Zillow Group Inc. on Thursday beat first-quarter sales expectations but reflected the uncertain future for the real estate industry with a disappointing guidance, pushing shares lower in after-hours trading.
reported first-quarter earnings of $16 million, or 6 cents a share, on revenue of $4.26 billion, up from $1.22 billion a year earlier. After adjusting for stock compensation, restructuring costs and other effects, the company reported earnings of 49 cents per share, up from 44 cents per share in the same period last year. According to FactSet, analysts on average are expecting adjusted earnings of 24 cents per share on sales of $3.36 billion.
“Since the forecasts vary greatly, one thing is clear for housing construction in 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 page views per listing were at record highs in the first quarter, demonstrating the ongoing imbalance between supply and demand.”
Zillow’s revenue has skyrocketed in recent months as the company tries to offload homes it bought last year in a spate of activity that eventually led to the company shutting down its iBuying business and laying off employees. 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 agreed deals for all but about 100, executives said in a letter to shareholders.
“Beginning January 31, 2022, we will no longer be acquiring homes,” executives told shareholders in a letter, adding that they expect the sale of the remaining inventory to be “essentially complete” in the current quarter.
The problem for investors is the unknown on the other side of the settlement of the iBuyer deal. Zillow executives forecast second-quarter revenue of $903 million to $1.03 billion, well below analysts’ median estimate of $1.83 billion.
Zillow executives say their goal after winding up the iBuyer deal is to focus on merging the assets of the other two segments — Internet, Media and Technology, or IMT, and the mortgage business — into a mobile app that will Can help buyers and sellers navigate the entire home buying and selling process. The IMT segment grew revenue 10% to $490 million in the first quarter, in line with the median analyst estimate of $490 million, and mortgages had revenue of $46 million, down from $68 million dollars last year and below the median analyst estimate of $47 million.
However, the forecast for these two segments was significantly lower than what analysts had expected. Zillow executives forecast Q2 IMT revenue of $472 million to $492 million, while analysts on average were forecasting $523 million and mortgage revenue of $31 million to $39 million, beating the median analyst estimate of $50 million. fallen below dollars.
Zillow shares fell 9% after the results in after-hours trading after closing down 9.9% at $39.78 on a tough day on Wall Street. The stock has lost nearly two-thirds of its value over the past year, falling 65% along with the S&P 500 index SPX.
has increased by 3.2% during this period.
Pessimism about the housing market has increased as Federal Reserve rate hikes have pushed mortgage rates to levels not seen since the Great Recession more than a decade ago. Pending home sales have declined for five straight months amid interest rate hikes, and more Americans now believe it’s a bad time to buy a home than at any time since at least 1978, according to Gallup.
Valuations for online real estate companies were already in question after Zillow’s dramatic exit from the iBuyer business last year and Redfin Corp. RDFN,
reported massive losses in the fourth quarter. With the worrying dynamics of the housing industry, these doubts have only grown louder.
Opinion: Zillow thought it could dominate the housing market. It was very wrong.
“While we remain constructive on the technological disruption in the residential real estate space and view the key disruptors as the future leaders of the industry, in the near term it is difficult to see what makes this group work in our rising interest rate environment right now,” Wedbush analyst wrote Ygal Arounian in a note Monday. “Investor sentiment is essentially bearish and we will likely see downward revisions to estimates for at least this quarter and potentially in the quarters to come.”
Arounian maintained Outperform ratings for Zillow, Redfin and iBuyer Opendoor Technologies Inc. OPEN,
however, lowered estimates for financial performance in the coming quarters as well as price targets for all three stocks. He believes there could be more far-reaching swings in sentiment for the sector going forward.
“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 kind of catalysts that will change investor sentiment that this is one of.” could lead to a re-evaluation in this sector.”
The uncertain nature of the housing market and its intended “disruptors” was evident in the reaction to their respective quarterly financial reports on Thursday. Opendoor shares were up about 14% after the close after iBuyer reported GAAP net income for the first time while beating revenue expectations by nearly $1 billion. Redfin shares traded about 1.5% higher after the company slightly beat expectations for first-quarter earnings and sales, but came in slightly below guidance.