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Why Zillow Stock Fell Sharply This Week

By Daniel Sparks – Nov 5, 2021 at 10:49PM

Key Points

  • Losses mounted in Q3 because of the company's homebuying business.
  • Zillow expects a large writedown related to its homebuying unit in Q4 as well.
  • It will take several quarters to wind down the homebuying business.

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The online real estate platform specialist is offloading its homebuying business.

What happened

Shares of online real estate platform Zillow (Z -2.12%) (ZG -2.41%) were pummeled this week. The tech stock's weakness was driven by news that Zillow is closing its homebuying business, Zillow Offers.

So what

On Tuesday, Zillow announced it's winding down its homebuying business after determining that the program could result in "too much earnings and balance-sheet volatility," explained Zillow co-founder CEO Rich Barton.

A chart showing a stock price declining sharply.

Image source: Getty Images.

"While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers," Barton said. "Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience."

Capturing the volatility in the business, Zillow announced this week that it recorded a $328 million loss for its third quarter. This loss was entirely due to its Offers business.

Now what

Management said the winding down of its Zillow Offers operations will take several quarters. The company will also need to lay off 25% of its workforce. "This is not something we take lightly," said Barton. "We are grateful for their efforts, and we are committed to providing a smooth transition."

In addition to Zillow's writedown of home inventory of about $304 million in its homes segment in Q3, the company expects to recognize between $240 million and $265 million in writedowns related to homes it expects to purchase during Q4.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies 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.

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