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The Reasons Behind Zillow’s Raised Guidance


Chris Hill: Zillow’s first quarter loss was
bigger than expected, but the company raised guidance, and it must have been pretty rosy,
Jason, because the stock is up nearly 10% this week. Jason Moser: Yeah. To that point, I think
at this stage in its life, Zillow is primarily a revenue story. Any time you can see raised
guidance like that, I think the market generally will receive it well. A very broad portfolio
of brands, now, with Zillow, Trulia, StreetEasy, HotPads, and there probably will be some more
that come in there over the coming years, as well. They’re focused on four main priorities:
growing their audience of users, which they continue to do. March traffic peaked at more
than 166 million. Growing their premiere agent business. You look at that segment, revenue
grew 25% to $134.5 million for the quarter. Interestingly enough, on this part of the
business, they’re focusing on the high performers of premiere agents, as opposed to trying to
grow this vast network of agents. I think, not only do they want to be recognized as
the place where you can find anything real estate, but really, the quality real estate
information out there. So, they’re focused more on quality and less on volume as far
as the agents go, and that’s actually working out. I think that’s a good long-term strategy. The emerging marketplaces, which is a smaller
part of the business, but mortgage, rental, they continue to add new tools there that
continue to benefit the top line there. And then, this is the company that really prides
itself on its culture, and being a company that can attract and retain great talent,
because, ultimately, this is a tech company. And I truly believe, this is the direction
the real estate market is going in most cases. It’s going to give more information, it’s
going to give consumers more access to that information than ever before. Again, top line story, the top line is moving
in the right direction. I think, eventually, these guys pull back on spending a little
bit, profitability will really accelerate, and patient shareholders should be OK. Matt Argersinger: I’ll add, I think one thing
going for them is, you have this whole millennial generation that, for many reasons, have not
been able to purchase a home. In fact, you do surveys, and it is now the biggest population
in the country, and they do really want to buy homes. And I think that’s a generation
that grew up on mobile and using things like Zillow. I think that just means, home transactions,
home buying and home selling, is still going to be tremendous in the years to come, and
that feeds right into Zillow’s strengths. Ron Gross: It’s interesting, my wife’s a realtor.
It’s kind of a double-edged sword, because it acts as a great way to get business, but
sometimes you’re fighting against the data that people are reading that isn’t exactly
accurate. Everyone now thinks they’re an expert, the realtor has to come in and explain, “Let
me explain the market to you, let me explain why values may not be what you think they
are.” So, you sometimes have to fight against all that information that is flowing to people.

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