Zillow's Q1 Loss Narrows, Revs Beat - Analyst Blog

Zillow Inc. Z reported a loss of 16 cents per share in the first quarter of 2014, narrower than the Zacks Consensus Estimate of a loss of 22 cents per share.  The loss was however wider than a loss of 11 cents per share in the year-ago quarter.

Revenues

Revenues surged 70.0% year over year to $66.2 million, which beat the Zacks Consensus Estimate of $63.0 million.

The significant year-over-year increase was driven by a 72.0% surge in marketplace revenues (81.0% of total revenue) and 62.1% jump in display revenues (19.0% of total revenue) to $53.4 million and $12.9 million, respectively at the end of the reported quarter.

Real estate marketplace (consists of Premier Agent, Diverse Solutions, Rentals and StreetEasy product lines) revenues soared 77.1% year over year to $46.2 million driven by strong agent additions. The vast majority of additions were at the platinum level.

Premier agent subscribers increased 56.0% year over year to reach 52,968 at the end of the quarter.

Mortgages marketplace revenues surged 45.2% to $7.1 million in the reported quarter from $4.9 million in the year-ago quarter. The mortgage marketplace division received more than 5.8 million loan requests during the quarter, up 29.0% on a year-over-year basis.

Average monthly unique users jumped 51% year over year to 70.7 million in the reported quarter. During the quarter, visits to Zillow via mobile devices nearly doubled year over year and in Apr 2014, more than 460 million homes were viewed on Zillow via a mobile device, which equates to 178 homes per second.

In the quarter, Zillow added a new layer of product integration into various television shows, including NBC's primetime home renovation show American Dream Builders integration with cult-favorite Portlandia on cable channel IFC, and continued work with HGTV.

During the quarter, Zillow introduced Mortgage Pre-Approval, a new tool that enables qualified home shoppers on Zillow to get pre-approved for a mortgage quickly and receive a personalized pre-approval letter in a matter of minutes.

The company recently launched "Zestimate" forecasts on more than 50 million individual homes. This latest data layer predicts a home's value change for the coming 12 months and is shown on individual home detail pages on mobile and web.

Display revenues increased 62.1% to $12.9 million from 7.9 million in the year-ago quarter attributable to significant growth across most of the verticals, including builders, banking and brokerages.

Margins

Zillow reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.7 million (13.0% of revenues) compared with $ 5.1 million (13.0% of revenues) in the year-ago quarter.

Operating expenses increased 72.3% year over year to $66.6 million due to a 76.3%, 59.9% and a 78.4% increase in sales & marketing, technology and development and general and administrative expenses, respectively.

In the quarter, the company hired 45 new members in its technology and development teams across all its offices.

Zillow reported operating loss (including stock based compensation) of $6.5 million, compared to a loss of $3.8 million in the year-ago quarter.

Net loss was $6.3 million compared with net loss of $ 3.7 million in the year-ago quarter. Loss per share including stock-based compensation was 16 cents compared with a loss of 11 cents reported in the year-ago quarter.

Balance Sheet    

Zillow exited the first quarter with $447.0 million in cash & cash equivalents compared with $201.8 million in the prior quarter. Zillow has no debt.

Guidance

For the second quarter of 2014, Zillow expects revenues to be in the range of $75.5 million to $76.5 million, while the Zacks Consensus Estimate for the same is pegged at $72.0 million.

Adjusted EBITDA is expected to be in the range of $6.0 million to $6.5 million.

For full year 2014, revenues are expected to be in the range of $304.0 million to $308.0 million. The Zacks Consensus Estimate of $293.0 million is much lower than management's guidance.

Adjusted EBITDA is projected to be in the range of $48.0 million to $50.0 million.

Our Take

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

Moreover, new product launches, which include the newly-designed Zillow Real Estate App for Apple's AAPL iPhone and iPad and the Zillow Digs app for iPhone are positives. Additionally, continuing investments in marketing activities will boost traffic going forward. However, these investments will hurt profitability in the near term.

Moreover, fierce competition from the likes of Trulia TRLA and Move, Inc. MOVE is a headwind going forward.