Zillow stock drops 9% after disappointing forecast amid ‘uncertain’ real estate environment

Zillow stock drops 9% after disappointing forecast amid ‘uncertain’ real estate environment

Zillow stock drops 9% after disappointing forecast amid 'uncertain' real estate environment

Zillow Group Inc. blasted first quarter earnings expectations on Thursday, but reflected the uncertain future of the real estate sector with a disappointing forecast, sending shares lower after hours trading.

Zillow Z,
-9.88%
ZG,
-9.42%
reported first-quarter earnings of $16 million, or 6 cents a share, on revenue of $4.26 billion, compared with $1.22 billion a year ago. After adjusting for stock-based compensation, restructuring costs and other effects, the company reported earnings of 49 cents per share, compared with 44 cents per share in the same period last year. Analysts on average had expected adjusted earnings of 24 cents per share on sales of $3.36 billion, according to FactSet.

“With widely varying forecasts, one thing is clear about housing 2022
market is that the way forward is uncertain,” Zillow executives wrote in a letter to shareholders Thursday. “Inventory levels remain low, new listings for sale remain down year over year, and our average number of page views per listing reached record highs in the first quarter, demonstrating the continuing imbalance between supply and demand.

Zillow’s revenue has skyrocketed in recent months as the company seeks to offload homes it bought last year in a flurry of activity that eventually led to the company shutting down its iBuying business and laying off staff. In the first quarter, Zillow sold 8,981 homes and bought 231, and the period ended with the company still owning 1,300 homes, with deals agreed for all but about 100, executives said in a letter to shareholders.

“As of January 31, 2022, we are no longer acquiring homes,” executives told shareholders in a letter, adding that they expect sales of remaining inventory to be “substantially complete” in the quarter. Classes.

The problem for investors is the unknown on the other side of the outcome of the iBuyer business. Zillow executives reported second-quarter revenue of $903 million to $1.03 billion, well below analysts’ average estimate of $1.83 billion.

Zillow executives say their goal after closing the iBuyer business is to focus on merging the assets of its other two segments — Internet, Media and Technology, or IMT, as well as mortgage businesses — into a mobile app. that can help buyers and sellers navigate the home buying and selling process. The IMT segment increased revenue 10% to $490 million in the first quarter, matching the average analyst estimate of $490 million, and mortgages generated revenue of $46 million, versus $68 million a year ago and below the average analyst estimate of $47 million.

The forecasts for these two segments, however, were well below analysts’ expectations. Zillow executives forecast second-quarter IMT revenue of $472 million to $492 million, while analysts modeled an average of $523 million and mortgage revenue of $31 million to $39 million, which is lower than the estimate. analyst average of $50 million.

Zillow stock fell 9% in after-hours trading after the results, after closing 9.9% lower at $39.78 on a tough day on Wall Street. The stock has lost nearly two-thirds of its value in the past year, dropping 65% as the S&P 500 SPX,
-3.56%
gained 3.2% during this period.

Pessimism about the housing market has grown as interest rate hikes from the Federal Reserve push mortgage rates to levels not seen since the Great Recession forced deep cuts a while ago. more than ten years. Pending home sales have fallen for five straight months amid rate increases, and more Americans now think it’s a bad time to buy a home than at any other time since at least 1978, according to Gallup .

Valuations of online real estate companies were already in question after Zillow dramatically exited the iBuyer business last year and Redfin Corp. RDFN,
-11.00%
announced massive losses in the fourth quarter. With the worrying dynamics of the housing industry, these doubts have only grown.

Opinion: Zillow thought it could rule the housing market. It was very bad.

“While we remain constructive on technological disruption in residential real estate and see major disruptors as future industry leaders, in the short term it is difficult to see what makes this group work while in the type of rising rate environment we’re in right now,” Wedbush analyst Ygal Arounian wrote in a Monday note. “Investor sentiment is materially bearish, and we’re likely to see some downward revisions to estimates at least this quarter and possibly in the coming quarters as well.”

Arounian retained “Outperform” ratings for Zillow, Redfin and iBuyer Opendoor Technologies Inc. OPEN,
-10.85%,
but dropped estimates of financial performance for the next few quarters as well as price targets for the three stocks. He thinks there could be more widespread shifts in sentiment for the sector ahead.

“While we believe these stocks will work again over time, and for long term investors you might even consider these strong entry points, in the short term we don’t see the type of catalysts that will alter sentiment. investors, which can lead to rerating in this sector.

The uncertain nature of the real estate market and its predicted “disruptors” were evident in the reaction to their respective quarterly financial reports on Thursday. Shares of Opendoor jumped about 14% after hours after iBuyer reported first-time GAAP net profit while beating revenue expectations by nearly $1 billion. Shares of Redfin rose about 1.5% after the company easily beat expectations for first-quarter earnings and revenue, but slightly beat its forecast.

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