Zillow Swings to Loss in Q2 on Rising Expenses, Slips from All-Time Highs

Andrew Klips |

Shares of Zillow, Inc. (Z) are falling from record highs after posting a sharp loss in second quarter earnings Tuesday evening as costs for marketing and a previous acquisition took a toll on profits for the U.S.’s largest real estate information website, although revenue soared.

For the quarter, Seattle-based Zillow reported record revenue of $46.92 million, up 69 percent from $27.77 million in the year prior quarter.  The company swung to a net loss of $10.23 million, or 30 cents per share, compared to a net profit of $1.33 million in the second quarter of 2012.

On the positive side of the street, the big net loss and jump in sales still beat Wall Street expectations of a net loss of 40 cents on revenue of $44.4 million.

I big chunk of the net loss came from $7.1 million one-time expense for employee compensation related to a prior acquisition.  Zillow had also said that it was going to be ratcheting-up its advertising efforts and with that, sales and marketing costs during the April to June period climbed to $32.92 million, compared to on $12.15 million in the year earlier quarter.

Technology and development costs also nearly doubled, rising from $5.82 million last year to $11.07 million in the recent quarter.

There were a number of positives that came from the added expenses, though.  Marketplace revenue hit an all-time high at $36.5 million, up 86 percent from Q2 2012.  Display revenue increased from $8.14 million to $10.47 million.  The number of average monthly users, a key growth metric for Zillow, was up 62 percent to 54.32 million.  Record traffic was recorded in July with 61 million monthly unique users on mobile and Web.

"The second quarter was a tremendous one for Zillow as our focus and investments delivered record revenue, traffic and Premier Agent growth.  We're executing to the long game and making great progress against our strategic priorities to grow audience and gain market share, grow our Premier Agent business, and grow our emerging marketplaces,” said Spencer Rascoff, chief executive at Zillow.

With the housing market recovering, Zillow is ramping efforts to compete with smaller rivals like Trulia, Inc. (TRLA) and Move, Inc. (MOVE) .  Last week, Trulia reported a 77-percent surge in revenue to $29.7 million and Move beat analyst expectations on both top and bottom lines, indicating that the competitive market is still growing for companies of varying sizes.  Zillow benefited by the strong earnings reports from Trulia and Move, advancing from lows of $70.70 to as high as $94 during the week (a 33 percent swing).

Today, President Barack Obama will answer questions submitted by consumers in an event hosted by Zillow.  The event, “Zillow Presents: A Better Bargain for Responsible Homeowners – President Obama Answers Your Questions on Housing,” will be moderated by CEO Rascoff, and Zillow plans to live stream to Zillow.com/whitehouse at 10 a.m. PDT/1 p.m. EDT.

Shares of all three online home-listing companies are down with Zillow’s report today, paring gains from an incredible year to date.  Shares of Zillow are down about 7 percent, Trulia is lower by 6 percent and Move is modest down by 0.2 percent as the broad markets continue to sell-off for the third straight day.  So far in 2013, though, Z is ahead 203 percent, TRLA is up 156 percent and MOVE has climbed 93 percent.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
Z Zillow Group Inc. 33.87 0.02 0.06 774,759
FFXDF Fairfax India Holdings 11.69 -0.14 -1.18 4,000

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