Zillow Group (Z -1.82%) (ZG -1.92%) will report earnings after market close on Feb. 7, and for investors following this company, there are two key metrics that will give you the best sense of how the company is performing and how its prospects look going forward.
Image source: Zillow Group.
The table below shows the company's guidance and corresponding analyst estimates for the quarter:
| Metrics | Company Guidance | Analyst Low Estimate | Analyst Average Estimate | Analyst High Estimate |
|---|---|---|---|---|
| Revenue | $218 million to $223 million | $221.44 million | $223.39 million | $226.1 million |
| Earnings per share | Not provided | $0.01 | $0.12 | $0.14 |
Data source: Zillow and Yahoo! Finance. Chart by author.
These are the "headline numbers" that often drive movement in the share price following the earnings release. While important, there are other numbers that may better reveal the company's overall results and long-term trajectory.
In this case, by focusing on Zillow's audience metrics and Premier Agent spend, investors will have a better understanding of this business.
First, the user metrics
Zillow is focused on advertising and as such, is highly dependent upon the number of people that visit its various brand sites. The company wants to grow its audience size as it believes that advertisers will naturally follow. Zillow has been reporting aggregate user numbers, percentage of real estate online views, and mobile views each quarter.
| Metrics | Q3 2016 | Q2 2016 | Q1 2016 | Q4 2015 |
|---|---|---|---|---|
| Average monthly unique users | 164 million | 168 million | 156 million | 124 million |
| Online real estate market share | Nearly 66% | 67% | 63% | 60% |
| Mobile-only market share | Nearly 75% | 78% | 72% | 70% |
Data source: Zillow. Chart by author.
As you can see, Zillow dominates this space, growing its market share among people looking to buy or rent real estate in the U.S. Keep an eye on this number to confirm that the company is able to hold onto its audience and continue attracting advertisers.
Second, the Premier Agent program
Zillow's primary source of revenue comes from its Premier Agent program, a subscription-based offering that gives real estate agents a variety of tools for their business, including exclusive advertising on their own listings.
Looking at the Premier Agent program revenue by reveals tremendous growth that has been accelerating throughout 2016. Company guidance for the quarter, at the mid-point, shows a small seasonal decline in the rate of growth for Q4 compared to the prior quarter. If Zillow were to beat its guidance and come in at $164.9 million, $1.9 million above the high-end of its guidance, the program would exhibit accelerated earnings growth on a sequential basis for 2016.
|
Quarter |
2015 Premier Agent Revenue |
2016 Premier Agent Revenue |
Year-Over-Year Growth |
|---|---|---|---|
|
1 |
$107.6 million |
$134.5 million |
25.0% |
|
2 |
$115.2 million |
$147.1 million |
27.7% |
|
3 |
$119.4 million |
$158.3 million |
32.6% |
|
4 |
$124.3 million |
$162.0 million* |
30.3% |
|
Total |
$466.5 million |
$601.9 million |
29.0% |
Data source: Zillow Group. Chart by author. *Midpoint of forecast.
It will be interesting to see how the company performs during the fourth quarter as it is historically a slow period for residential real estate, and many agents pull back on their advertising spend. That said, mortgage rates are beginning to rise after a number of years of stagnation. Increasing rates can be the magic potion that pushes potential buyers to make a purchase (while they can still get an affordable loan), incentivizing agents to keep advertising for customers.
Foolish conclusions
Zillow's guidance for the fourth quarter, along with consensus analyst estimates, will help an investor prepare for the earnings release. It is important to understand that although the stock price may react quickly to the headline numbers, the long-term health of a company's business cannot be evaluated in just one quarter of results.
Watching the specific metrics that drive a company's growth -- in Zillow's case, audience metrics and Premier Agent advertising spend -- can help Foolish investors develop greater insight into what powers their portfolio over a lifetime of investing.
