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Why Is Zillow (ZG) Down 1.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Zillow Group (ZG - Free Report) . Shares have lost about 1.4% 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 catalysts.

Zillow Group Q1 Earnings & Revenues Beat Estimates

Zillow Group reported first-quarter 2021 non-GAAP earnings of 44 cents per share, which beat the Zacks Consensus Estimate by 83.3%. The company had reported a loss of 25 cents in the year-ago quarter.

Total revenues of $1.218 billion surpassed the Zacks Consensus Estimate by 10.7%. Also, revenues increased 8% on a year-over-year basis driven by strength in Internet, Media & Technology (IMT) and mortgage segments.

Revenue Details

Homes segment revenues (57.8% of total revenues) were $704.2 million, down 9% year over year.

During the quarter, Zillow Group bought 1,856 homes and sold 1,965 through Zillow Offers. The company ended the quarter with 1,422 homes in inventory, down from 1,531 homes at the end of the fourth quarter.

Notably, Zillow Group had temporarily halted home buying activity for Zillow Offers in all its markets due to the 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. The company also expects launch of Zestimate to drive the top line, going ahead.

Zillow Offers revenues were $700.9 million, while Other Homes segment revenues amounted to $3.18 million. Notably, Other Homes segment revenues include revenues generated through Zillow Closing Services.

IMT segment revenues (36.6% of total revenues) increased 35% year over year and came in at $446 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.

Zillow Group is optimistic about its business owing 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.

Premier Agent revenues totaled $334 million, up 38% year over year.

Other IMT segment revenues surged 26% on a year-over-year basis to $112 million due to higher rental revenues and solid uptake of new product offerings.

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 (5.6% of total revenues) increased 169% year over year to $68 million, on improving mortgage origination revenue.

Key Metrics

Traffic to mobile apps and websites increased 15% year over year to 221 million average monthly unique users for the three months ended Mar 31, 2021. Visits were 2.511 billion, up 19% year over year.

Operating Details

Average Zillow Offers gross profit per home in the first quarter surged 103% year over year to $32.7K. Moreover, the average return on homes sold before interest expenses moved up $19.6K per home.

Adjusted EBITDA was $181 million in the first quarter against adjusted EBITDA of $5.1 million reported in the year-ago quarter.

Homes adjusted EBITDA loss was $34 million, narrower than the year-ago quarter’s loss of $75 million. Mortgages adjusted EBITDA income was $6.4 million against the year-ago quarter’s loss of $5.6 million. However, IMT reported adjusted EBITDA of $208.6 million, up 143% year over year.

Total consolidated costs and operating expenses declined 11% year over year to $1.1 billion due to lower cost of revenues in the Homes segment as well as reduced sales and marketing expenses.

Zillow Group’s net income was reported at $52 million against net loss of $163.3 million reported in the year-ago quarter.

Balance Sheet

As of Mar 31, 2021, cash & cash equivalents and short-term investments were $4.7 billion compared with $3.9 billion as of Dec 31, 2020.

For first quarter, cash flow generated from operating activities was $241.7 million.

Guidance

For second-quarter 2021, total revenues are expected between $1.236 billion and $1.284 billion driven by strength in the IMT segment.

IMT segment revenues are expected in the range of $459-$472 million, with Premier Agent revenues between $342 million and $350 million.

Homes revenues are expected between $720 million and $750 million. Mortgages revenues are anticipated in the $57-$62 million range.

Moreover, adjusted EBITDA is expected between $116 million and $140 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -200% due to these changes.

VGM Scores

At this time, Zillow has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 has been net zero. 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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