Zillow earnings dip, but beat company’s forecasts
Third-quarter revenue came in at $483 million, above company expectations, but CEO Rich Barton said the market is "super challenging to predict right now."
Key points:
- While Premier Agent revenue decreased 13% year over year, it exceeded company forecasts.
- The company will be making a push to expand their share of the home loan market.
- Zillow is focusing much of its innovation on a “super app” for consumers and agents.
Zillow reported better-than-expected earnings on Thursday, despite a choppy housing market and interest rates that have risen significantly and could still go higher before the end of the year.
"Affordability has moved against the home buyer dramatically," said Zillow co-founder and CEO Rich Barton. He expects the housing market gyrations to continue into 2023, but he anticipates improvement in the midterm. "It is super challenging to predict right now," he said.
Given the current shift in the housing market, the company said its third-quarter earnings were solid. Zillow's consolidated Q3 revenue of $483 million beat its expectations in nearly every revenue segment.
Breaking down revenue by segment, Zillow reported:
Internet, Media, and Technology (IMT) revenue was $457 million, down 5% year over year but above the high end of Zillow's outlook range.
Premier Agent revenue decreased 13% year over year to $312 million, above the high end of the company's forecast. Zillow attributed the higher-than-expected revenue to retention rates during the third quarter. The company said the decrease was driven by higher interest rates and home prices, as well as tight inventory.
Rentals revenue increased 10% year over year to $74 million, above the company's forecast.
Mortgage revenue was $26 million, near the high end of the company's forecast, with the volume of purchase loan origination growing 24% compared to the second quarter.
Zillow said that as of Sept. 30, it had discontinued all operations for Zillow Offers and had no more inventory.
Traffic to Zillow's mobile apps and websites in the third quarter was 236 million average monthly unique users, an increase of 4% year over year. There were 2.8 billion visits during the quarter, also a 4% increase year over year.
Cash and investments of $3.5 billion were flat at the end of the quarter, but Barton said this money is key to Zillow's innovation goals in technology and services. To help maintain "a well-capitalized business," he said the company had cut discretionary spending and noted that Zillow had recently trimmed its workforce. The company laid off 300 employees last week.
Looking ahead, the company is focused on two major initiatives: their mortgage business and a "super app."
Zillow is pushing to expand its mortgage footprint and originate more loans via Zillow Home Loans by increasing their national share of the mortgage market over time. COO Jeremy Wacksman said the home loan market is highly fragmented, and consolidation would create efficiencies and a better customer experience. "We're really excited about the potential ROI," Wacksman said.
The development of a "super app" would fulfill a vision to integrate all of the company's services, including buying, selling, financing and renting. "Through our many years helping people dream and shop on Zillow, we feel confident that customers want the end-to-end, integrated transaction experience we're building in our housing super app," said Barton.