Why Zillow Stock Came Out Today

Actions of The Zillow Group (Z 18.27%) (ZG 18.22%)the leading online real estate platform, rose today after the company posted solid growth despite broader weakness in the housing market.

As a result, shares closed up 18.3%.

Image source: Getty Images.

Zillow is back

Zillow, which makes money through advertising and related services for real estate agents, said revenue in the quarter rose 13 percent to $572 million, easily beating the company’s guidance and beating estimates of $538.3 million.

Income growth was broad-based, with residential income up 8% to $409 million, rental income up 29% to $117 million and mortgage income up 42% to $34 million. Zillow loan volume grew 125% to $756 million, indicating a potentially strong new revenue stream.

The company’s margins also held up with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $134 million, up from $111 million in the year-ago quarter. Management said the strength of the residential segment drove the EBITDA growth.

Finally, GAAP net loss narrowed to $17 million from $35 million in the year-ago quarter.

The company also named Jeremy Wacksman as its new CEO. Wacksman summed up the quarter, saying, “Zillow outperformed the residential real estate industry for the eighth consecutive quarter, delivering better-than-expected revenue across the business.”

Wacksman added that the company was on track to deliver GAAP profitability and was targeting double-digit revenue growth this year.

Can Zillow Keep Winning?

For the third quarter, the company called for revenue of $545 million to $560 million, which was in line with consensus and a 15% increase.

Also today, mortgage rates fell to their lowest level in over a year and should continue to fall as the Federal Reserve is expected to cut interest rates at its next meeting and begin the process of lowering rates at a long-term target of 2% to 3%.

That should lead to a recovery in the housing market, and that, along with Zillow’s operational improvements, could easily make the stock a winner over the next year.