Why is Zillow (ZG) down 1.4% since its last earnings report?

A month has passed since Zillow Group’s (ZG) last earnings report. Shares have lost about 1.4% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Zillow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Zillow’s first-quarter earnings are in line with estimates, with the highest YoY gains

Zillow Group reported relatively strong first-quarter 2024 earnings, with the top line surpassing the Zacks Consensus Estimate and the bottom line missing the Zacks Consensus Estimate. The company recorded an increase in revenues from year to year, which was accompanied by strong dynamics in all industries.

It has an established brand position in the residential real estate industry. The company boasts more than 217 million unique monthly visitors across the Zillow ecosystem of apps and websites. Zillow’s advanced technologies, such as Real Time Touring, Listing Showcase, Follow Up Boss CRM, and ShowingTime travel software, are becoming very popular among real estate agents. However, the difficult macroeconomic environment remains an obstacle.

Net income

GAAP net loss for the quarter was $23 million, or a loss of 10 cents per share, compared to a net loss of $22 million, or a loss of 9 cents per share, in the prior-year quarter. The slight increase in losses despite higher revenues was due to higher operating costs.

On a non-GAAP basis, the company’s net income rose to $93 million, or 36 cents a share, from $87 million, or 35 cents a share, in the year-ago quarter. The bottom line was in line with the Zacks Consensus Estimate.

Revenue

Quarterly revenue increased to $529 million from $469 million in the prior-year quarter. Healthy growth in the residential and rental segments contributed to improved results. The top line surpassed the Zacks Consensus Estimate of $509 million.

Residential revenue increased 9% from $361 million in the prior-year quarter to $393 million in the first quarter of 2024, driven by significant growth in Premier Agent’s business. The growth of the New Construction business, the nationwide expansion of Listing Showcase through ShowingTime+, and contributions from Follow Up Boss also supported net sales in this industry.

Rental segment revenues saw a 31% increase to $97 million from $74 million in the prior-year quarter. The increase in rental income resulted from a solid increase in the number of multifamily property offers.

The mortgage segment generated revenues of $31 million, compared to $26 million in the prior-year quarter, supported by solid growth in purchase loan originations.

The story continues

Other details

For the quarter, Zillow reported gross profit of $406 million compared to $377 million in the prior-year quarter, with margins of 77% and 80%, respectively. Operating expenses for the quarter were $451 million, compared to $422 million in the prior-year quarter. Adjusted EBITDA was $125 million compared to $104 million a year earlier.

Cash flow and liquidity

In the first quarter of 2024, Zillow generated $80 million in cash from operations, up from $93 million a year ago. As of March 31, 2024, the company had $1.44 billion in cash and cash equivalents and $1 billion in convertible senior notes, net of current interest.

Perspectives

Zillow expects total revenue to be between $525 million and $540 million in the second quarter of 2024. Residential revenues are expected to be $372 million to $382 million. Adjusted EBITDA is expected to be in the range of $85 million to $100 million.

How have estimates changed since then?

Analysts have been quiet over the past two months as none of them have issued any earnings estimate revisions.

VGM results

Right now, Zillow has an average growth score of C, a rating with the same momentum score. However, the stock is rated F for value, putting it in the fifth quintile for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Zillow has a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Zillow is part of the Zacks Internet Services industry. Over the past month, shares of the same industry Alphabet ( GOOGL ) have gained 3.3%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Alphabet reported revenue of $67.59 billion, representing a year-over-year change of +16.4%. EPS of $1.89 for the same period compared to $1.17 a year ago.

Alphabet is expected to report earnings per share of $1.85 for the current quarter, representing a change of +28.5% from the prior-year quarter. The Zacks Consensus Estimate has changed +0.1% over the past 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Alphabet. The stock also has a VGM Rating of D.

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