Zillow warns on profit due to higher advertising costs

Wed Feb 12, 2014 6:43pm EST

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(Reuters) - Real estate website operator Zillow Inc warned that near-term profit would be hit due to higher advertising costs, sending its shares down 3 percent in after-hours trading.

The company said it would increase spending on advertising to $65 million in 2014 from $40 million in 2013.

"While we will forego some profitability in the near-term to grow our audience market share, the long (term) gain is about capturing revenue share and expanding profit margins," Chief Executive Spencer Rascoff said on a conference call, where he also took questions via Facebook and Twitter.

Zillow said it expected revenue of $62 million-$63 million for the first quarter, above the average analyst forecast of $60.6 million.

The company expects sales and marketing expenses of $36 million to $37 million for the quarter ending March 31. Sales and marketing expenses were $19.8 million in the year-earlier quarter.

Zillow said it expects revenue of $288 million to $294 million for 2014, above the average analyst forecast of $283.9 million.

The company also reported better-than-expected fourth-quarter revenue and earnings as a recovering U.S. housing market boosted subscriptions.

Zillow, which gets most of its revenue from subscriptions to its website from real estate agents, said the number of paid subscribers rose 64 percent to 48,314 in the quarter.

Revenue jumped 70 percent to $58.3 million.

Net income rose to $2.7 million, or 6 cents per share, in the fourth quarter, from $549,000, or 2 cents per share, a year earlier.

Excluding items, the company earned 19 cents per share.

Analysts on average had expected earnings of 7 cents per share on revenue of $54.4 million, according to Thomson Reuters

I/B/E/S.

Zillow said average monthly unique users to Zillow.com increased 57 percent to 54.4 million in the quarter.

The company said the number of people using mobile devices to access its site nearly doubled, but did not provide numbers.

Zillow's competitors include Trulia Inc, which operates Trulia.com, and Move Inc, owner of sites such as Realtor.com.

Zillow's shares closed at $89.85 on the Nasdaq on Wednesday. They gained 4 percent after the company reported better-than-expected quarterly results before reversing direction on the profit warning.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian and Sriraj Kalluvila)

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