Shares of Zillow Inc. (NASDAQ: Z) surged on Friday after the online real estate database reported a bigger than expected surge in revenue and announced major expansion efforts into new markets. This comes despite growing uncertainty over the health of the U.S. housing market, whose recovery has been upended by rising affordability challenges.

Q1 2019 Summary

  • Earnings: -$0.33 per share
  • Revenue: $432.1 million

 

Revenue Surges

Despite not being profitable, Zillow’s first quarter results surprised to the upside on both the top- and bottom-lines. The Seattle-based company reported a loss of $67.5 million, or $0.33 per share, compared with the expected loss of $0.35 per share. Zillow reported a loss of $0.10 per share in the first quarter of last year.

Revenue surged to $454.1 million in the March quarter, well ahead of last year’s $325.2 million and far exceeding estimates for $433 million.

“We delivered strong first-quarter results that met or exceeded our own expectations in all segments as our plan to streamline the real estate transaction comes together,” CEO Rich Barton said in a statement. “Zillow Offers’ incredible consumer demand and rapid growth gives us confidence we’re in the early stages of something important.”

Zillow has a very strong history of revenue growth, with annual sales rising in each of the last nine years. In all of 2017, the company generated $1.334 billion in sales, up 24% from a year earlier.

The company’s share price rocketed 20% higher in after-hours trading on Thursday. On Friday, it was one of Wall Street’s best-performing stocks, gaining as much as 16.1%. By comparison, the broader Nasdaq Composite Index plummeted more than 1%. Year-to-date, Z has gained more than 22%.

Zillow Share Price YTD - May 10 2019

Source: Yahoo Finance

Aggressive Expansion

The company’s buying and selling services are already available in nine markets and will be expanded into six additional jurisdictions.

The U.S. housing market has been unable to find its footing in recent years, as higher interest rates and rising property values made it more difficult for first-time buyers to get their foot in the door. But this hasn’t stopped Zillow from becoming a leading online marketplace.

In addition to its vast online database, Zillow has expanded its business to include buying and selling houses. In the quarter ending March, the company purchased 898 homes, an increase of 80% from the previous quarter. It sold 414 homes between January and March.

The company’s buying and selling services are already available in nine markets and will be expanded into six additional jurisdictions. These include Los Angeles and two other California locations.

Zillow’s website also has a section for home loans, which allows users to shop mortgages and refinance rates. This could be another high-growth segment in the future.

 

Conclusion

With a market cap of nearly $8 billion, Zillow’s stock can no longer be ignored. The company has generated considerable buzz in the real estate market for quite some time. This is largely tied to its research unit, which provides up-to-date information on home values, rental markets and forecasts. Its strong history of revenue growth suggests it has a very high ceiling in terms of value.

Disclaimer: Author holds no investment position in Zillow at the time of writing.