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Zillow Group (ZG) to Report Q2 Earnings: Is a Beat in Store?

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Zillow Group Inc. (ZG - Free Report) is set to report second-quarter 2018 earnings on Aug 6. The company beat the Zack Consensus Estimate in three of the trailing four quarters, recording an average positive earnings surprise of 9.5%.

Zillow Group delivered non-GAAP earnings of 7 cents per share in the last reported quarter, which came ahead of the Zacks Consensus Estimate by a penny. However the figure declined 36.4% from the year-ago figure of 11 cents per share.

Total revenues increased 22% year over year to $299.9 million, surpassing the Zacks Consensus Estimate of $298.96 million. The figure came ahead of management’s guided range of $291-$296 million as well.

Strong growth of the company’s Premier Agent Business primarily drove year-over-year revenue growth. New construction marketplaces also aided growth. Zillow Group is striving to increase its audience size and improving consumer engagement via advertising and other related marketing initiatives.

Notably, its shares have returned 25.7% year over year, outperforming the industry’s rally of 3.9%.

Guidance & Estimates

Zillow Group expects second-quarter 2018 revenues to remain in the range of $322-$327 million.

Management raised guidance for 2018 due to an anticipated increase in Premier Agent revenues and additional revenues pertaining to adoption of ASC 606. Revenues are now projected to be in the range of $1.433-$1.578 billion compared with the earlier range of $1.302-$1.317 billion.

The Zacks Consensus Estimate for earnings shows an increase of 125% year over year to 9 cents per share for the to-be reported quarter. The consensus estimate for revenues is currently pegged at $325.1 million, up 21.8% year over year.

Let's see how things are shaping up for this announcement

Factors to Impact Q2 Results

We expect the company to benefit from increasing traffic at its mobile apps and websites, strong rental demand and expanding Multiple Listing Services (“MLS”) partnerships. Additionally, Zillow Group is well poised to gain from rapidly-growing rental traffic.

The company’s application that allows agents to create 3-D home tours, aiding buyers narrow down their searches before a personal visit, is another positive.

Zillow Group is working toward growth of emerging marketplaces. With the combination of machine learning and personalization, the company anticipates to align consumer interest with the listed properties. Expanding footprint in new cities and cities where the company has a significant market presence, including the likes of Phoenix, Denver, Irvine, Cincinnati, Lincoln Nebraska, will positively impact the top line, going forward.

We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving growth prospects. Moreover, we believe that the senior notes offering will bring down the company’s cost of capital, consequently strengthening its balance sheet and supporting growth.

Nevertheless, stiff competition, increasing mortgage interest rates and higher advertising spend are major headwinds. Moreover, spending in product enhancements is likely to limit margin growth at least in the near term.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zillow Group has a Zacks Rank #3 and an Earnings ESP of +3.85%.

Other Stocks to Consider

Here are some other stocks that you may want to consider as our model shows that these too have the right combination of elements to deliver an earnings beat in their upcoming release.

Pinnacle Foods Inc. has an Earnings ESP of +4.66% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PPL Corporation (PPL - Free Report) has an Earnings ESP of +1.43% and a Zacks Rank of 3.

Jazz Pharmaceuticals PLC (JAZZ - Free Report) has an Earnings ESP of +1.43% and a Zacks Rank of 3.

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