Zillow Stock Forecast: Will Value Continue Tumbling After 2021 Homebuying Contract Pause?

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Zillow announced today that it will not sign any new, additional contracts to buy homes through the end of the year “due to a backlog in renovations and operational capacity constraints,” according to a statement. Predictably, the announcement sent the stock tumbling 8.9% this morning.

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The company said that pausing on new contracts will enable Zillow Offers to focus operations on purchasing homes with already-signed contracts, but have yet to close, and reducing the renovation pipeline. Zillow will continue to market and sell homes through Zillow Offers during this period.

“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” Zillow CEO Jeremy Wacksman said in the announcement. “We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.”

The stock had slipped 31% this year through Friday’s close after nearly tripling in 2020, Bloomberg reported. In the second quarter, Zillow acquired 3,805 homes and sold 2,086 homes, according to a letter to shareholders.

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Related: Zillow Finds 2M Renters Can Afford to Buy Homes Thanks to Remote Work During COVID-19 Pandemic

CFRA Research analysts gave Zillow a “Buy” opinion last week, citing its high growth outlook, profitability and share price off 15% from June highs, according to a note sent to GOBankingRates. “We are positive on Z’s expansion to a transaction business model from digital advertising, and we see EBITDA growing to $577 million in 2021 and $658 million in 2022, versus $343 million in 2020,” the analysts wrote.

Kenneth Leon, CFRA research director, said in a note sent to GOBankingRates that the announcement “reflects a bump in the road as ZG and other digital real estate companies look to gain market share from the 90%-95% of the residential real estate market that are fragmented and off-line.”

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“In our opinion, ZG remains steadfast in automating real estate workflows to large-scale operations. The ability to execute Zillow Offers is important for future revenue growth, which is why the share price is under selling pressure today. Consensus revenue estimates are $6.6 billion in 2021 and $9.8 billion in 2022, compared to $3.3 billion in 2020,” Leon added.

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Last updated: October 18, 2021

About the Author

Yaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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