Here's Why Investors Are So Excited About Zillow

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 |  About: Zillow Group, Inc. (Z)
by: Leigh Drogen

Summary

Zillow is set to release its second fiscal quarter earnings report of 2014 on Tuesday, August 5th after the market closes.

Zillow will be acquiring rival Trulia for $3.5 billion.

Trulia will continue to be operated independently as a separate brand under Zillow's ownership.

Contributing analysts on Estimize are expecting Zillow's revenue to increase by 62% on a year-over-year basis.

Zillow is set to release its second fiscal quarter earnings report of 2014 on Tuesday, August 5th after the market closes. Zillow has been one of the hottest stocks of the year and an announcement last week that the home listings media company will be acquiring rival Trulia for $3.5 billion pushed Zillow shares 14% higher. Trulia will continue to be operated independently as a separate brand under Zillow's ownership.

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Source: Estimize.com

This quarter contributing analysts on Estimize are expecting Zillow to edge past the Wall Street consensus by 1 cent per share on the bottom line and squeak past the Street's revenue estimate by less than $1 million.

Zillow is an online real estate data platform. The site allows users to look up the price of homes or search for houses by price, location, and amenities. Zillow was founded by Rich Barton and Lloyd Frink, the former executives of Microsoft who started Expedia before it was spun off from its parent company. The company operates as a free to use media company which makes money by offering an online and mobile advertising platform.

Zillow has had an app presence on mobile since 2010. So far this earnings season we've seen incredibly strength in mobile advertising from the likes of Google, Facebook, LinkedIn, Yelp, and Twitter. Smartphones have become ubiquitous in the United States and are becoming an increasingly important piece of daily life for the average person. As a result of the increasing amount of time being spent on mobile, advertisers are throwing piles of cash at mobile ads.

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Source: Estimize.com

Contributing analysts on Estimize are expecting Zillow's revenue to increase by 62% on a year-over-year basis, which is down slightly from the 67% to 70% reported over the past year. While the rate of sales growth may not increase this quarter, 62% is still a rapid pace. Consolidation with Trulia will boost Zillow's advertisements in the future and steer the merged company clear of potential future costs.

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Source: Estimize.com

By acquiring Trulia Zillow will have a more compelling platform to offer real estate advertisers, and could demand higher prices. If the deal gets past regulators, Zillow may control some 60% of the online real estate advertising business according to some estimates. Zillow CEO Spencer Rascoff has countered by arguing that those estimates don't properly account for the many, smaller, fragmented local real estate websites.

Mr. Rascoff has also pointed out that Zillow and Trulia will only control about 4% of the $12 billion spent annually on advertising by real estate agents and professionals. The size of this market that Zillow could still grow into is what has investors watering at the mouth.

Combining resources may also reduce the need for hiring and save the company big bucks on its own marketing campaigns. The deal with Trulia is projected to save the combined company up to $100 million by avoiding costs in 2016.

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Source: Estimize.com

The Estimize community is predicting that Zillow can maintain 62% year over year revenue growth this quarter; however, the company is expected to post a loss for its second consecutive 2nd fiscal quarter. Although a loss is being forecast, the loss of 4c per share that is expected on Tuesday is an improvement from the loss of 30c per share posted in FQ2 of last year. Mobile advertising is on fire right now and if Zillow's deal with Trulia is approved we will see just how much of the $12 billion US real estate advertising market their combined forces can grab.

Disclosure: None.