Page 1 of 16 A Look at Zillow after Trulia’s IPO Analysis of the Profits-Revenues Data § 1. Summary After Trulia’s successful debut on the NYSE, its profits-revenues data were analyzed to predict both the profits and revenues for the fiscal year ending December 31, 2012. Trulia’s stock is being compared to Zillow, its main competition. Unlike Trulia, which has yet to report a profit, Zillow has reported quarterly profits for 4 out of 14 quarters and a profit for three consecutive quarters starting Q42011. It has also reported a profit for the full year 2011. The analysis of the profits and revenues data for Zillow (from 2006 to 2011, annual basis and Q1 2009 to Q2 20102, quarterly basis) again reveals a simple linear law y = hx + c = h(x – x 0 ) relating the revenues x and profits y, regardless of whether we consider the quarterly, cumulative quarterly, or the annual data. In all cases, as revenues increase, losses decrease and eventually turn into profits at higher revenues. Thus, the intercept x 0 = - c/h made by the straight line on the x-axis (revenue axis) equals the cut-off or “breakeven” revenue, the minimum revenue needed before the company can report a profit. The slope h then gives the rate at which additional revenues are converted into profits. On a quarterly basis h = 0.518 and on an annual basis h = 0.574. In other words, Zillow has the potential to convert about 52% of its quarterly revenues into profits, or about 57% of its annual revenues into profits. However, costs (as revealed by the increasing values of x 0 ) have also been increasing and consistent delivery of profits will require paying attention to three fundamental constants (a, b, p) which appear in the classical breakeven analysis for the profitability of any company. Here “a” is the fixed cost, “b” the unit variable cost and “p” the unit price. The two articles on Trulia and Zillow show that a simple approach based on the analysis of the graphical trends in the profits-revenues diagram can serve as a valuable tool for investors.
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A Look at Zillow After Trulia's IPO: Analysis of Profits-Revenues Data
After Trulia’s successful debut on the NYSE, its profits-revenues data were analyzed to predict both the profits and revenues for the fiscal year ending December 31, 2012. Trulia’s stock is being compared to Zillow, its main competition. Until Trulia, which has yet to report a profit, Zillow has reported quarterly profits for 4 out of 14 quarter, and a profits for three consecutive quarters starting Q42011. It has also reported a profit for the full year 2011. The profits and revenues data for Zillow (from 2006 to 2011, annual basis and Q1 2009 to Q2 20102, quarterly basis) is analyzed here to show that a simple linear law y = hx + c = h(x – x0) relates the revenues x and profits y, regardless of whether we consider the quarterly, cumulative quarterly, or the annual data. In all cases, as revenues increase, losses decrease and eventually turn into profits at higher revenues. Thus, the intercept x0 = - c/h made by the straight line on the x-axis (revenue axis) equals the cut-off or “breakeven” revenue, the minimum revenue needed before the company can report a profit. The slope h then gives the rate at which additional revenues are converted into profits. On a quarterly basis h = 0.518 and on an annual basis h = 0.574. In other words, Zillow has the potential to convert about 52% of its quarterly revenues into profits, or about 57% of its annual revenues into profits. However, costs (as revealed by the increasing values of x0) have also been increasing and consistent delivery of profits will require paying attention to three fundamental constants (a, b, p) which appear in the classical breakeven analysis for the profitability of any company. Here “a” is the fixed cost, “b” the unit variable cost and “p” the unit price.
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Page 1 of 16
A Look at Zillow after Trulia’s IPO
Analysis of the Profits-Revenues Data
§ 1. Summary
After Trulia’s successful debut on the NYSE, its profits-revenues data were
analyzed to predict both the profits and revenues for the fiscal year ending
December 31, 2012. Trulia’s stock is being compared to Zillow, its main
competition. Unlike Trulia, which has yet to report a profit, Zillow has reported
quarterly profits for 4 out of 14 quarters and a profit for three consecutive quarters
starting Q42011. It has also reported a profit for the full year 2011.
The analysis of the profits and revenues data for Zillow (from 2006 to 2011, annual
basis and Q1 2009 to Q2 20102, quarterly basis) again reveals a simple linear law
y = hx + c = h(x – x0) relating the revenues x and profits y, regardless of whether
we consider the quarterly, cumulative quarterly, or the annual data. In all cases, as
revenues increase, losses decrease and eventually turn into profits at higher
revenues. Thus, the intercept x0 = - c/h made by the straight line on the x-axis
(revenue axis) equals the cut-off or “breakeven” revenue, the minimum revenue
needed before the company can report a profit. The slope h then gives the rate at
which additional revenues are converted into profits.
On a quarterly basis h = 0.518 and on an annual basis h = 0.574. In other words,
Zillow has the potential to convert about 52% of its quarterly revenues into profits,
or about 57% of its annual revenues into profits.
However, costs (as revealed by the increasing values of x0) have also been
increasing and consistent delivery of profits will require paying attention to three
fundamental constants (a, b, p) which appear in the classical breakeven analysis for
the profitability of any company. Here “a” is the fixed cost, “b” the unit variable
cost and “p” the unit price.
The two articles on Trulia and Zillow show that a simple approach based on the
analysis of the graphical trends in the profits-revenues diagram can serve as a
valuable tool for investors.
Page 2 of 16
Table of Contents
§
No.
Topic Page
No.
1. Summary 1
2. Introduction 3
3. Zillow’s Quarterly Profits-Revenue data 4
4. Zillow’s Annual Profits-Revenue data 7
Table 1: Annual Profits-Revenues data for Zillow 10
Table 2: Quarterly Profits-Revenues data for Zillow 11
5. List of References 13
Page 3 of 16
§ 2. Introduction
After the recent Facebook IPO, and some other disappointing IPOs, the news about
Trulia’s successful debut, on its first day of trading as a public company, caught
my attention, see Ref. [1], click here. The company sold six million shares at the
IPO price of $17 apiece, raising nearly $102 million in working capital. The stock
price went up from the IPO price of $17.00 to $24.00, a nice 40% boost, but was
down to $23.03 on Friday close, 9/21/2012, see Refs.[1-3].
Interestingly, though, Trulia has not made one single dime in profits since it has
existed [4]. The recent passing of the JOBS Act has made it easier for companies,
with under $1 billion in revenue, to more easily raise money by doing the IPO.
Morning star, Ref.[5], notes the new, reduced, regulations as being somewhat
positive for qualifying companies to go public, modestly negative to the
investment community and neutral to investment banks, see also Ref. [6].
If there ever was a shining example of how tax cuts for the rich is supposed to help
create jobs, this IPO is it, folks! The rich can use their money that would otherwise
end up as tax paid for wasteful government expenditures, and invest it in IPOs of
companies like Trulia, Facebook, Groupon, Zynga, you name it, who will then start
hiring and create jobs – good, well-paying, jobs – in the financial sector. This
JOBS Act is such a pro-business, pro-free-enterprise, pro-risk-taker, pro-market,
anti-business, anti-regulation, initiative that it truly warms my heart. Now all we
need to do is to unleash the creative genius and go straight to the rich folks all over
this country to raise cash, millions of dollars in working capital, without ever
having made one red cent in profits! I am not the least bit sarcastic folks! This is
how capitalism is supposed to work.
Now, if we can only get that top tax rate down once again to like 7%! Yes, that
was the top tax rate back in 1913 before President Woodrow Wilson raised it to
77%, as the US entered World War I, see Refs.[7-10].
Nonetheless, as hinted by Morning Star, especially in the title to Ref. [5], the
burden is now upon the investor to study such companies carefully and make wise