The stock rose 4.1% on Wednesday after the company reported earnings that beat consensus estimates. But the online housing company expects revenue to fall in the fourth quarter amid a volatile housing market and rising mortgage rates.
Earnings and fourth-quarter guidance underscore the current housing market pullback. “We are not immune to housing market volatility,” Zillow CEO Rich Barton and CFO Allen Parker wrote in a letter to shareholders, adding that mortgage rates, which recently climbed above 7%, have caused Uncertainty for home buyers. “This rapid volatility has impacted our channel as we have fewer contacts and buyers decide whether to be in or out in the current market,” they wrote.
Zillow’s third-quarter earnings also marked the end of Zillow Offers, the company’s business of buying and selling homes, which began shutting down about a year ago. Zillow reports its iBuying business as a discontinued business, which included two separate divisions — Internet, Media and Technology, or IMT and Mortgage — including its continuing operations.
The company said Zillow’s continuing operations generated $483 million in consolidated revenue in the third quarter. That amount beat Zillow’s previous forecast, which called for revenue between $431 million and $461 million. It also beat analysts’ revenue estimates of $458 million, according to FactSet. The company earned 38 cents per diluted share based on non-GAAP or generally accepted accounting principles.
Of the remaining segments, IMT contributed the most to its total revenue. The segment, which includes its Premier Agent lead generation business, reported revenue of $457 million for the quarter, beating its previous guidance and the FactSet Consensus Estimate for IMT revenue of $420 million.
Zillow is “making progress on each of our growth initiatives: tours, financing, seller solutions, enhancing our partner network and integrating our services,” said CEO Barton. “Having a well-capitalized business that generates operating cash flow gives us an advantage in dealing with the current volatility in the housing market.”
The company expects revenue to decline in the fourth quarter. It expects total consolidated revenue from continuing operations to be between $395 million and $425 million. Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) from continuing operations is also expected to fall to between $48 million and $63 million from $130 million in the third quarter.
Despite the underwhelming results, the company’s total revenue from continuing operations fell 12% from a year earlier, the company said. Revenue in the IMT segment was down 5 percent from last year, while revenue in the mortgage segment was down 63 percent to $26 million, the company said.
Rising interest rates compounded the impact of challenges in other industries, the executives wrote. “Combined with persistently low inventory and persistently low new listings, the housing set-up to start in 2023 appears to be challenging,” they said. “Given this year’s performance, we still believe we made the exit from iBuying 12 months ago. Correct decision, we had no inventory on our balance sheet as of Sept. 12. 30.”
Executives attributed the recent cost cuts, including layoffs, to broader market conditions. “We have taken cost actions to simplify our operations and have prioritized investments through recent reductions in troop strength, further tightening of our discretionary spending, and reductions in committed marketing dollars,” they wrote in the letter.
The company also provided details on its growth plans, including its touring technology and its goal of building a “massive” direct-to-consumer mortgage origination business.
“We plan to overhaul our current mortgage pipeline, move from third-party lead generation to Zillow Home Loans, and strengthen our loan officers’ tools and capabilities to help customers,” according to the company’s letter.
Zillow also briefed investors on the
door opening technology
(OPEN), a pure iBuyer.Last quarter, Zillow said the partnership will allow users of the site to
open the door
The company expects the partnership to launch in early 2023.
“Zillow’s vision for the ‘Housing Super App’ is to create a single digital experience that helps customers meet all of their real estate needs, including buying, selling, financing and leasing – as an ecosystem of connected solutions for all related tasks and service moving,” the company said in the letter.
Shares of Zillow closed down 4.8% on Wednesday. Opendoor said Wednesday that it has cut about 550 jobs, or 18% of its workforce, and is scheduled to report earnings after the market close on Thursday. Shares fell 6.2 percent to $2.29 and were up slightly in after-hours trading.
Correct and enlarge
Zillow expects the partnership with Opendoor to launch in early 2023. An earlier version of this article incorrectly indicated a launch date of 2021.
Write to Shaina Mishkin at firstname.lastname@example.org