Zillow Group beat fourth quarter earnings expectations as it continues to navigate the housing market slowdown.
The Seattle real estate tech giant on Wednesday reported total Q4 revenue of $435 million, beating estimates of $413 million and coming in at the high end of its guidance range.
Shares rose sharply in after-hours trading by more than 9%.
Existing home sales in the fourth quarter were down 34% from the year-ago period, according to the National Association of Realtors. It was the 11th month in a row that existing home sales declined.
Zillow made a variety of cost-cutting moves last year to equip itself for the downturn, including abandoning iBuying, the company’s ambitious home-flipping business. Zillow slashed about 25% of its workforce after it decided to shut down Zillow Offers in late 2021.
The company’s stock fell over the past two years after reaching record-highs in early 2021. Its market capitalization is now around $11 billion.
Zillow’s advertising service for real estate agents, Premier Agent, posted Q4 revenue of $283 million, down 20% from the year-ago quarter. The company expected this segment to decrease by more than 31% in the fourth quarter.
Premier Agent is closely tied to the housing market, as transaction volume plays a role in how much agents are spending.
RBC Capital Markets surveyed Zillow’s Premier Agents and found realtors are hesitant about resuming ad spending and are searching for more reliable signs of market improvement.
Zillow’s mortgage segment generated $18 million in revenue, down nearly 65% from the year-ago period, and at the middle of the company’s guidance range.
The release of the January jobs report on Feb. 3 showed significant job growth, causing mortgage rates to rise again after a period of decline. The national average for a 30-year mortgage rate stands at 6.55%.
“If mortgage rates stay at or above current levels, we anticipate existing home sales and purchase mortgage originations may fall into the more bearish assumptions for 2023,” Wedbush analyst Jay McCanless wrote in a report Monday.
In a letter to shareholders, Zillow CEO Rich Barton said he’s optimistic about the outlook heading into 2023, citing mortgage rates lowering from their June peak and a “looming backlog of homes under construction,” which will help affordability.
“However, we aren’t out of the woods yet when it comes to the macro economy and how it may affect the real estate industry,” he wrote. “Things continue to be foggy, and we can’t control what the housing market does. What we can control is how we operate our business.”
Zillow is forecasting total Q1 revenue between $404 million to $437 million. The company forecasts Premier Agent revenue of $313 million to $338 million for the period, down from $363 million in Q1 of 2022.
Zillow and iBuyer leader Opendoor announced Wednesday a new feature in Atlanta and Raleigh, letting home-sellers request both a cash offer from Opendoor and a market estimate from a local Zillow Premier Agent partner. The two real estate tech companies first disclosed their partnership in August.
Here’s a breakdown of Zillow’s fourth quarter financials:
- Adjusted EBITDA of $73 million was above its forecast of $48 million to $63 million
- Internet, Media, and Technology (IMT) segment produced revenue of $417 million, down 14% year-over-year.
- Total operating expenses in Q4 were $508 million, down from $534 million in Q3.
- Rentals produced revenue of $68 million, up 13% from the year-ago period.
