Online real estate information provider Zillow Group, Inc. ZG is set to report third-quarter 2015 results on Nov 3. Last quarter, the company posted a positive earnings surprise of 18.75%. Let’s see how things are shaping up for this announcement.
Factors at Play
Zillow offers mobile and web solutions that enable users to find important information about homes. The company reported encouraging second quarter results, with the top line surpassing the Zacks Consensus Estimate. Though the company posted a loss, it was narrower than the consensus mark.
During the second quarter, Zillow’s top line grew on a year-over-year basis primarily due to the Trulia acquisition. Also, a 29% surge in Marketplace revenues and a 15% jump in Display revenues drove the quarter’s results.
We believe that strong traffic growth, frequent product launches and the growing Agent business are positives, going forward. In particular, product launches like Zillow Real Estate and Zillow Digs App for Apple Inc.'s (AAPL) iPhone and iPad are positives.
Moreover, the Trulia acquisition will not only make Zillow the number one online real estate information provider in the U.S., but also help it to compete against Move Inc., which has now been acquired by News Corp.
Apart from acquisitions, Zillow entered into several partnerships with real estate listing companies and real estate brokers to enhance its product portfolio. However, the company is currently in the high investment phase and therefore profitability might be an issue in the near term.
Earnings Whispers
Our proven model does not conclusively show that Zillow is likely to beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Zillow is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 18 cents per share.
Zacks Rank: Zillow has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some other companies, which are worth considering, as our model shows that they have the right combination of these two elements:
CDW Corporation CDW, with an Earnings ESP of +2.63% and a Zacks Rank #2 (Buy)
CenturyLink, Inc. CTL, with an Earnings ESP of +1.45% and a Zacks Rank #2
CyberArk Software, Ltd. CYBR, with an Earnings ESP of +10.00% and a Zacks Rank #2
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