Zillow Group (NASDAQ:Z)(NASDAQ:ZG) released better-than-expected first-quarter 2016 results Thursday after the market close, and with shares up nearly 14% in after-hours trading as of this writing, investors are rightly pleased.
Quarterly revenue climbed 25% on a pro forma basis, to $186 million, easily beating Zillow's guidance for pro forma revenue of $174 million to $179 million. Note these comparisons exclude revenue from Market Leader, a real estate CRM business Zillow divested in last year's third quarter. And pro forma results assume Zillow's Feb. 2015 acquisition of Trulia would have happened at the start of 2014.
Digging deeper into Zillow's top line, revenue was driven by a 23% increase in marketplace sales, to $169 million. Within that figure, real estate revenue rose 34% year over year, to $152.5 million, and mortgages revenue climbed 65%, to $16.5 million. Meanwhile, display revenue fell 34% year over year, to $17 million, albeit primarily due to Zillow's intentional strategy of underinvesting in display advertising to improve the user experience, and to focus instead on the more promising marketplace growth story. And besides, Zillow's guidance called for even lower display revenue of $13 million to $14 million.
Based on generally accepted accounting principles (GAAP), that translated to a net loss of $47.6 million, including $15.7 million in legal costs related to Zillow's defense in a lawsuit brought by Move.com owner News Corp. That's slightly above the $12 million in legal costs Zillow management told investors to expect during last quarter's call.
Zillow's adjusted (non-GAAP) earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $1.9 million for the quarter, down from $24.5 million in last year's first quarter, but also well within Zillow's guidance range which called for adjusted EBITDA of $1 million to $6 million. Finally, adjusted net loss -- which excludes items like stock-based compensation and acquisitions costs -- came in at $22.8 million, or $0.13 per share.
CEO Spencer Rascoff called it "an incredible start in 2016," then elaborated, "We expected to accelerate revenue growth during the year, and we are already seeing this with only one quarter on the books. Growth across our brands continues to be strong, with Zillow Group as a whole seeing a record number of unique users in March."
A whopping 166 million unique users flocked to Zillow Group's four consumer-facing brands (Zillow, Trulia, StreetEasy, and HotPads) in March, up 22% year over year. In fact, average monthly unique users for all of the first quarter reached over 156 million, beating even last July's seasonally high peak of nearly 150 million.
Relatedly, Zillow Group's Premier Agent business grew pro forma revenue 25% year over year, to $134.5 million, above the top end of Zillow's $130 million to $132 million guidance range. And Zillow's decision to focus on the highest-performing agents continues to pay off; Average revenue per advertiser climbed 40% year over year, to $487, total sales to Premier Agent advertisers who have counted themselves customers for over one year also climbed 56%, while sales to existing Premier Agent advertisers rose comprised 71% of total bookings. What's more, Premier Agent advertisers who spend at least $5,000 per month rose 74% in number, and 83% on a dollar basis.
This relative outperformance isn't expected to end anytime soon, either. For the current quarter, Zillow expects revenue of $203 million to $208 million, including $146 million to $148 million in Premier Agent revenue, and $16 million to $17 million in display revenue. Second-quarter adjusted EBITDA should improve to a range of $15 million to $20 million.
Finally, Zillow also increased its full-year outlook. As it stands, Zillow now anticipates 2016 revenue of $823 million to $835 million (up from previous guidance for $805 million to $815 million), including $595 million to $600 million in Premier Agent revenue (an increase of $5 million from the top end of the old range), and $58 million to $60 million in display revenue. Full-year 2016 adjusted EBITDA is still expected to be $115 million to $125 million -- and that's despite this quarter's modest underperformance for the metric, as well as increased estimates for litigation costs of between $50 million and $55 million (up from $36 million previously).
In fact, with the exception of those higher litigation costs continuing to pull valuable resources aside as Zillow invests in its growth, it's hard to find anything not to like about this solid quarterly report. As long as Zillow continues to sustain this momentum as it patiently progresses toward sustained profitability over the long term, I think investors have every right to celebrate these results.