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Zillow Stock Tumbles After Selling More Homes Than Expected. Here’s Why.

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Zillow says it has 1,300 homes left in its inventory, most of which have sold or are in agreement to be sold or disposed.

Courtesy of Zillow

Faster-than-expected home sales in Zillow’s iBuying business contributed to first-quarter revenue that surpassed forecasts. But investors shouldn’t count on that contribution next quarter.

Shares of the real estate company were falling 9.9% in premarket trading Friday.


Zillow

(ticker: ZG) reported revenue of $4.3 billion in its first quarter, beating consensus estimates gathered by FactSet that called for revenue of about $3.4 billion. The better-than-expected result was driven by $3.7 billion in revenue in the company’s Homes segment, which contains Zillow’s so-called iBuying program in which the company purchased and sold houses. Last autumn, Zillow announced that it would discontinue its iBuying operations.

Zillow said it sold 8,981 homes in the quarter, more than expected at a higher price than anticipated. “Our faster-than-expected resales of homes in inventory and better-than-expected cash flow from the wind-down allowed us to pay off all iBuying-related asset-backed debt on our balance sheet at the end of April, earlier than we anticipated,” Zillow CEO Rich Barton and CFO Allen Parker wrote in a letter to shareholders.

The company said it ended the quarter with about 1,300 homes in inventory; of those, about 100 aren’t yet under contract to be sold, according to the letter.

Revenue in the company’s Internet, Media, and Technology segment, which comprises Zillow’s Rentals and Premier Agent advertising businesses, was $490 million, in line with analyst estimates. The company said Premier Agent revenue grew 9% year over year, while Rentals revenue fell 5%.

Zillow’s forecast for the second quarter fell short of expectations. The company said it sees second-quarter revenue between $903 million and $1.03 billion. Analysts tracked by FactSet expected the company’s outlook to come in at around $1.83 billion for the second quarter.

That miss is largely attributable to Zillow’s home sales business. The company said it expects Homes segment revenue in a range of $400 million to $500 million next quarter. Analysts called for a contribution of about $1.4 billion, according to FactSet.

The company offered weaker guidance than expected in other areas. Zillow expects revenue in its Internet, Media, and Technology segment to be between $472 million and $492 million in the second quarter, lower than analyst expectations of $523 million, according to FactSet. Broader housing market trends, like rising home prices and mortgage rates and lower for-sale listings growth, “are making it harder for customers to transact and also affecting our partner network,” Zillow said.


Opendoor

(ticker: OPEN), an iBuyer, and


Redfin

(RDFN), a brokerage that has a small home buying and selling business, also reported earnings Thursday.

Opendoor reported GAAP earnings of 4 cents per share on $5.2 billion in sales and its first quarter of positive net income. Analysts expected a GAAP loss of 17 cents per share on about $4.3 billion in sales. The iBuyer sold 12,669 homes in the quarter. Shares climbed 12.6% early Friday.


Redfin

reported a GAAP loss of 86 cents per share on $597 million in sales. Analysts expected a GAAP loss of $1.09 per share on $551 million in sales. The company sold 617 homes in the latest quarter. Shares were up 1.5% in premarket trading Friday.

These earnings come as home affordability worsens in light of rising mortgage rates and still gaining home prices. The average rate on a 30-year fixed mortgage this week was 5.27%, Freddie Mac said today, its highest rate since 2009.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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