Zillow Inc. (Z) reported earnings of 6 cents per share in the fourth quarter of 2013, up from 2 cents per share in the year-ago quarter. Earnings were well ahead of the Zacks Consensus Estimate of a loss of 5 cents per share.
Quarter Details
Revenues surged 69.9% year over year to $58.3 million, which beat the Zacks Consensus Estimate of $56.0 million. The significant year-over-year increase was driven by a 70.8% surge in marketplace revenues (79.0% of total revenue) and a 66.5% jump in display revenues (21.0% of total revenue).
Real estate marketplace (consists of Premier Agent, Diverse Solutions, Rentals and StreetEasy product lines) revenues soared 71.0% year over year to $40.5 million driven by strong agent additions. Premier agent subscribers increased by 3565 to reach 48314 at the end of the quarter.
Mortgages marketplace revenues surged 69.0% to $5.3 million in the reported quarter from $3.2 million in the year-ago quarter. The mortgage marketplace division received more than 4.4 million loan requests in the last quarter.
Average monthly unique users jumped 57.0% year over year to 54.4 million. In Jan 2014, Zillow traffic reached a new high with nearly 70 million unique users.
In the reported quarter, Zillow launched the newly-designed Pre-Approval product. With the help of Pre Approval, consumers get to know how much they can afford and can even show agents and sellers that they are credible buyers, thus getting pre-approved by lenders on Zillow in just minutes. This product has received great feedback to date.
Display revenues increased 67.0% to $12.5 million from $7.5 million in the year-ago quarter attributable to significant growth across most of the verticals, including builders, banking and brokerages.
Zillow reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $15.2 million (26.0% of revenues) compared with $6.8 million (20.0% of revenues) in the year-ago quarter.
Operating expenses increased 67.7% year over year to $50.4 million due to a 72.0%, 61.4% and a 67.0% increase in sales & marketing, technology and development and general and administrative expenses, respectively.
Zillow reported operating profit (including stock based compensation) of $2.27 million, compared to operating profit of $0.5 million in the year-ago quarter.
Net profit was $2.72 million compared with net income of $0.55 million reported in the year-ago quarter. Earnings per share including stock based compensation but excluding income tax benefit was 6 cents compared with earnings of 2 cents in the year-ago quarter.
Zillow exited the fourth quarter with $201.8 million in cash & cash equivalents compared with $365.0 million in the prior quarter. Zillow has no debt.
Guidance
For the first quarter of 2014, Zillow expects revenues to be in the range of $62.0 million to $63.0 million while the Zacks Consensus Estimate of $61 million happens to be below the midpoint of the guidance. Sales & Marketing expenses are expected to be in the range of $36.0 million to $37.0 million. Adjusted EBITDA is expected to be in the range of $4.0 million to $4.5 million.
For full year 2014, revenues are now expected to be in the range of $288.0 million to $294.0 million (up from $194.0 million to $195.0 million) while the Zacks Consensus Estimate for the same happens to be below the midpoint of the guidance. Sales & Marketing expenses are expected to be in the range of $158.0 million to $160.0 million, while EBITDA is projected to be in the range of $38.0 million to $40.0 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.
Additionally, continuing investments in marketing activities will boost traffic going forward. However, these investments will hurt profitability in the near term.
Currently, Zillow has a Zacks Rank #1 (Strong Buy). Other stocks that are performing well at the current levels include Giant Interactive Group (GA) and Webmd Health Corp (WBMD) both with a Zacks Rank # 1 (Strong Buy) and Facebook (FB) with a Zacks Rank # 2 (Buy).
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