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Aggressive Growth

Zillow Inc. (Z - Snapshot Report) recorded a massive 500% positive earnings surprise in its second quarter, marking its fourth consecutive earnings beat. The surprise was mainly due to a strong performance for Zillow Mortgage Marketplace. With a long-term earnings growth projection of 40%, this Zacks #1 Rank (Strong Buy) real estate information marketplace operator offers solid growth opportunities.

Second Quarter Results

On August 7, Zillow reported second quarter net income of 4 cents per share, compared with the Zacks Consensus Estimate at a loss of 1 cent. The company broke even in the year ago quarter.

Revenue jumped 75% year over year to $27.8 million, driven by a 102% surge in Marketplace revenue and a 33% increase in Display revenue.

Zillow has already established its footprint in the residential real estate and mortgages business, and is now building strength in the rentals marketplace. In early June, Zillow acquired San Francisco-based RentJuice, a provider of rental relationship management software, for $40 million in cash.

Total costs and expenses escalated 85% to $26.5 million largely due to the 116% jump in sales and marketing expenses.

Zillow experienced record usage across mobile and web in the second quarter with average monthly unique users growing 61%.

On September 5, Zillow announced an offering of approximately 3.2 million shares of its Class A common stock. The proceeds will be deployed to meet working capital needs, sales and marketing activities, general and administrative expenses and capital expenditures.


Zillow expects to generate revenue between $30.0 and $31.0 million in the third quarter of 2012. This represents a year-over-year increase of 60%.

Adjusted EBITDA is expected between $4.75 million and $5.25 million for the third quarter.

Positive Estimate Revisions

For 2012, the Zacks Consensus Estimate is currently pegged at 12 cents, up nearly 71.4% over the last 60 days. This suggests a year-over-year increase of 67.9%.

Likewise, for 2013, the Zacks Consensus Estimate of 47 cents improved 46.9% over the same time frame, representing a possible year-over-year increase of 300%.

Stretched Valuation

Shares of Zillow are roughly trading at 13.9x on a price-to-sales basis, significantly ahead of the peer group average of 1.8x. On a price-to-book (P/B) basis, shares are trading at 11.0x compared with the peer group average of 2.2x.

Zillow has a trailing 12-month ROE of 4.9% compared with the peer group average of 5.1%. However, given the strong fundamentals, the premium valuation looks justified.

Ever since the second quarter earnings release on August 7, the stock price has grown 2.1%. The chart below shows Zillow’s strong earnings momentum.

Headquartered in Seattle, Washington and founded in 2004, Zillow is a leading provider of real estate information marketplace and mortgages through its mobile applications and websites in the Unites States. With a market capitalization of $1.25 billion and engaging 443 employees, Zillow competes closely with Market Leader, Inc. (LEDR) and Zaio Corp. (ZAOFF), among others.

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