Zillow, the digital real estate company, said on Tuesday that it’s exiting its business that buys and flips homes and eliminating 25% of its workforce.
The announcement was attached to Zillow’s third-quarter earnings report. The company’s revenue and earnings missed analysts’ estimates.
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated,” Zillow CEO Rich Barton said in a press release as part of the company’s third-quarter earnings report. “Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”
The stock was little changed in extended trading following a 10% plunge during regular market hours. The shares are now down about 10% for the year.
Here are the key numbers from earnings:
- Earnings per share: loss of 95 cents adjusted vs. profit of 16 cents per share expected in a Refinitiv survey of analysts
- Revenue: $1.74 billion vs. $2.01 billion expected by Refinitiv
Revenue in Zillow’s Offers business, which competes with Opendoor, climbed to $1.17 billion in the quarter from $185.9 million a year earlier, which was in the middle of the pandemic so transactions had largely dried up. However, the homes segment, which is mostly Offers, lost $421.6 million in the quarter, producing an overall net loss at the company.
Shares of Opendoor rose 6.5% in extended trading. The stock plunged alongside Zillow earlier in the day, dropping 14% at the close.
Zillow launched Offers in December 2019, starting with Southern California markets. The product allowed homeowners to sell their home to Zillow for cash, eliminating a lengthy bidding, sales and closing process while not having to worry about costly repairs before putting it on the market.
“After closing on a home, Zillow will take care of necessary repairs, working with local contractors to complete projects like a fresh coat of paint, servicing HVAC units and other work a typical homeowner would do to get their home ready for sale,” Zillow said in a press release at the time.
However, the home-flipping market proved to be a drag for a company that had built its brand on listing homes across the country and helping buyers and sellers connect through a marketplace. The company said on Monday that it would stop buying houses through the end of the year, citing tight labor and supply markets.
“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” said Jeremy Wacksman, Zillow’s operating chief, in a statement. “We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings.”