Zillow Earnings: An Early Look

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Zillow (ZG 1.67%). The real estate information company has held up far better than many of the Internet-based companies that came public during the same time frame. Let's take an early look at what's been happening with Zillow over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Zillow

Source: Yahoo! Finance.

Will Zillow make investors feel at home this quarter?
Analysts have modestly pulled back on their earnings estimates for Zillow in the past three months, reducing their earnings-per-share consensus for the quarter by a penny and for the full 2013 year by a nickel. That came largely from Zillow's own disappointing forecast in its previous report, but that hasn't held the stock back at all, as shares have rocketed 40% higher since early November.

Zillow has posted huge growth over the past year as it has attracted a growing number of real estate professionals to join its premium network. With 37 million unique visitors to its mobile and Internet sites during one month of the peak summer season last year, Zillow has done a good job attracting homebuyers and making the service look attractive to brokers trolling for customers.

Still, competition has come into the space, with the recent IPO of rival real estate website Trulia (NYSE: TRLA) marking a milestone in the industry. In response, Zillow has sought to expand its reach through acquisitions. For instance, in November, Zillow bought HotPads, an online rental information website, for $16 million in cash, broadening its coverage away from its prior purchase focus to incorporate more relevant rental information as well. By doing so, Zillow acknowledges the increased importance of rental property, given the reluctance to buy among potential homeowners and difficult conditions for getting mortgage loans.

Another huge area that the company just expanded into is home improvement. With its Zillow Digs service offering the chance to draw up remodeling projects and get estimates for local professionals to do the work, Zillow is tapping into the same trend that has vaulted Home Depot (HD 0.80%) and Lowe's (LOW 0.96%) higher over the past year. In fact, Zillow's move could challenge Home Depot and Lowe's to the extent it connects customers to other local contractors rather than the home-improvement retailers' own installation teams, although the retailers should still get a secondary effect from the business they get from those local contractors.

In Zillow's quarterly report, look for the company to explain its strategy for integrating all these purchases into a cohesive business strategy. With the stock commanding a premium valuation, it's essential that Zillow convince investors that it has a plan to move forward competitively.

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