Zillow Group beat its third quarter earnings expectations amid a slowdown in the overall housing market and rising interest rates brought on by inflation.
Revenue fell year-over-year in the company’s Premier Agent and mortgages businesses but exceeded guidance ranges. The Seattle real estate giant reported total Q3 revenue of $483 million, beating expectations of $456 million. Its total revenue fell 12%.
Real estate companies are feeling the impact of a housing market slowdown and mortgage rates that recently eclipsed 7% for the first time in two decades.
The overall housing market is continuing to show signs of slowing down. Single-family housing starts, which indicates the groundbreaking of a new home foundation, dropped nearly 19% in September. Meanwhile, the amount of building permits allocated fell 17%.
“When coupled with persistently low inventory and continued lackluster flow of new listings, the setup to begin 2023 in housing looks challenged,” Zillow CEO Rich Barton wrote in his third quarter letter to shareholders.
Zillow’s Premier Agents polled by RBC Capital Markets said they expect real estate transaction volumes to “remain challenged” heading into the fourth quarter.
Zillow made a variety of cost-cutting moves to equip itself for the ongoing economic downturn, including abandoning iBuying, the company’s ambitious home-flipping business. Zillow slashed about 25% of its workforce last year after it decided to shut down Zillow Offers.
“Given how this year has played out, we continue to feel we made the right decision existing iBuying 12 months ago, with no inventory remaining on our balance sheet as of Sept. 30,” Barton wrote in the letter.
Opendoor, a leading iBuying company that recently partnered with Zillow, announced today that the company laid off about 550 employees, or 18% of its workforce.
Last week Zillow confirmed that it laid off 300 people.
The company is also tightening its discretionary spend and reducing marketing, noted Barton, who co-founded travel giant Expedia before helping launch Zillow in 2006.
“Having led Expedia through 9/11, Zillow through the financial crisis in 2008, and early COVID in 2020, we have experienced staying relatively steady on the gas when others are slamming on the brakes,” he said, speaking during the Q3 earnings call Wednesday. “We are well aware of the dangers on the road, but our vehicle is charged up and handling well, and we see opportunity on the road ahead.”
Shares were up more than 6% in after-hours trading. Zillow is down more than 51% in 2022, with a market capitalization hovering around $7 billion.
Here’s a breakdown of the company’s third quarter financials.
- Zillow reported earnings per share of $0.41, surpassing expectations.
- Internet, Media, and Technology (IMT) segment produced revenue of $476 million, down from $480 million, or down 5% year-over-year.
- Premier Agent generated revenue of $312 million, down from $359 million, or 13%, from the year-ago quarter. The company expected this segment to decrease by more than 20% in the third quarter.
- Total operating expenses in Q3 were $445 million, up from $413 million a year ago. The increase is largely due to its equity initiative to reduce employee churn.
- The mortgage segment generated $26 million in revenue, down from $70 million, or nearly 63% from the year-ago period.
- Rentals produced revenue of $74 million, up 10% from the year-ago period. Traffic to this segment was up 30% on the year, a result of occupancy rates lowering from historically high levels.
