Zillow Group Inc (NASDAQ:Z) reported first-quarter earnings on Tuesday, and Z stock easily beat expectations.
Don’t get too excited about the beat. I still wouldn’t touch Zillow with a 10-foot pole.
That’s because Z stock also missed revenue expectations by a mile in the most recent quarter. Oh, and Zillow trades at insane valuations and faces long-term structural threats, but we’ll get to those in a minute.
Q1 Zillow Earnings: Nothing to Brag About
Yes, Z stock beat earnings-per-share estimates. No, the beat isn’t worthy of a ticker tape parade. At all.
Zillow stock posted non-GAAP EPS of 5 cents in the first quarter, more than doubling the 2 cents per share it earned in the same quarter a year ago. Analysts were betting on a 12 cents-per-share loss. So … you know … good job on not losing money!
I’m sorry — that last plaudit was misleading. Zillow did lose money. In fact, on a GAAP basis, Zillow stock lost $58.4 million. Non-GAAP accounting is a savior for equities like Z stock … you know, the ones that actually lose money but claim that they should be valued on different metrics (that often conveniently show profits).
Zillow isn’t the only company to do this. Tesla Motors Inc (NASDAQ:TSLA), Groupon Inc (NASDAQ:GRPN) and Twitter Inc (NYSE:TWTR) are but a few of the modern big-name companies utilizing these tricky accounting methods. Both GRPN and TWTR reported positive non-GAAP earnings last quarter while losing money on a GAAP basis. (TSLA managed to lose money in both scenarios.)
To be fair, everybody and their mother use non-GAAP accounting nowadays. Everybody and their aforementioned proverbial mothers do not, however, make a habit of disappointing on revenue expectations, as Z stock did last quarter.
Though revenue grew at an impressive 92% clip in the first-quarter, clocking in at $127.3 million, Z stock still missed the Street’s $135.7 million consensus estimate.
As for the long-term structural threats hovering over the Zillow stock price, the largest by far is Move Inc (NASDAQ:MOVE), a rival online real estate resource acquired by News Corp (NASDAQ:NWSA) in November. Move Inc, which owns Zillow competitor Realtor.com, has filed a lawsuit against Zillow alleging the theft of trade secrets and has publicly slammed Zillow’s most famous feature, its home price estimates, termed “Zestimates,” for inaccuracy.
News Corp also owns ListHub, a service that posts home prices to the Internet. Zillow’s business, and by extension, the Z stock price, has benefited by pulling valuable pricing data from ListHub in years past, but NWSA is now moving to terminate that relationship.
A cutthroat move like that would lend further credence to Realtor.com’s claims that Zillow’s home price Zestimates aren’t as precise as they should be.
Even with these risks facing Z stock, shares still trade at a preposterous 63 times forward earnings. I may just be zestimating, but I don’t think that sort of valuation can hold up in the long-term.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
