged 21% on a year-over-year basis of $34.9 million. The year-over-year increase was primarily due to robust growth in number of average monthly monetized, more rental listings on mobile apps and websites.
Moreover, Mortgages revenues increased 26% year over year to reach $23.3 million. Notably, average revenue per loan information request declined 10% year over year, primarily owing to ongoing transition to Connect subscription-based platform.
Other revenues came in at $44.8 million, up 26% year over year, primarily on account of 55% year-over-year increase in revenues from New Construction marketplace and dotloop.
During the reported quarter, traffic increased about 4% to more than 157 million average monthly, unique users. During the quarter, visits improved 12% year over year to 1.61 billion.
Management noted that the high visitor rate was driven by improvement in product lines, which increased its app downloads. The increase in visitors is a positive as it enhances the probability of generating leads for agent advertisers.
Premier Agent Direct program enables agents to advertise on Zillow, Trulia, and Facebook (NASDAQ:FB). Newly added feature to the program, that enables a marketing link to be established with customers, is enhancing user-experience as it automatically generates printed postcards and mails to customers.
Coming to Homes segment, revenues came in at $41.3 million, more than management’s guided range of $20-$30 million. During the quarter under review, Zillow Group bought 499 homes and sold 141 homes.
Margins and Balance Sheet
Adjusted EBITDA as a percentage of revenues came in at 9% as compared with 25% reported in the year-ago quarter, primarily owing to higher expenses and the impact of compensation increase from the highly competitive market.
As of Dec 31, 2018, cash & cash equivalents and short-term investments were $1.55 billion, down from $1.64 billion reported in the previous quarter. Long-term debt came in at $6.9 billion, flat on a quarterly basis.
Cash flow from operating activities was $3.85 million for 12 months ended Dec 31, 2018.
Fiscal 2018 Highlights
Zillow Group reported non-GAAP earnings of 39 cents per share, decreasing from the year-ago figure of 53 cents per share.
Total revenues increased 24% year over year to more than $1.3 billion. IMT segment revenues increased 19% year over year and came in at $1.28 billion in fiscal 2018.
Guidance
Management expects first-quarter 2019 revenues to be in the range of $417-$443 million.
The company expects Premier Agent revenues in the range of $215-$220 million and mortgage revenues of $24-$27 million. Homes segment revenues are anticipated to be in the range of $100-$115 million.
Total IMT segment revenues for the first quarter are expected to be in the range of $293-$301 million.
Adjusted EBITDA is anticipated to remain in the range of ($14)-($1) million.
Management also provided guidance for 2019. The company expects Premier Agent revenues in the range of $905-$930 million and mortgage revenues of $100-$115 million.
Total IMT segment revenue for fiscal 2019 is expected to be in the range of $1.246-$1.281 billion.
For long-term, Zillow Group intend to purchase 5,000 homes per month at annualized segment revenue of roughly $20 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -92.06% due to these changes.
VGM Scores
Currently, Zillow has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Zillow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Zillow Group, Inc. (ZG): Free Stock Analysis Report
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