It's a Good Day to Own Zillow

Zillow (NASDAQ: ZG  ) did everything that you would want out of a growth stock in yesterday's quarterly report. 

  • Revenue rose 69%, surpassing analyst expectations.
  • Initial reports pointed to Zillow's loss of $0.30 a share, greater than the $0.11 a share deficit that Wall Street was expecting. However, on a rightfully adjusted basis, Zillow actually managed to squeeze out a small profit. 
  • Guidance for the current quarter is ahead of where the pros were perched. 

With this kind of performance, it's hard to fathom the stock opening 8% lower -- and staying there through most of the trading day -- on the robust report. 

What did Zillow do wrong? Well, it's really more a matter of what it did right in the days and weeks leading up to the report. 

The stock falling 8% to open at $83.85 is significant, but this is a stock that began the month in the mid-$70s. A month earlier it was in the mid-$50s. Even with today's sharp drop, the stock has risen 49% since the end of June. It still opened 13% higher than it was at the end of July -- and just so we're clear here: That was just a week ago!

Zillow has been moving higher with good reason. Rival Trulia (UNKNOWN: TRLA.DL  ) posted blowout quarterly results last week. 

Yes, Trulia's revenue did grow a heartier 77%, but Trulia is also a lot smaller. It attracted an average of 35 million unique monthly visitors during the quarter, compared to the 61 million monthly unique users that Zillow drew to its website and two dozen mobile apps. 

It's easy to eye today's stock chart and view Zillow's report as a failure, but it's not. Pull up a week's chart, a month's chart, or why don't we point out that the stock has more than tripled since the year began?

Skeptics will argue that it was still a mistake to hold on to Zillow heading into this report. The shares were priced for perfection. Greedy investors could have taken their profits yesterday, assuming that they could buy back in at a lower price after even strong financials and a upbeat prognosis validated the model. That may seem true in retrospect, but trying to nail tops and bottoms is a game that even the nimble get wrong more often than not.

Holding on to Zillow through today's drop still means that folks that bought in at the beginning of the year have still tripled their money. That's not too shabby. It's been a great year to own the leading real estate travel website operator. And even though it may be hard to see at the moment, it's also been a pretty good day to own Zillow.

Zillow also got a big boost in anticipation of today's Zillow-hosted housing conference with President Obama. Still in the dark about how Obamacare might affect you and your portfolio? The Motley Fool's special report, "Everything You Need to Know About Obamacare," takes a 360-degree look at how the law may impact your taxes, health insurance, and investments. Click here to grab your free copy today.

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  • Report this Comment On August 07, 2013, at 6:26 PM, bearsnsox wrote:

    Lol bad day for motley fool who owns the stock and obviously had a company directive to pump it up since they released more than a dozen "pump up" bullish articles in the past month. Way to lead your investors down the wrong path by pumping up a low margin middle man stock that's nothing more than a call center selling advertising What a business model. Enjoy the slide down

  • Report this Comment On August 11, 2013, at 3:22 PM, rafarules wrote:

    can MF ever refrain from blowing bubbles ever bigger like a Jim Cramer pied piper who famously parades into town sans clothing? eventually the bell will ring, a child will say what is silently thought but never said out loud, and when the crowd realizes that group psychology has allowed a naked person to march arrogantly through town (not that there's anything wrong with that) spewing the music of fantasy and magic leading a merry band of children over a cliff....

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