Zillow Group sees dark clouds on the horizon for its agent-advertising business.
The company predicted that a slowdown in home sales – in part due to a spike in mortgage rates – would hit one of its core businesses.
“Agents saw demand go down and longer cycles for their customers to close,” Zillow CFO Allen Parker said on the company’s second-quarter earnings call Thursday. “Their natural reaction at a time like this is to reduce their advertising spend somewhat as a protection.”
Zillow reported net income of $69 million in the second quarter, up from $16 million the previous quarter.
But the company’s shares fell after third-quarter guidance came in lower than expected. Zillow CEO Rich Barton said that “despite the challenges of the macroeconomic environment, we’re taking strides in key growth areas — including financing, touring and seller solutions — that get us closer to our vision of an integrated digital experience to help customers with all their real estate needs.”
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The $505 million in revenue from Zillow’s homes segment beat expectations due to the faster than expected wind-down of the company’s iBuying arm, Zillow Offers. The company said earlier this year that the failed iBuying venture cost it $880 million in 2021. It also announced a partnership with iBuyer Opendoor, which it says will provide customers with a cash offer option. Customers selling through Zillow will be able to choose that offer or opt to sell traditionally; if they choose Opendoor, Zillow will get a referral fee.
“While almost everyone starts their journey using Zillow products and services, we monetize only 3 percent of real estate transactions,” Barton said.
When asked about CoStar Group’s new Citysnap MLS challenging Zillow subsidiary StreetEasy in the New York City market, Barton said Zillow feels “terrific competitively in New York”.
“We feel really good, StreetEasy is really the brand in New York City, it has incredibly high customer engagement, but maybe even more interestingly it is the platform that most brokers in New York City use to manage their inventory,” he said. “We’re in an incredibly strong position there.”