First Solar, Inc. (FSLR), Zillow Inc (Z): Earnings Misses Provide Insight Into These Companies’ Futures

Zillow Inc (NASDAQ:Z) connects homeowners, real estate agents, and prospective buyers and renters to one another. The bulk of the company’s revenue comes from real estate agent subscription fees, which entitles the agents to access customers and enables customers to contact them. As a result, the company is highly dependent on real estate agents, which are only interested in paying up if they can attract new business.

As Zillow Inc (NASDAQ:Z) has grown, it has had to spend a lot more money on advertising to drive customers to its website. Without customers, Zillow cannot retain existing agents or attract new ones, so effective advertising is absolutely crucial to its business.

The margin miss this quarter reflects an increase in the cost to acquire incremental customers; all of the low-hanging fruit has been picked, now the company has to go out and convince less-willing customers to come and use the website. If Zillow Inc (NASDAQ:Z) cannot find a cheaper way to attract customers and agents, it will have to drastically change its model in order to meet growth expectations.

Bottom line

Long-term investors should not focus on quarterly results, but they should always try to make sense of how they fit in to the bigger picture. First Solar, Inc. (NASDAQ:FSLR)’s revenue miss is indicative of the general state of the solar industry — that is, it is having a hard time selling its product economically.

Meanwhile, Zillow Inc (NASDAQ:Z)‘s margins miss reflects the long-term trend in rising subscriber- acquisition costs — a trend that will sink the company unless something drastic changes (or until we get another housing bubble).

Make sure you incorporate these important data points into your big-picture view of a company — ignoring them simply because they are quarterly reports could lead to an inaccurate investment thesis.

The article Earnings Misses Provide Insight Into These Companies’ Futures originally appeared on Fool.com and is written by Ted Cooper.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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