Zillow Group Inc. shares plunged on Wednesday as investors digested the news that the company was pulling the plug on its tech-powered home-flipping operation.
The stock dropped as much as 15.7% to $72.06, the biggest intraday slide since March 2020.
The home-flipping halt raised major questions about what’s next for a company that was pushing deeper into the U.S. housing market as part of its bid to transform itself from an online listings giant into a buyer and seller of thousands of homes a month.
“It’s a drastic and unexpected move,” said Ygal Unitarian, an analyst at Wedbush. “It was a central part of what the company was built on over the past three years, and management needs to go back to the drawing board and fill in the gap as it continues to aim to be a bigger part of the overall real estate transaction.”
Zillow shares nearly tripled in 2020 as the company rode the pandemic housing rally, closing the year at $135.94. But the stock has been sliding this year, taking a major hit as problems emerged in the flipping unit.
Zillow said Tuesday that was it shutting down the operation. Analysts reacted by slashing the company’s price targets.
Zillow iBuying push, key to the company’s future growth, collapsed when its vaunted pricing algorithms proved unequal to the task.
The Seattle-based company plans to take writedowns of as much as $569 million and reduce its workforce by 25% as it winds down the business in coming months, according to a statement Tuesday.
Zillow’s third-quarter results showed it lost more than $380 million in the operation, called Zillow Offers.
The business hit a major snag in recent months as Zillow tweaked its algorithms to make more aggressive offers, causing it to overpay for houses just as the heated U.S. market began to cool slightly.