Zillow Group Sets New Traffic and Revenue Records

Zillow Group Inc. (Z 1.00%) (ZG 1.15%) released better-than-expected second-quarter 2017 results on Tuesday after the market closed, marking new all-time highs for both revenue and visits to the online real estate company's consumer-facing brands. Zillow also increased the bottom ends of its full-year guidance for revenue and adjusted EBITDA.

But with shares down in after-hours trading as of this writing on seemingly conservative guidance, Zillow's relative outperformance wasn't enough to appease the market. So let's take a closer look at what Zillow accomplished over the past few months, as well as what to expect from the company.

Image source: Getty Images.

Zillow Group results: The raw numbers

Data source: Zillow Group. 

What happened this quarter?

It's worth noting, incidentally, that last year's second-quarter results included the impact of a $130 million litigation settlement.

• On an adjusted (non-GAAP) basis, which excludes items such as stock-based compensation and acquisition expenses, Zillow Group generated net income of $7.4 million, or $0.04 per share, compared with an adjusted net loss of $127.6 million, or $0.71 per share, in the same year-ago period.
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $39.7 million, compared with an adjusted EBITDA loss of $101.3 million in last year's second quarter.
• By comparison, Zillow's guidance provided last quarter called for lower revenue of $257 million to $262 million, and lower adjusted EBITDA of $27 million to $32 million.
• Marketplace revenue grew 29.7% to $248.6 million, including:
• 29% growth in Premier Agent revenue to $189.7 million, above guidance for $185 million to $187 million.
• 45.4% growth in "other" real estate revenue -- which includes segments such as agent services, dotloop, Naked Apartments, StreetEasy, and rentals -- to $37.9 million, above guidance for $36 million to $37 million.
• 13.8% growth in mortgages revenue to $20.9 million, near the high end of Zillow's $20 million to $21 million guidance range.
• Display revenue rose 8.7% year over year to $18.3 million, above guidance for $16 million to $17 million.
• The number of Premier Agents spending over $5,000 per month increased by 107% year over year, and 92% on a total dollar basis.
• These agents remain exceedingly loyal; sales to Premier Agents who have been customers for over one year climbed 49%, while sales to existing Premier Agents accounted for 52% of total bookings.
• Monthly unique users to Zillow Group brands' mobile apps and websites climbed 6% year over year, to over 178 million, including a new all-time high of 182 million unique users in May 2017.

What management had to say

Zillow Group CEO Spencer Rascoff stated:

Zillow Group finished the first half of 2017 with another quarter of record revenue and traffic, further solidifying our foundation for long-term growth. Our growing consumer audience is increasingly engaged, and we achieved revenue growth across all of our emerging marketplaces. As we continue to expand our suite of marketing and technology solutions to help our industry partners achieve long-term success, we're excited about the opportunities in front of us.

Looking forward

For the third quarter, Zillow expects revenue of $273 million to $278 million, the midpoint of which represents year-over-year growth of roughly 22.7%. Within that total, Zillow expects Premier Agent revenue of $196 million to $198 million, mortgage revenue of $20 million to $21 million, "other" real estate revenue of $40 million to $41 million, and display revenue of $17 million to $18 million. Trending toward the bottom line, that should translate to adjusted EBITDA of $64 million to $69 million.

Finally, Zillow increased the bottom ends of its prior guidance, calling for revenue of $1.055 billion to $1.065 billion, compared with $1.050 billion to $1.065 billion previously, and adjusted EBITDA of $220 million to $230 million, up from $215 million to $230 million previously.

So why, then, are Zillow shares down around 9% in after-hours trading as of this writing? For one, as of Tuesday's close Zillow stock was already up 31% year to date. And keeping in mind we don't lend much credence to Wall Street's demands, analysts' consensus estimates had predicted that the company would put forth a more aggressive third-quarter revenue outlook of $280.5 million -- though this doesn't account for Zillow's propensity for under-promising and over-delivering.

In the end, this was another strong quarter from Zillow as it works to become a one-stop shop for all things real estate, facilitating the industry's inevitable move online. And despite what the market's initial reaction might indicate, I think investors should be pleased with where Zillow stands today.