Zillow (NASDAQ:ZG) announces third quarter 2014 results this Wednesday November 5, 2014 after the closing bell, so it's time for investors to start thinking about what to expect from the online real estate maven.
Zillow has already told investors revenue should be in the range of $87 million to $88 million, the midpoint of which represents 64% growth over last year. Meanwhile, Zillow's adjusted earnings before interest, taxes, depreciation, and amortization should be $14 to $15 million, excluding around $7 million to $10 million in expected costs from to its pending acquisition of Trulia (NYSE: TRLA). Wall Street, for its part, will be looking for earnings of $0.08 per share on revenue of $88 million.
However, Zillow's business is much more than just those headline figures. Here are three more things I'll be watching closely going into the report:
Premier Agent growth
First, look for continued growth in both revenue spent by and number of Zillow's Premier Agent Advertisers. Last quarter, Zillow's number of Premier Agents climbed by 3,850 sequentially, and 46% year over year to 56,818. Zillow also saw better than expected year-over-year growth in Premier Agent revenue (82%) and bookings (101%). On the former, average revenue per agent climbed an impressive 20% to $320, so we'd like to see continued strength here anywhere near in the same range.
Meanwhile, the latter figure resulted in higher-than-expected sales commissions during the quarter. That wasn't a bad thing considering most of the revenue related to those bookings would be recognized in future periods, but it still irked headline figure-oriented investors by adding $0.02 per share to Zillow's second-quarter net loss. If we see a repeat of that strong growth in Premier Agent bookings in particular, don't be surprised or alarmed if Zillow's Q3 earnings fall short of expectations because of higher sales commissions in the near term.
Of course, Zillow's Premier Agents wouldn't embrace the platform if it weren't also for consumers flocking to the site. As Zillow management has stated, "Advertisers are clearly following audience," which has meant continued investments from Zillow to capitalize on that opportunity.
For perspective, last quarter Zillow enjoyed record quarterly and all-time traffic, as average monthly users jumped 49% year over year to 81.1 million. Within that, Mobile saw even better growth, almost doubling year over year and driving more than 568 million homes viewed on Zillow via a mobile device -- that's around 212 per second. Perhaps most notably, Zillow capped Q2 with a new record of nearly 89 million unique users in July.
If Zillow was able to sustain that momentum through Q3, the effects of such record consumer traffic will undoubtedly trickle down to the rest of the business.
Updates on Trulia/guidance
Finally, listen for any additional perspective on Zillow's pending $3.5 billion acquisition of Trulia, which was first announced on July 28, 2014.
First, there's the matter of Zillow awaiting Federal Trade Commission approval for the acquisition. On Sept. 3, 2014, Zillow issued a press release stating both it and Trulia had received a second request from the FTC for information, while at the same time noting such requests are "a standard part of the full regulatory process."
In any case, that purchase isn't expected to close until 2015. But a few days ago, Trulia opted to withhold financial guidance during its own Q3 report given its status as the acquiree in the buyout. Still, that doesn't make Trulia's future numbers any less pertinent to both Trulia and Zillow investors.
At the same time, I shouldn't think Zillow would follow Trulia's lead on guidance given its status as the acquirer in this case. Assuming Zillow does provide an outlook for Q4, keep in mind analysts will be looking for earnings of $0.30 per share on sales of $91 million. For the full-year, analysts' models predict revenue and earnings of $324.1 million and $0.37 per share, respectively.
Note, however, the high end of that revenue figure sits above Zillow's previous guidance for 2014 sales of $321 million to $323 million, which itself was raised after last quarter's outperformance. That's not to say Zillow isn't capable of another beat and raise, but investors should at least be aware of Wall Street's outsized expectations.