Source: Zillow Group.
Shares ofZillow Group are down 10% since the online real estate specialist released second-quarter results three weeks ago. But that doesn't mean the report was bad; Zillow's pro forma revenue climbed 20% year over year to $171.3 million, and translated to an adjusted net loss of $0.01 per share. Analysts, on average, were anticipating revenue of just $168.8 million and a significantly wider net loss of $0.25 per share.
More than anything, it's evident Zillow has followed the broader market's declines in recent weeks, which goes to show the usual headline numbers and changes in share price often don't suffice in helping investors to understand what truly drives businesses like Zillow. Luckily for us, Zillow management spends roughly an hour discussing their results with analysts on a conference call after each quarterly report. Here are five of the most important points they brought up during the most recent call:
1. Three reasons adjusted EBITDA went through the roof
For reference, that's "post closing" of Zillow's recent acquisition of Trulia. According to Rascoff, that acquisition is yielding greater-than-expected synergies. And with additional help from effective ad spending as part of Zillow's planned$100 million national advertising campaignthis year,adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) skyrocketed 277% to $21 million in the second quarter, trouncing Zillow's own guidance for quarterly adjusted EBITDA of $4 million. In addition, investors should be encouraged that Zillow's improved monetization efforts have yielded solid revenue growth, which in turns flows toward the bottom line.
2. Listing data is better than ever
Earlier this year, many investors were concerned when Zillow announced it would let its long-standing agreement to receive some direct MLS listings from ListHub expire as of April 7, 2015. After all, ListHub had over 500 supported MLSs in its network at the time, and at the start of the deal four years ago was sending roughly 2 million direct listings to Zillow every day.
But keeping in mind ListHub is owned by Zillow competitor Move.com -- which itself was acquired by News Corp late last year -- Rascoff later told investorsZillow's decision to go it alone was a "liberating" one, as New Corp's "incentive was obviously to continue to send Zillow inferior listings in order to advertise that their own website had higher quality listings." With over 300 MLSs and growing now sending direct data to Zillow, the accuracy and quality of its listings have never been better.
3. 2015's top priority is almost complete
Completing the integration of Zillow's and Trulia's operations, rentals, display, and mortgages businesses in the weeks following the acquisition was no small task. But three months ago, Rascoff rightly singled out the completion of the two companies' core agent advertising products as Zillow Group's highest priority, setting a goal for it to be done by the end of 2015. Thankfully, that time frame has been moved up several months, and should at least partially offset the negative effects of the FTC's protracted approval process for the acquisition in the first place. Upon completion of the agent advertising business transition, agents will be able to fully enjoy Zillow Group's increased scale and seamlessly purchase advertising across all four of its consumer-facing brands, including Zillow, Trulia, HotPads, and StreetEasy.
4. Agent advertisers fell for a reason
One point of concern in Zillow's second-quarter report was the fact the number of agent advertisersfell2% sequentially from the first quarter, to 101,297. However, that was primarily due to a combination of Zillow's decision to not only end several of Trulia's short-term discounted products, but also change its sales teams' incentives to favor revenue growth over increasing the actual number of advertisers. Consequently, Zillow's average monthly revenue per advertiser climbed 6% sequentially and 18% year over year to $375, helped by the low-churning big spenders Rascoff describes above.
5. Emerging markets are thriving
Make no mistake: Zillow's primary source of revenue growth remains its core real estate marketplace platform. But that also shouldn't stop it from developing other incremental revenue opportunities in adjacent markets. In Mortgages, for example, Zillow's current annual revenue run rate is already in excess of $40 million -- though it took roughly four years to reach $10 million in annualized revenue after its initial ramp. Meanwhile, management has previously told investors Rentals has already exceeded that same revenue ramp goal, and should match Mortgages' current run rates within the next several years. Finally, without providing much additional detail, Rascoff elaborated they're "extremely pleased" with StreetEasy's audience growth and revenue since launching the brand's first-ever marketing campaign in the first quarter of this year.
As it stands, these opportunities individually may not be huge contributors to Zillow Group's results today. But as Zillow continues to make progress in each respective market, together they should represent a massive growth driver for the company over the long run.
The article 5 Things Zillow Group, Inc.'s CEO Wants You to Know originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool owns and recommends Zillow Group (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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