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Zillow (ZG) Up 17% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Zillow Group (ZG - Free Report) . Shares have added about 17% 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 drivers.

Zillow Group Outpaces Earnings and Revenue Estimates in Q3

Zillow Group reported relatively modest third-quarter 2022 results beating both the bottom-line and top-line estimates. The strong performance was backed by incremental improvements to Zillow’s apps and sites.

Quarter Details

GAAP net loss in the quarter was $53 million or a loss of 22 cents per share compared with a net loss of $329 million or a loss of $1.24 per share in the prior-year quarter.

Adjusted net income was 38 cents per share, which beat the Zacks Consensus Estimate by 23 cents.

Revenues declined to $483 million from $550 million a year ago, beating the Zacks Consensus Estimate of $472 million.  The IMT segment generated $457 million in revenues compared with $480 million in the prior-year quarter. This was because Premier Agent revenue decreased 13% to $312 million owing to macro housing market factors. The mortgages segment generated $26 million in revenues compared with $70 million in the year-earlier quarter due to deteriorating affordability.

Operating Details

During the quarter, Zillow recorded a gross profit of $394 million compared with $468 million in the prior-year quarter, largely due to lower revenues. The operating expenses during the quarter were $445 million, up from $413 million. The adjusted EBITDA was $130 million compared with $156 million in the prior-year quarter, primarily due to lower adjusted EBITDA in the IMT segment.

Cash Flow & Liquidity

During the first nine months of 2022, Zillow generated $4,420 million cash from operating activities against $2,962 million cash utilization in the prior-year period. As of Sep 30, 2022, the company had $1,973 million in cash and cash equivalents with $141 million of lease liabilities, net of current portion.

Guidance

For the fourth quarter of 2022, Zillow expects IMT segment revenues to decline 19% year over year at the midpoint of the outlook range of $395-$425 million. Within the IMT segment, the company expects Premier Agent revenues to be between $250 million and $270 million, down 27% year over year at the midpoint of its outlook range. Revenues for Mortgages segment is expected to be between $15 million and $20 million. The company expects Mortgage segment EBITDA to incur a loss of $36-$31 million based on expected market conditions and additional investments to build tools and technology for both customers and agents.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -75.51% due to these changes.

VGM Scores

Currently, Zillow has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

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

Performance of an Industry Player

Zillow belongs to the Zacks Internet - Services industry. Another stock from the same industry, Alphabet (GOOGL - Free Report) , has gained 21.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Alphabet reported revenues of $57.27 billion in the last reported quarter, representing a year-over-year change of +6.8%. EPS of $1.06 for the same period compares with $1.40 a year ago.

Alphabet is expected to post earnings of $1.20 per share for the current quarter, representing a year-over-year change of -21.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.9%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Alphabet. Also, the stock has a VGM Score of B.


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