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Zillow Shares Up After Loss Widens but Beats Estimate

The online real-estate group Zillow reported that its second-quarter loss widened, but the figure was stronger than analysts had estimated.

The online real-estate group Zillow  (Z) - Get Zillow Group, Inc. Class C Report reported that its second-quarter loss widened, but the figure was stronger than analysts had estimated.

The coronavirus pandemic has led more people to move to houses from apartments  and to suburban and rural areas from big cities. And pandemic-related lockdowns have kept people at home and out of real-estate offices. That means more people are using Zillow’s services.

The Seattle company's shares recently traded at $83.17, up 16%. They surged 55% so far this year through Thursday.

Zillow posted a net loss of $84.5 million, or 38 cents a share, for the latest quarter, widening from a loss of $72 million, or 35 cents, in the year-earlier quarter. Analysts surveyed by FactSet predicted a loss of 68 cents a share.

The company’s revenue jumped 28% to $768 million from $600 million in the year-ago quarter. The FactSet analyst consensus called for $615 million.

The revenue gain was “driven primarily by a continued increase in Zillow Offers resale volume,” the company said in a statement. Zillow Offers is a home-selling platform.

“Zillow’s second-quarter results are even better than we had hoped, and firm up our belief that powerful tailwinds in both real estate and technology are rapidly converging, with Zillow at the nexus,” Chief Executive Rich Barton said in a statement.

Covid "and work-from-home policies are inspiring people to rethink their homes and consider moving," he said.

"In addition, real estate, like other industries, is experiencing an acceleration in technology adoption, as people move their shopping habits from offline to online.” 

Analysts had a mixed reaction to Zillow’s numbers.

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At DA Davidson analyst Tom White reiterated a buy rating on Zillow and raised his price target on the shares to $94 from $66.

White called the company's second-quarter earnings and outlook "very strong."

"As the world increasingly works from home and, as a result, reassesses their housing needs and wants, the real estate market is undergoing what Zillow Group's CEO, Rich Barton, likes to refer to as a 'great reshuffling,'" the analyst wrote.

"That reshuffling is leading to unusually high interest in home buying, which Zillow Group can directly monetize thanks to its category leadership in online real estate search and listing, information and data, etc."

At JMP Securities a team led by Ronald Josey reiterated a market outperform rating on Zillow and raised its price target to $97 from $75.

The analysts said they were "pleased to see Zillow's Premier Agent business rebound as the broader housing market improves and ... Zillow Offers is now back playing offense."

But "our main takeaway from the quarter was the profitability at Zillow's core internet, media and technology business, as third-quarter 2020 guidance calls for 39%" profit margins based on earnings before interest, taxes, depreciation and amortization.

And at Wedbush, analysts Ygal Arounian and Rodrigo Questas are a bit more skeptical, reiterating a neutral rating on Zillow and raising their price target to $80 from $58.

"The current environment of real strength in the housing market ... looks as if it might be around for a while, and the increasing importance of technology in real estate is clearly a strong development and makes us incrementally more positive on Zillow," the analysts said.

"But with Zillow Offers, a central strategy for Zillow still on the rebuild now and taking a few quarters to reach its prepandemic run rate, plus valuation at a premium, we remain neutral rated."