Zillow Group beat its third quarter earnings forecast amid a slowdown in the overall housing market and rising interest rates driven by inflation.
Revenue fell year-over-year in the company’s prime agent and mortgage lending businesses, but topped forecast ranges. The Seattle real estate giant reported total third-quarter revenue of $483 million, beating expectations of $456 million. Its total turnover fell by 12%.
Real estate companies are feeling the impact of a slowing housing market and mortgage rates that recently topped 7% for the first time in two decades.
The overall housing market continues to show signs of slowing. Single-family housing starts, which indicates the inauguration of a new house foundation, fell almost 19% in September. At the same time, the number of building permits granted fell by 17%.
“When coupled with consistently low inventory and a continued lackluster flow of new listings, the setup to start 2023 in housing looks challenging,” Zillow CEO Rich Barton wrote in its third quarter. letter to shareholders.
Top Zillow agents polled by RBC Capital Markets said they expect real estate transaction volumes to “remain challenged” heading into the fourth quarter.
Zillow has taken various cost-cutting measures to prepare for the ongoing economic downturn, including ditching iBuying, the company’s ambitious home flipping venture. Zillow cut its workforce by about 25% last year after deciding to close Zillow offers.
“Given how this year has unfolded, we continue to believe we made the right decision in existing iBuying 12 months ago, with no inventory remaining on our balance sheet as of September 30,” Barton wrote in the letter.
Opendoor, a leading iBuying company that recently in partnership with Zillow, announcement today that the company has laid off around 550 employees, or 18% of its workforce.
Last week Zillow confirmed that he laid off 300 people.
The company is also tightening discretionary spending and reducing marketing, Barton noted.
The shares rose more than 6% in after-hours trading. Zillow is down more than 51% in 2022, with a market cap hovering around $7 billion.
Here is a breakdown of the company’s third quarter financial statements.
- Zillow reported earnings per share of $0.41, beating expectations.
- The Internet, Media and Technology (IMT) segment generated revenue of $476 million, compared to $480 million, down 5% year-over-year.
- Premier Agent generated revenue of $312 million, compared to $359 million, or 13%, from the prior year quarter. The company expected this segment to decline more than 20% in the third quarter.
- Total operating expenses in the third quarter were $445 million, compared to $413 million a year ago. The increase is largely due to its equity initiative to reduce employee turnover.
- The mortgage lending segment generated $26 million in revenue, up from $70 million, or nearly 63% over the same period last year.
- Rentals generated revenues of $74 million, up 10% compared to the same period last year. Traffic to this segment increased by 30% over the year, due to lower occupancy rates compared to historically high levels.