Zillow's $23M Loss Amid Revenue Rise, Expands Platform

Key Takeaway

• Zillow reports a $23 million loss in its fifth consecutive quarter but sees a 13% revenue increase to $529 million.
• Adjusted EBITDA rose to $125 million, with significant growth in residential and rental revenues by 9% and 31%, respectively.
• Expansion of Real-Time touring platform and doubling of mortgage loan originations highlight strategic growth areas.

Zillow's Earnings: A Mixed Bag

Zillow Group Inc. finds itself at a crossroads, having reported a $23 million loss in the last quarter, marking its fifth consecutive quarter in the red. Despite this, the company has seen a silver lining with a 13 percent increase in revenue year-over-year, totaling $529 million, and an adjusted EBITDA of $125 million, up from $104 million the previous year. This financial performance, particularly the growth in revenue driven by a 9 percent increase in residential revenue and a 31 percent jump in rental revenue, suggests a complex narrative unfolding within the proptech giant and the broader real estate market.

Market Headwinds Ahead

The outlook for Zillow, and indeed for the U.S. housing market as a whole, appears challenging. Zillow's own projections for the second quarter anticipate a downturn in its core business revenue, with expected revenue in the residential business to be between $372 million to $382 million. This forecast, set against a backdrop of tepid first-time homebuying activity and rising mortgage rates, paints a picture of a stalling growth trajectory for the housing market. The company's stock took a hit following these announcements, shedding up to 12% in after-market trading, reflecting investor concerns over these headwinds.

The Broader Economic Context

The challenges facing Zillow and the U.S. housing market are not occurring in isolation. Rising mortgage rates, as reported by the Mortgage Bankers Association, have led to a 2.3% drop in mortgage demand, the highest level since November 2023. This is a critical factor affecting housing affordability and market dynamics, not just in the U.S. but globally. For instance, the UK has seen a significant drop in house prices, the fastest rate decline in eight months, attributed to escalating mortgage costs. These developments underscore the interconnectedness of global financial markets and the universal impact of monetary policy and inflation on real estate.

Navigating Industry Changes

Despite these challenges, Zillow's strategic positioning may offer a pathway through the tumult. The company's focus on high-intent homebuyers and productive agents, coupled with its significant online presence—boasting 217 million unique users monthly—positions it to potentially thrive amid industry changes. The National Association for Realtors' settlement, which could alter the traditional commission-based model for real estate agents, represents a shift towards professionalism in the industry. Zillow's CEO, Rich Barton, views these changes as a positive evolutionary step, suggesting that the company's adaptation strategies may well enable it to navigate the evolving market landscape effectively.

Management Quotes

• Rich Barton, CEO of Zillow:

  "This is a positive evolutionary step for the industry. It is not a revolution, as some people believe." "If and as more hobbyist agents drop out of the industry, the outside beneficiaries of this shift to professionalism will be our premiere agents."