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Zillow (ZG) Down 19.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Zillow Group (ZG - Free Report) . Shares have lost about 19.7% in that time frame, underperforming the S&P 500.

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

Zillow Group Q4 Earnings & Revenues Beat Estimates

Zillow Group reported fourth-quarter 2020 non-GAAP earnings of 41 cents per share, which beat the Zacks Consensus Estimate by 41.4%. The company had reported a loss of 26 cents in the year-ago quarter.

Total revenues of $789 million surpassed the Zacks Consensus Estimate by 6.3%.

However, revenues declined 16% on a year-over-year basis. Decline in the Homes segment’s revenues dented overall revenue performance.

Nevertheless, Zillow Group is positive about the business due to increases in demand for residential real estate. The company is banking on its platform capabilities like proprietary Zillow 3D Home technology that enables virtual home tours for Zillow-owned homes and virtual consultations from the company’s broker and Premier Agents to help prospective buyers amid movement restrictions.

Revenue Details

Homes segment revenues (38.6% of total revenues) were $304 million, down 50% year over year.

During the quarter, Zillow Group bought 1,789 homes and sold 923 through Zillow Offers. The company ended the quarter with 1,531 homes in inventory, up from 665 homes at the end of the third quarter.

Notably, Zillow Group had temporarily halted home buying activity for Zillow Offers in all its markets due to the ongoing pandemic. The company resumed operations for Zillow Offers across all 25 markets which includes the recent expansion of Zillow Offers in Jacksonville, FL. The company also extended its Zillow Closing Service to all 25 markets in 2020.

Zillow Offers revenues were $301.7 million, while Other Homes segment revenues amounted to $2.44 million. Notably, Other Homes segment revenues include revenues generated through Zillow Closing Services.

IMT segment revenues (53.7% of total revenues) increased 33% year over year and came in at $424 million during the reported quarter. The upside can be primarily attributed to robust growth in traffic as well as increasing Premier Agent connections and higher demand for services in Other IMT segment marketplaces.

Premier Agent revenues totaled $314 million, up 35% year over year.

Other IMT segment revenues surged 27% on a year-over-year basis to $110 million due to higher rental revenues.

Other IMT segment revenues comprise revenues generated by rentals, new construction and display as well as other marketing and business products and services to real estate professionals.

Mortgages segment revenues (7.7% of total revenues) increased 190% year over year to $61 million, on improving mortgage origination revenue.

Key Metrics

Traffic increased 16% year over year to 200.7 million average monthly unique users for the three months ended Dec 31, 2020. Visits were 2.232 billion, up 27% year over year.

Operating Details

Average Zillow Offers gross profit per home in the fourth quarter rallied 157% year over year to $29.6K. Moreover, the average return on homes sold before interest expenses was a gain of $21.8K per home.

Adjusted EBITDA was $170 million in the fourth quarter against adjusted EBITDA loss of $3.2 million reported in the year-ago quarter.

Homes adjusted EBITDA loss was $46.9 million, narrower than the year-ago quarter’s loss of $82.5 million. Mortgages adjusted EBITDA income was $13.7 million against the year-ago quarter’s loss of $8.3 million. However, IMT reported adjusted EBITDA of $203.1 million, up 131.7% year over year.

Total consolidated costs and operating expenses declined 31% year over year to $700 million due to lower cost of revenues in the Homes segment.

Zillow Group’s net income was reported at $46 million against net loss of $101.2 million reported in the year-ago quarter.

Balance Sheet

As of Dec 31, 2020, cash & cash equivalents and short-term investments were $3.9 billion compared with $3.8 billion as of Sep 30, 2020.

For twelve months ended Dec 31, 2020, cash flow generated from operating activities was $424.2 million compared with $612.2 million of net cash utilized in operating activities for the same period in 2019.

2020 Numbers in Details

Zillow Group reported revenues of $3.339 billion in 2020, up 22% from 2019 tally.

Non-GAAP diluted earnings per share were 44 cents against a loss of 54 cents reported in 2019.

Adjusted EBITDA was $343 million for 2020 compared with adjusted EBITDA of $38.9 million reported in 2019.

In 2020, Zillow Group witnessed 19% year-over-year increase in visits to 9.6 billion.

Guidance

For first-quarter 2021, total revenues are expected between $1.069 billion and $1.112 billion driven by strength in the IMT and Mortgage segments.

IMT segment revenues are expected in the range of $415-$428 million, with Premier Agent revenues between $314 million and $322 million.

Homes revenues are expected between $595 million and $620 million. Mortgages revenues are anticipated in the $59-$64 million range.

Moreover, adjusted EBITDA is expected between $114 million and $138 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 137.5% due to these changes.

VGM Scores

At this time, Zillow has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zillow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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