Zillow delivered better-than-expected results and the housing market is improving.
Shares of Zillow Group (Z 18.27%) (ZG 18.22%), the leading online real estate platform, were surging today after the company delivered solid growth in spite of broader weakness in the housing market.
As a result, the stock closed up 18.3%.
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Zillow bounces back
Zillow, which makes money through advertising and related services for realtors, said that revenue in the quarter rose 13% to $572 million, easily beating the company’s own guidance and topping estimates at $538.3 million.
Revenue growth was broad-based with residential revenue up 8% to $409 million, rentals revenue rising 29% to $117 million, and mortgage revenue up 42% to $34 million. Zillow’s loan origination volume jumped 125% to $756 million, indicating a new potentially strong revenue stream.
The company’s margins also held up, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $134 million, up from $111 million in the quarter a year ago. Management said strength in the residential segment drove the EBITDA growth.
Finally, its generally accepted accounting principles (GAAP) net loss narrowed from $35 million in the quarter a year ago to $17 million.
The company also named Jeremy Wacksman as its new CEO. Wacksman summed up the quarter, saying, “Zillow outperformed the residential real estate industry for the eighth consecutive quarter, delivering better-than-expected revenue across the business.”
Wacksman added that the company was on its way to deliver GAAP profitability and was on target for double-digit revenue growth this year.
Can Zillow keep gaining?
For the third quarter, the company called for revenue of $545 million to $560 million, which was in line with the consensus and represents growth of 15%.
Also today, mortgage rates fell to their lowest level in over a year, and they should continue falling as the Federal Reserve is expected to cut interest rates at its next meeting and begin the process of lowering rates to a long-term target of 2% to 3%.
That should drive a recovery in the housing market, and that along with Zillow’s operational improvements could easily make the stock a winner over the next year.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.