The real estate giant accused a flawed algorithmic model on Tuesday of abandoning its iBuying business of buying and selling homes quickly, and said it would lay off about a quarter of its staff. The surprising exit, heralded with pedestrian quarterly earnings, sent stocks tumbling in another stormy trading session on Tuesday, a day after an analyst said two-thirds of the homes he bought were under l ‘water.
Co-founder and CEO Rich Barton said in a statement.
In an interview on CNBC, Barton called the decision “difficult but necessary” after determining the business was “too risky, too volatile” and aimed at too few clients. “Of course, there are those who wave their fingers at me,” he admitted. “Predicting house prices six months in advance is really difficult” in the COVID era, he added.
The dissolution of the turnaround company will take several quarters and will include an approximately 25% reduction in Zillow’s workforce, Barton said. Zillow revealed he wrote off $ 304 million in losses from overpriced homes in the third quarter and expects losses of $ 240 to $ 265 million in the fourth quarter for the same reason, pushing the total losses of these houses to more than 550 billion dollars.
During the third quarter, Zillow said it bought 9,680 homes and sold 3,032 of them. It marked a significant jump from the record 3,805 homes bought in the second quarter, of which 2,086 were sold.
Shares fell 10% in extended trading after Zillow announced a net loss of $ 328.2 million, or $ 1.29 per share, against net profit of $ 39.6 million in the quarter of last year. Revenue increased 164% to $ 1.74 billion from a year ago. Analysts polled by FactSet were expecting net income of 16 cents a share on revenues of $ 2 billion.
Zillow Group shares are down 34% in 2021; it fell 10.3% in regular Tuesday, to close at $ 87.20. The broader S&P 500 SPX index,
gained 23% this year.
Speculation about the future and viability of Zillow’s home reversal business escalated this week as Bloomberg reported that the company was selling around 7,000 homes for $ 2.8 billion, and an analyst said warned that two-thirds of the homes Zillow bought were underwater. That prompted RBC Capital Markets analyst Brad Erickson to predict the company’s demise on Monday.