Zillow Group Inc (Z) Report Focuses on Trulia Acquisition; RBC Capital a

By Sarah Roden

Zillow Group Inc (NASDAQ: Z) posted first quarter 2015 results on May 12. The online real estate database posted wider losses than anticipated but strong mobile growth. Much of the report reflected the Trulia acquisition; the competitor bought by Zillow in February for $2.5 billion. Zillow confirmed that Trulia’s integration is on track to be completed by the end of 2015.

Zillow posted revenue of $127.3 million, below the analyst consensus of $135.7. The company posted a GAAP net loss of $58.4 million for the quarter, which includes costs related to the Trulia acquisition and the restructuring that followed.

The company also posted pro forma figures, which includes the Trulia merger. Zillow posted pro forma revenue of $162.5 million, marking a 35% year-over-year increase. Pro forma real estate increased 35% year-over-year to $113.4 million. Zillow reaffirmed its outlook for full-year 2015, affirming projected pro forma revenue of $690 million. For the second quarter, Zillow projects second quarter revenue between $168 million and $169 million.

Zillow highlighted strong mobile growth, noting that nearly two-thirds of users access Zillow via a mobile device, and this figure jumps up to 70% on weekends.

Analysts quickly weighed in on Zillow following the earnings report.

On May 13, Mark Mahaney of RBC Capital maintained a Sector Perform rating on Zillow with a $103 price target. He summarized that Q1 earnings were “largely inline with expectations though the Q2 guide was somewhat light.” The analyst noted solid metrics across the board; growing independence for Zillow’s Multiple Listing Service; Zillow’s emergence as a market leader; and continued investment in Trulia. Mahaney concludes, “2015 is shaping up to be a transition year for Zillow as the company deals with the effects caused by the FTC delay to the Trulia acquisition and integration challenges. Nevertheless, long term, we believe that Zillow could potentially again become an attractive investment vehicle.” Mahaney points to Zillow’s large total available market, secular shifts towards the Internet, and Zillow’s competitive position within the sector.

Mark Mahaney has rated Zillow 11 times since August 2010, earning a 100% success rate recommending the stock with a +30% average return per Zulily recommendation. Overall, Mahaney has a 64% success rate recommending stocks with a +22.2% average return per rating.


Separately, Michael Graham of Canaccord Genuity reiterated a Buy rating on Zillow with an unchanged price target of $115. Graham noted that first quarter earnings were in-line with expectations and warned that “The next two quarters may bring continued [Trulia] integration hiccups and low profitability, but should bring a steep ramp in margins in Q4.” Looking forward, Graham believes that “2016 should be a year of pricing power. [Graham feels] confident in Zillow’s ability to extract more value from the real estate market over time, while favorable supply/demand characteristics leave us comfortable buying the stock in the short term as well.”

Michael Graham has rated Zillow 20 times since December 2011, earning a 58% success rate recommending the stock with a +37.5% average return per Zillow rating. Overall, Graham has a 54% success rate recommending its stock with a +16.9% average return per rating.