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Factors Likely to Impact Zillow Group's (ZG) Earnings in Q4

Zacks Equity Research

Zillow Group ZG is expected to release fourth-quarter fiscal 2018 results on Feb 21.

Notably, the company beat the Zacks Consensus Estimate in three of the trailing four quarters, recording average positive surprise of 16.7%.

Zillow Group reported mixed third-quarter 2018 results. The company delivered non-GAAP earnings of 18 cents per share, which came ahead of the Zacks Consensus Estimate by a penny. However, the figure decreased 5.3% from the year-ago figure of 19 cents per share.

Total revenues increased 22% year over year to $343.1 million but marginally lagged the Zacks Consensus Estimate of $344 million.

Strong improvement of the company’s Premier Agent Business 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.

Zillow Group, Inc. Price and EPS Surprise


Zillow Group, Inc. Price and EPS Surprise | Zillow Group, Inc. Quote

What to Expect

Management expects fourth-quarter 2018 revenues to be in the range of $340-$357 million. The Zacks Consensus Estimate is currently pegged at $349.5 million, representing year-over-year growth of 23.8%.

However, the Zacks Consensus Estimate for earnings calls for in-line results, showing a year-over-year decline of 100%.

Management lowered guidance for 2018. Revenues are now projected in the range of $1.307-$1.324 compared with the previous range of $1.320-$1.350. The Zacks Consensus Estimate is pegged at $1.32 billion.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

A new lead distribution and validation process aimed at improving the company’s Premier Agent business is currently under testing. Zillow Group reported Premier Agent revenues of $232.7 million (67.8% of total revenues), increasing approximately 18% year over year from the last reported quarter. Additionally, participating in the Zillow Instant Offers marketplace is aimed at capitalizing on the business opportunities in the Home segment.

During the third quarter, traffic increased about 7% to more than 186 million average monthly, unique users. During the to-be-reported quarter, visits improved 13% year over year to 1.9 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.

The company’s application that enables agents to create 3D home tours, aiding buyers narrow down their searches before a personal visit, is another positive.

Zillow Group is working toward growth of emerging marketplaces. With the combination of machine learning and personalization, the company anticipates to align consumer interest with the listed properties. Expanding footprint in new cities and cities where the company has a significant market presence, including the likes of Phoenix, Denver, Irvine, Cincinnati, Lincoln Nebraska, will positively impact the top line.

The company regularly adds new features to bolster experience for property managers and consumers. Rental Inforum is aimed at making property managers better understand the preferences of consumers. “My Agent” can detect when a premier agent is actively engaged in discussions with a consumer and replaces the agent list with a contact box featuring only the chosen agent.

Nevertheless, stiff competition, increasing mortgage interest rates and higher advertising spend are major headwinds. Moreover, spending in product enhancements is likely to limit margin growth at least in the near term.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zillow Grouphas an Earnings ESP of -333.3% and a Zacks Rank #3.

Stocks With a Favorable Combination

Here are some companies you may want to consider as our model shows that these stocks have the right combination of elements to post an earnings beat:

Royal Bank Of Canada RY has an Earnings ESP of +1.82% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pinnacle West Capital Corporation PNW has an Earnings ESP of +4.17% and a Zacks Rank #2.

Allison Transmission Holdings, Inc. ALSN has an Earnings ESP of +5.94% and a Zacks Rank #3.

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