Zillow tumbles as rising rates weigh on housing market outlook

Zillow Group Inc. fell as much as 13% in late trading Tuesday after an underwhelming outlook stoked investor fears that rising mortgage rates will cool the U.S. housing market.

The company is projecting that its internet, media and technology segment will bring in $134 million to $169 million in earnings before interest, taxes, depreciation and amortization in the second quarter, according to a shareholder letter published Thursday. Home sales usually pick up in the spring, but Zillow’s outlook indicates that higher mortgage rates and low inventory of for-sale homes will finally slow activity.

“The market is softening, full stop,” Chief Executive Officer Rich Barton said in an interview. “I think the toughest macro lens is that inventory levels continue to plummet. Flat transactions would be a good year this year, and I don’t know if we’ll get there.”

Zillow is emerging from a tumultuous period during which it shut down an ambitious foray into flipping homes and shifted its focus to a “housing super app” to integrate home tours, financing, seller services and the company’s partner network. Barton expects those efforts to double the company’s non-home-flipping revenue by 2025.

In the meantime, a hot housing market in the first three months of 2022 boosted Zillow’s advertising business and helped speed efforts to wind down the home-flipping operation, called Zillow Offers. The company generated $220 million in adjusted EBIDTA for the quarter, according to a statement Thursday. Analysts expected $156 million, the average in a Bloomberg-compiled survey. Zillow also authorized an additional $1 billion in share buybacks.

Strong first-quarter home sales also boosted the results of other companies in the home-flipping business that Zillow just exited.

Opendoor Technologies Inc., the pioneer among so-called iBuyers, saw shares rise as much as 16% in late trading Thursday after the company reported adjusted net income of $99 million. Analysts expected a $41 million loss. Offerpad Solutions Inc. beat estimates when it reported first-quarter earnings on Wednesday.

For his part, Barton said that shuttering Zillow Offers had lightened his company’s balance sheet and left it in a better position to weather a slowing market.

“It’s a great way to go into a headwind,” he said. “We can go into this headwind confidently, with our eyes focused on building out the super app.”

Zillow’s mortgage business lost $27 million in the first quarter on revenue of $46 million. For the same period in 2021, the segment lost $2 million on revenue of $68 million.