5 Things to Watch for When Zillow Reports Earnings

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Investors will be watching for any sign of weakness in Premier Agent advertising revenue when Zillow Group, Inc. (NASDAQ: Z) (NASDAQ: ZG) reports earnings on Aug. 8. A new pilot program called Instant Offers, announced in early June, caused quite a stir on social media, upsetting the real estate agents who are at the heart of the company's advertising base.

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Here's a look at five things to watch for during the earnings report, starting with company guidance.

1. Guidance by the numbers

Zillow management raised the bar for 2017, after reporting strong first-quarter results, partially based on the company's new auction-based pricing model for real estate ads. Management is calling for 25% year-over-year growth at the mid-point of annual revenue guidance of $1.050 billion to $1.065 billion.

Metric Q2 Guidance  Q2 2016 Actual Results  2017 Guidance 2016 Actual Results
Revenue $257 to $262  $208  $1050 to 1065  $847 
Premier Agent revenue $185 to $187  $147  $757 to $765  $604 
Mortgage revenue $20 to $21  $18  $80 to $82  $71 

Although the company doesn't guide for EPS, the consensus analyst estimate, as reported by The Wall Street Journal, is for a $0.01-per-share loss. 

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2. Zillow introduces a new metric

The company announced last quarter that it will move away from telling investors the agent advertising count and replace that metric with the number of sessions or visits users have during a quarter with Zillow. A visit is considered an interaction a user has with a Zillow app or website and is a measure of user engagement. 

In light of the change, Zillow published historical numbers to give investors a frame of reference.

Year Q1 Visits Q2 Visits Q3 Visits Q4 Visits
2016 1.298 billion 1.431 billion  1.404 billion  1.190 billion 
2017 1.533 billion TBD TBD TBD 

3. Instant Offers update 

When the company announced a pilot program called Instant Offers, the real estate community was abuzz on social media proclaiming its displeasure. The program, which was rolled out in Tampa and Las Vegas, gives homeowners the opportunity to review purchase offers from up to five investors to sell their home in "as is" condition without having to go through the normal selling process of looking for a buyer and advertising the home as being for sale. The company encourages the seller to use a real estate agent for the transaction but doesn't require it. The buyer does use an agent.

The company defended itself against agents' negative reactions to possibly losing out on a potential commission from an Instant Offers sale when Zillow Chief Business Officer Greg Schwartz posted an opinion piece on an industry website, trying to make peace with the real estate community. In part, he said:

We come in peace.

Specifically, we require all buyers to be represented by an agent, and we aggressively encourage sellers to have representation through language on our site, email, and phone calls offering to connect them with an agent.

Investors will want to hear if the company can add any color around the controversy, an update on whether the pilot program will expand to other areas, and if the program had an impact on Premier Agent advertising.

4. CFPB request for information

Last quarter, the company stated that the Consumer Financial Protection Bureau  (CFPB) had requested further information from Zillow related to the program that allows mortgage brokers and real estate agents to co-market on Zillow sites. The Real Estate Settlement Procedures Act has a clause to protect the public stating that a mortgage broker can't give something of value to a real estate agent in return for a client referral. At risk would be some portion of Zillow's ad revenue that comes from the mortgage industry, about 8% in 2016, if it was found that agents weren't paying their fair share of the cost of the co-marketed ads.

Investors will want an update on the status of any Zillow discussions with the CFPB.

5. The Amazon threat

An image of a website landing page mysteriously appeared from Amazon.com Inc. on its Prime Day that seemed to indicate the company might be getting into the real estate business. Although the page was quickly removed from the website, Zillow's stock price dropped by 5%. This quarter's earnings report will be analysts' first opportunity to publicly ask Zillow management for comment.

If this topic comes up during the Q&A on the conference call, it will be interesting to hear what Zillow management has to say about its Seattle neighbor.

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Frank DiPietro owns shares of Amazon, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns shares of and recommends Amazon, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.