Zillow Plunges After Revenue Forecast Misses, Analyst Downgrade

Zillow Plunges After Revenue Forecast Misses, Analyst Downgrade

Zillow Group Inc. tumbled after the real estate listings company’s revenue forecast missed even the lowest analyst estimate and its shares were downgraded by Bank of America Merrill Lynch.

Zillow reported second-quarter earnings late Monday and lowered its guidance for full-year sales and Ebitda, or earnings before interest, taxes, depreciation and amortization. The Seattle-based company also reduced the number of homes it’s targeting to buy and sell in its new Zillow Offers business because of longer-than-expected closing times.

The shares dropped 17 percent to $48.01 at 9:37 a.m. in New York, their biggest decline since at least August 2015.

The “wobbly” second-quarter results are “an indicator of what to expect over the next 18 months as the company cuts its teeth on a new model and management gets pulled in new directions,” Lloyd Walmsley, an analyst with Deutsche Bank AG, said in a note to investors.

Zillow has expanded into the buying and selling of homes, and on Monday announced it’s acquiring Mortgage Lenders of America, a transaction that’s intended to streamline the process for buyers of Zillow-owned homes. Adding a loan-originations unit probably won’t be enough to offset pressure on Zillow’s core business, Bloomberg Intelligence analysts Andrew Eisenson and Mandeep Singh wrote in a report. The company’s main business involves selling advertising to real estate agents.

Walmsley said he sees the move into mortgage origination “pushing the business model into more uncharted territory.” As the company’s businesses become “more complex and unfamiliar,” there’s “risk of further multiple compression and execution risk. Even in a stable environment, this is a lot of change, and with certain housing indicators flashing warning signs.”

Zillow’s quarterly results “revealed challenges” in the company’s homes, rentals and agent businesses that are likely to limit investor optimism, Bank of America Merrill Lynch analyst Nat Schindler wrote in a note, downgrading the stock to neutral from buy.

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