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Zillow's Loss Narrows, Revs Up

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Zillow Inc. reported second quarter 2013 net loss of 30 cents per share, narrower than the Zacks Consensus Estimate of a loss of 39 cents per share. However, results were unfavorable when compared to year-ago net earnings of 4 cents per share. Substantial increase in marketing and advertising costs, and acquisition related compensation costs mainly led to the downside.

Quarterly Operational Update

The top line came up with a higher than expected improvement during the quarter. Total revenue increased 69% year over year to $46.9 million in the second quarter. This was driven by solid improvement in marketplace revenue (up 86%), real estate revenue (up 80%), mortgage revenue (up 126%) and display revenue (up 29%). Total revenue also surpassed the Zacks Consensus Estimate of $44 million.

Total expenses of Zillow in the quarter increased 116.4% year over year to $57.3 million mainly due to higher cost of revenue and marketing expenses. Higher share-based compensation expense of $7.1 million relating to a prior acquisition hurt most.

The magnitude of increase in expenses more than offset the magnitude of increase in total revenues, thus causing operating income to decline year-over-year.

In the reported quarter, average unique monthly users increased 62% year over year to 54.3 million. Premier Agent subscribers also increased 71% year over year to 38.8 million in the second quarter. Average monthly revenue per subscriber increased 1.1% year over year to $266.

As a result of strong revenues, earnings before interest tax, depreciation and amortization (EBITDA) of $5.3 million in the reported quarter were almost in line with the prior-year quarter.

Financial Position

As of Jun 30, 2013, Zillow had cash and cash equivalents of $131.6 million, down 0.3% from $131.9 million as of Mar 31, 2013.

As of Jun 30, 2013, total assets of the company were $317.5 million, up 2.6% from $309.6 million as of Mar 31, 2013.

Shareholders’ equity of Zillow as of Jun 30, 2013 was $291.6, up 1.8% from $286.6 million as of Mar 31, 2013.

Net cash flow from operating activities in the first six months of 2013 was $8.5 million, down 99.9% from $17.1 million in the year-ago period.

Business Update

In Jun 18, 2013, Zillow launched Agentfolio Chicago, the only real estate platform that allows multiple home searches to collaborate at one one central place. Agentfolio was formerly known as Buyfolio and was acquired by Zillow in 2012. Agentfolio is now available in 6 major markets and the company intends to engage in an additional five city roll-out of the same by the end of 2013.

Additionally, Zillow is focused to redesign and upgrade its existing apps and services to gain more customers. In May 30, 2013, Zillow updated its Mortgage Marketplace app for iPhone and iPad by adding new tools and features. This marks the first ever mobile app to provide mortgage holders with details regarding the Home Affordable Refinance Program (HARP) and FHA Streamline Refinance.

Performance of Other Online Services Companies

On Jul 25, 2013, Brightcove Inc. (BCOV - Free Report) reported a loss of 8 cents per share in the second quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 12 cents and the year-ago quarter loss of 14 cents.

On Jul 24, 2013, TripAdvisor Inc. (TRIP - Free Report) reported adjusted second quarter 2013 earnings of 47 cents per share, beating the Zacks Consensus Estimate of 41 cents on higher revenues. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Zacks Rank

Zillow currently carries a Zacks Rank #3 (Hold). Among other online services companies, Yandex N.V. (YNDX - Free Report) carries a favorable Zacks Rank #2 (Buy) and appears impressive.

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