Zillow shares fall on worries about slowing growth

Zillow shares tumble on worries about slowing growth, drop in profits

Associated Press

NEW YORK (AP) -- Zillow shares tumbled Wednesday after the real estate information company posted better-than-expected first-quarter results but raised investor concerns about slowing revenue growth.

THE SPARK: Zillow posted a first-quarter loss of $3.7 million, or 11 cents per share. Revenue jumped 71 percent to $39 million. Analysts polled by FactSet expected a loss of 13 cents per share on $37.4 million in revenue. In the same quarter a year ago, Zillow had a profit of $1.7 million or 6 cents a share and revenue of $22.8 million.

Total costs and expenses doubled from a year ago, to $42.8 million.

The company boosted its full-year revenue outlook to a range of $178 million to $182 million, above average analysts' estimates of $172.2 million

But Goldman Sachs analyst Heath Terry said the guidance implies that revenue growth is slowing, despite a jump in marketing expenses, which could lead to a drop in profits.

THE BIG PICTURE: Seattle-based Zillow has seen tremendous growth since going public in 2011, increasing its user base and expanding its mortgage, rental and home improvement marketplaces. It's also gotten a boost from the recovering housing market.

Since the beginning of this year, the company's shares have nearly tripled.

THE ANALYSIS: Terry cut his rating for Zillow shares to "Neutral" from "Buy." He said that while Zillow's investments will likely drive growth above the company's own forecasts, he thinks the stock's price already reflects those expectations. As a result the shares may not rise much anytime soon, despite the strong housing market, he said.

THE SHARES: Down $6.77, or 10.8 percent, to $56.17 in afternoon trading, after dropping as low as $55.96 earlier in the session.

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