Wednesday’s market was pretty merciless when it came to web-based growth stories, but the show still had to go on, and Zillow Inc. (NASDAQ:Z) released its earnings numbers for the first three months after the market closed. Earnings for the three months, which Zillow records as its first of fiscal 2014, came in at $0.02. Revenues in the same period totaled 66.2 million. On today’s market the company’s stock lost a chunk of value to close up at $93.63.
In the run up to the release of the first quarter numbers analysts were expecting a loss of 8 cents per share from Zillow Inc (NASDAQ:Z). Revenue estimates, which came from a Businessweek survey of 14 analysts following the company, it a consensus of $63.2 million. In the same three months of 2013 Zillow managed to earn 1 cent per share on revenue of $39 million.
Zillow earnings show cost damage
If there’s one thing that’s clear from looking at Zillow Inc (NASDAQ:Z) financials, including this afternoon’s numbers, it’s that the company has let its costs run well ahead of its sales growth. the company has managed to show impressive revenue growth in the last couple of years, but its earnings numbers have really suffered as a result.
The reason for the cost’s choke-hold on profit at Zillow Inc (NASDAQ:Z) is that the company is doing its best to grow out. That means marketing and technology development. Both of those cost a lot of money, but both are supposed to help the business secure and grow its userbase in the long term.
With some investors warnings that a second tech bubble is on the way, a company with no earnings and growing revenue may no longer be able to command a premium on Wall Street. Zillow Inc (NASDAQ:Z) may have to change the way it deals with its cashflow if it wants to keep its investors happy, given the changing market mood.
Zillow sinks as momentum crumbles
Zillow Inc (NASDAQ:Z) wasn’t the only stock to lose value today, and the company’s shares weren’t even the hardest hit in what will be remembered as a rough day for web companies. In recent days the value of many companies operating a growing business on the internet has dropped significantly. Zillow managed to hit an all time high of more than $111 per share earlier this month before sinking back under $95 today.
The vagaries of the market have played with the money of many an investor, and Zillow Inc (NASDAQ:Z) may be in for a rough ride in the coming weeks. The company’s value stands at more than $3 billion, more than 13 times its revenue in the full year 2013. Zillow’s business is expected to grow, but very few companies are able to maintain a stable valuation at that level.
Having only gone public in 2011, there is little stability to find in Zillow Inc (NASDAQ:Z) history. The company has swelled to more than three times its value in the years since it went public. Meanwhile earnings have declined as the firm’s revenue increased quickly.
With competition from several directions it’s not clear what Zillow Inc (NASDAQ:Z) management can offer to appease the nervousness of its investors. Whatever they have will likely be heard on the company’s earnings call, which is due to take place at 5PM EDT.