Shares of online real estate marketplace Zillow Group, Inc. (ZG) were down 17.6% in the early trading session on Wednesday after it failed to meet earnings and revenue estimates for the third quarter of 2021 and announced plans to wind down iBuying service, Zillow Offers. Shares of the company closed 11.5% lower on Tuesday at $85.48.
Headquartered in Seattle, the company provides real estate and home-related information through its mobile application and website. Its brands, affiliates and subsidiaries include Zillow, Zillow Offers, Zillow Premier Agent, Zillow Home Loans, Zillow Closing Services, Zillow Homes, Trulia, Out East, ShowingTime, Bridge Interactive, dotloop, StreetEasy and HotPads.
Q3 Earnings Update
While the company reported a net loss of $328 million for the quarter, it did not release the per-share figure. The Street had expected Zillow to report earnings of $0.16 per share.
Total revenue increased 164% year-over-year to $1.74 billion but fell short of analysts’ expectations of $2 billion. (See Insiders’ Hot Stocks on TipRanks)
Even though Total Homes segment revenue surged 534% to nearly 1.2 billion, it remained below the midpoint of the company’s guidance range of $1.45 billion due to renovation and resale capacity constraints.
Meanwhile, total IMT segment revenue jumped 16% to $480 million and the Mortgages segment generated revenue of $70 million, up 30% year-over-year.
Zillow Offers
Along with its third-quarter results, Zillow announced plans to wind down Zillow Offers, where it primarily acts as the purchaser and seller of homes.
The move is likely to take several quarters and will reduce the company’s workforce by around 25%.
The CEO of Zillow, Rich Barton, said, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”
“While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience,” Barton added.
Wall Street’s Take
Following the announcements, Piper Sandler (PIPR) analyst Thomas Champion downgraded the rating on the stock to Hold from Buy and lowered the price target to $78 from $117 (8.8% downside potential).
In a research note to investors, Champion said, “The major strategic shift raises questions about Zillow’s future direction and execution capability.”
Additionally, Truist Financial analyst Naved Khan also downgraded the rating on Zillow from Buy to Hold and reduced the price target from $140 to $83 (2.9% downside potential).
In a research note to investors, Khan said, “While the Zillow Homes exit with sizable losses may prove the right strategic move over medium- to long-term, it removes a near-term growth catalyst and raises questions about Zillow’s efforts to monetize additional services.”
Analyst Recommendation
Overall, the stock has a Moderate Buy consensus rating based on 6 Buys, 7 Holds and 2 Sells. The average Zillow Group price target of $116.23 implies 36% upside potential. Shares have gained 60.7% over the past year.
Website Traffic
TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into Zillow’s performance.
According to the tool, the company’s website traffic registered a 7.64% decrease in global visits in September. However, website traffic has increased 22.25% year-to-date.
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