Business

Zillow Group Inc (NASDAQ:Z) Share Price Fall Is Short-Term Says Management

Zillow Group Inc (NASDAQ:Z) stock prices fell sharply barely a day after the company announced its third-quarter results. The stock prices reportedly registered a 16% drop following the Q3 financial reporting which the management says is a temporary setback following recent changes in its business model. The company’s stock closed at $49.40 per share, an all-time low in 7 years. Although the share’s value appreciated to $48.26 during the day, it was clear that investors were not impressed at the manner in which the company is run.

Source: Stockcharts

Revenue

The numbers from the Q3 results were not as depressing as such to warrant the kind of response for its stock. In fact, the popular online real estate platform generated approximately $343.1 million in quarterly revenue representing a 22 percent growth from previous data.

Online Traffic

According to the report, Zillow’s online platforms- mobile applications and websites experienced increased traffic of about 13% to 1.9 billion. The platforms saw an influx of 195 million new users for the month of July becoming the company’s new record.

Advertisements

Zillow’s online platforms are among the most sought after by advertisers, and for the third quarter period, the platforms generated $37.3 million. During the period about new rental listings on the company’s mobile apps and websites soured almost 30% and as such impacting positively on the company’s advertisement revenue.

Other revenue

According to the financial reports, Mortgage revenue was $18.4 million a significant 12% drop from prior data. The newly launched Zillow Homebuying Business contributed $11 million to the company’s revenue. Among the 168 house units bought for the new outfit, only 36 units were sold in the third quarter.

Details

Now, why would the company’s stock fall suddenly a day after announcing the financial reports? For starters, the company’s Q3 results accompanied management statements announcing the reduction of its full-year outlook. The adjustments were made as follows; earlier projected annual revenue of $1.32 billion-$1.35 billion was sliced to $1.307 billion-$1.324 billion. EBITDA was also calibrated to $195 million-$207 million from a promising $237 million-$253 million. Of course, any investor would second guess a company aiming low against previous optimistic projections. The company forewarned investors of short-term setbacks in regards to revenue growth brought about by changes in its core offerings.

The company had refurbished its Premier Agent lead validation and distribution process in response to client’s recommendations and advertisers were not amused. Also its home buying and selling business were slowly picking up and it was bound to affect the company’s revenue projections. Zillow invested heavily in new ventures like the Homebuying Business, but as it would turn out, there was no overwhelming demand for the properties in the Q3 as it was anticipated. The new investments reportedly punctured the company’s profits badly.

Despite the fact Zillow’s diversification to buying and selling of houses directly to consumer’s met apparent complications, the company went ahead to acquire Mortgage lenders of America to power its home buying business. This move led to the company’s stock being demoted by Merrill Lynch analysts arguing that the company’s move could negatively impact its profitability next year. The company’s CEO Spencer Rascoff, however, came forward to defend the move stating that, “It allows us (Zillow) to monetize the Zillow Offers business a second way. First, we can make money from buying and selling. Second, we can make money from mortgage origination. Third, we can make money by passing the home seller, who doesn’t want to sell their home to us, off to a premier agent.”

The company believes that when advertisers familiarize with the new way of doing things on its platforms, the company will begin to enjoy long-term profitability.

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