Zillow Group Inc. (NASDAQ:ZG) Initiated by Compass Point

Zillow Group Inc. (NASDAQ:ZG) stock fell 2.30% (As on September 20, 11:19:19 AM UTC-4, Source: Google Finance) after Compass Point initiated coverage with a Buy rating and a $50 price target. While customer demand is generally correlated to overall real estate market conditions that are expected to remain under pressure through mid-2023, the analysts see the challenge and opportunity for the company to actively capture share, which holds potential growth implications that may far offset near-term market headwinds. The analysts believe very modest gains in share may translate into substantial Revenue and EBITDA growth potential above consensus

On the other hand, Consolidated Q2 revenue was $1.0 billion, above the midpoint of our outlook range. Q2 IMT segment revenue of $475 million was flat year over year and within the outlook range.  Premier Agent revenue decreased 5% year over year to $333 million for Q2, slightly below the low end of the outlook range. Results were impacted by macro housing market factors including interest rate and home price increases, as well as tight inventory levels. Rentals revenue decreased 3% year over year to $71 million for Q2, better than the expectations. Homes segment revenue of $505 million in Q2 exceeded the outlook, as the wind-down of the iBuying operations continued to progress faster than anticipated. Mortgages segment revenue was $29 million in Q2, slightly below the low end of our outlook range, as rising interest rates impacted demand more than expected.

On a GAAP basis, consolidated net income was $8 million in Q2. Segment income (loss) before income taxes in Q2 was $69 million, $(14) million and $(38) million for the IMT, Homes and Mortgages segments, respectively. Consolidated Adjusted EBITDA 5 was $164 million in Q2, exceeding the midpoint of the outlook range. Adjusted EBITDA by segment in Q2 was $186 million, $(1) million and $(21) million for the IMT, Homes and Mortgages segments, respectively. Consolidated Q2 results were driven by higher-than-anticipated margins in the IMT segment and better-than-expected unit economics on a higher volume of homes sold in the Homes segment. Cash and investments of $3.5 billion at the end of Q2 were down slightly from $3.6 billion at the end of Q1 2022, after $249 million in share repurchases during the quarter. The company has approximately $850 million remaining under the total share repurchase authorizations of $1.8 billion. Debt was $1.7 billion at the end of Q2, down from $2.5 billion at the end of Q1 2022, after paying down all remaining iBuying debt in the quarter.

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