Image source: Zillow Group.

Don't let the red ink deceive you: Zillow Group (NASDAQ:Z)(NASDAQ:ZG) released solid second-quarter 2016 results Thursday after the market close. But with shares down more than 5% on Friday, you won't find the market congratulating the online real-estate specialist for its efforts. Let's take a closer look at how Zillow capped the first half of the year.

The headline numbers

On one hand, excluding revenue from Market Leader, which was divested late last year, quarterly revenue increased 31% year over year, to $208.4 million. That's above the high end of Zillow's guidance, which called for revenue of $203 million to $208 million.

On the other hand, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a loss of $101.3 million, compared to an adjusted EBITDA gain of $21 million in last year's second quarter. Zillow's guidance called for positive adjusted EBITDA of $15 million to $20 million.

However, as I pointed out in my earnings preview earlier this week, these results include the impact of a $130 million litigation settlement during the quarter -- which the markets celebrated at the time, by the way, as some analysts feared the size of any potential settlement could have been much larger. Excluding the impact of that settlement, adjusted EBITDA in the second quarter would have been $28.7 million, well above Zillow's guidance range. 

On the bottom line, based on generally accepted accounting principles (GAAP), Zillow's net loss was $156.1 million, including the settlement and $12.5 million in additional related legal costs. On an adjusted (non-GAAP) basis, which still includes the settlement, but excludes items like share-based compensation, Zillow's net loss for the quarter was $127.6 million, or $0.71 per share.

Zillow Group CEO Spencer Rascoff focused on his company's relative strength, stating:

Record revenue and traffic growth were highlights of Zillow Group's tremendous second quarter. We continue to command significant category leadership on mobile and web, reaching an all-time high of unique users in May and achieving our largest market share of the real estate category. It is clear that our monetization on mobile is benefiting from our significant market leadership, which now captures 78% of the mobile-only category. We are executing well against our long-term strategic priorities to increase our audience size, grow our Premier Agent and emerging marketplaces, and attract and retain the best talent in the industry.

Digging deeper

More specifically, Zillow's five consumer-facing brands -- including Zillow, Trulia, StreetEasy, HotPads, and Naked Apartments -- hosted more than 168-million average monthly unique visitors during the quarter, including an all-time high of more than 171-million unique users (good for 20% year-over-year growth) in the month of May. In fact, Zillow Group's market share climbed 4 percentage points from March to June, bringing its share of the combined mobile and web real estate audience to 67%.

Zillow's advertisers are enjoying the fruits of this growth. Leads to Zillow Group Premier Agent Advertisers increased almost 50% year over year in Q2 to more than 4 million.

This group is also increasingly loyal to the platform. Sales to existing Premier Agent Advertisers accounted for 70% of total bookings, and total sales to Premier Agent Advertisers, who have been customers for at least one year, grew 57%. Agent advertisers who spent more than $5,000 per month also increased 68% in number year over year in Q2, and increased 73% on a total-dollar basis.

Further breaking down Zillow's top line, total revenue included 44% growth in marketplace revenue, to $191.6 million (excluding Market Leader). Within that, Premier Agent revenue climbed 28% year over year, to $147.1 million, right to the midpoint of Zillow's guidance for Premier Agent revenue in the range of $146 million to $148 million. Other real estate revenue -- including contributions from agent services, dotloop, StreetEasy, Naked Apartments, and rentals -- rose 254% year over year, to $26.1 million. And Mortgages revenue increased 77% year over year, to $18.4 million.

Outside of Zillow's marketplace, display segment revenue fell 35% year over year, to $16.8 million, near the high end of Zillow's expected $16 million to $17 million range. As a reminder, this was a planned decline, as Zillow made the conscious decision in 2014 to de-emphasize display ads to both improve its user experience and focus on the more-promising marketplace segment.

Looking ahead

Zillow also offered an encouraging look ahead with guidance. For the current (third) quarter, Zillow expects revenue of $217 million to $222 million, including Premier Agent revenue of $156 million to $158 million, and Display revenue of $15 million to $16 million. Zillow also anticipates third-quarter adjusted EBTIDA of $48 million to $53 million. While we don't usually pay much attention to Wall Street's near-term demands, analysts' consensus estimates were modeling third-quarter revenue of $216.4 million, below the low end of Zillow's guidance range.

Finally, Zillow increased its full-year 2016 guidance, and now expects revenue of $830 million to $840 million (up from $825 million to $835 million), including premier agent revenue of $597 million to $602 million (up from $595 million to $600 million previously), display revenue of $60 million to $62 million (up from $58 million to $60 million before), and adjusted EBITDA of $125 million to $135 million (excluding the impact of the $130 million settlement, and up from $115 million to $125 million).

All things considered, there was nothing not to like about this report -- at least, aside from the impact of Zillow's legal settlement, which itself should have been no surprise considering it was made public almost two months ago. Then again, it's worth noting that shares of Zillow were up nearly 50% year to date going into this report, so perhaps today's pullback is a healthy consequence of those gains in spite of Zillow's strong results. In any case, for those who can look past this temporary cloud of red, I think Zillow investors should be more than pleased with where their company sits today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.