Zillow Group expects the real estate sector to “contract significantly” in the second half of 2022 – GeekWire
Zillow Group expects revenue from its core Premier Agent business unit to decline more than 20% year-over-year in the third quarter due to housing trends.
The Seattle-based company beat expectations for its second-quarter earnings, posting revenue of $1 billion and GAAP net income of $8 million. But the shares were down more than 10% in after-hours trading.
The US housing market is showing signs of slowing as mortgage rates rise with still limited supply. Pending home sales fell 20% in June from the same period a year ago, and 8.6% from May.
“Although demand indicators stabilized in July compared to June, we expect the sector’s total dollar transaction volume in the second half of 2022 to contract significantly year-over-year,” he said. writes Zillow CEO Rich Barton in a letter to shareholders.
Revenue for Premier Agent, the advertising arm of Zillow that helps connect real estate agents with buyers and sellers, fell 5% year-over-year to $333 million in the second quarter, slightly below the bottom of the company’s outlook range.
Zillow estimates Premier Agent’s revenue will decline 21% in the middle of its third-quarter outlook range. He cited lower demand for home purchases due to higher interest rates and lower house price appreciation due to slowing demand and rising inventory (although still below pre-pandemic levels).
Analysts previously raised concerns about the impact of slowing buyer leads on Zillow’s Premier Agent business. Two-thirds of agents recently surveyed by RBC Capital Markets said they have or plan to cut spending with Zillow soon, up from 56% in April.
“Rates need to stabilize (or fall) for long enough for sellers to eventually capitulate, attracting more buyers and, therefore, new stock,” RBC equity analyst Brad Erickson wrote in a report. last week.
Zillow said its average monthly unique users grew 2% to 234 million in the second quarter, while total visits rose 5% year-over-year to 2.9 billion.
The company also announced a partnership with Opendoor that allows door-to-door sellers on Zillow’s platform to request an instant cash offer from Opendoor, one of the leading “iBuyer” companies.
Last year, Zillow decided to shut down its own iBuyer business, Zillow Offers, marking the surprising end to an ambitious gamble that resulted in a $405 million writedown and a 25% reduction in the workforce. Zillow was unable to accurately predict home prices and said the business ultimately required too much capital.
Zillow said today that it expects to “substantially complete the liquidation of our iBuying operations during the third quarter.”
In an effort to retain talent, Zillow also announced Thursday that it is implementing a new equity initiative to “strengthen pay” for employees who have a gap between expected pay and actual pay.
Zillow shares have fallen nearly 40% this year. Its market cap is over $9 billion.
“The last few years in housing have been unpredictable, uncertain and unlike anything we’ve seen before,” Barton wrote in the letter to shareholders, which you can read below. “But when we look at the strength of our brand, our audience, our profitability and operating cash flow, as well as our growth strategy, we are confident that we can seize the opportunity to improve the way people conduct real estate transactions across the United States – which we expect to generate exceptional long-term returns for our business, our employees and our shareholders.
Letter to Zillow 2Q22 shareholders by GeekWire on Scribd