Investors hated Zillow's third-quarter earnings report—not the record numbers the online real-estate marketplace posted for the period, but the outlook it gave for the fourth quarter.
The stock, already down 5.3 percent at the close of trading, dropped another 22 percent in after-hours trading to $26.80.
We just listened to the company's conference call with Wall Street analysts, and it's clear that they were alarmed by Zillow's forecast of $30 million to $31 million in revenue for the fourth quarter, down from the $31.9 million it just reported for the third quarter.
The big picture: Zillow is switching from making money on advertising to making money by providing leads to real-estate agents and mortgage lenders.
This seems smart in the long term, because lead generation is a business that adapts far better to mobile, and Zillow is now getting more views of homes on mobile than it is on its desktop website.
Here are three specific factors that contributed to the lower forecast:
- Advertising is seasonal. In Zillow's business, it's lower in the fourth quarter. Growth may have masked this seasonality in the past.
- Newly hired sales reps are still ramping up. Zillow is adding salespeople to sell its lead-generation products to real-estate professionals, but they require training and time to develop a pipeline.
- Zillow is taking foreclosure listings in-house. To expands its database, Zillow now gets data from county records on foreclosed homes and lists them on its site for buyers for free. It used to sell ads to a company called Foreclosure.com. That revenue has gone away.
We noticed that the analysts seemed particularly ticked that Zillow hadn't given them more of a heads-up about the foreclosure-ads issue.
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