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Zillow Group Reports Record Second Quarter 2017 Results

  • Premier Agent Revenue increased 29% year-over-year to a record $189.7 million.
  • Traffic to Zillow Group brands’ mobile apps and websites reached an all-time high of more than 182 million unique users in May 2017.
  • Visits to Zillow Group brands’ mobile apps and websites, including Zillow, Trulia, StreetEasy and RealEstate.com, increased 17% year-over-year to nearly 1.7 billion in the second quarter of 2017.

SEATTLE, Aug. 08, 2017 (GLOBE NEWSWIRE) -- Zillow Group, Inc. (NASDAQ:Z) (NASDAQ:ZG), which houses a portfolio of the largest and most vibrant real estate and home-related brands on mobile and the web, today announced its consolidated financial results for the three months ended June 30, 2017.

“Zillow Group finished the first half of 2017 with another quarter of record revenue and traffic, further solidifying our foundation for long-term growth,” said Zillow Group CEO Spencer Rascoff. “Our growing consumer audience is increasingly engaged and we achieved revenue growth across all of our emerging marketplaces. As we continue to expand our suite of marketing and technology solutions to help our industry partners achieve long-term success, we’re excited about the opportunities in front of us.”

Second Quarter 2017 Financial Highlights

• Revenue increased 28% to a record $266.9 million from $208.4 million in the second quarter of 2016.

  • Marketplace Revenue increased 30% to $248.6 million from $191.6 million in the second quarter of 2016.
    • Premier Agent Revenue increased 29% to $189.7 million from $147.1 million in the second quarter of 2016.
    • Other Real Estate Revenue(1) increased 45% to $37.9 million from $26.1 million in the second quarter of 2016.
    • Mortgages Revenue increased 14% to $20.9 million from $18.4 million in the second quarter of 2016.
  • Display Revenue increased 9% to $18.3 million from $16.8 million in the second quarter of 2016.

• GAAP net loss was $21.8 million, or (8)% of Revenue, in the second quarter of 2017, compared to GAAP net loss of $156.1 million, or (75)% of Revenue, in the second quarter of 2016. GAAP net loss in the second quarter of 2016 includes the impact of a $130.0 million litigation settlement.

• Adjusted EBITDA was $39.7 million, or 15% of Revenue, in the second quarter of 2017, which was an increase from $(101.3) million, or (49)% of Revenue, in the second quarter of 2016. Adjusted EBITDA in the second quarter of 2016 includes the impact of a $130.0 million litigation settlement.

1 Other Real Estate Revenue primarily includes revenue generated by Zillow Group Rentals, New Construction, as well as revenue from the sale of various other advertising and business software solutions and services for real estate professionals.

Second Quarter 2017 Operating and Business Highlights

• More than 178 million average monthly unique users visited Zillow Group brands’ mobile apps and websites, an increase of 6% year-over-year. Zillow Group brands’ mobile apps and websites reached an all-time high of more than 182 million unique users in May 2017, an increase of more than 10 million unique users from the same period last year.

• Visits to Zillow Group brands’ mobile apps and websites Zillow, Trulia, StreetEasy (included as of March 2017) and RealEstate.com (included as of June 2017) increased 17% year-over-year to nearly 1.7 billion. Premier Agent revenue per visit increased 10% to $0.113 from $0.103 in the same period last year.

• The number of Premier Agent accounts spending more than $5,000 per month grew by 107% year-over-year and increased 92% on a total dollar basis.

• Total sales to Premier Agents who have been customers for more than one year increased 49% year-over-year.

• Sales to existing Premier Agents accounted for 52% of total bookings.

