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Has Zillow Turned the Corner?

By Motley Fool Staff – May 15, 2019 at 11:54AM

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The market is more optimistic, but you might want to reserve judgment.

Zillow (Z 2.44%) (ZG 2.61%), at heart, is an online real estate database business that makes most of its profits from advertising. But it has ambitions beyond that, and building whole new lines outside of its core competence is expensive and time-consuming. But the company beat estimates when it reported on its first-quarter profits, and raised guidance, too.

In this segment from Motley Fool Money, host Chris Hill and senior analysts Andy Cross, Ron Gross, and Jason Moser consider what the latest results mean for Zillow, how it's progressing in its transformation into a buyer and seller of large numbers of homes, the new CEO, and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on May 10, 2019.

Chris Hill: Zillow shares up 10% on Friday after first-quarter profits came in higher than expected. They raised guidance, too, Jason. It's been a rough stretch lately for Zillow. I'm wondering if you think they've turned a corner?

Jason Moser: Maybe. Is that a good enough answer for you?

Hill: No, it's not a good answer.

Ron Gross: [laughs] Try again!

Moser: I mean, the action of the share price after the earnings announcement has been pretty amazing to see. It was up 20% at one point after hours. I think the real story for this business going forward is homes. I mean in the homes business that they're trying to grow, the buying and selling of homes, that's the driver that investors want to follow closely in the coming quarters and years to get a gauge of whether or not Zillow, the company, the business, is growing. The home segment brought in revenue of about $130 million for the quarter. It's still operating at a loss, of course. To put that into context, they sold 414 homes, while purchasing 898.

The interesting thing I noted here, if you back out the homes revenue, then you get around $325 million in revenue there. That's only 8% growth from the same quarter a year ago, which is pretty meager. Looking at their guidance, that number actually is probably going to shrink even more in the second quarter. The premiere agent business is really just hitting a brick wall as they're trying to figure out how to change that, how to make it a little bit more valuable for the agents they have. So it does feel like the more things change, the more they stay the same with Zillow. But I do like the new CEO. I think that Rich Barton is the guy to get this done. If anybody's going to be able to pull it off, it's going to be him. But it really is going to hinge on that home segment. That's just going to take a lot of work and time. So that's what we'll want to pay attention to.

Hill: That doesn't sound like they've turned the corner.

Moser: [laughs] Well, they see the corner that they're trying to turn. How about that?

Hill: That's progress.

Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
ZG
$29.83 (2.61%) $0.76
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
Z
$29.76 (2.44%) $0.71

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