Key Takeaways
- Shares of Zillow plunged 12.7% on Thursday following an unexpected Q2 net loss of $4 million, even as revenue exceeded expectations at $772 million.
- The company’s Q3 revenue forecast of $745M-$760M significantly missed the $774M analyst consensus estimate.
- More than 500 employees were laid off by Zillow, resulting in $36 million in restructuring expenses during Q2.
- Bernstein analysts downgraded the stock to Market-Perform and reduced their price target from $50 to $38.
- A transition to the Preferred agent payment model, where commissions are paid after closing rather than upfront, is causing revenue timing delays.
Shares of Zillow tumbled 12.7% during Thursday’s trading session, marking the company’s steepest single-day decline since February, following the release of an unexpected quarterly loss and underwhelming guidance for the upcoming quarter.
The real estate platform disclosed a Q2 net loss of $4 million against revenues of $772 million. Wall Street analysts had projected a profit of $21 million. Zillow posted a loss of two cents per share, contrasting sharply with the anticipated nine-cent earnings per share.
Top-line revenue grew 18% compared to the same period last year, while adjusted EBITDA reached $176 million, surpassing the $162 million forecast. Adjusted earnings per share of 52 cents exceeded the consensus estimate of 45 cents.
The company’s net loss stemmed primarily from $36 million in impairment and restructuring expenses associated with workforce reductions affecting more than 500 employees, which were announced earlier in the week.
Chief Executive Officer Jeremy Wacksman stated the job cuts were implemented to enable the company to “move faster and operate more efficiently.” He maintained that Zillow remains positioned to achieve full-year revenue growth in the mid-teens percentage range.
Third Quarter Outlook Falls Short
Looking ahead to Q3, Zillow projected revenue between $745 million and $760 million, trailing the analyst consensus of $774 million. The company’s adjusted EBITDA guidance of $180 million to $200 million also came in beneath the $214 million expectation.
Wacksman identified two primary challenges impacting the company’s forecast. First, Zillow now anticipates a contraction in the overall mortgage market. Second, an increasing portion of business is transitioning to the company’s “Preferred” agent partnership structure.
The Preferred model requires agents to compensate Zillow only upon successful home sale closings instead of paying fees upfront. While Wacksman noted this approach delivers 23% higher revenue per connection, it creates timing delays that are pressuring short-term financial performance.
Bernstein Downgrades Stock, Reduces Price Target to $38
On Thursday, Bernstein downgraded Zillow from Outperform to Market-Perform, dramatically reducing its price target from $50 to $38. Analyst Nikhil Devnani admitted the firm is “throwing in the towel” on its bullish Zillow position.
Devnani explained that Bernstein’s initial optimistic thesis relied on market share expansion through the Preferred model transition and substantial operating leverage improvements. He conceded the firm “got this one painfully wrong.”
The analyst highlighted that Residential segment revenue is projected to show zero year-over-year growth in Q3, and market share gains excluding Mortgage operations appear to be shrinking. He anticipates these challenges could extend through 2027.
William Blair analyst Stephen Sheldon predicted Zillow stock will likely remain “range-bound” given the lack of clear visibility into housing market recovery and volatile near-term profitability trends.
Concurrent with the earnings release, Zillow announced leadership changes. Chief Financial Officer Jeremy Hofmann will expand his responsibilities to include the Chief Operating Officer position. Jun Choo is stepping down from the COO role due to health considerations and will continue as an advisor until the end of the year.
The company has appointed Cassandra “Sandi” Knight as its new Chief Legal and Policy Officer. Knight joins Zillow from Google, where she held the position of VP of Litigation and Discovery.
Year-to-date, Zillow stock has declined 47%, based on data from Dow Jones Market Data.
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