Zillow’s Strong Q4 Results

Zillow (ZG) witnessed a significant uptick in its stock price following the release of its Q4 results. The company reported another substantial beat for earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More (EPS), revenue, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). However, what truly seems to be driving the stock higher is the guidance provided by Zillow.

Surprising Guidance

The mid-point of Zillow’s Q1 revenue guidance exceeded analyst expectations, which came as a surprise to many. Historically, Zillow has been known for delivering large beats and then being conservative on guidance, even guiding downwards in the last two quarters. This shift in guidance was a welcomed change for investors.

Zillow is currently assuming that the housing market will remain relatively flat throughout the year. Despite this conservative outlook, Zillow still anticipates achieving double-digit revenue growth for the full year, implying accelerated year-over-year revenue growth throughout the year from the high-single digits in Q1.

Revenue Breakdown by Segments

In terms of revenue by segments, Zillow’s Residential revenue rose 3% year-over-year to $349 million. This performance is commendable considering the low turnover in the housing market. Investments in top-of-funnel and mid-funnel experiences that drive lead volumes have been primary drivers of this outperformance. Zillow expects Residential revenue in Q1 to reach $365-375 million, up 2% year-over-year at the midpoint.

The Rentals segment emerged as a significant growth driver, witnessing a healthy 37% year-over-year growth to $93 million in Q4, primarily driven by multifamily revenue, which grew 52%. Zillow expects another 30%+ growth result in Q1. Rentals, which accounted for nearly 20% of revenue in 2023, are accelerating, with Zillow currently holding the largest audience of renters and the most listings. Additionally, many homebuyers start their journey as renters, acting as a feeder for Zillow’s Residential segment.

The Mortgages segment revenue also returned to growth in Q4, increasing by 22% year-over-year to $22 million, with purchase loan origination volume growing by 105%.

Impact of Realtor Litigation

Regarding the realtor litigation, Zillow stated that it is monitoring the lawsuits closely. While Zillow is not a named party in these suits, management remains confident in the company’s ability to grow in this evolving climate. Zillow anticipates any industry changes to unfold over many years. Furthermore, Zillow highlighted the significant evolution of its business, with a majority of revenue now derived from sources other than buy-side fees.

Investor Response

Overall, Zillow’s Q4 results have left investors pleased. The company’s typical pattern of strong beats followed by downside guidance was revised to include solid guidance this time, leading to a positive response from investors. If Zillow continues to uphold its conservative outlook, this could potentially indicate even stronger revenue performance in Q1. The positive report briefly propelled Zillow’s stock to a new 52-week high, signaling optimism among investors.