Zillow Group CEO Spencer Rascoff says he couldn’t be more pleased with the integration of Trulia, the San Francisco-based online real estate company that Zillow purchased for $2.5 billion in February.
“We have made great strides in successfully bringing these two companies and cultures together in eight short weeks, with minimal drama and almost no lost productivity,” said Rascoff in a conference call with analysts Tuesday morning. “The teams are working well together.”
But the long drawn-out buyout process — including a protracted FTC evaluation which consumed more than seven months — is taking its toll.
Rascoff said that 2015 will be a “transition year” and the combined company is now “trending a couple quarters behind of where we’d like to be.” The company expects pro-forma revenue of $690 million for 2015, with margins of more than 20 percent.
Analysts has expected revenue of $753 million for the year, and CNBC reports that the stock was temporarily halted in early-morning trading. When the stock began trading around 6:55 a.m., the shares had fallen more than eight percent, dropping below $85 per share. The company’s market cap sunk as a result to $4.9 billion.
“We have some ground to make up as a result of the government process,” said Rascoff.
Zillow Group is taking a revenue hit in part because it decided to remove some ad positions on Trulia. The strategy will cost the combined company revenue in the short-term, but Rascoff said will create a better consumer experience long-term.
He’s fully confident the company will catch up, eventually achieving margins of more than 40 percent. Rascoff said that they’ve already successfully integrated finance, human resources, IT operations and other core services. The company also cut 350 employees on the day that the acquisition closed, giving the combined company about 2,000 staffers.
“In M&A deals of this scale, it usually takes quarters of what we have accomplished in weeks,” he said. “I know these details probably sound unimportant to outsiders, but these are the things that distract and slow down innovation at many companies after big acquisitions. On the contrary, the full Zillow group is operating at a very high level and is moving much faster than I anticipated.”
Rascoff also took some time to detail the company’s progress in acquiring for-sale listing information from multiple listing services, following the end of an agreement with News Corp.-owned ListHub earlier this month. Rascoff said the transition could have been “rocky,” but the Zillow team successfully signed up hundreds of multiple listing services to direct feeds in recent months. He said the company is in good shape now that it does not have to rely on listing feeds from a direct competitor.
“We were pretty confident that we’d get there eventually, but the team did a stellar job in the past few months, and now nearly every major multiple listing service is sending listings to Zillow Group,” said Rascoff, adding that the termination of the deal with ListHub will not materially impact Zillow’s revenue in 2015.
Zillow’s stock is taking a big hit in trading Tuesday morning.
