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Updated Wednesday, November 7, 2012 at 06:27 AM

Zillow shares plunge on report

By Drew DeSilver
Seattle Times business reporter

Shares of Seattle-based Zillow plunged in after-hours trading Monday, after the real-estate data company said fourth-quarter results would fall short of Wall Street expectations.

Zillow shares fell as low as $25.79 after reporting its quarterly results, although the stock later recovered somewhat and finished around $26.73, more than $7.60 below its regular-session close.

The shares ended Monday’s regular trading at $34.37, down $1.91 or 5.3 percent; volume was nearly three times the average of the past three months. The company reported earnings after the close.

The company said it expected fourth-quarter revenue to be between $30 million and $31 million, below the average analyst estimate of $32.4 million. Adjusted operating earnings, a nonstandard measure, was expected to come in around $3 million to $3.5 million; analysts had on average predicted about $5.6 million.

The downbeat forecast overshadowed Zillow’s third-quarter results, which exceeded estimates, and showed how sensitive the stock’s value is to changing perceptions of the company’s growth prospects.

At Monday’s closing price, Zillow was still trading at more than 100 times this year’s estimated profit and around 50 times next year’s estimated profit.

For the third quarter, Zillow reported a net profit of $2.3 million, or 7 cents per diluted share, on revenue of $31.9 million; analysts had expected profit of a penny a share and $31.4 million in revenue. The company lost $570,000 in the same period last year.

Revenue was 67.5 percent above the third quarter of 2011. Over the first nine months of the year, Zillow has earned $5.4 million profit on revenue of $82.5 million.

Nearly three-quarters of Zillow’s revenue came from its “marketplace” segment, which consists largely of ads from real-estate agents targeted by Zip code. That segment has become the main driver of Zillow’s business, doubling over the past 12 months; at quarter-end the company had 26,703 agent subscribers. (The rest of Zillow’s revenue, about $8.3 million in the third quarter, comes from display ads.)

For the first time, Zillow disclosed per-subscriber revenue data, following a request from the Securities and Exchange Commission that it do so. Average monthly revenue per subscriber was $270 in the third quarter, up from $263 last quarter and $242 in the third quarter of 2011.

Zillow said its Web and mobile sites had an average of 36.1 million monthly unique users in the quarter, versus 33.5 million in the second quarter

The company also said Monday it had agreed to buy Mortech, a mortgage software and services company, for $12 million in cash and 150,000 shares of restricted stock. At Monday’s closing price, that would put the total price at nearly $17.2 million.

Michael Graham, who follows Zillow for Canaccord Genuity, said the company’s core business remained strong, though he cut his price target on the stock to $45 from $50.

“We believe management is trading short-term profits for a stronger long-term competitive position against a very large market opportunity,” Graham wrote in a note to clients. “There is a sizable group of investors that view Zillow as a high-quality player in a large end-market and ... will view this downward move in the stock as a good entry point.”

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com


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