Zillow Group tops Q1 estimates but analysts wary amid volatile housing market

(Zillow Picture)

Zillow Group beat estimates for its first quarter income and revenue however unpredictable housing market developments are elevating concern for some analysts as the corporate refocuses its enterprise following the shutdown of Zillow Affords.

The Seattle on-line actual property big posted $4.3 billion in Q1 income, beating expectations of $3.4 billion, and earnings per share of $0.56, which additionally topped estimates. Shares have been up extra tha 4% in after-hours buying and selling.

Zillow mentioned it’s promoting homes sooner than anticipated as a part of the shutdown of Zillow Affords, which helped drive top-line ends in Q1.

Zillow introduced final 12 months that it will finish the corporate’s bold “iBuying” home-buying arm. Zillow took a $405 million write-down and slashed 25% of its workforce associated to the choice.

Bloomberg Businessweek on Thursday printed a characteristic concerning the “disastrous” transfer to enter home-buying, “making an attempt to pivot from promoting internet advertising to working what amounted to a hedge fund and a sprawling development enterprise, two fields during which it had no expertise in any respect.”

Zillow Group CEO Wealthy Barton. (Zillow Group Picture)

In a letter to shareholders, Zillow CEO Wealthy Barton mentioned the corporate has “meaningfully de-risked the enterprise” and described the steadiness sheet as “ironclad.” Zillow has $3.6 billion in money, up $500 million from the earlier quarter.

Earlier this 12 months Barton laid out a brand new technique centered round what Zillow calls the “housing tremendous app,” described as a digital expertise that “connects all of the fragmented items of the shifting course of and brings them collectively on one transaction.”

Within the new shareholders letter (which you’ll be able to learn in full beneath) Barton recognized 5 progress pillars for the corporate: “touring, financing, vendor companies, enhancing our companion community, and integrating our companies.”

The concept is to make use of Zillow’s model and visitors to generate extra income off housing-related transactions. Common month-to-month distinctive customers was 211 million in Q1, down 5% year-over-year; total visits hit 2.6 billion, a 5% enhance.

In some methods, Zillow is constructing round Premier Agent, its conventional enterprise of promoting promoting to actual property brokers. Premier Agent income grew 9% year-over-year to $363 million within the first quarter.

However rising mortgage charges and lack of provide might gradual dwelling gross sales and spell bother for on-line actual property firms. A latest survey from analysts at RBC Capital Markets indicated {that a} majority of brokers will reduce or remove advert spend with Zillow. RBC this week lowered its 12-month value goal estimates.

“ZG’s dominant viewers share stays our north star however cycle fears will probably proceed to impede inventory efficiency for the following a number of quarters, in our view,” RBC wrote in a report final month.

Barton famous “decrease year-over-year progress in new for-sale listings and present dwelling gross sales” impacting Q2 income projections for Premier Agent.

The macro setting may also have an effect on Zillow’s mortgage enterprise, which noticed income fall 32% to $46 million.

Analysts at Wedbush this week lowered outlook for Zillow, Redfin, and Opendoor, all which have seen inventory costs fall considerably this 12 months.

“Whereas we stay constructive on know-how disruption in residential actual property and look at the important thing disrupters as the long run leaders of the {industry}, within the close to time period it’s troublesome to see what will get this group working whereas within the type of rising price setting we’re in proper now,” Wedbush mentioned in a report.

For the reason that Zillow Affords announcement in November, Zillow’s inventory has misplaced greater than half its worth, buying and selling Thursday beneath $40/share. It reached a record-high of greater than $200/share in February 2021.

Learn the total shareholders letter beneath:

Expensive shareholders,

In these unstable instances, we’re particularly pleased with our firm and model — one which helps folks discover their dwelling, a spot of consolation and security. We’re energized concerning the alternative in entrance of us and are firmly centered on our  strategic imaginative and prescient of constructing the housing tremendous app for a mass market of movers. 

With forecasts various broadly, one factor that’s clear concerning the 2022 housing market is that the trail forward is unsure. Stock ranges stay low, new for-sale listings stay down 12 months over 12 months, and our common web page views per itemizing have been at document highs in Q1, demonstrating the continued supply-demand imbalance. These dynamics are driving dwelling values up regardless of rising rates of interest, which is impacting affordability. Whereas it’s clear folks nonetheless have a robust curiosity in shifting, complete shopper transaction worth progress developments are softening and specialists have disparate views of what is going to occur subsequent. 

Whereas we’re impacted by the housing market, we delivered Q1 outcomes inside or above our outlook. Our place as a pacesetter on the high of the funnel stands agency, with 2.6 billion visits in Q1 and 38% distinctive consumer progress in Leases 12 months over 12 months. Our money place and cash-flow technology are additionally sturdy, with $3.6 billion in money and investments, $500 million greater than the earlier quarter, together with the impression of $348 million in share repurchases throughout Q1. 

We consider our money place, coupled with a robust core enterprise mannequin, permits us to return extra capital initially constructed up for a capital-intensive enterprise. It’s comforting to be well-positioned for foul climate which will come, and to have the flexibleness to innovate on engaging progress alternatives for the long run. 

Now we have re-oriented the corporate round our housing tremendous app imaginative and prescient, generated sturdy money flows, and outperformed our expectations for the wind-down of our iBuying operations. Our faster-than-expected resales of houses in stock and better-than-expected money circulation from the wind-down allowed us to repay all iBuying-related asset-backed debt on our steadiness sheet on the finish of April, sooner than we anticipated. 

As we work towards our 2025 targets of $5 billion in consolidated income and 45% consolidated Adjusted EBITDA margin, we’re specializing in delivering improvements in 5 key progress pillars: touring, financing, vendor companies, enhancing our companion community, and integrating our companies. And we’re beginning to see traction in these efforts: 

● We’ve made key enhancements in digital touring. Our new 3D Residence Tour know-how permits clients to journey by a house as in the event that they have been touring it in particular person by contextualizing all of the disjointed info — photographs, flooring plans, spatial perspective — into one seamless digital expertise. 

● We’re innovating on the in-person tour expertise, too. We enabled ShowingTime’s Actual Time Availability in a number of markets — a instrument that exposes availability of dwelling tour instances for all brokers utilizing ShowingTime’s platform. This is likely one of the first key actions in our integration plan to make scheduling a house tour simpler than it’s at the moment. 

● We’re upgrading the tech expertise for StreetEasy clients in NYC. To cater to the best way New Yorkers condominium hunt and their want for on-demand experiences in each space of their lives, we’re planning to launch StreetScape, a brand new characteristic that makes use of augmented actuality to position StreetEasy’s complete information and listings into a house shopper’s actual bodily house on the streets of town. 

Our developed technique has an elevated deal with our “mid-funnel” efforts as we search for alternatives to extend engagement, transactions, and income per transaction from the place we’re at the moment. Our technique and 2025 targets, which we shared final quarter, are grounded within the monumental alternative within the U.S. housing market. 

We see a substantial amount of alternative in entrance of us, however we additionally acknowledge we management the levers of our funding spend. Now we have meaningfully de-risked the enterprise and are shifting ahead with an ironclad steadiness sheet, a wholesome cash-flow-generative core enterprise, and the industry-leading model and viewers. This offers us the arrogance to navigate the brief time period, with our eyes up on our long-term progress alternative. 


Wealthy Barton, Co-founder & CEO 

Allen Parker, CFO 

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