Shaina Mishkin
A tepid housing market and concerns about real estate commission litigation were a drag on Zillow Group's stock this spring. Management is likely to tackle both topics during the online real estate listing company's first-quarter earnings call on Wednesday.
Zillow is expected to report a net loss of $34 million on $509 million in sales for its March quarter, according to FactSet, compared with a net loss of $22 million on $469 million in revenue in the year-ago quarter. Perhaps of more consequence to investors is the commentary on how -- or whether -- changes to rules on commissions will influence Zillow's future business.
The company's shares are down about 26% this year to $42.57 at Tuesday's close, with the bulk of the decline coming after the National Association of Realtors in mid-March agreed to pay $418 million to settle litigation over how commissions are paid. Zillow wasn't a party in the litigation, but investors fear that rule changes coming in July could weigh on commissions, with buyers' agent fees seen as the most vulnerable to disruption.
Barron's wrote in April that the initial hit to the stocks of real estate brokerages and listings companies could be overdone. Zillow sold off on fears that its business selling leads to buyers' agents would come under pressure. Analysts will likely look for more context during the call, which will be Zillow's first since the industry settlement was announced.
"Zillow's understandable reticence to comment on ongoing public matters has allowed competitors and the bears to seize the narrative," Benchmark analyst Daniel Kurnos wrote in an April 30 report. Kurnos rates the company Buy, with a $60 price target. "While we expect Zillow will have to tiptoe around certain subjects, we have to imagine some level of planned responses will be forthcoming."
Zillow is known for its for-sale real estate listings, but the company also offers mortgage and rental services, along with tools for agents. The company has said it is prioritizing investment in "growth pillars" such as touring, rentals, and financing.
"It has been a busy and exciting two years as we've been building and investing in these growth pillars, adding to our Zillow housing super app experience," CEO Rich Barton and CFO Jeremy Hofmann wrote in the fourth quarter's shareholder letter. "We are looking forward to continued growth in the years ahead."
The market for home sales will also likely be a topic of conversation on the call. Mortgage rates measured by Freddie Mac rose above 7% in April for the first time since late 2023. The rise in rates, coupled with resilient home prices, threatens to slow housing market activity.
New home sales could be relatively insulated from the impact, since builders are able to reduce the cost to buyers through the use of incentives like mortgage rate buydowns, but sales of previously owned homes could suffer.
Also of interest will be any mention of rival CoStar Group, the commercial real estate giant making a play for the residential real estate listings space with its Homes.com. Zillow in February said competition from CoStar hadn't impacted its business.
But CoStar has high hopes for its listings portal. "We believe that, before too long, Homes.com will be our largest revenue business in the portfolio," CoStar CEO Andy Florance said on the company's April earnings call, Barron's previously reported . In a release, Florance said the company's launch of Homes.com was "by far the strongest sales launch of any product in the company's history."
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
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May 01, 2024 03:00 ET (07:00 GMT)
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