Zillow Raises Its Guidance, Pleases Investors

Zillow's (Z -1.10%) (ZG -1.10%) stock saw a 12% boost recently following the company's Q1 earnings release. Although the bottom-line loss for the period was deeper than expected, management did raise its guidance for the next quarter and the full year. Both now sit comfortably above analyst estimates.

In this segment from the Motley Fool Money radio show, Chris Hill, Jason Moser, Ron Gross, and Matt Argersinger talk about how Zillow has established itself in the real estate space, which areas it's specifically targeting for growth, and how the company's services will likely draw huge interest from millennials in the years to come.

This podcast was recorded on May 6, 2016. A transcript follows the video.

Chris Hill: Zillow's first-quarter loss was bigger than expected, but the company raised guidance, and it must have been pretty rosy, Jason, because the stock is up nearly 10% this week.

Jason Moser: Yeah. To that point, I think at this stage in its life, Zillow is primarily a revenue story. Any time you can see raised guidance like that, I think the market generally will receive it well. A very broad portfolio of brands -- now with Zillow, Trulia, StreetEasy, HotPads, and there probably will be some more that come in there over the coming years as well. They're focused on four main priorities: growing their audience of users, which they continue to do. March traffic peaked at more than 166 million. Growing their premiere agent business. You look at that segment, revenue grew 25% to $134.5 million for the quarter.

Interestingly enough, on this part of the business, they're focusing on the high performers of premiere agents, as opposed to trying to grow this vast network of agents. I think, not only do they want to be recognized as the place where you can find anything real estate, but, really, the quality real estate information out there. So, they're focused more on quality and less on volume as far as the agents go, and that's actually working out. I think that's a good long-term strategy.

The emerging marketplaces, which is a smaller part of the business, but mortgage, rental, they continue to add new tools there that continue to benefit the top line there. And then, this is the company that really prides itself on its culture, and being a company that can attract and retain great talent, because, ultimately, this is a tech company. And I truly believe, this is the direction the real estate market is going in most cases. It's going to give more information, it's going to give consumers more access to that information than ever before. 

Again, top line story, the top line is moving in the right direction. I think, eventually, these guys pull back on spending a little bit, profitability will really accelerate, and patient shareholders should be OK.

Matt Argersinger: I'll add, I think one thing going for them is, you have this whole millennial generation that, for many reasons, have not been able to purchase a home. In fact, you do surveys, and it is now the biggest population in the country, and they do really want to buy homes. And I think that's a generation that grew up on mobile and using things like Zillow. I think that just means, home transactions, home buying and home selling, is still going to be tremendous in the years to come, and that feeds right into Zillow's strengths.

Ron Gross: It's interesting. My wife's a Realtor. It's kind of a double-edged sword, because it acts as a great way to get business, but sometimes you're fighting against the data that people are reading that isn't exactly accurate. Everyone now thinks they're an expert. The Realtor has to come in and explain, "Let me explain the market to you. Let me explain why values may not be what you think they are." So, you sometimes have to fight against all that information that is flowing to people.