Business Outlook - Third Quarter and Full Year 2017

The following table presents Zillow Group’s business outlook for the periods presented:

Three Months Ending Year Ending
Zillow Group Outlook as of August 8, 2017 September 30, 2017 December 31, 2017
(in millions)
Revenue $273 to $278 $1,055 to $1,065
Premier Agent revenue $196 to $198 $760 to $765
Other real estate revenue $40 to $41 $150 to $152
Mortgages revenue $20 to $21 $80 to $82
Display revenue $17 to $18 $65 to $66
Operating expenses $261 to $266 ***
Net income (loss) $2.25 to $7.25 $(25) to $(15)
Adjusted EBITDA (1) $64 to $69 $220 to $230
Depreciation and amortization $26 to $28 $107 to $112
Share-based compensation expense $28 to $30 $110 to $115
Capital expenditures *** $55 to $57
Weighted average shares outstanding — basic 187.0 to 189.0 185.5 to 187.5
Weighted average shares outstanding — diluted 196.5 to 198.5 195.0 to 197.0
*** Outlook not provided

(1) A reconciliation of forecasted Adjusted EBITDA to forecasted net income (loss) is provided below in this press release.

Conference Call and Webcast Information

Zillow Group CEO Spencer Rascoff and CFO Kathleen Philips will host a live conference call and webcast to discuss the results today at 2 p.m. Pacific Time (5 p.m. Eastern Time). A copy of management’s prepared remarks will be made available on the investor relations section of Zillow Group’s website at http://investors.zillowgroup.com/results.cfm prior to the live conference call and webcast to allow analysts and investors additional time to review the details of the results.

Zillow Group’s management will first read the prepared remarks and then answer questions submitted via Sli.do, in addition to answering questions from dialed-in participants, during the live conference call. Questions may be submitted at www.slido.com using the event code #ZEarnings.

A link to the live webcast of the conference call will be available on the investor relations section of Zillow Group’s website at http://investors.zillowgroup.com/results.cfm. The live call may also be accessed via phone at (877) 643-7152 toll-free domestically and at (443) 863-7921 internationally. Following completion of the call, a recorded replay of the webcast will be available on the investor relations section of Zillow Group’s website.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including, without limitation, statements regarding our business outlook, strategic priorities, and operational plans for 2017. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “will,” “projections,” “continue,” “business outlook,” “forecast,” “estimate,” “outlook,” “guidance,” or similar expressions constitute forward-looking statements. Differences in Zillow Group’s actual results from those described in these forward-looking statements may result from actions taken by Zillow Group as well as from risks and uncertainties beyond Zillow Group’s control. Factors that may contribute to such differences include, but are not limited to, Zillow Group’s ability to maintain and effectively manage an adequate rate of growth; Zillow Group’s ability to maintain or establish relationships with listings and data providers; the impact of the real estate industry on Zillow Group’s business; the impact of pending litigation and other legal and regulatory matters, including those described in Note 14 under the subsection titled “Legal Proceedings” in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of Zillow Group’s Quarterly Report on Form 10-Q; Zillow Group’s ability to innovate and provide products and services that are attractive to its users and advertisers; Zillow Group’s ability to increase awareness of the Zillow Group brands; Zillow Group’s ability to attract consumers to Zillow Group’s mobile applications and websites; Zillow Group’s ability to compete successfully against existing or future competitors; Zillow Group’s ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; the reliable performance of Zillow Group’s network infrastructure and content delivery processes; and Zillow Group’s ability to protect its intellectual property. The foregoing list of risks and uncertainties is illustrative, but is not exhaustive. For more information about potential factors that could affect Zillow Group’s business and financial results, please review the “Risk Factors” described in Zillow Group’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission, or SEC, and in Zillow Group’s other filings with the SEC. Except as may be required by law, Zillow Group does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

Use of Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA (including forecasted Adjusted EBITDA) and non-GAAP net income (loss) per share, which are non-GAAP financial measures. We have provided a reconciliation of Adjusted EBITDA (historical and forecasted) to net income (loss) (historical and forecasted), the most directly comparable GAAP financial measure, and a reconciliation of net income (loss), adjusted, to net loss, as reported on a GAAP basis, and the calculations of non-GAAP net income (loss) per share - basic and diluted, within this earnings release.

