Zillow quits iBuying, will lay off 25% of staff
CEO Rich Barton said iBuying only served a “small portion of customers”
Zillow is leaving the home-flipping business for good and preparing to lay off a quarter of its workforce.
After halting new purchases last month, citing a backlog as it looks to offload 7,000 homes, many at hefty discounts, the company is packing it in for good, according to its quarterly filings with the U.S. Securities and Exchange Commission.
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” said CEO Rich Barton in a statement.
Barton went on to say the iBuying business served “only a small portion” of customers and Zillow will instead focus on “creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.”
The wind-down of Zillow Offers will take several quarters and will complete the purchase of homes in contract. Barton said “the most difficult part of this decision is that it will impact many of our colleagues,” as the company will cut 25 percent of its staff as it shutters the program.
In an earnings call with analysts on Tuesday, Barton called the decision “tough but absolutely necessary.”
He said the decision was not indicative of his outlook for the housing market, but due to the fact that Zillow Offers’ “inherent” capital risk and volatility was intolerable and could put the entire company at risk. (Allen Parker, Zillow CFO’s later noted “we believe there is still a strong market.”)
“When we decided to take a big swing on Zillow Offers three and a half years ago, our aim was to become a market maker, not a market risk taker,” he said during the call. “Put simply, our observed error rate has been far more volatile than we ever expected possible, and makes us look far more like a leveraged housing trader than the market maker we set out to be.”
Barton said they could press on citing the extraordinary events of the past 18 months, but said doing so would be “naive.”
Zillow’s homes segment, which includes the iBuying program, reported $1.2 billion in revenue, missing its expectations, and a net loss of $421 million for the quarter. The company said it recorded a $304.4 million write-down of inventory as part of Zillow Offers due to the company purchasing homes at higher prices that it estimates it can sell them for.
Zillow said it expects to incur additional charges next quarter of up to $265 million for homes it is in contract to purchase. Additional charges related to termination costs for employees and other obligations related to Zillow Offers could be as high as $230 million over the next three quarters.
Overall, the company reported a net loss of $328 million for the quarter.
Zillow shares closed at $87.20 on Tuesday afternoon, down nearly 10 percent for the day, though the price continued to plunge in after-hours trading.
Updates with CEO quotes and additional context from Tuesday earnings call have been added throughout.