08/11/2018
On Wednesday Zillow Group’s stock tumbled after their real-estate listings company’s revenue forecast missed even the lowest analyst estimate and its second-quarter results raised fresh questions about the company’s foray into buying and selling homes.
The shares dropped 16.3% for a day, to $49.40. The “wobbly” 2nd-quarter results are “an indicator of what to expect over the next 18 months as the company cuts its teeth on a new model & management gets pulled in new directions,” Lloyd Walmsley, an analyst with Deutsche Bank, said in a note to investors.
Zillow has expanded into the buying and selling of homes, and on Monday announced it’s acquiring Mortgage Lenders of America, a transaction that’s intended to streamline the process for buyers of Zillow-owned homes and create a new source of revenue for the company.
More broadly, Zillow’s efforts at buying & selling homes have been misunderstood by people who have labeled it home-flipping, says Rascoff.
Skeptics say it will take Zillow time to optimize the new business, while others contend that the entire model is flawed.
The company’s disclosure that it’s taking longer than expected to close transactions indicates that sellers are shopping Zillow’s offers around to see if they can get a higher bid, said Steve Eisman, a managing director at Neuberger Berman Group who has a short position in Zillow shares, meaning he’s betting they will decline.
“I thought it was a horrible business,” Eisman said in a “Bloomberg Surveillance” radio interview with Tom Keene on Tuesday. “I take it back. It’s a business that is potentially disastrous.”
Adding a loan-origination unit probably won’t be enough to offset pressure on Zillow’s core business. The company’s main business involves selling advertising to real-estate agents which has been under attack by agents (and the companies employees) who brought a class action lawsuit against the advertising behemoth for unfair business and labor practices
Walmsley of Deutsche Bank said he sees the move into mortgage origination “pushing the business model into more uncharted territory.”
Zillow’s quarterly results “revealed challenges” in the company’s homes, rentals and agent businesses that are likely to limit investor optimism, Bank of America Merrill Lynch analyst Nat Schindler wrote in a note, downgrading the stock “from buy to neutral”
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