A "Tough Day" at Zillow as Rich Barton Drops iBuying Bombshell After Record Losses

Zillow CEO Rich Barton dropped a bombshell that will have massive implications for his company and may well have serious implications for the whole US real estate industry today when he announced that the company will stop iBuying indefinitely.

The announcement came via a statement that accompanied a set of quarterly results which included unprecedented financial losses for the Seattle based company. Zillow will wind down its iBuying Offers division over the next few quarters and will lay off 25% of its staff.

The move comes two weeks after the company surprised many in the industry by pausing its iBuying operations. The reason given at the time was one of "operational capacity" with supply chain and labor shortage issues blamed. It is now clear that the problems with Zillow Offers run much deeper.

Addressing investors in the company's Q3 results press release, Rich Barton said:

“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,”

“While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.”

The company's iBuying division (known as Zillow Homes) began purchasing and renovating homes in 2018 but apart from one quarter at the start of the pandemic, when it was forced to sell more homes than it bought, the business has not made a profit.

The announcement comes with enormous implications for the company with the layoffs particularly painful for the company co-founder:

Today is a tough day at Zillow. We made the difficult, but necessary decision to wind down the Zillow Offers operations and lay off 25% of the workforce. You can read more about our decision below: https://t.co/S454rPcLbZ

— Rich Barton (@Rich_Barton) November 2, 2021

The move comes after Zillow made unprecedented quarterly losses of $328 million with growth in the company's advertising business (IMT segment) slowing and with its mortgage business failing to reach expectations.

While the company's core IMT business, which includes Zillow's Premier Agent ad sales business, saw year-on-year growth of 16% in terms of revenue and 15% in terms of Adjusted EBITDA, the segment's profitability actually dropped from $139 to $130 million for the period.

As for a mortgage business that held great hopes of high attachment rates when it was launched back in 2018, the segment lost over $5 million having been profitable to the tune of $15 million in the corresponding period last year.

While a company press release couched the results for these segments within the context of the revenue that they generated during the quarter (IMT revenue growth was within the company's outlook range and the $70 million of revenue from the mortgage business exceeded revenue expectations), Wall Street has not reacted well with Zillow's share price plummeting 11% from $96 to $85 at the close and dropping further still to $78 in after-hours trading at the time of writing.