Real Estate

Zillow Sees Q3 Revenue Dip, But Also Manages To Significantly Trim Losses

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Zillow revealed Wednesday that its revenue was down in the third quarter of 2022 compared to the same period last year, but also that it managed to significantly reduce the amount of money it lost.

In total, the portal giant brought in $483 million in revenue between July and September, according to Zillow’s latest earnings report. That’s down 12 percent compared to the $550 million the company earned in the third quarter of 2021 — a time when the housing market was booming compared to the present. The company also lost $53 million during the third quarter.

Though companies exist to make a profit, that $53 million loss is actually a marked improvement over the third quarter of 2021 when the company lost $329 million. On the other hand, it’s a reversal from the second quarter of this year when Zillow made $8 million in profit.

Rich Barton

In a statement on the latest earnings, co-founder and CEO Rich Barton said the company is “making progress in each of our growth initiatives: touring, financing, seller solutions, enhancing our partner network and integrating our services.”

“Having a well-capitalized business that produces operating cash flow gives us an advantage in navigating the choppiness of the current housing market,” Barton continued.

The lion’s share of Zillow’s revenue this quarter, or $457 million, came from its IMT segment — which includes offerings, such as marketing, software and the Premier Agent lead generation program for real estate agents. Revenue from the IMT segment was down 5 percent year over year. Premier Agent alone generated $312 million in revenue, which is a year-over-year drop of 13 percent.

Zillow’s mortgage segment brought in $26 million in revenue, a 63 percent drop from the $70 million the segment generated in the third quarter of last year. The segment ultimately lost Zillow $51 million, up from $6 million in losses a year ago.

Zillow’s Homes segment — which included the company’s iBuyer Zillow Offers — lost $8 million, down from $69 million a year ago. Significantly, Zillow announced one year ago during its third quarter 2021 earnings report that it would be ending Zillow Offers. The news sent shockwaves through the industry. Ever since, Zillow has been working to wrap up sales on the thousands of homes it previously purchased. That effort officially ended this fall.

The continued wind down of Zillow Offers in the third quarter of this year meant the company didn’t face the challenge of continuing to buy and renovate houses in a worsening market, which has been a major and money-losing problem for other iBuyers.

During a call with investors Wednesday afternoon, Barton said that in light of what has happened in the market over the last year “we feel we made the right decision to wind down our iBuying operations.”

Heading into Wednesday’s earnings report, Zillow stock was trading for just under $30 per share. That was down for the day and was less than half of what shares were fetching at the beginning of 2022.

Like many real estate companies, Zillow shares peaked in early 2021, when they were fetching nearly $200. In the time since, a faltering stock market and a slowing real estate market have significantly reduced the value of most real estate company shares.

In after-hours trading Wednesday, Zillow’s share price bounced around but ultimately ended just slightly up from its closing price.

Credit: Google

As of the close of trading Wednesday, Zillow had a market cap of about $7.2 billion.

Zillow’s latest financial report comes amid perhaps the most pivotal earnings season in recent memory. Thanks to rising mortgage rates, the housing market has cooled significantly this year. That cooling has prompted thousands of layoffs across various sectors of the real estate industry and is now leading to forecasts of national home price declines. The situation has become especially challenging to mortgage lenders thanks to falling demand for loans, as well as iBuyers, thanks to slower or negative price appreciation.

For its part, Zillow does not appear to be suffering quite as much as some companies. Though it has recently laid off workers, its revenue decline was smaller than the one suffered by Anywhere. And thanks to its now year-old iBuying bow, it is avoiding some of the pain erstwhile rivals such as Opendoor may currently be experiencing.

Zillow’s latest earnings report also shows that consumers are still turning to Zillow, with traffic to the company’s sites and mobile apps up 4 percent year over year for a total of 236 million average monthly unique users. The company had a total of 2.8 billion online visitors during the entire third quarter, which is also a 4 percent year-over-year increase.

In Wednesday’s investor call, Barton described “near and medium term headwinds” and referring to interest rates, said that “we haven’t seen this kind of a market in decades.” The result, Barton continued, was that many people are adopting a “wait and see” mentality about the market.

Still, Barton expressed optimism about Zillow’s prospects during the call. He talked at length about Zillow’s various “growth pillars,” which include trying to expand and streamline the business. One such pillar, Barton explained, is touring and he outlined how Zillow is expending considerable effort in an attempt to make booking a home tour as easy as “booking a restaurant reservation.”

Another pillar is expanding Zillow’s mortgage business. Barton spent considerable time discussing Zillow’s plans to capture more lending business, including by building a better consumer experience.

“Our product road map starts with simplifying the entry points in our funnel,” he said.

The attention on Zillow’s lending efforts was notable given that the mortgage sector has been among the hardest hit in the current housing downturn.

However, Barton repeatedly moved during the call to frame Zillow’s strategy as a long-term one, mentioning at one point that while the current market is “choppy” Zillow believes 60 million homes will change hands in the next 10 years.

“That’s the basis of the long-term opportunity before us,” Barton said, adding later that even if the market is currently stuck there is “big human and demographic pressure to get it unstuck.”

Allen Parker

Allen Parker, Zillow’s chief financial officer, also appeared on the investor call and said that he believes the company can grow at a faster pace than the broader real estate industry, “a lot of volatility” at the present moment notwithstanding. And he pointed to Zillow’s rising traffic as evidence that people remain interested in housing.

“People’s interest,” Parker added, “in dreaming and moving persists.”

Update: This post was updated after publication with additional information from Zillow’s earnings report and from executives’ call with investors. 

Email Jim Dalrymple II

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