Shares of Zillow Group tumbled more than 16 percent on Tuesday, a day after the Seattle online real estate powerhouse posted quarterly revenue of $325.2 million and announced the acquisition of Kansas-based Mortgage Lenders of America.
The stock was trading at about $48.50 in early trading, giving the company a market value of $9.7 billion. Shares are still up on the year, but Goldman Sachs lowered its target on the company after the earnings report, and Bank of America downgraded the company citing concerns over the shift into mortgages and home buying and selling. UPDATE: Zillow’s stock closed at $49.40, down 16.27 percent on Tuesday.
The stock drop comes as Zillow announced the purchase of the 300-person Mortgage Lenders of America, signaling that it’s getting serious about mortgage lending as a core part of its business.
“Now that we are buying and selling homes through Zillow Offers, we believe that having our own mortgage origination service as an option for consumers will allow us to streamline the process for people who buy a Zillow-owned home,” said Greg Schwartz, president of media and marketplaces at Zillow Group, in a press release.
Speaking of Zillow’s new home buying and selling business — which started recently in Phoenix and Las Vegas, and is expanding to Atlanta and Denver — MarketWatch reported that “investors were a bit dismayed” that the new unit had no revenue for the quarter.
And it appears that Zillow may not be done with its mortgage expansion, with CEO Spencer Rascoff telling Dan Primack of Axios that Mortgage Lenders of America isn’t big enough to “satisfy our long-term ambitions.” Rascoff also noted that the stock sell off was tied to the earnings report, not the acquisition. UPDATE: In a follow-up email to GeekWire, Zillow said that Rascoff’s comments referred to the company growing the Mortgage Lenders of America business, not future acquisitions.
Rascoff is bullish about the future of both mortgage lending and home buying and selling.
“The launch of our Homes business, coupled with the proposed acquisition of MLOA, are great examples of how we are executing strategically to become more of an end-to-end provider for housing-related services, with a focus on the massive opportunities ahead,” Rascoff said in the earnings call.
Full transcript of Rascoff’s remarks here.
