Zillow (NAS: Z) met analyst expectations on earnings per share and beat top-line revenue expectations by 2% when it reported earnings yesterday. The company continues to make forward-thinking strategic decisions, but increasing competition could inhibit the "priced for perfection" growth that investors have created for this real estate tech company.

What's up
Earnings per share met expectations at $0.04, while sales of $27.8 million beat analyst estimates of $27.18 million. Zillow reported net income of $1.3 million, marking its third straight quarter of positive net income.

Source: Author; data from Zillow 10-Q reports.


Source: Author; data from Zillow 10-Q reports.

Top-line numbers and zooming usage statistics continue to be a strong point for Zillow. Seasonally adjusted sales are up 75%, in large part because of a twofold increase in marketplace revenue. As I mentioned in a previous article, marketplace revenue is an increasingly important aspect of Zillow's business model, moving it beyond the fickle ad revenue of other dot-coms.

Compared with competitor Move's (NAS: MOVE) stagnant sales stuck around $48 million for the past year, Zillow seems to be gobbling up market share.

Zillow's aggressive entry into the mobile sector seems to have paid off, as more homes are now viewed on Zillow's mobile apps than on Zillow.com. Overall unique users grew 61% to 33.5 million.

What's down
Bottom-line numbers continue to hover around the breakeven point because of Zillow's heavy investment in its future profitability. Quarterly earnings were partially pushed down by Zillow's recent $40 million acquisition of RentJuice, a rental relationship management company that will help Zillow to better serve and grow and its renter customer base. As of July, Zillow's exclusive advertising partnership with Yahoo! will also include rental listings.

Hoping for the best, buyers pushed Zillow's stock up 5% during the day, but it ultimately settled down 9% to $38 in after-hours trading.

What's next
Looking ahead, the company expects revenue around $31 million for Q3, once again matching its expectations with those of analysts. As evidenced by this quarter's results and Zillow's excellent growth, consumer demand for an online real estate marketplace continues to expand. The main question for investors is: Will Zillow maintain a competitive advantage, or is it simply the first mover in a market niche soon to be overflowing with new entrants?

Although Move's fundamentals show that entrenched competitors might not be much competition for a forward-thinking company like Zillow, Trulia's filing to go public last month signals the beginning of a new wave of market munchers. Trulia's business model is almost an exact replica of Zillow's, and Google Trends data shows that search traffic for Trulia has nearly doubled in the past two years. If Zillow wants to maintain its growth, it'll have to work hard to expand its living database to effectively meet the expectations of real estate buyers and sellers.

Beneath it all, Zillow's success rides on its ability to gather and manage excellent housing data. Data mining is changing the way companies analyze their business, and there's one corporation out there that's miles beyond its competition. The Motley Fool has prepared a special free report outlining everything you need to know about this profit-pulling stock. It's as free as this article, so grab yours today!

The article Zillow's Earnings: Steady as She Grows originally appeared on Fool.com.

Fool contributor  Justin Loiseau  owns shares of Zillow and once spent three weeks on couches in NYC trying to find a place to rent. You can follow him on Twitter,  @TMFJLo , and on Motley Fool CAPS,  TMFJLo . The Motley Fool owns shares of Zillow. Motley Fool newsletter services have recommended buying shares of Zillow. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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