Zillow Group Inc.’s share prices fell by 13% in late trading on Tuesday after a disappointing outlook raised investors’ fears about the rising interest rates that will impact the U.S. housing market.
The detailed picture
As per a letter addressed to the shareholders and published on Thursday, the company is projecting its other units, such as media, internet, and technology, to bring in earnings before depreciation, interest and tax, and amortization in the range of $134 million to $169 million in the second quarter.
Though home sales pick up during the spring season, the outlook from Zillow indicates that the low inventory of “homes for sale “and higher mortgage rates will slow down the activity.
Chief Executive officer of Zillow, Richard Barton, said that the market is softening and the most challenging macro lens is the falling inventory levels. It will be a good year if the transactions remain flat this year though he is unsure if they will reach there.
Zillow had emerged from a tumultuous period when it closed down its ambitious venture of flipping homes. It has now shifted its focus on the “Housing Super App” that will integrate tours of homes, seller services, financing, and partner networks on a single platform. CEO Barton expects these efforts will help the company to double its revenue in the non-home flipping segment by 2025.
The first three months of 2022 saw a hot housing market that helped boost Zillow’s advertising business. During this period, it also winded down its home flipping business called, which was known as Zillow Offers.
As per Bloomberg News, Zillow posted $220 million adjusted EBITDA for the first quarter of 2022 as per the company’s statement on Thursday. A Bloomberg compiled survey predicted an average of $156 million. Zillow has also authorized a share buyback of an additional $1 billion.
Other companies also posted strong results in the first quarter from home sales boost after Zillow exited the home-flipping business.
Companies like Opendoor Technologies Inc., a pioneer among iBuyers, saw their stocks rise by 16% on Thursday late trading after the company announced adjusted net revenue of $99 million. Analysts had estimated the income to be around a $41 million loss. Offerpad Solutions also beat market estimates when it reported its earnings for the first quarter on Wednesday.
On his part, Barton observed that shutting down Zillow Offers has helped the company to lighten its Balance Sheet, and it is now in a better position to face the challenges of a slowing market. The company can meet the headwinds more strongly with its eyes focused on building its super app.
