Zillow (ZG) Q4 Earnings: What Lies Ahead for the Stock?

Zillow Group Inc. ZG is set to report fourth-quarter 2017 earnings on Feb 8. The company beat the Zack Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 53.01%.

Last quarter, the company reported non-GAAP earnings of 19 cents per share, which came ahead of the Zacks Consensus Estimate and the year-ago quarter’s earnings of 17 cents per share.

Total revenues increased 25% year over year to $281.8 million, beating the Zacks Consensus Estimate of $277 million. The year-over-year growth was primarily attributed to strong growth of the company’s Marketplace segment.

Management is particularly focused on the performance of the Premier Agent Business that comprises around 70% of total revenues.

Notably, Zillow’s shares have returned 20.53%, underperforming the industry’s 26.05% rally.

Guidance & Estimates

Management expects fourth-quarter 2017 revenues to remain in the range of $274 million to $279 million. The Zacks Consensus Estimate is pegged at $277.1 million.

The company expects Premier Agent revenues in the range of $199-$201 million, other real estate revenues of $42-$43 million and mortgage revenues of $18-$19 million, which taken together comprise Marketplace revenues.

Management raised its 2017 guidance. Revenues are now anticipated in the range of $1.068 billion to $1.073 billion. The Zacks Consensus Estimate is pegged at $1.07 billion.

The Zacks Consensus Estimate for earnings is currently pegged at 19 cents, up 35.7% year over year.

Let's see how things are shaping up for this announcement.

Factors to Consider

We expect the company to benefit from increasing traffic at its mobile apps and websites, strong rental demand and expanding Multiple Listing Services (MLS) partnerships.

Zillow’s increased advertising effectiveness, continuous product innovation and effective free marketing channels are helping it gain audience. The new auction-based pricing model in the Premier Agent business has gained significant traction within a short span of time. This is expected to boost top-line growth in the to-be-reported quarter.

Moreover, the company’s expanding MLS partnerships is aiding it to deliver high-quality listing information to home buyers and sellers. Additionally, Zillow is well poised to gain from rapidly-growing rental traffic.

The company added two new advertising options to its premier agent advertising product line, namely Premier Broker Program and Team Accounts. The new additions are aimed at improving consumer experience related to agent advertising.

Additionally, the Premier Agent Direct program that enables agents to advertise on Zillow, Trulia, and Facebook FB was enhanced with an additional feature. A marketing link can be established with customers via this new feature, which automatically generates printed postcards and mails to customers.

The company’s newly announced application allows agents to create 3-D home tours. It will help buyers narrow down their searches before a personal visit and is another positive for the company.

The company also expanded its relationship with some prominent brokers such as Realogy, City Habitats and Sotheby's. These additions are anticipated to boost the company’s top line.

Nevertheless, stiff competition, increasing mortgage interest rates and higher advertising spend are major headwinds.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zillow Group carries a Zacks Rank #3 and its Earnings ESP is -0.90%.

Stocks With Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

NVIDIA Corporation NVDA has an Earnings ESP of +6.87% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology, Inc. VSH, with an Earnings ESP of +6.19% and a Zacks Rank of 2.

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