Zillow Soars on Upbeat Outlook and Faster-Than-Expected Selloff of Homes in Portfolio

Andrew Harrer | Bloomberg | Getty Images
  • Zillow said it's winding down its home-flipping business, selling houses "faster than we anticipated at better unit economics than we projected."
  • The company reported fourth-quarter revenue that beat estimates and gave an optimistic projection for the first quarter.
  • The stock has lost three-quarters of its value since reaching a record almost a year ago.
Andrew Harrer | Bloomberg | Getty Images

Zillow shares soared as much as 20% in extended trading on Thursday after the digital real estate company said it's getting out of the home-flipping business more quickly and economically than it previously expected.

Zillow's fourth-quarter earnings report follows a disastrous stretch for the company, after an attempt to crack the iBuying, or instant buying, market, in which it purchased homes directly from owners. Zillow said in November that it's exiting the business, admitting that its algorithms could not accurately forecast housing prices, putting the whole company at risk.

The company lost $261 million in the fourth quarter and $528 million for the year, with the entire deficit attributable to the homes business. But, Zillow said it sold 8,353 homes in the period, beating its outlook for approximately 5,000 sales, and ended the quarter with about 10,000 homes in inventory.

"We've made significant progress in our efforts to wind down our iBuying business — selling homes faster than we anticipated at better unit economics than we projected," Zillow CEO Rich Barton wrote in the quarterly shareholder letter. "We feel even more confident today that exiting iBuying and eliminating the housing market balance sheet risk to our company and our shareholders was the right decision."

At the time of the announcement in November, Zillow also said it was cutting about 25% of its workforce.

Because of the speedier pace of home sales, revenue of $3.88 billion for the fourth quarter exceeded the $2.98 billion average analyst estimate, according to Refinitiv. More than 85% of revenue comes from the iBuying division, with the bulk of the rest generated by its home listings group, called internet, media and technology (IMT).

Revenue in IMT increased 14% to $483.2 million in the fourth quarter, narrowly topping the $481.9 million average estimate, according to FactSet.

For the first quarter, Zillow expects total revenue of $3.12 billion to $3.44 billion. Analysts had projected revenue of $3.26 billion.

Zillow is returning to its focus on the marketplace, connecting buyers and sellers with tools and technology to simplify the process. That includes working with a vast network of agents and helping consumers with their mortgages.

The company expects that to translate into $5 billion in revenue by 2025 and a 45% adjusted profit margin.

"We want to acknowledge the past few months have been challenging for us all — Zillow leadership, employees, and investors," Barton wrote. "But innovation is a bumpy road."

The stock climbed as high as $59.04 after hours. As of Thursday's close it was down 24% this year.

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