Add
Z to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| Z > SEC Filings for Z > Form 10-Q on 4-May-2012 | All Recent SEC Filings |
4-May-2012
Quarterly Report
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, including in the section titled "Note Regarding Forward-Looking Statements," and also those items listed in Part 1, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the year ended December 31, 2011.
Overview
We are the leading real estate information marketplace. In addition to Zillow.com, we also operate Zillow Mobile, our suite of mobile real estate applications, and Zillow Mortgage Marketplace, where borrowers connect with lenders to find loans and get the competitive mortgage rates.
Zillow provides information about homes, real estate listings and mortgages through our websites and mobile applications, enabling homeowners, buyers, sellers and renters to connect with real estate and mortgage professionals best suited to meet their needs.
Our living database of more than 100 million U.S. homes - homes for sale, homes for rent and homes not currently on the market - attracts an active and vibrant community of users. Individuals and businesses that use Zillow have updated information on more than 30 million homes and added more than 83 million home photos, creating exclusive home profiles available nowhere else. These profiles include detailed information about homes, including property facts, listing information and purchase and sale data. We provide this information to our users where, when and how they want it through our websites and through our industry-leading mobile applications that enable consumers to access our information when they are curbside, viewing homes. Using industry-leading automated valuation models, we provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 million U.S. homes.
We generate revenue from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. Our revenue includes marketplace revenue, consisting of subscriptions sold to real estate agents and advertising sold on a cost per click, or CPC, basis to mortgage lenders, and display revenue consisting of advertising placements sold primarily on a cost per thousand impressions, or CPM, basis.
During the three months ended March 31, 2012, we generated revenue of $22.8 million, as compared to $11.3 million in the three months ended March 31, 2011, an increase of 103%. The increase in revenue is primarily attributable to the increase in our marketplace revenue, which increased $9.7 million, or 141%, to $16.6 million during the three months ended March 31, 2012 from $6.9 million during the three months ended March 31, 2011, as a result of growth in our Premier Agent program. There was a 74% increase in our Premier Agent Subscribers to 18,616 as of March 31, 2012 from 10,710 as of March 31, 2011. We also experienced significant growth in traffic to our websites and mobile applications. There were approximately 31.8 million average monthly unique users of our websites and mobile applications for the three months ended March 31, 2012 compared to 17.3 million average monthly unique users for the three months ended March 31, 2011, representing year-over-year growth of 84%.
As of March 31, 2012, we had 377 full-time employees, compared to 329 full-time employees as of December 31, 2011.
Key Growth Drivers
To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we frequently review the following key growth drivers:
Unique Users
Measuring unique users is important to us because our marketplace revenue depends in part on our ability to enable our users to connect with real estate and mortgage professionals, and our display revenue depends in part on the number of impressions delivered. Furthermore, our community of users improves the quality of our living database of homes with their contributions. We count a unique user the first time an individual accesses one of our websites using a web browser during a calendar month, and the first time an individual accesses our mobile applications using a mobile device during a calendar month. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique
user since unique users are tracked separately for each domain. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. Beginning in October 2011, we measure unique users with Google Analytics. Prior to October 2011, we measured monthly unique user metrics with Omniture analytical tools. We believe Google Analytics and Omniture result in materially consistent measurements of our monthly unique users.
Average Monthly Unique
Users for the Three
Months Ended March 31, 2012 to 2011
2012 2011 % Change
(in thousands)
Unique Users 31,797 17,306 84 %
Premier Agent Subscribers
The number of Premier Agent subscribers is an important driver of revenue growth
because each subscribing agent pays us a monthly fee to participate in the
program. We define a Premier Agent subscriber as an agent with a paid
subscription at the end of a period.
At March 31, 2012 to 2011
2012 2011 % Change
Premier Agent Subscribers 18,616 10,710 74 %
Basis of Presentation
|
Revenue
We generate revenue from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. Our revenue includes marketplace revenue and display revenue.
Marketplace Revenue. Marketplace revenue consists of subscriptions sold to real estate agents under our Premier Agent program and CPC advertising related to our Zillow Mortgage Marketplace sold to mortgage lenders.
Our Premier Agent program allows local real estate agents to establish a persistent online and mobile presence on Zillow in the zip codes they serve. We present contact information for each Premier Agent alongside home profiles and home listings within the agent's zip code, assisting consumers in evaluating and selecting the real estate agent best suited for them. Pricing for our Premier Agent subscriptions varies by zip code and the tier level of participation, Platinum Premier, Silver Premier and Basic Premier. Subscription advertising revenue is recognized on a straight-line basis during the contractual period over which the advertising is delivered. Typical terms of our Premier Agent subscription contracts are six months. Growth in our subscription advertising product is based on our ability to continue to attract agent subscribers and drive consumer traffic to those agents on our websites and through our mobile applications.
