Zillow Group, Inc. (Z 5.15%) (ZG 4.77%) reports earnings after the market closes on Thursday, May 4. Investors will have a chance to see how the company is performing against the strategic objectives it set for 2017, as well as the quarterly results versus management's guidance.
Here's a quick recap of Q1 and full-year guidance.
| Metric | Guidance for Q1 2017 | Guidance for Full Year 2017 |
|---|---|---|
| Revenue | $232 to $237 | $1,030 to $1,050 |
| Premier Agent revenue | $170 to $172 | $745 to $755 |
| Other real estate revenue | $31 to $32 | $145 to $150 |
| Mortgages revenue | $17 to $18 | $77 to $80 |
| Display revenue | $14 to $15 | $63 to $65 |
| Operating expenses | $247 to $252 | not provided |
| Net loss | ($14.1) to ($19.1) | ($20.2) to ($40.2) |
Data source: Zillow. Chart by author. Numbers in millions.
Although the company doesn't give EPS guidance, Yahoo! Finance reports that analysts are expecting the company to earn $0.06 per share on a non-GAAP basis, with a top line of $236.9 million in revenue for the first quarter.
Image source: Zillow.
The housing market is in an up trend
When preparing for Zillow earnings, it makes sense to get a handle on how the U.S. housing market has been performing. The following chart shows U.S. new-home sales by quarter since 2014. That new home sales are up 12% year over year for the first quarter is good news for Zillow.
| Quarter | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|
| 1 | 106,000 | 131,000 | 134,000 | 150,000 |
| 2 | 120,000 | 140,000 | 158,000 | |
| 3 | 107,000 | 119,000 | 144,000 | |
| 4 | 112,000 | 112,000 | 125,000 |
Data source: U.S. Census Bureau. Chart by author.
Looking at seasonally adjusted existing-home sales yields even further clues. Let's next examine the data for the past five quarters. The strong fourth quarter for housing, which is typically weak because of holidays and adverse weather, combined with a strong Q1 for this year, would seem to indicate that the fear of rising mortgage rates may be pushing some potential homebuyers into action. That's all good news for Zillow, as more homes sold means more commission dollars for real estate agents, which may translate to more advertising dollars spent with Zillow.
| Year | Quarter | Seasonally Adjusted Annual Rate of Existing Home Sales | % Change |
|---|---|---|---|
| 2016 | Q1 | 5,356,667 | (1.7%) |
| 2016 | Q2 | 5,476,667 | 2.2% |
| 2016 | Q3 | 5,386,000 | (1.7%) |
| 2016 | Q4 | 5,546,667 | 3% |
| 2017 | Q1 | 5,623,333 | 1.4% |
Data source: National Association of Realtors; retrieved from the Federal Reserve Bank of St. Louis. Chart by author.
Three things to look for
Zillow has three strategic objectives lined up for 2017.
1. The company intends to grow audience size and consumer engagement, believing that advertising dollars will follow users.
The following chart shows the information the company has shared over the past five quarters, with monthly unique users and share of online and mobile audience, as measured by comScore, for the real estate category. We can use this data to compare with any new information management provides. I'll be focusing on any growth against the 156 million average monthly unique users from the first quarter of 2016.
|
Metrics |
Q4 2016 |
Q3 2016 |
Q2 2016 |
Q1 2016 |
Q4 2015 |
|---|---|---|---|---|---|
|
Average monthly unique users |
140 million |
164 million |
168 million |
156 million |
124 million |
|
Online real estate market share |
Not provided |
Nearly 66% |
67% |
63% |
60% |
|
Mobile-only market share |
Not provided |
Nearly 75% |
78% |
72% |
70% |
Data source: Zillow. Chart by author.
2. Zillow also has plans to grow the Premier Agent advertising business. The company instituted a change at the end of last year to how agents advertise. Look for an update around the new auction process that allows Premier Agents to bid against one another for advertising by specific ZIP codes. Because multiple bids may lead to more ad dollars for Zillow, it will be important to see the percentage of ZIP codes that have enough bidders to make the new process effective.
3. Finally, the company aims to grow its emerging businesses. The mortgage market falls squarely in that category for the company. Mortgage broker advertising accounted for 8% of the company's revenue in 2016.
I'll be attuned to management's comments about the rumor that the Consumer Financial Protection Bureau was warning loan brokers that advertising with Zillow could be a violation of the Real Estate Settlement Procedures Act. This quarter should show whether that rumor had a negative impact on mortgage advertising.
Foolish conclusions
A quarterly report is simply a short-term glimpse of how a company is performing. I never put too much emphasis on the results of any one quarter, but I do enjoy following along to see how the business is doing and whether the company is living up to its own goals and metrics.
Having a handy guide for what to expect when the company reports can help make time spent looking over the quarterly results more productive.
