A few months ago, Zillow thanked its Zillow Offers program for a record-breaking second quarter.
Now, after the announcement of a homebuying hiatus and potential losses on 66 percent of its housing stock, the company may be blaming it for less-than-stellar year-end projections during its Tuesday evening earnings call.
During Q2, the company rode the coronavirus-induced housing boom to its best quarter ever, with the portal raking in $1.3 billion in revenue and $10 million in net income — a 180-degree turn from the second quarter of 2020 when the company experienced a walloping $85 million net loss. Zillow CEO Rich Barton said Zillow Offers was a major factor in the portal’s success.
“[Zillow Offers] continues to accelerate as we offer more customers a fast, fair, flexible and convenient way to move,” he said in August. “[The program] is proving attractive to sellers even in this sizzling-hot seller’s market. [Consumers] are starting to understand and take advantage of the reality that we now offer so much more.”
Now Zillow Offers has become more of a thorn than a crown, as the portal giant pauses iBuying activity until the end of 2021 and faces the reality of selling 66 percent of its stock at a loss. Although it’s unclear exactly when Zillow’s iBuying woes began, the mid-October hiatus announcement signals the breakdown of the company’s buying and selling pipeline could’ve started within Q3, which ended Sept. 30.
Although Zillow has been mum in the days leading up to today’s earnings call, here are a few things to watch out for:
What’s going on with Zillow Offers?
In mid-October, Zillow abruptly paused its iBuying efforts — a decision that added fuel to the recent firestorm of criticism about the portal giant’s motives and business model. Zillow Chief Operating Officer Jeremy Wacksman said a sluggish supply chain was behind the hiatus, as they struggled to renovate and resell homes in a timely fashion.
“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” Wacksman told Inman. “We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.”
Although Zillow insisted the pause of Zillow Offers wasn’t a canary in the coal mine, its stock market performance over the past several weeks hints at some lingering doubts on Wall Street. On the day the Zillow Offers news trickled out, Zillow’s stock (Nasdaq: Z) dropped from the $94-range down to $86 per share.
In the weeks since, the portal’s stock has bounced back and forth, reaching a one-month high of $103.63 per share on Oct. 29 before dropping back down to the $86-range after Bloomberg’s Monday report that revealed Zillow is attempting to offload 7,000 homes — many at a loss.
“Zillow may have leaned into home acquisition at the wrong time, and we believe earnings may be at risk due to its current homes inventory,” market analysts Edward Yruma, Abigail Zvejnieks, Samantha Hanley, and Kenny Temsupasiri told Barron’s on Tuesday.
From SNL-skit heaven to TikTok hell
Zillow began the year on a high, with “Saturday Night Live” satirizing how the portal became a place of refuge after a year stuck inside. “Are you bored? Looking for something to spice up your life?” the skit opened, according to a previous Inman article. “You used to want sex, but you’re in your late 30s now… You need Zillow.”
The skit went viral on social media, with millions of SNL viewers, primarily millennials and Gen-Xers, joking about their growing obsession with scrolling through hundreds of Zillow listings. CEO Rich Barton even joined in on the fun, tweeting “Wait. Have we been marketing @zillow wrong all these years???”
However, seven months later, social media’s sentiments about the portal switched from cheerful to downright troublesome. In September, Las Vegas real estate agent Sean Gotcher posted a TikTok claiming Zillow was artificially raising comps in neighborhoods for their own gain. “What that just did is create a new comp,” Gotcher said in the video. “So when they go to see these other 30 homes, that extra $40,000, that you can say this one just sold for $340,000, just made them $1.2 million.”
Although real estate experts attempted to dispel Gotcher’s claims, the video continued to circulate on social media with those who’d just laughed about the SNL skit then chiding the company for contributing to worsening affordability. “Gotta stop using Zillow now that they’re both collecting all our data & running up the housing market,” history expert and YouTube creator Jouelzy said in a tweet that’s been shared nearly 40,000 times.
That turning of the tide has likely impacted Zillow’s website traffic, which according to Nasdaq contributor Marty Shtrubel, has experienced a “sharp drop in month-over-month unique visitors.”
“These fell by 8 percent between August and September. Overall, in Q3 there was a 4 percent decline to UVs from 386.6 million in Q2 to 371.8 million,” he explained. “While traffic is still better than it was a year ago, year-over-year UVs growth is also slowing down; from 8 percent between 2Q20 and 2Q21 to 3 percent between 3Q20 to 3Q21.”
Shtrubel said it’s unknown if this dip in traffic will continue or if it will negatively impact Zillow’s bottom line; however, it’s something to keep an eye on.
The CoStar conundrum
At Inman Connect Las Vegas, CoStar Group founder and CEO Andy Florance slyly called out Zillow as he talked about an unnamed company that was “hijacking” listings and “acting like the mob” by requiring real estate agents to pay for consumer access on their own listings.
Florance’s commentary reignited conversations about the rivalry between the two companies, as CoStar Group seems to be gearing itself up to take Zillow head-on with the acquisition of Homesnap and the launch of Citysnap in New York City — the home base of Zillow’s StreetEasy.
In his company’s earnings call, Florance said Citysnap will be free for agents to use, with a “your listing, your lead” approach.
“We don’t really have to do anything like what StreetEasy is doing, which is so unpopular, in order to be financially successful,” he said according to a previous Inman article.
Zillow has yet to make a public comment about Florance’s claims but could use its earnings call, as other companies often do, to address criticisms and offer a roadmap for the future.
A stock market rebound?
Zillow’s stock has been up-and-down over the past month, as Wall Street analysts predict a year-over-year decline in earnings per share, despite an expected boost in revenues past the $1.90 billion mark.
Zacks predicted on Tuesday Zillow will post quarterly earnings of $0.13 per share, which represents a year-over-year change of -64.9 percent. Despite that, the investment site gave Zillow stock a ‘hold’ rating, saying today’s earnings call could hold a few surprises that catapult the portal’s price per share back up to the triple digits.
“While calculating estimates for a company’s future earnings, analysts often consider to what extent it has been able to match past consensus estimates. So, it’s worth taking a look at the surprise history for gauging its influence on the upcoming number,” Zacks explained. “For the last reported quarter, it was expected that Zillow would post earnings of $0.23 per share when it actually produced earnings of $0.44, delivering a surprise of +91.30 percent.”
“Over the last four quarters, the company has beaten consensus EPS estimates four times,” they added.
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