Opendoor and Zillow are some of those flashy American real-estate companies. As Evergrande contagion occurs in China, it’s interesting to see what happens to these sorts of startups in other countries.
Zillow said it’s winding down its homebuying unit, called Offers, which competes with Opendoor.
The company said it’s cutting 25% of its workforce in eliminating the unit.
Zillow also reported disappointing third-quarter results.
Zillow’s stock is down 21.5% today on the news. Cathie Wood is of course buying more.
Zillow’s market cap is nearly $16 Billion. Analysts think on average that the stock is worth $143. Its price today is $67.
Zillow the digital real estate company, said on Tuesday that it’s exiting Offers, its business that buys and flips homes, and eliminating 25% of its workforce. This is quite a dramatic turn of events.
Their revenue growth has been astounding in recent years. If you want an entry position in a growing company in a large TAM, this might not be a terrible bet to buy now or at the end of this year. Zillow’s internet, media and technology business grew revenue 16% in the quarter to $480 million, with gross profit of just over $130 million.
The announcement was attached to Zillow’s third-quarter earnings report. The company’s revenue and earnings missed analysts’ estimates.
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated,” Zillow CEO Rich Barton said in the release. “Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”
I’ve had many conversations about how this works with my real life friends. The platform’s Zillow Offers unit uses its sophisticated AI software algorithms to come up with an asking price and makes an offer to the house’s owner. If the owner accepts, Zillow buys the house, repairs and updates it, then puts it back on the market.
A lot of countries have a significant housing affordability crisis while easily over 10% of homes lay vacant.
The company is just eliminating an unprofitable part of the business after a short squeeze with huge short volume attempted, based on the reports of short interest API. Revenue in Zillow’s Offers business, which competes with Opendoor, climbed to $1.17 billion in the quarter.
That’s way up from $186 million a year earlier, which was in the middle of the pandemic and in a dry period for transactions. However, the homes segment, which is mostly Offers, lost $422 million in the quarter, producing an overall net loss at the company.
Property developers in China looking to raise badly needed cash by selling assets are finding it hard to strike deals as buyers hoard funds and Beijing stepped up its borrowing crackdown.
China has to crack down on an inflated real-estate boom and its four red line policy will mean a lot of developers there will go bankrupt. It’s not clear if this sentiment will spread to the rest of the world.
Zillow launched Offers in December 2019, starting with Southern California markets. The iBuying, or instant buying, product allowed homeowners to sell their home to Zillow for cash, eliminating a lengthy bidding, sales and closing process. They also didn’t have to worry about costly repairs before putting their house on the market.
Zillow’s price today is still triple that of the March, 2020 lows. This company continues to increase revenue at a fantastic rate. Sales are approaching $4 Billion. Ark Invest, in its daily report, said it had bought 288,813 shares of the company.
With the elimination of an unprofitable part of the business Zillow becomes a more efficient company. The reality is the Home-flipping market proved to be a drag for a company that had built its brand on listing homes across the country and helping buyers and sellers connect through a marketplace. Prior to shuttering the business, the company said on Monday that it would stop buying houses through the end of the year, citing tight labor and supply markets.
I am even more bullish on the Chinese $BEKE that should plummet in China’s real-estate crisis frenzy.
This basically catches you up on the Zillow story. I just sent a stock alert this morning to our Premium members. Have a great day guys!