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Zillow Group (ZG) Earnings and Revenues Beat Estimates in Q4

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Zillow Group (ZG - Free Report) reported fourth-quarter 2019 non-GAAP loss of 26 cents per share that beat the Zacks Consensus Estimate 27.8%. However, the company reported break-even in the year-ago quarter.

Total revenues soared 158.4% year over year to $943.9 million and outpaced the Zacks Consensus Estimate by 16%.

Strong improvement in Homes segment sales and momentum in Premier Agent and Rentals businesses primarily drove the year-over-year growth. Further, robust demand for Zillow Offers led to top-line improvement.

Notably, Zillow Group’s shares jumped 17.6% in pre-market trading following better-than-expected results and promising revenue guidance for first-quarter 2020.
 

Zillow Group, Inc. Price, Consensus and EPS Surprise

Zillow Group, Inc. Price, Consensus and EPS Surprise

Zillow Group, Inc. price-consensus-eps-surprise-chart | Zillow Group, Inc. Quote

 

Zillow Group’s stock has returned 56.4% in the past year, outperforming the industry’s growth of 13.5%.

Revenue Details

Homes segment revenues (63.9% of total revenues) came in at $603.2 million, surging from the year-ago quarter’s $41.3 million. The figure was much better than management’s guidance of $465-$490 million.

During the quarter, Zillow Group bought 1,787 homes and sold 1,902, ending the quarter with 2,707 homes in inventory.

In the fourth quarter, Zillow Offers commenced operations across three new markets, including Los Angeles, the largest market to date. Zillow Offers is now available in 23 markets.

Internet, Media & Technology (IMT) segment revenues (33.9% of total revenues) improved 6.3% year over year and came in at $319.7 million during the reported quarter on the robust performance of Premier Agent and Rentals businesses. The reported figure surpassed the company’s guidance of $308-$315 million.

Premier Agent revenues came in at $233.5 million, improving 5.6% year over year and beating management’s guidance of $225-$229 million.

Rentals revenues increased 12.4% on a year-over-year basis to $39.2 million.

Other revenues came in at $46.9 million, up 4.8% year over year.

Mortgages segment revenues (2.2% of total revenues) decreased 9.6% year over year to $21.1 million, better than management’s expectation of $17-$20 million.

Key Metrics

Traffic increased 10% year over year to 173 million average monthly unique users for the three months ended Dec 31. Visits were 1.8 billion.

Operating Details

Average gross profit per home in the fourth quarter declined 28.6% year over year to $11.5K. Moreover, the average return on homes sold before interest expense was ($1.5) K per home.

Adjusted EBITDA loss was $3.2 million, much narrower than Zillow’s guidance of a loss of $25-$43 million. The company reported adjusted EBITDA of $32.4 million in the year-ago quarter.

Homes adjusted EBITDA loss was $107.9 million, wider than the year-ago quarter’s loss of $28.8 million. Mortgages adjusted EBITDA loss was $8.3 million, wider than the year-ago quarter’s loss of $2.7 million.

However, IMT reported adjusted EBITDA of $36.2 million. Segment adjusted EBITDA loss was $57.5 million in the year-ago quarter.

Sales & marketing expenses increased 32.3% year over year to $183.8 million. Technology & development expenses rose 12.7% year over year to $125.3 million. General & administrative expenses jumped 32.5% year over year to $99.1 million.

Total operating expenses soared 119.8% year over year to $1.02 billion due to rapid growth in activity associated with the purchase and sale of homes in the Zillow Offers business.

Zillow Group’s loss from operations was $73.8 million, narrower than the year-ago quarter’s loss of $97.7 million.

Balance Sheet

As of Dec 31, 2019, cash & cash equivalents and short-term investments came in at $2.42 billion compared with $2.32 billion, as of Sep 30, 2019.

Long-term debt, as of Dec 31, was $1.54 billion compared with $1.48 billion, as of Sep 30.

Guidance

For first-quarter 2020, total revenues are expected between $1.02 billion and $1.06 billion. The Zacks Consensus Estimate for revenues is pegged at $927.8 million, indicating growth of 104.3% from the figure reported in the year-ago quarter.

IMT segment revenues are expected in the $324-$331 million range, with Premier Agent revenues between $238 million and $243 million.

Homes revenues are expected between $675 million and $700 million. Mortgages revenues are anticipated in the $22-$25 million range.

Moreover, adjusted EBITDA loss is expected between $19 million and $37 billion. Homes adjusted EBITDA loss is projected in the $85-$95 million range, while Mortgages adjusted EBITDA loss is expected between $9 million and $12 million. 

However, IMT adjusted EBITDA is expected between $70 million and $75 million.

Notably, Zillow Group expects continuous improvement in the IMT segment and operating margins in 2020. Moreover, adjusted EBITDA is expected to be in the break-even range.

For 2020, IMT segment revenues are expected in the $1.37-$1.40 billion range, with Premier Agent revenues between $980 million and $1 billion.

IMT adjusted EBITDA is expected between $365 million and $390 million.

Further, the company expects Zillow Offers to reach at least 26 markets by mid-2020.

Additionally, Zillow Group expects to deliver average return on homes sold before interest expense of 400-500 basis points (bps) per home, once it achieves scale. The company also expects to achieve Homes segment adjusted EBITDA margin of 200-300 bps.

Zacks Rank and Stocks to Consider

Zillow Group currently carries a Zacks Rank #3 (Hold).

Virtusa Corporation (VRTU - Free Report) , Microsoft (MSFT - Free Report) and SAP SE (SAP - Free Report) are some better-ranked stocks in the broader computer & technology sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Virtusa, Microsoft and SAP is currently pegged at 18%, 13.2% and 9.6%, respectively.

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