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Zillow Group (ZG) Posts Q4 Loss; Revenues Beat Estimates

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Zillow Group, Inc. (ZG - Free Report) reported fourth-quarter fiscal 2015 adjusted loss per share (excluding all one-time items but including stock based compensation expenses) of 13 cents, which compared favorably with the Zacks Consensus Estimate of a loss of 14 cents

Following the quarter’s results, the company’s share price went down more than 9% in afterhours trading, primarily due to weak first quarter fiscal 2016 revenue guidance. Also, the company posted a loss during the quarter, which compared unfavorably with the year-ago figure. This was another reason cited for the drop in shares.

Quarter Details

Revenues surged 83.4% year over year to $169.4 million and beat the Zacks Consensus Estimate of $168 million.

The significant year-over-year increase was primarily due to the Trulia acquisition. Also, a 13.4% surge in total Marketplace revenues (88% of fourth-quarter 2015 revenues), which more than offset a 24.8% decline in Display revenues (12% of fourth-quarter 2015 revenues) drove the quarter’s results.

Within Zillow’s Marketplace segment, Real Estate marketplace (consisting of Premier Agent, Diverse Solutions, Rentals and StreetEasy product lines) revenues soared 26.6% year over year to $136.6 million driven by strong agent additions.

Mortgages marketplace revenues increased 48.1% to $11.7 million and the division received approximately 8.8 million loan requests.

Average monthly unique users of Zillow Group consumer brands Zillow, Trulia, StreetEasy and HotPads extended were nearly 124 million during the fourth quarter, up 61% year over year.

Moving to the operating results, Zillow’s total cost and expenses were up 89% year over year to $195.7 million, primarily due to 102.5%, 101.8% and 123.7% increase in sales & marketing, technology and development and general and administrative expenses, respectively. Also, higher investments in data acquisition, increased website and software development costs coupled with increased legal fees impacted total operating expenses.

Zillow’s adjusted operating loss (excluding all one-time items but including stock based compensation expenses) came in at $25.3 million as against a profit of $0.154 million in the year-ago quarter. Adjusted net loss (excluding all one-time items but including stock based compensation expenses) on a proportionate tax basis was $24.7 million as against net income of $0.471 million in the comparable quarter of last year.

Zillow exited the fourth quarter with $520.3 million in cash & cash equivalents and short-term investments compared with $536.8 million in the previous quarter. The company has long-term debt of $230 million. Cash flow from operations for the year ended Dec 31, 2015 was $22.7 million.

For the first quarter of 2016, Zillow expects revenues in the range of $174 to $179 million (mid-point $176.5 million). The Zacks Consensus Estimate is in line with the higher end of the guided range. EBITDA is expected in the range of $1 to $6 million.

The company provided fiscal 2016 outlook. Revenues are now expected to be roughly in the range of $805 to $815 million. The Zacks Consensus Estimate is pegged at $793 million. Adjusted EBITDA is projected in the range of $115 to $125 million.

Our Take

Zillow offers mobile and web solutions that enable users to find important information about homes. The company reported modest fourth quarter results. Although the company posted a loss during the quarter, its revenues witnessed tremendous year-over-year growth.

The company provided a tepid revenue guidance for the forthcoming quarter. However, we believe that strong traffic growth, frequent product launches and the growing Agent business are positives, going forward. In particular, product launches like Zillow Real Estate and Zillow Digs App for Apple Inc.'s (AAPL - Free Report) iPhone and iPad are positives.

Moreover, the Trulia acquisition will not only make Zillow the number one online real estate information provider in the U.S., but also help it to compete against Move Inc., which has now been acquired by News Corp. (NWSA - Free Report) .

Apart from acquisitions, Zillow entered into several partnerships with real estate listing companies and real estate brokers to enhance its product portfolio. However, the company is currently in the high investment phase and therefore profitability might be an issue in the near term.

Currently, Zillow has a Zacks Rank #3 (Hold).

A better-ranked stock in the wider technology sector is FormFactor Inc. (FORM - Free Report) , which sports a Zacks Rank #1 (Strong Buy).

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