Zillow Group Inc. (Z +2.41%) (ZG +1.47%) announced strong fourth-quarter 2017 results on Thursday, handily exceeding its guidance with improvements in both site traffic and monetization.
After the company issued conservative guidance for the start of 2018, however, Zillow Group's shares pulled back modestly on Friday. Let's take a closer look at Zillow Group's accomplishments over the past few months, as well as what investors should expect from the company in the coming quarters.
IMAGE SOURCE: ZILLOW GROUP.
Zillow Group results: The raw numbers
| Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$282.3 million |
$227.6 million |
24% |
|
GAAP net income (loss) |
($77.2 million) |
($23.5 million) |
N/A |
|
GAAP earnings (loss) per share |
($0.41) |
($0.13) |
N/A |
DATA SOURCE: ZILLOW GROUP.
What happened this quarter?
- Zillow's GAAP net loss includes a non-cash impairment charge of $174 million related to Trulia's trade names intangible asset. On an adjusted (non-GAAP) basis, Zillow's net income was $36.7 million, or $0.19 per diluted share, up from $27.1 million, or $0.14 per share in the same year-ago period.
- Zillow's top line arrived comfortably ahead of guidance provided three months ago when Zillow told investors to expect lower revenue of $274 million to $279 million.
- Marketplace revenue increased 26%, to $265.6 million, including:
- 21% growth in Premier Agent revenue, to $199.5 million, within guidance for $199 million to $201 million.
- Mortgages revenue declined 12%, to $18.5 million, in line with guidance for $18 million to $19 million.
- Other real estate revenue grew 60%, to $47.6 million, above guidance for $42 million to $43 million, driven primarily by Zillow Group Rentals and New Construction.
- Display revenue fell 1%, to $16.7 million, above guidance for $15 million to $16 million and in line with Zillow's strategy of de-emphasizing display advertising to improve the user experience and focus on driving marketplace revenue.
- Adjusted EBITDA increased 29.6%, to $70.9 million.
- Visits to Zillow Group brands' sites and mobile apps (Zillow, Trulia, StreetEasy, and RealEstate.com) increased 21%, to over 1.4 billion. Premier Agent revenue per visit rose 1%, to $0.139.
- The number of Premier Agents spending over $5,000 per month increased by 70% year over year and grew 64% on a total-dollar basis.
- Monthly average unique visitors grew 8%, to over 151 million.
What management had to say
Zillow Group CEO Spencer Rascoff stated:
Zillow Group had another fantastic year of record results in 2017 and exceeded $1 billion in revenue for the first time. We successfully transitioned advertisers to an auction-based pricing model, launched RealEstate.com, and continued to grow our emerging marketplaces, including two strategic acquisitions. We believe the next phase of our company's evolution will make Zillow Group an even more meaningful part of the home-shopping experience. In 2018, we plan to deliver better experiences for consumers buying, selling or renting a home, and strengthen our partnerships with real estate professionals by aligning our growth with their success.
Looking forward
Zillow has come a long way since its initial public offering just six years ago, growing its annual revenue from $66 million then to $1.077 billion in 2017. But now, for the first quarter of 2018, Zillow expects revenue in the range of $291 million to $296 million, good for 19.4% year-over-year growth at the midpoint. Within that, Zillow is targeting Premier Agent revenue of $206 million to $208 million, mortgages revenue of $21 million to $22 million, rentals revenue of $30 million to $31 million, and other revenue of $34 million to $35 million.
Yes, that breakdown is a bit different than we're used to seeing. From now on, Zillow will separately report its rentals segment revenue, while the other category will include new construction, dotloop, display, and revenue from various other smaller advertising and business-software solutions.
Finally, Zillow offered a look at its targets for the full year, calling for revenue of $1.302 billion to $1.317 billion, or growth of 21.6% from 2017, with adjusted EBITDA of $300 million to $315 million. In this case, Zillow's outlook exceeded Wall Street's consensus targets for 2018 revenue of exactly $1.3 billion.
That said, it might seem odd that Zillow stock declined almost 3% today in response, as its first-quarter revenue guidance was the only piece of the puzzle that didn't fit Wall Street's narrative. To be fair, it helps that shares are still up more than 30% over the past year. As such, with Zillow poised to continue its torrid growth as the real estate industry continues to migrate online, investors should be more than pleased with the company's position today.
