Key Takeaways
- Shares of Zillow declined 12.7% on Thursday following an unexpected Q2 net loss of $4 million, even though revenue topped forecasts at $772 million.
- The company’s Q3 revenue forecast of $745M-$760M missed the Street’s $774M estimate.
- More than 500 positions were eliminated, resulting in $36 million in restructuring expenses during the second quarter.
- Bernstein lowered its rating to Market-Perform and reduced the price target from $50 down to $38.
- Revenue timing challenges stem from a business model transition where agents compensate Zillow following home closings rather than upfront.
Shares of Zillow tumbled 12.7% during Thursday’s trading session, marking what could be its steepest single-day decline since February, following the real estate platform’s unexpected quarterly loss and subdued third-quarter outlook.
The company disclosed a Q2 net loss of $4 million against revenue of $772 million. Wall Street analysts had projected a profit of $21 million. On an earnings-per-share basis, Zillow recorded a two-cent loss compared to the nine-cent profit analysts anticipated.
Top-line results climbed 18% from the prior-year period, while adjusted EBITDA reached $176 million, surpassing the $162 million forecast. Adjusted EPS of 52 cents per share also exceeded the 45-cent consensus estimate.
The quarterly loss stemmed primarily from $36 million in impairment and restructuring expenses connected to a workforce reduction exceeding 500 employees that was announced earlier in the week.
Chief Executive Jeremy Wacksman explained the layoffs were designed to help the company “move faster and operate more efficiently.” He maintained that Zillow remains positioned to achieve full-year revenue growth in the mid-teens range.
Third-Quarter Outlook Falls Short
Looking ahead to Q3, Zillow projected revenue between $745 million and $760 million, trailing the $774 million consensus forecast. The company’s adjusted EBITDA guidance of $180 million to $200 million also came in below the $214 million Street expectation.
Wacksman identified two key factors pressuring the company’s near-term outlook. First, management now anticipates contraction in the overall mortgage market. Second, an increasing portion of the business is transitioning to Zillow’s “Preferred” agent program.
The Preferred program structures payments so agents compensate Zillow after closing transactions rather than making upfront payments. While Wacksman noted this approach delivers 23% higher revenue per connection, it creates timing delays that are weighing on immediate financial results.
Bernstein Lowers Rating and Target Price to $38
On Thursday, Bernstein downgraded Zillow from Outperform to Market-Perform while slashing its price target from $50 to $38. Analyst Nikhil Devnani stated the firm is “throwing in the towel” on its previous bullish stance.
Devnani explained that Bernstein’s initial optimistic thesis depended on accelerating market share gains through the Preferred model transformation and substantial operating leverage. He conceded the firm “got this one painfully wrong.”
The analyst noted that Residential segment revenue is projected to show zero year-over-year growth in Q3, and market share gains excluding Mortgage operations appear to be contracting. He cautioned these challenges could extend through 2027.
William Blair analyst Stephen Sheldon indicated he expects Zillow shares to remain “range-bound” given insufficient clarity on a housing market recovery and volatile near-term profitability trends.
The company also unveiled leadership changes alongside its quarterly report. CFO Jeremy Hofmann will assume the expanded role of Chief Operating Officer. Jun Choo is departing the COO position due to health concerns and will continue as an advisor through the end of the year.
Zillow has appointed Cassandra “Sandi” Knight as its new Chief Legal and Policy Officer. Knight most recently held the position of VP of Litigation and Discovery at Google.
Year-to-date, Zillow shares have declined 47%, based on data from Dow Jones Market Data.
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