Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Zillow Group Inc (NASDAQ:ZG) dropped as much as 12.7% early Tuesday, then recovered to trade down around 2.3% as of 1:28 p.m. after the company provided a disappointing pro forma 2015 outlook during an operational update call.
So what: Specifically, Zillow CEO Spencer Rascoff stated "2015 is a transition year and we're trending a couple quarters behind where we'd like to be, due to the protracted FTC approval process which only ended two months ago." Zillow closed on its acquisition of Trulia on Feb. 17, 2015.
As a result, Zillow expects pro forma revenue -- which assumes the acquisition of Trulia would have closed at the beginning of the year -- around $690 million. Analysts, on average, were modeling fiscal 2015 revenue of roughly $753 million. Investors should also note around $40 million in revenue will come from Market Leader products, which Zillow is no longer actively selling to new clients. And while Zillow doesn't have any specific plans for Market Leader as of right now, it's exploring a "variety of possible scenarios" for the segment going forward, including the possible integration of those products into Zillow's existing offerings.
Zillow also said it expects 2015 earnings before interest, taxes, depreciation and amortization of $80 million to $85 million, and to exit the year with EBITDA margin around 20% in the fourth quarter. Zillow's long-term operating target is for EBITDA margin of 40%.
Now what: To Zillow's credit, Rascoff also said the actual integration of Trulia is coming along nicely, and that "we have made great strides in successfully bringing these two companies and cultures together in eight short weeks with minimal drama and almost no lost productivity."
With that in mind, I think investors should be encouraged that Zillow appears to simply be a few months behind its original plan -- and not because the integration isn't progressing, but rather due to the FTC's slower-than-expected approval process. That's why I think Zillow Group stock continues to be a solid bet for patient, long-term investors.