Zillow (Z) Just reported a
gerat quarter, raised revenue guidance and noted that more than
half of its traffic is coming from mobile. As a
Zacks Rank #2 (Buy), it
is the
Bull of the Day.
Mobile Traffic
There is no doubt that the market is placing a premium on
companies that are more mobile based, as usage of smartphones
and tablets has exploded. On the most recent earnings call the
company noted they are getting 55% of traffic from mobile devices
and even more on the weekend.
The company also released a very telling stat. 93 homes were
viewed each second on mobile devices during 1Q13. That is an
increase of 63% from the year ago period. During 4Q12, that stat
was 53 homes per second which represented a year over year growth
rate of 47%. So the pace of growth is increasing.
Another segment that saw growth was the mortgage marketplace
revenue from mobile. The last time this percentage was released
was 3Q12 and it was 20%. The most recent quarter saw 31% of
revenues being generated from mobile for the mortgage
marketplace.
Company Description
Zillow operates of a real estate and home-related information
marketplace on mobile and the Web. It covers 110 million homes
and provides a “Zestimate” or a Zillow provided estimate for
homes, townhomes and condominiums. The company has also expanded
into the rental industry.
Z Beats Estimates In Three of Last Four Quarters
Dating back to the June 2012 quarter, Zillow has beaten the Zacks
Consensus Estimate in three of the last four quarters. The June
2012 quarter saw the company post $0.04, $0.05 ahead of the
estimate for a 500% positive earnings surprise. The following
quarter saw a six cent beat which translated into a 600%
positive earnings surprise.
The most recent quarterly report took place on May seventh of
this year. The company posted revenues of $39M and EPS of –
$0.11, a $0.01 miss on the bottom line, but a $3M beat on the
topline.
Guiding Revenues Higher
In the earnings release and on the conference call, management noted that they were raising revenue guidance from $165M-$170M to $178M-$182M while consensus was just over $172M. The increase was due to an increase in advertising expense which drove more traffic to the website in the quarter. The downside of increased advertising expense is the hit to the bottom line.
During the quarter 46.6M unique users came to the site, up 46.7% from 31.7M users in the year ago period and up from 34.5M in the previous quarter. The result of the increased traffic was higher display advertising revenues. The company reported $7.9M in display revenue, up 27.4% from the year ago period and also posted a sequential increase from the $7.5M from 4Q12.
Conference Call Features Questions Tweeted In
History was made when Zillow reported its most recent quarter. For the first time a public company took questions via Twitter, huge win for investors that want more transparency. The real time nature of Twitter allowed CEO Spencer Rascoff to address the idea of underwater mortgage quote requests. Unlike other calls that have tried emailed questions, this approach allowed the casual observer to see all the different questions and thought processes used in the analysis of the stock / conference call / information.
While there have been a few stories on the matter, many have missed the idea of the real time nature of the Q&A. Often times an analyst may ask a three part question, but really have 6 queries. In this format, anyone can put forth what is on their mind. Of course the downside to that is when someone is asking when the CFO might post something to his Google+ account (like say, this article for example). The other potential downfall is the company selecting only the topics they want to discuss.
Valuation
The valuation picture for Z shows what you would expect to see
for a fast growing company with great potential for future
earnings. That is code for a high valuation, as the company is
sporting a multiple thousand trailing multiple of earnings compared to a 20x industry average. The price to book multiple of 6.7x is higher than the industry average of 4.5x and the price to sales is just under triple the industry average. Those high metrics and multiples do, however, come with a healthy dose of growth. Analysts expect revenue growth of 52% in 2013 versus 10.4% for the industry and 39.4% for 2014 compared to 9.1% for the industry.
The Chart
When you see the chart of over the last six months you will see a 45 degree angle, which is just what most investors want to see. A big driver behind that push higher has been consistent institutional purchases, the least of which coming from Caledonia Investment Management out of Australia. I would note that any pull back over the last six months represented an excellent buying opportunity.
Full disclosure: At time of publication, the author of this article owned shares of Zillow.
Brian Bolan is a Stock Strategist
for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout GrowthTrader
a
trading service that focuses on small cap stocks and also carries
a risk limiting strategy.
Follow Brian Bolan on twitter at
@BBolan1
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