Adjusted EBITDA is a key metric used by our management and board of directors to measure operating performance and trends, and to prepare and approve our annual budget. The exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
  • Adjusted EBITDA does not reflect acquisition-related costs;
  • Adjusted EBITDA does not reflect interest expense or other income;
  • Adjusted EBITDA does not reflect income taxes; and
  • Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.

Our presentation of non-GAAP net income (loss) per share excludes the impact of share-based compensation expense, acquisition-related costs and income tax benefits. This measure is not a key metric used by our management and board of directors to measure operating performance or otherwise manage the business. However, we provide non-GAAP net income (loss) per share as supplemental information to investors, as we believe the exclusion of share-based compensation expense, acquisition-related costs and income tax benefits facilitates investors’ operating performance comparisons on a period-to-period basis. You should not consider these metrics in isolation or as substitutes for analysis of our results as reported under GAAP.

About Zillow Group

Zillow Group (NASDAQ:Z) (NASDAQ:ZG) houses a portfolio of the largest real estate and home-related brands on mobile and the web. The company’s brands focus on all stages of the home lifecycle: renting, buying, selling and financing. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow®, Trulia®, StreetEasy®, HotPads®, Naked Apartments® and RealEstate.com. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate, rental and mortgage professionals maximize business opportunities and connect with millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Mortech®, dotloop® and Bridge Interactive®. The company is headquartered in Seattle.

Please visit http://investors.zillowgroup.com, www.zillowgroup.com/ir-blog, and www.twitter.com/zillowgroup, where Zillow Group discloses information about the company, its financial information, and its business which may be deemed material.

The Zillow Group logo is available at http://zillowgroup.mediaroom.com/logos-photos.

Zillow, Premier Agent, Mortech, Bridge Interactive, StreetEasy and HotPads are registered trademarks of Zillow, Inc. Trulia is a registered trademark of Trulia, LLC. dotloop is a registered trademark of DotLoop, LLC. Naked Apartments is a registered trademark of Naked Apartments, LLC.
Twitter is a registered trademark of Twitter, Inc.

(ZFIN)

Reported Consolidated Results

ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30,
2017
December 31,
2016
Assets
Current assets:
Cash and cash equivalents $ 276,465 $ 243,592
Short-term investments 322,463 262,870
Accounts receivable, net 47,716 40,527
Prepaid expenses and other current assets 39,979 34,817
Total current assets 686,623 581,806
Restricted cash 1,053 1,053
Property and equipment, net 103,004 98,288
Goodwill 1,927,450 1,923,480
Intangible assets, net 514,513 527,464
Other assets 27,442 17,586
Total assets $ 3,260,085 $ 3,149,677
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable $ 2,037 $ 4,257
Accrued expenses and other current liabilities 43,273 38,427
Accrued compensation and benefits 24,560 24,057
Deferred revenue 30,912 29,154
Deferred rent, current portion 1,748 1,347
Total current liabilities 102,530 97,242
Deferred rent, net of current portion 16,647 15,298
Long-term debt 376,259 367,404
Deferred tax liabilities and other long-term liabilities 134,146 136,146
Total liabilities 629,582 616,090
Shareholders’ equity:
Class A common stock 6 5
Class B common stock 1 1
Class C capital stock 12 12
Additional paid-in capital 3,155,202 3,030,854
Accumulated other comprehensive loss (444) (242)
Accumulated deficit (524,274) (497,043)
Total shareholders’ equity 2,630,503 2,533,587
Total liabilities and shareholders’ equity $ 3,260,085 $ 3,149,677


ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Revenue$266,850 $208,403 $512,625 $394,385
Costs and expenses:
Cost of revenue (exclusive of amortization) (1)(2) 20,260 16,745 40,492 32,948
Sales and marketing (2) 131,218 99,629 237,158 198,730
Technology and development (2) 78,541 63,396 151,409 123,767
General and administrative (2) 53,346 183,759 98,812 241,550
Acquisition-related costs 43 204 148 797
Total costs and expenses 283,408 363,733 528,019 597,792
Loss from operations (16,558) (155,330) (15,394) (203,407)
Other income 1,610 753 2,563 1,434
Interest expense (6,897) (1,572) (13,620) (3,145)
Loss before income taxes (21,845) (156,149) (26,451) (205,118)
Income tax benefit - - - 1,364
Net loss$(21,845) $(156,149) $(26,451) $(203,754)
Net loss per share — basic and diluted$ (0.12) $ (0.87) $ (0.14) $ (1.14)
Weighted-average shares outstanding — basic and diluted 185,439 179,451 184,305 179,067
_________
(1) Amortization of website development costs and intangible assets included in technology and development$ 23,159 $ 22,252 $ 46,420 $ 42,925
(2) Includes share-based compensation expense as follows:
Cost of revenue$ 1,025 $ 982 $ 1,928 $ 1,768
Sales and marketing 6,250 6,395 11,780 11,598
Technology and development 10,400 8,366 18,891 15,125
General and administrative 11,518 12,573 22,989 25,376
Total $ 29,193 $ 28,316 $ 55,588 $ 53,867
Other Financial Data:
Adjusted EBITDA (3)$ 39,700 $ (101,260) $ 94,499 $ (99,386)
(3) See above for more information regarding our presentation of Adjusted EBITDA.


ZILLOW GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
2017 2016
Operating activities
Net loss $ (26,451) $ (203,754)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of amounts assumed in connection with acquisitions:
Depreciation and amortization 54,157 49,357
Share-based compensation expense 55,588 53,867
Amortization of discount and issuance costs on 2021 Notes 8,855 -
Release of valuation allowance on certain deferred tax assets - 1,364
Loss on disposal of property and equipment 2,024 2,170
Bad debt expense 3,960 927
Deferred rent 1,750 1,321
Amortization of bond premium 376 808
Changes in operating assets and liabilities:
Accounts receivable (11,149) (6,608)
Prepaid expenses and other assets (5,845) 7,122
Accounts payable (1,714) 13,743
Accrued expenses and other current liabilities 1,203 5,005
Accrued compensation and benefits 503 12,708
Deferred revenue 1,635 4,190
Other long-term liabilities - (2,749)
Net cash provided by (used in) operating activities 84,892 (60,529)
Investing activities
Proceeds from maturities of investments 133,432 105,440
Purchases of investments (193,604) (83,976)
Proceeds from sales of investments - 4,795
Decrease in restricted cash - 1,962
Purchases of property and equipment (31,608) (31,294)
Purchases of intangible assets (6,784) (5,420)
Purchase of cost method investment (10,000) -
Proceeds from divestiture of a business 579 -
Cash paid for acquisitions, net (6,002) (12,357)
Net cash used in investing activities (113,987) (20,850)
Financing activities
Proceeds from exercise of stock options 62,263 7,737
Value of equity awards withheld for tax liability (295) (286)
Net cash provided by financing activities 61,968 7,451
Net increase (decrease) in cash and cash equivalents during period 32,873 (73,928)
Cash and cash equivalents at beginning of period 243,592 229,138
Cash and cash equivalents at end of period $ 276,465 $ 155,210
Supplemental disclosures of cash flow information
Cash paid for interest $ 4,458 $ 3,163
Noncash transactions:
Capitalized share-based compensation $ 5,289 $ 5,304
Write-off of fully depreciated property and equipment $ 7,552 $ 9,986
Write-off of fully amortized intangible assets $ 5,302 $ -

Adjusted EBITDA

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure, for each of the periods presented (in thousands, unaudited):

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Reconciliation of Adjusted EBITDA to Net Loss:
Net loss $ (21,845) $ (156,149) $ (26,451) $ (203,754)
Other income (1,610) (753) (2,563) (1,434)
Depreciation and amortization expense 27,022 25,550 54,157 49,357
Share-based compensation expense 29,193 28,316 55,588 53,867
Acquisition-related costs 43 204 148 797
Interest expense 6,897 1,572 13,620 3,145
Income tax benefit - - - (1,364)
Adjusted EBITDA (1) $ 39,700 $ (101,260) $ 94,499 $ (99,386)

(1) For the three and six month periods ended June 30, 2016, Adjusted EBITDA includes the impact of a $130.0 million litigation settlement. Adjusted EBITDA for the three and six month periods ended June 30, 2016 also includes $12.5 million and $28.2 million, respectively, in related legal costs.

