[VIP] Zillow, Q3/2019: Not a Test, But a Test Kitchen

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Back in Q2, I titled my analysis of Zillow's earnings, "Going All In" and wrote:
When Rich Barton took (back) over as CEO of Zillow earlier this year, I wrote a Red Dot and titled it, “The Return of the King.” I didn’t realize then that the king was not just a fighter, but a gambler. With giant brass ones. After the Q2 earnings results, I know that now.

Zillow’s Q2 earnings came in more or less as I expected: huge spike in revenues, but an even larger spike in expenses, resulting in absolutely astronomical losses. Seriously. I had to find a way to format the percentages as I’ve never needed the thousands separator in percentages. But I needed it this quarter. Net loss widened by 2,227%? I mean… what?

Zillow's Q3 earnings show us all what going all in looks like. And I'm glad I found a way to include the thousands separator in percentages, because I needed it again.

I think broadly speaking, both the bulls and the bears will find something in the earnings report to delight them. The bulls can point to absolutely massive growth in revenues and an impressive performance in the (still) core IMT business, while the bears can point to the even more massive growth in net loss and chortle.

As is typical when Zillow reports, there was a lot there, especially in the earnings call as management discussed what happened, what they're seeing, and what they're thinking. It was a really open and transparent discussion, which is par for the course for Zillow.

My take on Q3 is that Zillow is in the midst of a BCG 2x2 Matrix exercise and a delicate point (in a good way) in the transition from Zillow 1.0 to Zillow 2.0. What they're doing is not a test to see if they want to do it at all, but a test kitchen to see which recipe they want to deploy. The analogy will make sense, I promise.

So let's get into it.
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