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I have advanced degrees, Master’s (S. M.) and Doctoral (Sc. D.), in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA and Bachelor's and Master's degree in Mechanical Engineering, from the University of Poona (now Pune) and the Indian Institute of Science,... More
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  • A Look At Zillow's Profits-Revenues Data After Trulia's IPO 0 comments
    Sep 22, 2012 4:35 AM | about stocks: Z

    This is a follow-up on my first Instablog here on Trulia (posted yesterday 9/21/2012).

    After Trulia's successful debut on the NYSE, its profits-revenues data were analyzed to predict both the profits and revenues for the fiscal year ending December 31, 2012.

    Trulia's stock is being compared to Zillow, its main competition. Unlike Trulia, which has yet to report a profit, Zillow has reported quarterly profits for 4 out of 14 quarters, and a profit for three consecutive quarters starting Q42011. It has also reported a profit for the full year 2011.

    I have now completed the analysis of the profits and revenues data for Zillow (from 2006 to 2011, annual basis and Q1 2009 to Q2 20102, quarterly basis). The analysis again reveals a simple linear law y = hx + c = h(x - x0) relating the revenues x and profits y, regardless of whether we consider the quarterly, cumulative quarterly, or the annual data. In all cases, as revenues increase, losses decrease and eventually turn into profits at higher revenues.

    Thus, the intercept x0 = - c/h made by the straight line on the x-axis (revenue axis) equals the cut-off or "breakeven" revenue, the minimum revenue needed before the company can report a profit. The slope h then gives the rate at which additional revenues are converted into profits.

    On a quarterly basis h = 0.518 and on an annual basis h = 0.574. In other words, Zillow has the potential to convert about 52% of its quarterly revenues into profits, or about 57% of its annual revenues into profits.

    However, costs (as revealed by the increasing values of x0) have also been increasing and consistent delivery of profits will require paying attention to three fundamental constants (a, b, p) which appear in the classical breakeven analysis for the profitability of any company. Here "a" is the fixed cost, "b" the unit variable cost and "p" the unit price.

    A full article with accompanying graphs has been uploaded earlier today at scribd.com, do see link given below.


    Look forward to your comments. These two Instablogs, with the referenced articles, show that a simple approach based on the analysis of the graphical trends in the profits-revenues diagram can serve as a valuable tool for investors.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: Z
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