Zillow Group's Q4 earnings outpaces expectations, is it enough to break it out?

Zillow Group, a leading real estate and rental marketplace, reported its Q4 earnings for the year 2023. The company's results exceeded expectations, with revenue growing 9% year over year to $474 million, beating analysts' estimates of $451.63 million. This growth was primarily driven by investments in top-of-funnel and mid-funnel experiences that drive lead volumes. 

The company's Residential segment revenue rose 3% year over year to $349 million, outperforming both the residential real estate industry total transaction value decline of 4% and the company's outlook. Rentals segment revenue grew by 37% to $93 million, primarily due to multifamily revenue growing 52% in Q4. Mortgages segment revenue also increased by 22% to $22 million, with purchase loan origination volume growing 105% in Q4.

Adjusted EBITDA for Q4 was $69 million, or 15% of total revenue, which was $19 million above the midpoint of the company's outlook range. This was driven primarily by higher-than-expected Rentals and Residential revenue. Excluding a one-time partial lease termination expense, Q4 Adjusted EBITDA would have been $83 million, or 18% of total revenue, up from 17% in Q4 of 2022.

Zillow's traffic to its mobile apps and sites was 194 million average monthly unique users, down 2% year over year. Visits during Q4 were 2.2 billion, up 1% year over year.

The company's outlook for Q1 2024 is positive, with revenue expected to be $495-510 million, compared to analysts' estimates of $499.86 million. Zillow expects Q1 adjusted EBITDA to be $95-105 million. The company is also assuming that the housing market will remain relatively flat in aggregate for the year, but expects to drive double-digit revenue growth for the full year.

Zillow's strong Q4 results and upbeat guidance for Q1 have caused the stock to rally, with the shares surging 9% in reaction to the news, although the stock has pulled back in early trade. The company's diversified revenue base, which now derives the majority of its revenue from sources other than buy-side fees, has made it a more attractive investment for investors. Zillow's Rentals segment, which grew by 37% in Q4, is a particularly promising area of growth for the company.

Overall, Zillow's Q4 2023 earnings report was a strong beat and upbeat guidance, with the company's revenue and Adjusted EBITDA exceeding expectations. The company's diversified revenue base, strong cash position, and positive outlook for Q1 and the full year have made it an attractive investment for investors.

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