Zillow Puts in Biggest One Day Gain Ever
You can buy and sell a lot of things online these days, pretty much anything, but you can’t sell your house online, right? Zillow has allowed people to do this right now if they wish.
When a company releases their quarterly earnings results, this often serves as a pivot point where we can get a sense of what direction the company’s stock may be headed in for the next little while. Investors listen closely, not only to the announced results but the forecast and other thoughts shared by their executives, and both may end up being pretty influential to their stock’s price.
Companies usually deliver these reports after the main market that it trades on is closed, for instance the NYSE or the Nasdaq. It might be more interesting to see these announcements made during the trading day, but stock markets aren’t crazy about the sort of volatility that these earnings calls can bring on. The company may not be as well, because live trading can see excess volatility as more traders are acting on the results than if this happens in the after-hours market.
What happens in the main market is that we see stocks gap up or down by the amount that it has moved between the bells. While at one time, this left investors in the dark a lot, waiting with great anticipation to see where their stock will open the next day at, nowadays there are no real surprises and you can tune in right after the announcement and be pretty well informed about what will happen at least at the open tomorrow.
This is not always the case though. Online real estate company Zillow had their quarterly call last Thursday night, and it wasn’t what investors had hoped for, causing their shares to be traded lower in after-market trading initially.
First, Zillow announced that they had a new CEO, which isn’t usually welcome news, however in this case, we learned that the new guy happened to be Rich Barton, the former Microsoft executive who founded Expedia, and who also co-founded Zillow back in 2006. Barton is a forward thinker with loads of experience in the industry, not some new guy.
It’s not that the company didn’t need the new help either. Zillow’s stock had really taken a beating over the previous 8 months, falling from $65.57 last June to $27.16 in November, and even though it had climbed back to $35.04 at the close of trading last Thursday, right before the call, it was still a long way from where it was last summer.
While the company did not share its quarterly earnings with us, the company’s bottom line did take a hit, and posted a fourth quarter loss of $97.7 million, compared to a quarterly loss of $77.2 million year over year, in spite of an increase in revenue this quarter of 29%, to $365.3 million.
The company’s forecast for the current quarter, at least revenue wise, was more promising, with the company predicting a range of $417 to $443 million, bettering the average forecast from analysts of $405 million.
Zillow Looks to Take the Entire Real Estate Experience Online
The company is taking in more money, and expect to take in even more, and we would think that this would mean a better-looking bottom line, but revenue numbers only mean so much, and the initial reaction to all this was mixed at best. A stock dropping 2% in the aftermath of an earnings call isn’t all that meaningful really, suggesting only a mild disappointment at best, in contrast to, say, how the market reacted to the recent call from Kraft Heinz, whose stock was hammered in short order.
Zillow had a second call that night, the one with investors, and this time the outlook for their company was portrayed in a much more dramatic fashion. When the dust settled at the close on Friday, instead of taking a little haircut, Zillow’s stock finished up almost 25% on the day, its biggest one day gain ever.
Zillow’s executives told us in the second call that they believe they could add “20 billion in annual revenue over the next three to five years.” That’s a pretty big number for a company that just reported quarterly revenue that annualizes to only $1.46 billion. If this is true, this would represent a quantum leap in the company’s business, but that’s exactly what the company is hoping for.
This newfound excitement is based to a large degree upon the potential expansion of Zillow Offers, a plan to take the company from merely facilitating real estate sales to taking an active role in it, a very active role indeed, from buying properties as well as getting involved on the financing end of the sale.
Zillow Offers certainly takes selling your home to a new level. You can do a whole lot of things on your phone these days but selling your house hasn’t been one of them, until now. Prospective sellers enter in details about their property into the app and take some photos and Zillow responds with an offer. This is not to broker a sale, they actually are looking to purchase the property themselves, with the intention of flipping it for a profit.
Zillow Compares Itself with Netflix
Zillow likens this to what Netflix has done with videos, where once the only way to get one was to buy or rent a physical copy of it. Then Netflix came around and took advantage of the internet to deliver this content, and nowadays streaming video has taken over from the old way.
Barton sees “a lot of parallels here as we take Zillow into the next phase with what we saw at Netflix, when we moved from DVDs by mail to streaming to originals. It’s that kind of change.” He concluded the call by asking investors if they could “imagine if Netflix ignored streaming? You can probably tell I am excited. I hope you are too.”
Even though technology has really changed the way we buy and sell real estate, the improvements have been in the preliminary stages, which Zillow has participated in. Instead of looking at little pictures in the paper to get an idea of what’s out there, you can now explore homes to your heart’s content, homes located anywhere, and get information that goes way beyond what listings used to do, although the next step is still to call an agent and do things the same old way we’ve been doing them since real estate selling began.
Selling your home on the internet may seem like a crazy idea, but Zillow for one doesn’t think it’s that crazy. Zillow Offers isn’t just an idea, it’s been live for a while now, and real homes have been bought and sold on it.
Setting your goals modestly does not appear to be anywhere in Zillow’s corporate philosophy, as we may have gathered from their $20 billion more a year prediction. They have told us they expect to add $2 billion a year in revenue from this idea, based upon a target of buying 5,000 homes a month and re-sell them in less than 90 days.
Almost a year into the project, they have only managed to buy 686 homes and sell only 177. Both the number of purchases and the length of time it takes to sell them again hasn’t been anywhere close to their targets, although 144 of these sales have come in the fourth quarter, so things are at least getting off the ground a little more.
The fact that this is being done at all may in itself be pretty exciting, although things will have to take off a whole lot more to merit the degree of excitement evident. They may get better at figuring all this out in time but we’ll have to see how high this hill really is before we say too much. Meanwhile, the company’s stock is at least heading back in the right direction now.
Chief Editor, MarketReview.com
Ken has a way of making even the most complex of ideas in finance simple enough to understand by all and looks to take every topic to a higher level.
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