Analysts have downgraded Zillow stock after the company’s latest strategy shift.
Chris Goodney/Bloomberg
Zillow stock just keeps falling after analysts issued downgrades to the shares following the company’s shift in its strategy away from homebuying and selling.
Zillow
‘s Class-A shares (ticker: ZG), which carry voting rights, were down 18% in premarket trading Wednesday, while Zillow
‘s Class-C shares (Z) were similarly down. The Class-A shares fell 11.5% Tuesday and have dropped nearly 20% from Friday’s closing price; the Class-C shares have fallen in parallel.
The online real estate marketplace announced Tuesday that it would end its business of buying and selling homes citing an inability to accurately predict house prices. Zillow’s news came along with its third-quarter financial results, which missed Wall Street’s expectations for revenue and earnings.
And now analysts are weighing in—and it’s not looking good.
Though analysts at investment bank Truist Securities and investment advisory firm Evercore ISI were positive about Zillow’s software and marketing services business (called IMT), they downgraded the stock based on the company’s strategy shift.
Truist Securities downgraded Zillow to Hold from Buy and slashed the price target on the stock 41% to $83 from $140. Zillow’s Class-A shares were trading hands around $85.50 at the close Tuesday.
“While this may prove to be the right strategic move over medium/long term, we believe exit from iBuyer removes a near-term growth catalyst and creates uncertainty around efforts to drive monetization through additional services,” Truist analysts led by Naved Khan wrote.
The team at Evercore at ISI shared that sentiment, downgrading Zillow stock to In Line from Outperform and cutting the price target 47% to $89 from $168 after they said they were “very surprised” by the decision to ditch the home-buying business.
Evercore noted that it was difficult to see multiple re-rates for Zillow stock without its homebuying and selling business. They added that at first glance the challenges the company faced in that segment seem idiosyncratic to Zillow and may not apply to the whole sector.
“We see a material re-rating on Zillow’s core IMT business as unlikely given what we think will be decelerating revenue growth,” analysts led by Mark Mahaney said. “Our long thesis on Zillow has been partly based on the option value implied in Zillow’s long-term participation in this segment and in its synergies with Zillow’s core businesses.”
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