Zillow Group Inc.’s stock price plummeted after the company predicted a sharp decline in home sales would squeeze the amount of advertising it could sell to realtors.
The company, which makes most of its revenue by helping agents connect with homebuyers, has been on the housing roller coaster for more than two years, transitioning from a sharp slowdown early in the pandemic to a boom that followed. Now is the time when mortgage interest rates are rising and sales are cooling.
With the ongoing economic downturn, Zillow forecast earnings before interest, taxes, depreciation and amortization of $73 million to $88 million in the third quarter, according to a letter to shareholders Thursday. This missed out on his $170 million that analysts had expected.
“The real estate industry is in turmoil,” Piper Sandler analyst Thomas Champion said in a report. was very weak. It’s clearly a difficult environment for agents and we’re cutting back on advertising.”
Zillow wasn’t the only real estate tech company to provide disappointing guidance in the third quarter. Brokerage Redfin Corp. forecasts bigger losses than analysts expected. Open Door Technologies predicted a loss, saying a sharp slowdown in housing demand would force it to cut prices on some listed properties.
Zillow Chief Financial Officer Allen Parker said on a conference call with investors. “At times like this, their natural reaction is to cut some advertising spend as a defensive measure.”
Led by Chief Executive Officer Rich Burton, Zillow bounced between business models to extract more from its huge online audience, which reached 234 million unique monthly visitors in the second quarter.
In 2018, the company made a bold bet on a business called iBuying, predicting that technology-enhanced home flip spins would boost profits significantly. His Zillow attempt to expand the business quickly fell through, and Mr. Barton was forced to close the business last year in a move to protect the company from bigger losses in a future recession.
Zillow turned around again, planning to build a housing “super app” to integrate the tools consumers and agents use to navigate the buying and selling process. The company will add a new component to its efforts, allowing visitors to Zillow’s sites and apps to request cash-at-home offers from his Opendoor.
The arrangement will allow Opendoor to tap into Zillow’s audience and allow Barton’s company to meet consumer demand for its services without jeopardizing capital.
“Despite the difficult housing environment out of our control, we are as confident as ever in our control.”
Bloomberg News’ Patrick Clark reports.
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