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Why Is Zillow (ZG) Up 16.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Zillow Group (ZG - Free Report) . Shares have added about 16.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zillow due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Zillow Group Beats on Q2 Earnings and Revenues

Zillow Group reported second-quarter 2020 non-GAAP loss of 17 cents per share, narrower than the Zacks Consensus Estimate of a loss of 42 cents. However, the company had reported a loss of 14 cents in the year-ago quarter.

Total revenues surged 28% year over year to $768 million and surpassed the Zacks Consensus Estimate by 26.8%.

Strong improvement in Homes and Mortgage segments and robust demand for Zillow Offers led to top-line improvement.

Further, management is banking on platform capabilities like proprietary Zillow 3D Home technology to enable virtual home tours for Zillow-owned homes and virtual consultations from the company’s broker and Premier Agents as prospective buyers opt for social distancing amid the pandemic.

Revenue Details

Homes segment revenues (59.1% of total revenues) were $454.3 million, soaring 82% year over year. During the quarter, Zillow Group bought 86 homes and sold 1,437 through Zillow Offers, ending the quarter with 440 homes in inventory, down from 1,791 homes at the end of the first quarter.

Zillow Offers revenues were $453.8 million, while Other Homes segment revenues were reported at $0.4 million. Notably, Other Homes segment revenues include revenues generated through Zillow Closing Services.

Internet, Media & Technology or IMT segment revenues (36.5% of total revenues) declined 13% year over year and came in at $280.3 million during the reported quarter. This was due to higher uptake of #BetterTogether discounts offered to partners. Premier Agent revenues totaled $192 million, down 17% year over year.

Other IMT segment revenues fell 4% on a year-over-year basis to $88.4 million, due to COVID-19 induced sluggishness in marketplaces. Other IMT segment revenue includes revenues generated by rentals, new construction and display, and, other marketing and business products and services to real estate professionals.

Mortgages segment revenues (4.4% of total revenues) increased 25% year over year to $33.8 million, on improving loan officer productivity. The company intends to integrate Zillow Home Loans to offer financing to customers of Zillow and Zillow Offers and enhance transaction experience.

Key Metrics

Traffic increased 12% year over year to 218 million average monthly unique users for the three months ended Jun 30, 2020. Visits were 2.5 billion, up 14% year over year.

Operating Details

Average Zillow Offers gross profit per home in the second quarter advanced 58.8% year over year to $16.6K. Moreover, the average return on homes sold before interest expense was a loss of $2.8K per home.

Adjusted EBITDA was $15.8 million, up 590% year over year. Homes adjusted EBITDA loss was $60.9 million, wider than the year-ago quarter’s loss of $56.5 million. Mortgages adjusted EBITDA income was $4.9 million, against the year-ago quarter’s loss of $5.3 million.

However, IMT reported adjusted EBITDA of $71.9 million, up 12.1% year over year.Total consolidated costs and operating expenses climbed 25.5% year over year to $831 million due to expansion of Homes segment.

Zillow Group’s net loss was reported at $84.4 million, wider than the year-ago quarter’s loss of $72 million.

Guidance

For third-quarter 2020, total revenues are expected between $543 million and $581 million. IMT segment revenues are expected in the range of $369-$384 million, with Premier Agent revenues between $272 million and $282 million. Homes revenues are expected between $140 million and $160 million. Mortgages revenues are anticipated in the $34-$37 million range.

Moreover, adjusted EBITDA is expected between $59 million and $82 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 27.54% due to these changes.

VGM Scores

Currently, Zillow has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zillow has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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