Zillow Disappoints With Zillow Offers Losses

Zillow Group Inc. (NASDAQ: ZG) managed to disappoint investors with its latest earnings report. The company posted revenue of $599 million for the three months ending in June, an 84 percent increase from the same quarter of last year. The company also reported that its net losses were up 136 percent to $72 million. Its shares fell as much as 14 percent in after-market trading after the news. The shares had increased by 45 percent since its last earnings report in May.

The company has been pouring money into “Zillow Offers,” a new business launched last July that buys, flips and sells homes. Under the program, Zillow buys houses directly from homeowners with cash offers, pays for minor repairs, and then resells them. Zillow charges the homeowners a slightly higher fee than a traditional real estate agent selling a house would. Perks for sellers include avoiding the home showing process and having a more flexible move out period.

Zillow reported that demand from people wanting to sell their homes more than doubled from the previous quarter. The company received requests from 70,000 consumers who wanted to sell their homes, purchased 1,500 of those homes, and re-sold just 800 homes during the quarter. For customers who request but ultimately decide not to go with Zillow’s cash offer, the company will refer them to a local realtor and collect a commission from that agent.

Zillow earns slightly more than half of its money from ads posted by real estate professionals on its free sites and apps. Revenue from Zillow’s ad segment grew 6 percent to $323.7 million in the quarter. Ad sales now comprise 53 percent of the company’s total sales while Zillow Offers makes up 40 percent of Zillow’s total revenue. About $249 million of its second-quarter revenue came from Zillow Offers.

Zillow Offers now operates in 15 markets in the U.S., and the company announced four new markets expected to launch in 2020. Zillow forecast a loss of as much as $80 million for the business in the third quarter before interest, taxes, depreciation and amortization. It now expects third-quarter adjusted Ebitda between an $18 million loss and a $2 million gain.