What happened
Shares of Zillow Group Inc. (Z +2.27%)(ZG +2.17%) were down 16% as of 2:15 p.m. EDT Tuesday after the online real estate platform leader announced strong quarterly results relative to expectations, but followed with light guidance. Zillow also announced a large acquisition.
On the former, Zillow's second-quarter revenue grew 22% year over year to $325.2 million, well within its latest guidance for a range of $322 million to $327 million. That translated to adjusted EBITDA of $56 million, which was near the high end of its outlook for $49 million to $57 million.
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So what
Over 186 million average monthly users visited Zillow's mobile apps and websites this quarter, up 4% year over year. Within the top line, Zillow's core Premier Agent segment enjoyed a solid 22% increase in revenue to $230.8 million, while rentals drove even greater 40% growth for sales of $33.3 million. Mortgage revenue declined 8% to $19.3 million, and all other segments -- primarily including new construction and display ads -- saw revenue jump 29% to $41.8 million.
Noting that the company raised almost $750 million by issuing convertible debt and class C stock this quarter, bringing its cash balance to over $1.5 billion, CEO Spencer Rascoff added, "The real estate industry is in the midst of an unprecented period of dynamic change, and Zillow Group now has significant resources at its disposal to take advantage."
To that end, Zillow Group also announced an agreement to acquire Mortgage Lenders of America for an undisclosed sum -- a move Rascoff insists "fits perfectly with our strategy of becoming more of an end-to-end provider for housing-related services."
Now what
For the third quarter, however, Zillow expects revenue of $337 million to $347 million, which is well below the $431.6 million most investors were anticipating. As such, Zillow now expects full-year 2018 revenue of $1.32 billion to $1.35 billion (down from its previous guidance range for $1.433 billion to $1.578 billion), with adjusted EBITDA of $237 million to $253 million (down from $260 million to $285 million).
During the subsequent conference call, Rascoff explained that the changes stem from a combination of the impact of new lead validation and distribution processes for its Premier Agent business, as well as softer-than-planned revenue from the Rentals segment.
