Zillow announced after markets closed Friday that the Federal Trade Commission had completed its investigation into the merger, which was announced in July, and that it expected to close the deal as early as Tuesday. The news came in conjunction with Zillow's fourth-quarter surprise earnings report. Zillow plans to hold a conference call on Wednesday, Feb. 18.
As of press time, no announcement had been made that the merger had been completed.
Zillow swung to a fourth-quarter net loss of 27 cents a share from a profit of 6 cents a share in the quarter a year before. the result missed analysts' expectations. The company said that approximately 20 cents a share was related to the Trulia acquisition. Revenue jumped 58% from the year-earlier quarter to $92.3 million. Adjusted earnings were 24 cents a share for the quarter.
Shares were trading 2% higher at $108.61. Here's what analysts said.
Lloyd Walmsley, Deutsche Bank (Hold, $115 Price Target)
"Despite high squeeze potential, enough risks to keep us on the sidelines. We revise our Zillow estimates to reflect a Feb 17 close of the Trulia deal and provide a framework for synergy analysis. For now, we model cost synergies of $43.5M in 2015 and $104M in 2016, with minimal revenue synergies of $12M in 2016. We expect more synergies over time though we likely will not get a lot more color here until Zillow can more closely pick through Trulia, and in the meantime, there will be restructuring costs. We review parts of the bear case but maintain our Hold rating given some risks (traffic slowdown, listings risk, competing portal initiatives) are offset by extreme short interest vs true float.
"Over the long-term we estimate Zillow can extract substantial synergies including (1) pricing up Trulia's Agent Rev/MAU from today's ~13% discount (~$30M revenue potential), (2) selling Trulia's rental inventory (~$10M revenue potential), (3) better monetizing Trulia's mortgage ads ($5-10M revenue potential) and, and (4) reduction in duplicative G&A, S&M and R&D (~$100M guidance in 'cost avoidances¿). We expect more color on the Feb 18 conference call but a lot of work on synergy forecasting still needs to be done, suggesting there may not be substantial new disclosure immediately."
Ronald Josey, JMP Securities (Market Outperform, $140 PT)
"We reiterate our Market Outperform rating and $140 price target on Zillow shares following the announcement late last Friday that the FTC had closed its investigation on Zillow's acquisition of Trulia; Zillow now anticipates closing the acquisition as early as Tuesday, February 17. Zillowalso reported 4Q14 results with revenue of $92.3 million (+58% Y/Y) that came in 3% above consensus,but EBITDA of $20 million (+30% Y/Y, +22% margin) was 7% below the low end of guidance. With theTrulia acquisition approved by the FTC, we believe it removes a significant overhang on shares and thestock rose 5.6% in aftermarket trading on the news to $112. With Trulia, we believe it solidifies Zillow asthe leader within the $10-$12 billion online real estate vertical and creates significant new opportunitiesfor the combined entity across the real estate vertical, and in rentals and mortgages."
Michael Graham, Canaccord Genuity (Buy; $125 PT)
"Zillow surprised investors Friday after the market close by releasing Q4 results with no warning. Judging from the company's press release, we believe the Trulia merger will close on Tuesday, Feb 17, and expect Trulia is also likely to issue Q4 results by then. We do not expect any guidance from either company at this time, but we do expect at least some level of detail around combined company guidance when the combined company reports Q1 results, likely in early May. We were impressed with Zillow's operating momentum overall, and continue to believe the company's long-term future is bright."
TheStreet Ratings team rates ZILLOW INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate ZILLOW INC (Z) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Z's very impressive revenue growth greatly exceeded the industry average of 18.2%. Since the same quarter one year prior, revenues leaped by 66.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Z has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 7.26, which clearly demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has increased to $4.48 million or 12.33% when compared to the same quarter last year. Despite an increase in cash flow, ZILLOW INC's cash flow growth rate is still lower than the industry average growth rate of 26.16%.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 1243.7% when compared to the same quarter one year ago, falling from -$1.19 million to -$15.98 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, ZILLOW INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: Z Ratings Report