Zillow Stock Slides After Q4 Earnings Miss Estimates: Details

Zillow Group, Inc. (NASDAQ: Z and ZG), the leading online real estate platform, reported its fourth-quarter and full-year 2024 financial results on February 11, 2025. The company's stock price has declined recently, presenting potential opportunities for value investors. However, it is essential to be aware of the risks associated with investing in Zillow at this time.

Zillow's Q4 earnings missed analyst estimates primarily due to higher-than-expected costs and lower-than-expected revenue growth in certain segments. On a GAAP basis, net loss was $52 million and net loss margin was 9% in Q4 2024, compared with net loss of $73 million and net loss margin of 15% in Q4 2023. GAAP net loss was $112 million for the full year 2024 and net loss margin was 5%, a 300 basis point improvement from 8% net loss margin in 2023. Q4 Adjusted EBITDA was $112 million, or 20% of revenue, driven primarily by higher-than-expected Residential revenue and strong Rentals revenue. Adjusted EBITDA for the full year 2024 was $498 million and Adjusted EBITDA margin was 22%, up 200 basis points from 20% Adjusted EBITDA margin in 2023.

Zillow's strategic pivot towards expanding its rental offerings and mortgage business has significantly contributed to its overall financial health. The company's rental revenue surged, with over 44,000 multifamily properties listed on the site, resulting in a 44% year-over-year growth in multifamily advertising revenue. This exponential growth in rental offerings has diversified Zillow's revenue streams, making the company less reliant on the volatile home sales market. Additionally, Zillow's mortgage business has shown remarkable growth, with a 90% increase in purchase loan origination volume to $923 million in Q4 2024. This expansion has not only increased revenue but also strengthened Zillow's position in the mortgage market, allowing it to capture a larger share of the home financing process.

However, value investors should be aware of the risks associated with investing in Zillow at this time. Economic headwinds, competition, regulatory risks, and dependence on advertising revenue are all factors that could impact the company's financial performance. As the real estate market is cyclical, a downturn in the economy could lead to decreased demand for housing and negatively impact Zillow's revenue. Additionally, competition from other real estate platforms and technology companies could challenge Zillow's market share and revenue streams. Changes in regulations or government policies could also impact Zillow's business operations and revenue. Lastly, Zillow's dependence on advertising revenue makes it vulnerable to fluctuations in advertising spending by real estate agents and property managers.

In conclusion, value investors may find opportunities in Zillow's strong revenue growth, diversified revenue streams, and leading brand in the real estate category. However, they should be aware of the risks associated with economic headwinds, competition, regulatory risks, and dependence on advertising revenue. By carefully evaluating these factors, value investors can make informed decisions about investing in Zillow Group, Inc.