Zillow (ZG) shares slumped lower Friday after the online real estate platform forecast softer-than-expected near-term revenues amid a surge in residential mortgage rates that could trigger a broader slowdown in the housing market.
Zillow said revenues for the three months ending in June would likely come in at around $1 billion, why shy of the $1.8 billion Wall Street consensus and down from the $4.26 billion recorded over the first quarter.
The bulk of that revenue print, however, came from Zillow's Home segment, which benefited from the faster-than-expected liquidation of inventory amid the wind-down of its Zillow Offers home flipping business. Homes revenue for the second quarter was forecast between $400 million and $500 million.
U.S. 30-year fixed mortgage rates hit a 13 year high of 5.27% last week, according to data from Freddie Mac, a move that compares to a rate of just 2.96% over the same period last year. New and existing home sales are also slowing and the Fed's rate hike path suggests borrowing costs will continue to rise until at least the end of the year. Pending home sales, meanwhile, fell for a fifth consecutive month in March, according to the National Association of Realtors.
"With forecasts varying widely, one thing that is clear about the 2022 housing market is that the path ahead is uncertain." Zillow said in a letter to shareholders. "While it's clear people still have a strong interest in moving, total consumer transaction value growth trends are softening."
Zillow shares were marked 11.45% lower in early Friday trading to change hands at $34.74 each, a move that would extend the stock's six-month gain to around 49.3%.
"Tight inventory levels, price appreciation, and rising mortgage rates contributed to a challenging backdrop for home buyers and agents," said Canaccord Genuity analyst Maria Ripps, who caries a 'buy' rating on the stock but reduced her price target by $5, to $70 per share, following last night's earnings report.
"Zillow’s Q2 outlook was softer than anticipated, with Premier Agent revenue guidance below consensus due to a continuation of the aforementioned headwinds and light Homes revenue guidance reflecting the pull-forward of inventory liquidation in Q1," she added.
"The Q2 profitability outlook was also below expectations due to the lower revenue forecast and ongoing investments to support the development of the company’s Housing Super App."
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