Shares of Zillow Inc. (Z) were down 2.17% in after-hours trade on Tuesday after the company reported wider-than-expected second-quarter loss per share.
Although Zillow’s second-quarter loss per share of 26 cents was wider than the Zacks Consensus Estimate of 23 cents, it narrowed from the year-ago loss of 30 cents. Nonetheless, loss per share also increased significantly from 16 cents loss on a sequential basis.
Revenues surged 67.7% year over year to $78.7 million, which beat the Zacks Consensus Estimate of $76 million.
The significant year-over-year increase was driven by 72% surge in Marketplace revenues (80% of total revenue) and 53% jump in Display revenues (20% of total revenue) to $62.6 million and $16.1 million, respectively at the end of the reported quarter.
Within Zillow’s Marketplace segment, Real estate marketplace (consists of Premier Agent, Diverse Solutions, Rentals and StreetEasy product lines) revenues soared 83% year over year to $56.1 million driven by strong agent additions. The vast majority of additions were at the platinum level. Premier agent advertisers increased 46% year over year to reach 56,818 at the end of the quarter.
Mortgages marketplace revenues increased 13% to $6.6 million in the reported quarter. The mortgages marketplace division received approximately 5.5 million loan requests during the quarter. Average monthly unique users jumped 49% year over year to 81.1 million in the reported quarter.
Moving to the operating results, Zillow’s operating expenses were up 56% year over year to $82.6 million primarily due to 46%, 79.4% and 63.8% increase in sales & marketing, technology and development and general and administrative expenses, respectively.
Zillow’s operating loss per share increased from $10.3 million reported in the year-ago quarter to $10.5 million due to higher investments. Net loss was $10.5 million compared with net loss of $10.2 million in the year-ago quarter.
Balance Sheet
Zillow exited the second quarter with $458 million in cash & cash equivalents compared with $447 million in the prior quarter. The company has no debt.
Guidance
For the third quarter of 2014, Zillow expects revenues in the range of $87 to $88 million, while the Zacks Consensus Estimate is pegged at $83 million. Adjusted EBITDA is expected in the range of $14 to $15 million.
The company revised its fiscal 2014 outlook. For fiscal 2014, revenues are now expected in the range of $321.0 to $323.0 million (previous guidance range of $304.0 to $308.0 million). The Zacks Consensus Estimate of $310 million is lower than management’s guidance.
Adjusted EBITDA is projected in the range of $52.0 to $54.0 million (previous forecast $48.0 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 traffic growth, frequent product launches and growing Premier Agent business are the positives for the company, going forward. The company also provided encouraging guidance.
Moreover, with the acquisition of Trulia (TRLA), Zillow’s scale of business will increase manifold with the addition of new listings and expanded reach that will offer significant long-term benefits. The acquisition is also a strategic fit as both the companies offer mobile and web solutions that enable users to find important information about homes. Nonetheless, both the companies are in the high investment phase which makes profitability an issue.
Additionally, continuing investments in marketing activities will boost traffic, going forward. However, these investments will hurt profitability in the near term. Also, competition from Move, Inc. (MOVE) is a headwind, going forward.
Currently, Zillow has a Zacks Rank #3 (Hold).
Investors may consider F5 Networks (FFIV) which sports a Zacks Rank #1 (Strong Buy).
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