Wednesday, November 14, 2018


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Spencer Rascoff, Zillow

David A. Grogan | CNBC
Spencer Rascoff, Zillow

Home sales platform Zillow shed more than a quarter of its market value Wednesday as a downturn in the housing market weighs on the company’s core services and drags profits lower.

Zillow lowered its full-year revenue guidance for the second quarter in a row, to a new range of $1.31 billion to $1.32 billion, from a previously adjusted range of $1.32 billion to $1.35 billion.

Core business stumbles

Earlier this year, Zillow launched a new strategy of buying and selling homes directly to users, expanding its offerings beyond real estate brokers. The company in August bought a mortgage lender to assist with sales.

The new business segment appears to be taking off, posting quarterly revenue of $11 billion, compared with company expectations of between $2 billion and $7 billion.

But the company’s core agent-backed services rang in below revenue estimates amid rising interest rates, a stalling housing market and tweaks to the company’s Premier Agent business that pairs brokers with real estate leads.

“The negative feedback received over the past several months has been far greater than the company had anticipated. Management found many Premier Agents were displeased with the lower lead volume, despite leads being higher quality,” analysts for Stifel wrote in a note.

Zillow plans to adjust the new system, but risks to the broader housing market could still weigh on transaction leads.

Last week, total mortgage applications dropped to a 4-year low, according to the Mortgage Bankers Association’s seasonally adjusted index, as the average contract interest rate hit an 8-year high.

“People aren’t shopping for homes because they become less affordable as rates rise,” trader Jon Najarian, of the Najarian Family Office, told CNBC on Wednesday. “What [the Federal Reserve and Chairman Jerome Powell] meant to do, slowing down the growth of the economy, they have accomplished. And now if they keep basically putting their foot on the brake, they’re going to hurt it.”

— CNBC’s Michael Sheetz and Diana Olick contributed to this report.

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