Key Takeaways:
Zillow Group (NASDAQ: Z, ZG) reported first-quarter revenue of $708 million, an 18% year-over-year increase that beat estimates, but its stock fell after issuing weak second-quarter earnings guidance.
"Legal costs and ramped-up advertising spending are headwinds to Ebitda in the current quarter," Chief Financial Officer Jeremy Hofmann said in an interview, adding that the company remains on plan for its full-year targets.
The real estate technology company guided for second-quarter adjusted Ebitda between $150 million and $165 million, missing the $190 million consensus forecast. This overshadowed a first-quarter report where both revenue and profit topped analyst expectations.
Shares of Zillow fell 9% in after-hours trading on Wednesday. The weak guidance raises concerns about rising costs, even as the company's revenue growth accelerates despite what executives called an "essentially flat" housing market.
For the first quarter ended March 31, Zillow's results exceeded market expectations across the board.
The company's revenue growth was broad-based. Residential revenue, its largest segment, grew 8% to $450 million. The mortgages division saw revenue surge 56% to $64 million, while rentals revenue climbed 42% to $183 million.
"We have proven time and again... that we can grow revenue quite nicely, expand margins even further, and expand net income even further than that, regardless of the housing market," Hofmann said.
Despite the strong first quarter, Zillow's forecast for the second quarter disappointed investors. The company expects revenue between $750 million and $765 million, roughly in line with the $761 million consensus. However, the lower Ebitda guidance suggests profitability will be squeezed in the near term.
Hofmann noted that despite the Q2 headwinds, the company is reiterating its full-year expectation for revenue growth in the mid-teens and expanding Ebitda margins for the year.
The lower guidance signals that rising costs may impact profitability more than anticipated. Investors will watch the company's second-quarter results in August to see if the increased spending translates into sustainable long-term growth.
This article is for informational purposes only and does not constitute investment advice.
