A month has gone by since the last earnings report for Zillow Group (ZG). Shares have added about 23.5% in that time frame, outperforming 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 catalysts.
Zillow Group Q1 Earnings and Revenues Top Estimates
Zillow Group reported first-quarter 2020 non-GAAP loss of 25 cents per share, narrower than the Zacks Consensus Estimate of a loss of 35 cents. However, the company had reported a loss of 2 cents in the year-ago quarter.
Total revenues soared 148% year over year to $1.126 billion and surpassed the Zacks Consensus Estimate by 6.5%.
Strong improvement in Homes segment sales and momentum in Premier Agent business primarily drove year-over-year growth. Further, robust demand for Zillow Offers led to top-line improvement.
Further, management is banking on platform capabilities like proprietary Zillow 3D Home technology to enable virtual home tours for Zillow-owned homes and virtual consultations from the company’s broker and Premier Agents as prospective buyers opt for social distancing amid the pandemic.
Homes segment revenues (68.4% of total revenues) came in at $769.9 million, soaring 499% from the year-ago quarter’s $128.5 million.
During the quarter, Zillow Group bought 1,479 homes and sold 2,394 through Zillow Offers, ending the quarter with 1,791 homes in inventory, down from 2,707 homes at the end of the fourth quarter.
Notably on Mar 23, Zillow Group announced that it will temporarily stop home buying for Zillow Offers in all its markets due to the coronavirus pandemic. The company stated that operations for Zillow Offers will resume once the crisis has been dealt with. The move to halt the purchase of homes was made with the aim of reducing spending in this time of crisis and to ensure the safety and health of all stakeholders in the company. This led to the decline in inventory.
Zillow Offers revenues came in at $769.1 million, while Other Homes segment revenues were reported at $0.8 million. Notably, Other Homes segment revenues include revenues generated through Zillow Closing Services.
Internet, Media & Technology or IMT segment revenues (29.4% of total revenues) improved 11% year over year and came in at $330.7 million during the reported quarter on the robust performance of Premier Agent business.
Premier Agent revenues came in at $242.1 million, improving 11% year over year.
Other IMT segment revenues increased 10% on a year-over-year basis to $88.6 million. Other IMT segment revenue includes revenues generated by rentals, new construction and display, and other marketing and business products and services to real estate professionals.
Mortgages segment revenues (2.2% of total revenues) decreased 8% year over year to $25.3 million.
Traffic increased 6% year over year to 192.5 million average monthly unique users for the three months ended Mar 31, 2020. Visits were 2.1 billion, up 5% year over year.
Average Zillow Offers gross profit per home in the first quarter improved 10.2% year over year to $16.1K. Moreover, the average return on homes sold before interest expense was $336K per home.
Adjusted EBITDA was $5.1 million, down 78.6% year over year. Homes adjusted EBITDA loss was $75 million, wider than the year-ago quarter’s loss of $34.5 million. Mortgages adjusted EBITDA loss was $5.6 million, wider than the year-ago quarter’s loss of $2.6 million. However, IMT reported adjusted EBITDA of $85.7 million, up 40.4% year over year.
Sales & marketing expenses increased 26.6% year over year to $204.6 million. Technology & development expenses rose 25.2% year over year to $134.9 million. General & administrative expenses down 3.6% year over year to $92.3 million. Total operating expenses climbed 18% year over year to $432 million due to expansion ofHomes segment.
Zillow Group’s net loss was reported at $163.3 million, wider than the year-ago quarter’s loss of $67.5 million.
Cash flow from operating activities was $302 million, compared with $145.5 million utilized in the year-ago quarter.
For second-quarter 2020, total revenues are expected between $577 million and $620 million.
IMT segment revenues are expected in the $235-$250 million range, with Premier Agent revenues between $165 million and $175 million.
Homes revenues are expected between $325 million and $350 million. Mortgages revenues are anticipated in the $17-$20 million range.
Moreover, adjusted EBITDA loss is expected between $72 million and $49 million.
For 2020, the company has withdrawn guidance due to COVID-19 related uncertainties prevailing in the market.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -11.61% due to these changes.
Currently, Zillow has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zillow has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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