Non-GAAP Net Income (Loss) per Share
The following table presents a reconciliation of net income (loss), adjusted, to net loss, as reported on a GAAP basis, and the calculation of non-GAAP net income (loss) per share - basic and diluted, for each of the periods presented (in thousands, except per share data, unaudited):

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Net loss, as reported $ (21,845) $ (156,149) $ (26,451) $ (203,754)
Share-based compensation expense 29,193 28,316 55,588 53,867
Acquisition-related costs 43 204 148 797
Income tax benefit - - - (1,364)
Net income (loss), adjusted $ 7,391 $ (127,629) $ 29,285 $ (150,454)
Non-GAAP net income (loss) per share - basic $ 0.04 $ (0.71) $ 0.16 $ (0.84)
Non-GAAP net income (loss) per share - diluted $ 0.04 $ (0.71) $ 0.15 $ (0.84)
Weighted-average shares outstanding - basic 185,439 179,451 184,305 179,067
Weighted-average shares outstanding - diluted 195,021 179,451 193,119 179,067

Revenue by Type

The following tables present our revenue by type and as a percentage of total revenue for each of the periods presented (in thousands, unaudited):

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Revenue:
Marketplace revenue:
Premier Agent$ 189,725 $ 147,106 $ 365,026 $ 281,635
Other real estate 37,894 26,070 72,649 44,048
Mortgages 20,936 18,392 41,206 34,846
Total Marketplace revenue 248,555 191,568 478,881 360,529
Display revenue 18,295 16,835 33,744 33,856
Total revenue$ 266,850 $ 208,403 $ 512,625 $ 394,385
Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Percentage of Total Revenue:
Marketplace revenue:
Premier Agent 71% 71% 71% 71%
Other real estate 14% 13% 14% 11%
Mortgages 8% 9% 8% 9%
Total Marketplace revenue 93% 92% 93% 91%
Display revenue 7% 8% 7% 9%
Total revenue 100% 100% 100% 100%

Key Metrics

The following table sets forth our key metrics for each of the periods presented:

Three Months Ended
June 30,
2016 to 2017
2017 2016 % Change
(in millions)
Average Monthly Unique Users (1)178.1 168.7 6%
Visits (2)1,678.7 1,431.4 17%

(1) Zillow, StreetEasy, HotPads, Naked Apartments and RealEstate.com measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics (formerly called Omniture analytical tools).

(2) Visits includes visits to the Zillow, Trulia, StreetEasy (as of March 2017) and RealEstate.com (as of June 2017) mobile apps and websites. We measure Zillow, StreetEasy and RealEstate.com visits with Google Analytics and Trulia visits with Adobe Analytics.

Reconciliation of Forecasted Adjusted EBITDA to Forecasted Net Income (Loss)

The following table presents a reconciliation of forecasted Adjusted EBITDA to forecasted net income (loss) at the midpoint of the range for each of the periods presented (in thousands, unaudited):

Three Months Ending Year Ending
September 30, 2017 December 31, 2017
Reconciliation of Forecasted Adjusted EBITDA to Forecasted Net Income (Loss):
Forecasted Net income (loss) $ 4,750 $ (20,000)
Forecasted Other income (950) (3,800)
Forecasted Depreciation and amortization expense 27,000 109,500
Forecasted Share-based compensation expense 29,000 112,500
Forecasted Interest expense 6,700 26,800
Forecasted Adjusted EBITDA $ 66,500 $ 225,000


Contacts: Raymond Jones Investor Relations ir@zillowgroup.com Katie Curnutte Public Relations press@zillow.com

Source: Zillow Group, Inc.

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