Zillow Predicts $ 2 Billion First Quarter, Cancels Profit Expectations, But Stock Crashes

Analysts on average expected adjusted earnings of 24 cents per share on sales of $ 1.28 billion, according to FactSet. The shares fell about 3% in after-hours trading immediately after the results were released, after closing the day’s session down 0.1% to $ 110.30.

Zillow offers consumers a website with real estate information and has a paid program for real estate professionals, who are integrated into the Internet, Media & Technology or IMT segment of the business. Zillow reported revenue of $ 476.1 million for the IMT segment, up from $ 280 million a year ago, and $ 348.8 million for its base Premier Agent offering for professionals, compared to $ 192 million; Analysts on average expected IMT revenue of $ 467 million and Premier Agent sales of $ 345 million, according to FactSet.

“The US housing market remained strong throughout the second quarter thanks to the combination of increased flexibility of remote working, relatively low interest rates and another quarter of limited housing supply,” and these factors likely contributed to the continued strength of Zillow’s core prime agent business, ”Canaccord Genuity analysts wrote in a earnings snapshot this week.

Zillow has also in recent years launched businesses that buy and sell homes, called Zillow deals, and mortgages. The Homes segment, which includes Zillow offerings and related businesses, reported revenue of $ 777.1 million, up from $ 454.3 million in the same quarter last year, while the homes segment Mortgage loans recorded sales of $ 56.7 million, compared with $ 33.8 million. Analysts on average expected home sales of $ 751 million and mortgage income at $ 62 million, according to FactSet.

For the third quarter, Zillow executives forecast revenue of $ 1.93 billion to $ 2.05 billion, beating analysts’ average estimate of $ 1.45 billion, according to FactSet. The forecast calls for $ 1.4 billion to $ 1.5 billion for the homes segment, $ 472 million to $ 485 million for the IMT segment and $ 55 million to $ 62 million for mortgages.

The biggest difference between analysts’ estimates and Zillow’s forecast was the huge expected growth in Zillow’s offerings. Analysts predicted revenue of around $ 900 million for the Homes segment, while Zillow went well beyond.

“These forecasts reflect an acceleration in purchasing activity and accelerated investments to expand scale, resulting from the progress we have made in strengthening our pricing models,” the executives said during the discussion of directions. in a letter to shareholders published Thursday afternoon. “Automation at the top of the funnel will help increase scalability and improve the customer experience for periods to come. “

The expenses necessary for this growth could reduce the potential profits, however. Zillow predicted adjusted Ebitda of $ 94 million to $ 126 million for the third quarter, which would be a sharp drop from the $ 183 million reported in the second quarter.

“We expect Consolidated Adjusted EBITDA to be lower than in the second quarter as we accelerate investments in our people, our technology and development efforts, and our selling and marketing costs,” wrote the leaders in their letter.

Executives are expected to hold a conference call at 5 p.m. EST to further discuss the results.

“Investors will be looking for an update on Zillow’s efforts to expand the number of home services it offers, as well as how homeowners are engaging with the new feature that allows them to use their Zestimate as a offers live cash for their home, ”the Canaccord Genuity analysts wrote, while maintaining a buy rating and a target price of $ 220 on the stock.

Zillow stock exploded to a new high of over $ 200 a share in February, but quickly cooled. So far this year, equities have broadly fallen 18.8%, while the S&P 500 SPX Index,
+ 0.60%
gained 17.2% during this period.