The Housing Rebound Should Lift Zillow's Prospects

On Tuesday, Zillow (NASDAQ: Z  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Most people know Zillow best for its online home-value estimates, providing a gauge of how home prices have changed over time. Yet the company is working hard to go well beyond those free services to make the website a vital part of real-estate professionals' business strategy. Let's take an early look at what's been happening with Zillow over the past quarter and what we're likely to see in its quarterly report.

Stats on Zillow

Analyst EPS Estimate

($0.03)

Year-Ago EPS

$0.10

Revenue Estimate

$37.39 million

Change From Year-Ago Revenue

64%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will anything hold Zillow's earnings back this quarter?
Somewhat surprisingly, analysts have dramatically reduced their views on Zillow's earnings over the past several months. They've reversed initial calls for a modest profit in the first quarter, and they've slashed their full-year earnings estimates by a third. But the stock has ignored analysts' concerns, pushing share prices up 70% since late January.

One thing that has stoked optimism for Zillow recently came when newly public rival Trulia (NYSE: TRLA  ) posted extremely strong results late last month. As with many start-ups, Trulia lost more money than expected, but a near-doubling of revenue clearly reflects the upturn that we've seen in housing data over the past several months, and Trulia's optimistic views of the current quarter bode well for Zillow as well.

But the key for Zillow to stay ahead of Trulia is to do everything it can to bolster its network effect. The company has been willing to sacrifice profits to bolster its advertising in an attempt to capture more subscriptions from real estate agents and mortgage-loan brokers as well as revenue from companies that want to advertise on Zillow's website.

Zillow is also taking steps to try to stand out from its competitors. In February, the company launched its Zillow Digs home-improvement platform, allowing homeowners to sketch out remodeling projects and then get local contacts and estimates on how much the work would cost. Some early reviews of the service have been negative, however, with one magazine arguing that the figures Digs comes up with aren't always reflective of actual costs. More recently, Zillow made its rental app accessible to Spanish-language speakers, tapping into a key demographic in many of the hottest real-estate markets.

In Zillow's quarterly report, watch for the company to report on its continuing progress in moving its revenue mix away from advertising toward more reliable subscriber income. With many believing that Google (NASDAQ: GOOGL  ) could pose a major competitive threat to Zillow if it chose to get into real-estate information, Zillow needs to move as quickly as it can to keep its network of real-estate pros happy with its services

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