What happened

Shares of online real estate company Zillow Group (Z -1.91%) (ZG -2.30%) dropped 16% in March, according to data provided by S&P Global Market Intelligence. The company's stock price has been on the decline since it announced back in November that it was ending its iBuying venture, and investors still aren't clear on where the company will land.

So what

Under the iBuying model, companies use algorithms to rapidly calculate homes' values, buy them "instantly" for cash, do some renovations, and then flip them at (hopefully) a profit. It has become a big business, with competitors such as Opendoor Technologies demonstrating success. That's why Zillow threw shareholders for a loop when it basically admitted it had failed at that final step.

Two people holding a child and standing in front of a house.

Image source: Getty Images.

The company is now in the process of winding down the business and selling off its remaining inventory of houses. In the meantime, it's getting back to what it does best, and focusing on upgrading its digital program with a "housing super app" that "connects all the fragmented pieces of the moving process and brings them together on one transaction platform." Company data shows that 67% of all homebuyers last year were on Zillow at some point, and about 25% of all homebuyers clicked on the Zillow button to get connected to a premier agent. It estimates that it accounted for 5% of all buy-side transactions, and 3% of total (buy and sell) homebuying transactions. Management is pivoting to engage with more of the 4.1 million people who used the Zillow site at some point in the homebuying process last year, and attempting convert more of the lurkers into buyers who make transactions facilitated by Zillow. Its goal is to reach $5 billion in annual revenue by 2025.

On the one hand, that would be a big drop from the more than $8 billion in revenue it booked in 2021, but that year's figure included iBuying, which also comes with the huge costs of keeping inventory. It would, on the other hand, be a big jump from 2021's revenue excluding the iBuying segment.

Now what

Zillow still seems like a questionable investment as it deals with this huge change in its business operations. Its stock is down more than 60% over the past year, and its losses have been mounting. However, its shares trade at only 1.6 times trailing 12-month sales, down from 8.7 a year ago.

There are definitely reasons to be upbeat about Zillow's future. But even at this price, there's plenty of risk, so investors should tread carefully.