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Why Zillow Group Stock Sank Today

By Joe Tenebruso – Updated Aug 8, 2019 at 3:16PM

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Lower-than-expected guidance for one of the online real estate empire's key businesses has investors scared.

What happened

Shares of Zillow Group (Z -0.79%) (ZG -0.68%) fell more than 15% on Thursday following the release of the online real-estate services company's second-quarter results. 

So what

Second-quarter metrics were solid. Revenue surged 84% year over year to $599.6 million, driven by strong growth in the company's home buying and selling business. Analysts had been expecting revenue of only $585 million. Zillow also reported a loss that, at $0.14 per share, was smaller than Wall Street was anticipating.

Notably, Zillow's collection of online real estate properties is growing more popular among home shoppers. Traffic to the company's mobile apps and websites rose 4% to more than 194 million average monthly unique users in the second quarter, while visits increased 14% to nearly 2.2 billion.

"Our second-quarter results reflect the momentum we are seeing across our businesses," CEO Rich Barton said in a press release.

A person pointing to a declining digital stock chart

Image source: Getty Images.

Now what 

Despite its strong second quarter, investors appear to be worried about Zillow's premier agent business. During a conference call with analysts, CFO Allen Parker said that Zillow now expects revenue in its premier agent segment to grow by only 1% in 2019. That was below the 2.8% growth analysts were projecting. 

Zillow is testing a new monetization model that allows agents to pay a fee only when they close a transaction with a consumer lead, instead of paying Zillow for advertising up front. "This means that a portion of previously expected premier agent revenue for markets where we are expanding our test is now expected to shift from Q4 into future periods to correspond with closing of Zillow-attributed transactions," Parker said.

If these changes lead to only a slight delay in the timing of this revenue recognition, as Parker suggests, then it's likely that investors are overreacting to Zillow's guidance change.

Joe Tenebruso 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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Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$29.07 (-0.68%) $0.20
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Zillow Group, Inc.
$29.05 (-0.79%) $0.23

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