Analysts at wedbush cut zillow group’s 12-month price target by more than 40% after the company decided to suspend the purchase of houses through the new contract provided by zillow, its home sales service, for the rest of the year.
Ygal arounian and Chad Larkin of wedbush said that the move “left many unanswered questions in the short term”. Therefore, zillow will “cede substantial market share to peers”
Zillow provides the company’s “ibuyer” service, which aims to digitize the purchase experience from beginning to end and speed up the whole process. It competes with other ibuyer services such as opendoor, offerpad and redfin.
Zillow said that due to “decoration backlog and operational capacity constraints”, the company suspended the purchase of new houses
Other ibuyer companies have not announced any similar slowdown.
Wedbush wrote in a report: “we don’t know whether opendoor and offerpad will have higher renovation costs, to what extent, and what impact. But we know they haven’t suspended.”.
“In our view, what complicates these concerns is that 2022 should have been a year for zillow’s acquisition. With the increase of investment, bundle sales have driven the growth from ibuyer traffic to ‘partner leading’ and mortgage growth. We think it is difficult to say that this vision will be realized. Don’t step back.”
RBC insight analyst Brad Erickson is more optimistic. His target share price is $145, almost twice zillow’s current share price of $87.
In a report released by RBC on Monday evening, Eriksson said zillow’s Ibuying strategy was not so much a meaningful profit as “its real purpose is to send a signal to sellers” and “occupy a greater share in the broker’s Commission profit pool”
Zillow CEO rich Barton said earlier this year that zillow’s services were part of the company’s larger strategy for users.
“Millions of people come to zillow to surf and dream. When they are ready to trade, they can get a mortgage from zillow home loans, connect to zillow premier agents, and even find an initial offer from zillow offers to buy their house with their zestimate,” he said in a statement after zillow’s first quarter earnings report.
Zillow purchased 3805 homes in the second quarter of this year, more than twice as many as in the first quarter. As of the second quarter, there were 3142 housing units in stock.
In contrast, opendoor bought about 8500 homes in the second quarter.
Zillow provides on-site services in 25 markets; Opendoor is active in 44.
Following zillow’s announcement, opendoor’s share price rose 3% on Monday.
Zillow’s house purchase revenue in the second quarter was $772 million, a year-on-year increase of 70%, accounting for more than half of zillow’s total revenue. The housing sector announced an adjusted loss of $29 million, less than $60 million.
Zillow’s share price fell more than 30% this year after soaring during the pandemic real estate boom. In recent months, the real estate market has shown signs of cooling down.