Will Zillow (Z) Disappoint Earnings Estimates This Season?


Online real estate information provider Zillow (Z) is set to report second-quarter 2014 results on Aug 5, 2014. Last quarter, the company posted a positive earnings surprise of 27.27%. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Zillow offers mobile and web solutions that enable users to find important information about homes. We believe that the strong growth in traffic, frequent product launches and growing Premier Agent business are the positives, going forward.

Moreover, the Trulia acquisition will not only make Zillow the number one online real estate information provider in the U.S. but also dwarf competitors such as Move Inc (MOVE). Also, with Trulia in its portfolio Zillow’s scale of business will increase manifold with new listings and expanded reach that will offer significant long-term benefits. Nonetheless, both the companies are in the high investment phase which makes profitability an issue.

Apart from acquisitions, Zillow has entered into several partnerships with real estate listing companies and real estate brokers to grow its product portfolio. Zillow’s partnerships with MLSListings Inc. and Douglas Elliman Real Estate have added valuable properties in North California and Los Angeles, New York, Long Island, The Hamptons and South Florida to its online platform. These, in turn, will expand Zillow’s network and increase traffic to its site.

Earnings Whispers?

Our proven model does not conclusively show that Zillow is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Zillow’s ESP is 13.04% since the Most Accurate Estimate stands at a loss of 20 cents per share, while the Zacks Consensus Estimate is pegged at a loss of 23 cents.

Zacks Rank: Zillow currently has a Zacks Rank #4 (Sell) which lowers the predictive power of ESP.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement.

Stocks to Consider

While earnings beat looks uncertain for Zillow, here are few other stocks you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

First Solar, Inc. (FSLR), with an Earnings ESP of +6.06% and a Zacks Rank #1 (Strong Buy).

LGI Homes, Inc. (LGIH), with an Earnings ESP of +12.12% and a Zacks Rank #2 (Buy).

Read the Full Research Report on Z
Read the Full Research Report on FSLR
Read the Full Research Report on MOVE
Read the Full Research Report on LGIH

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