Factors Likely to Impact Zillow (ZG) This Earnings Season

Zillow Group Inc. ZG is set to report first-quarter 2018 earnings on May 7. The company beat the Zack Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 43.92%.

The company’s non-GAAP earnings of 19 cents per share matched the Zacks Consensus Estimate in the last reported quarter. The company’s non-GAAP earnings climbed from 14 cents per share in the year ago period.

The company delivered revenues of $282.3 million, topping our consensus estimate of $277.04 million. The online real estate company reported record quarterly revenues in the fourth quarter as sales jumped 24% year over year.

Zillow also stated that more than 151 million average monthly unique users visited Zillow Group brands in the fourth quarter. Management is particularly focused on the performance of the Premier Agent Business that comprises around 70% of total revenues.

Notably, its shares have returned 21.5% year over year, outperforming the industry’s decline of 0.98%.

Guidance & Estimates

Zillow expects to report first-quarter 2018 sales between $291 million and $296 million, and full-year revenues in the range of $1.302-$1.317 billion.

These estimates are soft compared with our consensus estimates, which call for $1.48 billion for the full-year 2018 and $298.96 million for the coming quarter.

The Zacks Consensus Estimate for earnings is pegged at 6 cents, down 45.5% year over year. While for full year the Zacks Consensus Estimate for earnings is pegged at 74 cents, up 39.6% 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. Additionally, Zillow is well poised to gain from rapidly-growing rental traffic.

The company’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.

Zillow has been active in adding new advertising options to its premier agent advertising product line. 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 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 has a Zacks Rank #3 and an Earnings ESP of 0.00%.

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:

Endo International plc ENDP has an Earnings ESP of +2.78% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

DISH Network Corporation DISH has an Earnings ESP of +2.95% and a Zacks Rank of 3.

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