Zillow Group Inc. disappointed in its revenue expectations for the quarter ended Thursday. However, it reflected uncertainty in the real-estate sector with a disappointing forecast that pushed shares lower after hours trading.
Zillow
Z,
ZG,
First quarter profit was $16 million, or 6cs per share, on revenue $4.26 billion. This is an increase from $1.22 billion last year. After accounting for stock compensation, restructuring costs, and other effects, the company reported earnings at 49 cents per share, compared to 44 cents in the same period last. According to FactSet, analysts expected adjusted earnings of 24c per share for sales of $3.36 trillion.
While forecasts can vary widely, there is one thing certain about 2022 housing:
Zillow executives sent a letter Thursday to shareholders stating that the market is uncertain and that the path ahead was uncertain. Inventory levels are low, new listings for-sale are down year-over-year, and our average page views per listing were at an all-time high in Q1, which shows the ongoing supply-demand imbalance.
Zillow’s revenue has risen in recent months as it looks to sell houses it bought last year. This activity led to the company halting their iBuying business and layingoff staff. Zillow bought 23,1 and sold 8,981 houses in the first quarter. The period ended with 1,300 homes left, with agreements for 100 homes.
We have stopped purchasing homes as of January 31, 2022, executives informed shareholders in a written statement. They also said that they expect the sales of remaining inventory in the current quarter to be substantially complete.
Investors face a problem because of the unknowns surrounding the iBuyer business’s demise. Zillow executives forecast second-quarter revenue of $903million to $1.03billion, which is well below analysts average estimate at $1.83 billion.
Zillow executives stated that their goal after closing the iBuyer segment is to concentrate on blending the assets of its other segments Internet, Media and Technology (or IMT) and the mortgages business into a mobile application that can help buyers and seller navigate the entire home-buying and –selling process. The IMT segment saw a 10% increase in revenue to $490million, matching the average analyst estimate. Mortgages revenue was $46 million, down from $68million a year ago, and below the average analyst estimate at $47 million.
Analysts had expected much lower projections for these segments. Zillow executives projected second-quarter IMT revenue at $472 million to $492 millions, while analysts were projecting $523million and mortgages revenue at $31 million to $39million, both below the average analyst estimate.
After-hours trading saw Zillow stock fall 9% following the results. The stock closed at $39.78 after a 9.9% decline. The stock has lost almost two-thirds its value over the past year, falling by 65% as the S&P 500 Index.
SPX,
It has increased 3.2% during that time.
Pessimism regarding the residential real estate market is growing as the Federal Reserve’s interest-rate increases send mortgage rates to levels not seen since the Great Recession, which saw major cuts more than a decade back. Gallup shows that the rate rises have led to a drop in home sales for five consecutive months. In fact, more Americans believe now is a bad time of year to buy a house.
After Zillow’s abrupt exit from the iBuyer business lastyear and Redfin Corp.’s dramatic drop in sales, valuations of online real-estate companies were already in doubt.
RDFN,
reported massive fourth-quarter losses. Those doubts have grown louder due to the worrisome dynamics in the housing industry.
Opinion:Zillow believed it could control the housing market. It was wrong.
We are positive about technology disruption in residential property and consider the key disruptors to be the future leaders, but it is hard to see how this group will succeed in the rising-rate environment that we are currently in, Wedbush analyst Ygal Aronian said in a Monday note. Investor sentiment is materially negative. We are likely to see downward revisions in our estimates at least this quarter, and possibly in the future.
Arounian received Outperform ratings for Zillow and Redfin.
OPEN,
He has dropped his estimates for future quarters’ financial performance and price targets for all three stocks. He believes there may be more widespread changes in sentiment in the sector.
These stocks are likely to continue to work over time. Long-term investors could even consider these entry points. However, we don’t see any catalysts that would change investor sentiment in the near future. This could lead to a rerating sector.
The reaction to their quarterly financial reports on Thursday showed the uncertain nature of the real estate market and its intended disruptors. After-hours action saw Opendoor shares rise by 14% GAAP net income reported by iBuyer was the first timeWhile beating revenue expectations by almost $1 billion Redfin shares rose by 1.5% after the announcement. The company easily outperformed expectations for first-quarter earnings, and revenue.However, it came up slightly short in its forecast.