On Thursday, Evercore ISI adjusted its outlook on Zillow (NASDAQ:Z) Group (NASDAQ:ZG), reducing the price target to $50 from the previously set $70. The firm sustained its Outperform rating on the company's shares. This revision follows Zillow's first-quarter earnings report, which revealed mixed financial results.
Zillow reported a revenue increase of 13% year-over-year, totaling $529 million, which surpassed expectations by 5% and 4% compared to Evercore ISI and other analysts' estimates, respectively. This beat was primarily due to better-than-expected Residential Revenue. The company's EBITDA for the quarter was $125 million, reflecting a 24% margin and outperforming Evercore ISI and consensus estimates by approximately 20%. This indicates a year-over-year margin expansion of 150 basis points.
Despite these positive aspects, Zillow's second-quarter guidance fell short of analyst expectations. The company's forecast for both revenue and EBITDA was significantly below the average market predictions. The lowered outlook is attributed to two main factors: a year-to-date underperformance in first-time homebuyer activity, where Zillow has significant exposure, and a cautious stance from Premier Agent partners in response to the recent sharp increase in interest rates, approximately 50 basis points over the last few weeks.
Zillow's management, however, reaffirmed its full-year 2024 projections for double-digit percentage revenue growth and modest EBITDA margin expansion. This suggests that the company is anticipating a stronger performance in the second half of the year, despite the current challenges.
Evercore ISI also acknowledged a misstep in their previous assessment, stating that they underestimated the near-term macroeconomic headwinds, especially those affecting first-time homebuyers, due to the recent surge in interest rates. Consequently, the firm has decided to close its Tactical Outperform call on Zillow Group.
InvestingPro Insights
As Zillow Group navigates through a turbulent real estate market, InvestingPro data and tips provide a deeper understanding of the company's financial health and future prospects. According to InvestingPro, Zillow's management has been proactively repurchasing shares, signaling confidence in the intrinsic value of the company (InvestingPro Tip 0). This aligns with the positive sentiment from Evercore ISI's sustained Outperform rating, despite the recent price target adjustment.
Moreover, Zillow's financial position appears robust, with more cash than debt on its balance sheet (InvestingPro Tip 1) and liquid assets that exceed short-term obligations (InvestingPro Tip 3). These metrics suggest a strong liquidity position that could help the company weather the challenges posed by the current economic environment.
While Zillow was not profitable over the last twelve months (InvestingPro Tip 4), analysts are optimistic, projecting net income growth and profitability for the company this year (InvestingPro Tips 2 and 6). This anticipated turnaround could be a key factor for investors considering Zillow's long-term growth trajectory.
InvestingPro also notes that Zillow's share price has experienced a significant decline over the past three months (InvestingPro Tip 5). However, for investors seeking to capitalize on potential future gains, this could present a buying opportunity, particularly if the company meets its full-year 2024 projections for revenue growth and EBITDA margin expansion as reaffirmed by management.
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