Online real estate marketplace Zillow (NASDAQ:ZG) beat analysts' expectations in Q2 CY2024, with revenue up 13% year on year to $572 million. It made a GAAP loss of $0.07 per share, improving from its loss of $0.15 per share in the same quarter last year.
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Zillow (ZG) Q2 CY2024 Highlights:
- Revenue: $572 million vs analyst estimates of $538.2 million (6.3% beat)
- EPS: -$0.07 vs analyst estimates of -$0.16 ($0.08 beat)
- Gross Margin (GAAP): 77.3%, down from 79.4% in the same quarter last year
- EBITDA Margin: 0%, down from 21.9% in the same quarter last year
- Free Cash Flow was -$40.94 million, down from $41 million in the previous quarter
- Market Capitalization: $9.95 billion
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ:ZG) is the leading U.S. online real estate marketplace.
Real Estate Services
Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Zillow grew its sales at a weak 3.3% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Zillow's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 56.4% annually.
This quarter, Zillow reported robust year-on-year revenue growth of 13%, and its $572 million of revenue exceeded Wall Street's estimates by 6.3%. Looking ahead, Wall Street expects sales to grow 11.1% over the next 12 months, a deceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Zillow has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 10.4% over the last two years, slightly better than the broader consumer discretionary sector.
Zillow burned through $40.94 million of cash in Q2, equivalent to a negative 7.2% margin. The company's quarterly cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren't a big deal because investment needs can be seasonal, but we'll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from Zillow's Q2 Results
We were impressed by how significantly Zillow blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 12.5% to $45.40 immediately after reporting.
Zillow may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.