Shares of Zillow Group Inc. plunged after the company forecasted a significant reduction in home sales. This will impact the advertisement volume it can sell to its real estate agents.
The real estate tech marketplace makes money by connecting agents and homebuyers on its platform. The company has had a roller coaster ride in the past two years. It started with a sharp slowdown during the pandemic, followed by a boom, cooling sales, and high mortgage rates.
The economic downturn has forced Zillow to forecast earnings before interest, depreciation, taxes, and amortization of $73 million- $88 million for the third quarter. According to the analysts’ estimates of $170 million, the results missed the target hugely, leading to its shares falling 11% in trading in New York.
Real Estate Woes
Zillow was not alone in its future earnings guidance. Other real estate companies such as Redfin Corp., whose shares also fell after it predicted more comprehensive losses than analysts’ estimates. Opendoor Technologies Inc. shares rose slightly after it projected a failure and said it would lower some of its listing prices in the face of lower housing demand.
In a conference call with investors, Chief Financial Officer of Zillow, Allen Parker, said that agents are witnessing a lower demand and a longer cycle for closure from customers. The natural reaction of the agents is to reduce ad spending as protection during such times.
CEO Rich Barton has led Zillow to bounce back between business models to get higher profits. The platform’s massive online audience saw 234 million unique visitors monthly in the second quarter.
The company took a risk on a company called iBuying. It predicted a tech-powered platform that delivered home flipping spin and supercharged Zillow’s profits. The attempt on Zillow’s part to expand the business faltered and pushed Barton to shutter the business. He said the move would save the company from incurring losses during downturns.
Zillow once again pivoted, building a super app for housing that integrated agents and consumers and helped them navigate buying and selling on the app. The company is adding a new feature to the app that allows visitors to access Zillow’s sites and apps that request cash offers from properties listed on Opendoor.
This arrangement allows Opendoor to tap into an audience of Zillow and helps them to fulfill demand from consumers for services without putting any capital to risk.
In a conference call, Barton said they are confident in controlling what they can in the challenging housing environment.
