Zillow, the real estate website known for estimating house values, said Tuesday it would leave the company quickly buying and selling houses amid huge losses and that it planned to let go of nearly 25 percent of its employees.
The announcement was a major strategic retreat and a black eye for Richard Barton, Zillow’s CEO, who founded the company 16 years ago and has long talked about transforming Zillow’s popular website into a marketplace. Last year, Mr. Barton that Zillow Offers, which provided instant housing deals in a practice known as iBuying, could generate $ 20 billion a year.
On Tuesday, Zillow, who said it has 8,000 employees, said the division had been the source of huge losses and had made the company’s overall bottom line unpredictable. Zillow Offers lost more than $ 420 million in the three months ending in September, roughly the same amount the company had earned in total over the previous 12 months.
“We have found that the unpredictability of housing price forecasts far exceeds what we expected,” he said. Barton in a statement that accompanied its quarterly accounts.
Mr. Barton, speaking at a conference call with analysts Tuesday afternoon, said the decision had “weighed heavily” on him. “We could blame the current losses on exogenous market events,” said Mr. Barton. “But it would be naive to predict that unpredictable events will not happen in the future.”
In total, the company lost nearly $ 330 million in the third quarter, which was far worse than Wall Street analysts had predicted. The company made a profit of $ 40 million in the same period a year ago.
Shares of Zillow have fallen more than 50 percent from a high of nearly $ 200 in February, when it was still a darling of investors as the housing market warmed. The stock fell 11.5 percent on Tuesday to around $ 85.50 before releasing its financial information, and a further 7.5 percent in after-hours trading. (Still, Zillow’s shares are worth twice what they were at the beginning of the pandemic.)
Three years ago, the company announced plans to use its price estimates to buy and sell homes. Now Zillow sits on thousands of houses worth less than what the company paid for them. Last month, Zillow announced that it would temporarily stop buying new homes. At the time, it was due to a shortage of workers to repair and sell the houses it had bought. But on Tuesday, Mr Barton said using his algorithm to buy and sell houses had not yielded predictable profits. It is now seeking to unload its remaining 7,000 houses.
It appears that the company underestimated the risk of holding houses between transactions, which was a departure from the low-risk and high-margin advertising company. And it quickly tried to increase its returning business to 5,000 transactions a month, which Mr. Barton set as a goal, in a housing market that was already low in stock and began to cool off.
Zillow’s stumble also raises questions about its core product, which is built around its value estimates. Aaron Edelheit, who began buying houses in the wake of the Great Recession, tweeted his thanks to Zillow for having paid “such an extremely high a price” for one of his properties this summer. “They seemed to be panicking,” Mr Edelheit, who is leaving the real estate market to focus on cannabis, told The New York Times’ DealBook newsletter. “I did not understand. I should have shorted the stock.”