In Zillow Mortgage Marketplace, participating qualified mortgage lenders make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Consumers who request rates for mortgage loans in Zillow Mortgage Marketplace are presented with personalized lender quotes from participating lenders. We only charge mortgage lenders a fee when users click on their links for more information regarding a mortgage loan quote. Mortgage lenders who exhaust their initial prepayment can then prepay additional funds to continue to participate in the marketplace.
Display Revenue. Display revenue primarily consists of graphical web and mobile advertising sold on a CPM basis to advertisers primarily in the real estate industry, including real estate brokerages, home builders, mortgage lenders and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. We recognize display revenue as impressions are delivered to users interacting with our websites or mobile applications. Growth in display revenue depends on continuing growth in traffic to our websites and mobile applications and migration of advertising spend online from traditional broadcast and print media.
Costs and Expenses
Cost of Revenue. Our cost of revenue consists of expenses related to operating our websites and mobile applications, including associated headcount expenses, such as salaries and benefits and share-based compensation expense and bonuses. Cost of revenue also includes credit card fees, ad serving costs paid to third parties, revenue-sharing costs related to our commercial business relationships and facilities costs allocated on a headcount basis.
Sales and Marketing. Sales and marketing expenses consist of headcount expenses, including salaries, commissions, benefits, share-based compensation expense and bonuses for sales, sales support, customer support, marketing and public relations employees. Sales and marketing expenses also include other sales expenses related to promotional and marketing activities and facilities costs allocated on a headcount basis.
Technology and Development. Technology and development expenses consist of headcount expenses, including salaries and benefits, share-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development and testing of our websites, equipment and maintenance costs and facilities costs allocated on a headcount basis. Technology and development expenses also include amortization costs related to capitalized website and development activities, amortization of certain intangibles and other data agreement costs related to the purchase of data used to populate our websites and amortization of intangible assets recorded in connection with acquisitions.
General and Administrative. General and administrative expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for executive, finance, accounting, legal, human resources, recruiting and administrative support. General and administrative expenses also include legal, accounting and other third-party professional service fees, bad debt expense and facilities costs allocated on a headcount basis.
Other Income
Other income consists primarily of interest income earned on our cash and cash equivalents and investments.
Income Taxes
We are subject to U.S. federal income taxes. As of March 31, 2012 and December 31, 2011, we did not have taxable income, and we are not projecting taxable income for the year ending December 31, 2012 and, therefore, no tax liability or expense has been recorded in the financial statements. We have provided a full valuation allowance against our net deferred tax assets as of March 31, 2012 and December 31, 2011, because there is significant uncertainty around our ability to realize the deferred tax assets in the future. We have accumulated tax losses of approximately $68.6 million as of December 31, 2011, which are available to reduce current future taxable income.
Results of Operations
The following tables present our results of operations for the periods indicated
and as a percentage of total revenue:
Three Months Ended
March 31,
2012 2011
(in thousands, except per share
data, unaudited)
Statements of Operations Data:
Revenue $ 22,833 $ 11,260
Costs and expenses:
Cost of revenue (exclusive of amortization) (1) (2) 3,350 1,817
Sales and marketing (1) 8,315 5,484
Technology and development (1) 5,030 2,996
General and administrative (1) 4,445 1,828
Total costs and expenses 21,140 12,125
Income (loss) from operations 1,693 (865 )
Other income 31 39
Net income (loss) attributable to common shareholders $ 1,724 $ (826 )
Net income (loss) per share attributable to common
shareholders - basic $ 0.06 $ (0.06 )
Net income (loss) per share attributable to common
shareholders - diluted $ 0.06 $ (0.06 )
Weighted-average shares outstanding - basic 28,348 13,347
Weighted-average shares outstanding - diluted 30,994 13,347
Other Financial Data:
Adjusted EBITDA (3) $ 5,447 $ 1,051
|
Three Months Ended
March 31,
2012 2011
(in thousands, unaudited)
(1) Includes share-based compensation as follows:
Cost of revenue $ 85 $ 41
Sales and marketing 190 107
Technology and development 310 86
General and administrative 833 156
Total $ 1,418 $ 390
(2) Amortization of website development costs and
intangible assets included in technology and
development is as follows: $ 2,004 $ 1,223
|
(3) See "Adjusted EBITDA" below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP.
Three Months Ended
March 31,
2012 2011
(unaudited)
Percentage of Revenue:
Revenue 100 % 100 %
Costs and expenses:
Cost of revenue (exclusive of amortization) 15 16
Sales and marketing 36 49
Technology and development 22 27
General and administrative 19 16
Total costs and expenses 92 108
Income (loss) from operations 8 (8 )
Other income 0 0
Net income (loss) 8 % (7 %)
|
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA within this Quarterly Report on Form 10-Q, a non-GAAP financial measure. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.
We have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key metric used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and
• Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results.
The following table presents a reconciliation of Adjusted EBITDA to net income
(loss) for each of the periods presented.
