Zillow Group, Inc (ZG) Information Technology - Internet, Software & Services | Reports May 3, After Market Closes

Key Takeaways

• The Estimize consensus is looking for a loss of 9 cents on $177.11 million in revenue, 1 cent higher than Wall Street on the bottom line and $2 million on the top
• Despite how poor earnings have been, both Zillow and Trulia are seeing improving traffic trends and advertising revenue
• The first quarter tends to be the worst quarter in the housing market which could be an issue for Zillow

Online real estate database, Zillow (ZG), is scheduled to report first quarter earnings Tuesday, after the market closes. Zillow is coming off a mixed 2015 where earnings largely struggled but revenues steadily increased. The last two quarters featured over 100% declines on the bottom line, while sales made equally as robust gains. However, investors have placed more weight on profits as the company goes through a high investment phase, pulling shares down 75.5% in the last 12-months. Earnings this quarter should maintain this trend.

The Estimize consensus is looking for a loss of 9 cents on $177.11 million in revenue, 1 cent higher than Wall Street on the bottom line and $2 million on the top. Given Zillow’s track record, it’s not surprising that earnings estimates have been frantically cut, over 133% in the past 3 months, while revenue is on the way up. Currently, estimates are forecasting EPS to decline 241% with sales growing as much as 41%. Despite how poor the stock has been lately, Zillow typically does well during earnings season. On average, shares are up 6% 30 days heading into earnings and an additional 4% in the month post earnings.

Despite volatile earnings and difficult comparisons, Zillow has seen traffic trends steadily improve. Last quarter, unique visitors increased 21% from a year earlier with expectations that traffic this quarter could rise 35%. Meanwhile, Trulia.com boasted a 5% increase in unique visitors in the 4th quarter after posting negative trends in Q3. Climbing traffic trends have been driven by strategic advertising and an increased focus on mobile. Both mobile revenue and ARPA (average revenue per advertiser) were up and continue to be a bright spot for the company.

Meanwhile, ZIllow is starting to gain traction in its mortgage segment which consists of loan requests, contacts and revenue. Even in a rising rate environment the company expects to see a significant uptake in mortgage revenue. From a market share standpoint, Zillow maintains nearly a 60% share of the U.S. real estate category, which positions them leaps and bounds ahead of the competition. The biggest risks in front of Zillow this quarter have been seasonality trends, Q1 is typically a slow home buying quarter, and litigation costs, a $12 million lawsuit with News Corp could take its toll. 

Photo Credit: Daniel Piraino