Please ensure Javascript is enabled for purposes of website accessibility

Why Is Zillow Stock Tumbling on Monday?

By Matthew Frankel, CFP® – Oct 18, 2021 at 11:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The real estate giant just gave investors potentially troubling news.

What happened

The stock market was relatively flat on Monday morning, but real estate specialist Zillow Group (Z 1.20%) (ZG 1.36%) was a major underperformer. As of 10:30 a.m. EDT, shares had fallen by almost 11% and are now down by nearly 60% from their 52-week high.

So what

The reason for today's drop is that the company announced it is suspending its Zillow Offers iBuying program for the rest of the year. If you aren't familiar, this is the part of Zillow's business that buys real estate directly from sellers, makes repairs, and then resells the homes.

House with for sale sign in front of it.

Image source: Getty Images.

Zillow bought 3,800 homes in the second quarter alone (we'll find out third-quarter numbers in a few weeks) and reports that the business is "beyond operational capacity." Specifically, the company makes repairs before reselling the homes it buys, and there's a severe worker shortage that is affecting this step in the process.

Now what

This certainly isn't ideal news, and rivals like Opendoor Technologies -- the largest iBuyer -- aren't reporting similar problems. But it's important for investors to take a step back and take today's news with a big grain of salt.

For one thing, a pause "for the rest of the year" is only about two and a half months. And a backlog due to overwhelming demand isn't exactly the worst reason for pumping the brakes.

Having said that, there are clearly some issues that need to be worked out in the iBuying business, and if Zillow can resume acceleration of Zillow Offers in early 2022, it could certainly get back on track. In the meantime, Zillow has thousands of homes on its balance sheet, and it plans to continue selling those for the time being, which should also allow the company to accumulate some capital for when it's ready to resume buying.

Matthew Frankel, CFP® owns shares of Zillow Group (C shares). The Motley Fool owns shares of and recommends Opendoor Technologies Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.