Why Zillow Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zillow temporarily fell more than 10% during intraday trading Wednesday following the release of the real estate website company's second-quarter results.

So what: Second-quarter revenue grew 69% to a record $46.9 million, led by record marketplace revenue, which grew an even more impressive 86% year over year to $36.5 million. However, investors were less than thrilled by the loss of $0.30 per share thanks primarily to a previously announced increase in marketing and advertising costs, and a non-recurring $7.1 million share-based compensation expense related to a prior acquisition.

Now what: Last quarter, more than 61 million monthly unique users represented a 66% increase for the company, so Zillow is obviously still growing like a weed. That said, even after today's pullback, shares of Zillow have more than tripled over the past nine months, including a 50% rise since the beginning of July. Growing quickly certainly isn't a bad thing, but I certainly wasn't alone in worrying that Zillow's stock was becoming detached from the company's fundamentals. Given this subpar report, then, I can't help but agree with investors (at least over the short term), who are seizing the opportunity to take some profits.

Editor's note: A prior version of this article misrepresented the expected earnings for Zillow.

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The article Why Zillow Shares Plunged originally appeared on Fool.com.

Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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