Three Months Ended
March 31,
2012 2011
(in thousands, unaudited)
Reconciliation of Adjusted EBITDA to Net Income (Loss):
Net income (loss) $ 1,724 $ (826 )
Other income (31 ) (39 )
Depreciation and amortization expense 2,336 1,526
Share-based compensation expense 1,418 390
Adjusted EBITDA $ 5,447 $ 1,051
|
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Revenue
Three Months Ended
March 31, 2011 to 2012
2012 2011 % Change
(in thousands, unaudited)
Revenue:
Marketplace revenue $ 16,593 $ 6,881 141 %
Display revenue 6,240 4,379 42 %
Total $ 22,833 $ 11,260 103 %
|
Three Months Ended
March 31,
2012 2011
Percentage of Revenue:
Marketplace revenue 73 % 61 %
Display revenue 27 % 39 %
Total 100 % 100 %
|
Overall revenue grew by $11.6 million, or 103%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011. Marketplace revenue grew by 141%, and display revenue grew by 42%.
Marketplace revenue was $16.6 million for the three months ended March 31, 2012 compared to $6.9 million for the three months ended March 31, 2011, an increase of $9.7 million. Marketplace revenue represented 73% of total revenue for the three months ended March 31, 2012 compared to 61% of total revenue for the three months ended March 31, 2011. The increase in marketplace revenue was primarily attributable to growth in the number of subscribers in our Premier Agent program to 18,616 as of March 31, 2012 from 10,710 as of March 31, 2011, an increase of 74%, as well as an increase in the average subscription price for new Premier Agents and for existing Premier Agents who renewed their subscriptions for additional six-month terms. We believe the increase in Premier Agent subscribers and the increase in the average price in our Premier Agent program was driven by our further development of our marketplace program with the support of our sales team and the overall growth in the number of unique users of our websites and mobile applications.
Display revenue was $6.2 million for the three months ended March 31, 2012 compared to $4.4 million for the three months ended March 31, 2011, an increase of $1.9 million. Display revenue represented 27% of total revenue for the three months ended March 31, 2012 compared to 39% of total revenue for the three months ended March 31, 2011. The increase in display revenue was primarily the result of an increase in unique users to our websites and mobile applications which increased to 31.8 million average monthly unique users for the three months ended March 31, 2012 from 17.3 million average monthly unique users for the three months ended March 31, 2011, an increase of 84%. The growth in unique users increased the number of graphical display impressions available for sale and advertiser demand for graphical display inventory. This resulted in increased advertising spend by larger businesses and industry-endemic advertisers such as real estate brokers, builders and lending institutions.
Cost of Revenue
Three Months Ended
March 31, 2011 to 2012
2012 2011 % Change
(in thousands, unaudited)
|
Cost of revenue was $3.4 million for the three months ended March 31, 2012 compared to $1.8 million for the three months ended March 31, 2012, an increase of $1.5 million, or 84%. The increase in cost of revenue was primarily attributable to revenue sharing costs related to our strategic relationship with Yahoo! Real Estate, which launched in February 2011, as well as a $0.3 million increase in headcount related expenses, including share-based compensation, driven by growth in headcount, and a $0.2 million increase in credit card and ad serving fees. We expect our cost of revenue to increase in future years as we continue to incur more expenses that are associated with growth in revenue.
Sales and Marketing
Three Months Ended
March 31, 2011 to 2012
2012 2011 % Change
(in thousands, unaudited)
|
Sales and marketing expenses were $8.3 million for the three months ended March 31, 2012 compared to $5.5 million for the three months ended March 31, 2011, an increase of $2.8 million, or 52%. The increase was primarily a result of growth in headcount related expenses, including share-based compensation, of $1.3 million driven by increases in the size of our sales team to promote our marketplace business, as well as a $1.3 million increase in marketing and advertising expenses, including tradeshows and related travel costs. The remaining increase of $0.2 million was primarily the result of additional consulting costs. We expect our sales and marketing expenses to increase in future years as we continue to invest more resources in growing our sales team and in marketing and advertising. Although these expenses may increase as a percentage of revenue in the near term, we expect these expenses will decrease as a percentage of revenue in the long term.
Technology and Development
Three Months Ended
March 31, 2011 to 2012
2012 2011 % Change
(in thousands, unaudited)
|
Technology and development expenses, which include research and development costs, were $5.0 million for the three months ended March 31, 2012 compared to $3.0 million for the three months ended March 31, 2011, an increase of $2.0 million, or 68%. Approximately $1.0 million of the increase was related to growth in headcount related expenses, including share-based compensation, and approximately $0.8 million of the increase was the result of amortization of intangible assets, including website development costs, purchased content and acquired intangible assets. The remaining increase of $0.2 million was primarily the result of additional consulting costs.
Amortization expense included in technology and development for capitalized website development costs was $1.3 million and $1.0 million, respectively, for the three months ended March 31, 2012 and 2011. Amortization expense included in technology and development for purchased data content intangible assets was $0.5 million and $0.3 million, respectively, for the three months ended March 31, . . .
|
|