End of the Rough Patch for Zillow?

The online realty sector has seen significant consolidation over the past year with Zillow acquiring Trulia and Move acquired by News Corp. With the Trulia acquisition running into delays over the anti-trust violation probe, Zillow looked gloomy. The company recently recorded a better-than expected quarter and encouraging progress on the Trulia integration.

Zillow’s Financials

Zillow’s (Nasdaq: Z) second quarter revenues grew 20% over the year to $171.3 million, $2.58 million ahead of the Street estimate. GAAP net loss was $38.7 million compared to $97.1 million last year. The loss includes the impact of $1.7 million of acquisition-related costs and $6.7 million of restructuring costs due to the company’s 2.5 billion acquisition of Trulia. Non-GAAP net loss per share was $0.01, beating the street estimate by $0.25. Adjusted EBITDA was $21 million or 12% of revenue, $17 million higher than the second quarter 2015 outlook

By segment, marketplace revenues grew 29% to $145.5 million and mortgage display advertising revenues declined 15% to $25.8 million as a result of their strategy to shift their focus to their more promising agent advertising business.

Their highest spending agent advertisers have been buying more impressions to expand their presence on their platform. As a result, the annualized run rate for their agent advertising business increased 30.6% over the year to $456 million. ARPA was $375 per agent advertisers, increasing 18% y-o-y on a pro forma basis. They ended the quarter with agent advertiser count of 101,297, up 11% y-o-y.

During the second quarter, 141 million average monthly unique users visited Zillow Group consumer brands Zillow, Trulia, StreetEasy, and HotPads. Citing comScore data, the company says its Zillow Group brands now represent nearly 50% of all category visits and 72% of all mobile exclusive visitors to the category.

For the third quarter, Zillow expects pro forma revenue in the range of $175 million to $177 million. Analysts were expecting slightly higher revenue of $180.9 million.

For the full year 2015, Zillow reaffirmed its pro forma revenue guidance of $690 million and raised its pro forma EBITDA outlook to a range of $85 million to $90 million. Analysts were expecting revenue of $666.5 million and a net loss of $0.05 per share.

Acquisitions and Management Changes

Zillow Group last month announced the planned acquisition of DotLoop, a Cincinnati-based company that simplifies real estate transactions by making it paperless. The acquisition aligns with the company’s mission to provide value-add productivity tools and products to its partner brokers and their agents and is expected to close in the third quarter.

Zillow also announced that it is appointing Kathleen Phillips as the new CFO after Chad Cohen resigned last month. Kathleen had served as the company’s COO since 2013. Amy Bohutinsky, who has served as the chief marketing officer for the past 4 years, will be the new COO.

Stiff Competition Adds to Zillow’s Woes

The Trulia acquisition, which was announced in July 2014 was delayed considerably by the Federal Trade Commission investigating the deal for potential anti-trust violations. This has brought down investor confidence and its stock.

And to top it, its rival Move, which operates Realtor.com and ListHub was acquired by News Corp in November 2014. Zillow had to end its ListHub agreement in early April and there was a drop in the listings but it soon recovered according to an analysis by Issi Romem, chief economist of BuildZoom. The company reported during the recent earnings call that more than 300 MLSs have signed up to add listings directly, having added 81 new MLS partnerships in the recent quarter.

Last month, Barclays had downgraded Zillow for the second time in three months citing slowing traffic and increased competition from Realtor.com. In fact since its acquisition, Realtor.com’s traffic overtook Trulia’s for the first time. While Trulia is seeing flat growth, Zillow and Trulia together are growing well. In June, the number of unique visitors for Zillow and Trulia had increased 14% q-o-q to 86 million unique visitors while for the Realtor.com network, it had increased 4.3% q-o-q to 32.6 million unique visitors. While things might have looked gloomy for Zillow a couple of months back, it seems to be on the road to fixing its troubles.

The stock is currently trading at a 52-week low of  $72.82 with a market cap of $4.38 billion. It hit its 52-week high of $148.54 in July last year.