Shares of Zillow (NASDAQ:Z) (NASDAQ:ZG) slumped on Wednesday after the online real estate company reported lackluster third-quarter results and provided guidance below analyst expectations. The stock was down about 25.7% at 1:20 p.m. EST.
Zillow reported third-quarter revenue of $343.1 million, up 22% year over year but about $1 million below the average analyst estimate. The premier agent segment grew 18% to $232.7 million, the rentals segment grew 31% to $37.3 million, the mortgages segment slumped 12% to $18.4 million, and the other segment grew 23% to $43.6 million. The homes segment, which includes Zillow's new home-buying and -selling business, produced $11 million of revenue.
Zillow reported adjusted earnings before interest, taxes, depreciation, and amortization of $66.2 million, down from $71.0 million in the prior-year period thanks to a negative contribution from the homes segment. Zillow posted a loss before income taxes of $15.2 million, down from a profit of $9.2 million in the prior-year period.
Zillow has made some changes, including new lead validation and distribution processes for its premier agent business, and CEO Spencer Rascoff emphasized that they would take time to pay off: "We believe that these changes will have positive long-term effects for consumers, our industry partners and our business. It will take time for advertisers to adapt to these changes, but we are confident that they set us up for long-term growth."
Zillow expects to produce fourth-quarter revenue between $340 million and $357 million, along with full-year revenue between $1.307 billion and $1.324 billion. The fourth-quarter guidance was below analyst expectations of $367.8 million. Adjusted EBITDA will continue to be negatively affected by losses in the homes segment in the fourth quarter.
Zillow's third-quarter results were negatively affected by the changes it made to its premier agent business coupled with a slowing market for home sales, according to Rascoff during the earnings call. Given the weak guidance, investors can expect more of the same in the fourth quarter.
Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.