Zillow forecasts slower second quarter, amid caution among first-time buyers and agents

By Bill Peters

'First-time home-buyer activity has underperformed the overall mortgage buyer market year to date,' company says

Online real-estate listing service Zillow Group Inc. on Wednesday forecast second-quarter sales that were below expectations, as a stalled housing market weighs on first-time homebuyer demand and pushes some real-estate agents to the sidelines.

Zillow (Z) said it expects $525 million to $540 million in sales for the second quarter. That was below FactSet forecasts for $559 million. The company said it expects second-quarter residential revenue on its platform to decelerate from the first.

"First-time home-buyer activity has underperformed the overall mortgage buyer market year to date," the company said in its shareholder letter.

The letter continued: "A recent rise in mortgage rates to the mid-7% range has resulted in some Premier Agent partners taking a wait-and-see approach on housing market impact, much like we have seen during prior periods of interest-rate volatility."

Shares declined 6% in extended trading Wednesday, after falling 1.6% in the regular session. Zillow stock has slumped 28% year to date, compared with the S&P 500's SPX 5% gain.

For the first quarter, the company reported a net loss of $23 million, or 10 cents a share. In the same quarter last year, Zillow lost $22 million. First-quarter adjusted earnings per share came in at 36 cents.

Revenue rose 13% year over year to $529 million.

Those results were above expectations. Analysts polled by FactSet expected Zillow to report adjusted earnings per share of 30 cents, on revenue of $509 million.

Zillow reported as high mortgage rates, high home prices and a limited amount of homes for sale discourage both buying and selling in the housing market.

The company also filed its report after the National Association of Realtors, a large and influential industry trade group, recently agreed to settle a lawsuit that could help home sellers save money on fees but change the way real-estate agents do business.

Shares of Zillow were hit hard after the settlement, which raised fears among real-estate agents that they could make less money and raised questions about the large segment at Zillow that helps connect buyers or sellers with agents. Zillow joined the National Association of Realtors in 2021.

That lawsuit intended to protect home sellers from paying what it alleged were inflated commissions to real-estate agents. The suit alleged that those higher commissions resulted from the NAR's practice of requiring the agents of the buyer and the seller to split those payments, effectively setting industry-standard commission rates at around 6% and breaching antitrust law.

The association, in turn, argued that commissions were always negotiable, but it said that continuing to make its case in court would have harmed its members.

Zillow, in Wednesday's shareholder letter, said the settlement helped add clarity to the industry.

"The substance of the settlement is what we've characterized as a very reasonable 'middle path' forward for the industry, where commissions are negotiated and communicated between buyers and sellers, andboth parties are better educated," it said.

BofA analysts, in a recent research note, also said that as part of the settlement, the NAR has agreed to issue a new rule prohibiting broker compensation offers on listing services.

"With potential accelerated timelines for the commission-sharing changes, we see some near-term disruption potential for Zillow's buy-side lead generation segment," which the analysts said accounted for nearly half of the company's sales.

-Bill Peters

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05-01-24 1754ET

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