Zillow Group Inc. (ZG) delivered fourth-quarter earnings that exceeded Wall Street expectations.
Yet Zillow's stock plummeted over 12% as the company issued a weaker-than-anticipated revenue forecast for the first quarter of 2025. The real estate technology giant reported earnings per share of $0.27, surpassing analyst estimates of $0.22, with revenue reaching $554 million—comfortably above the consensus projection of $538.4 million. Despite these strong numbers, Zillow's outlook for Q1 2025, forecasting revenue between $575 million and $590 million, fell short of the estimated $598.5 million, rattling investor confidence.
Adding to investor unease was Zillow’s reported net loss of $52 million for Q4, an improvement from the $73 million loss in the same period last year but still a substantial deficit. The company’s full-year 2024 revenue climbed 15% year-over-year to $2.2 billion, with EBITDA margins expanding by 200 basis points. Zillow’s mortgage business was a standout, with revenue surging 86% year-over-year, reflecting increased loan origination volume. However, concerns about a sluggish housing market and rising interest rates weighed heavily on the company’s stock.
Market Reaction: Inflation and Housing Market Woes
The broader market faced headwinds on Wednesday following hotter-than-expected inflation data, which sent real estate stocks tumbling. Zillow was particularly hard-hit due to its soft revenue guidance and the ongoing challenges in the housing sector. High inflation reduces the likelihood of near-term Federal Reserve interest rate cuts, keeping mortgage rates elevated and potentially dampening homebuyer demand.
Zillow’s new reporting structure, which now separates revenue into For Sale and Rentals segments, revealed that the Rentals division was a bright spot, growing 25% year-over-year. This segment’s momentum is particularly important as affordability issues push more consumers toward renting rather than buying homes. The company expects its Rentals business to continue expanding, driven by its recent partnership with Redfin.
Redfin’s Stock Soars on Zillow Partnership
While Zillow struggled, Redfin (RDFN) saw its stock surge over 11% following the announcement of a strategic partnership with Zillow. Under the agreement, Zillow will become the exclusive provider of multifamily rental listings on Redfin’s platform and its affiliated rental sites, Rent.com and ApartmentGuide.com. This partnership significantly enhances Zillow’s rental network, which already includes Realtor.com and its proprietary brands like HotPads and Trulia.
Although financial details of the agreement were not disclosed, Redfin CEO Glenn Kelman expressed optimism, stating that the collaboration would drive traffic and improve profitability in Redfin’s rental business. The syndication of Zillow’s 50,000 multifamily rental listings is set to begin in the spring, expanding Redfin’s reach in the competitive rental market.
Looking Ahead: A Tough Road for Zillow, Bright Spots for Rentals
Zillow’s weak Q1 guidance suggests that the housing market remains challenging, with existing home sales turnover near historic lows. However, the company’s strategic push into the Rentals sector could provide a buffer against the sluggish For Sale market. Analysts remain divided on Zillow’s outlook, with some maintaining cautious stances due to continued losses and market uncertainty, while others highlight the company’s long-term potential, particularly in rentals and mortgage services.
Redfin, on the other hand, appears well-positioned to benefit from its Zillow partnership, gaining exposure to a broader rental audience at a time when demand for rental listings is surging. The coming months will reveal whether Zillow’s diversified approach can offset the challenges in home sales or if investor skepticism will persist.
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Adding to investor unease was Zillow’s reported net loss of $52 million for Q4, an improvement from the $73 million loss in the same period last year but still a substantial deficit. The company’s full-year 2024 revenue climbed 15% year-over-year to $2.2 billion, with EBITDA margins expanding by 200 basis points. Zillow’s mortgage business was a standout, with revenue surging 86% year-over-year, reflecting increased loan origination volume. However, concerns about a sluggish housing market and rising interest rates weighed heavily on the company’s stock.
Market Reaction: Inflation and Housing Market Woes
The broader market faced headwinds on Wednesday following hotter-than-expected inflation data, which sent real estate stocks tumbling. Zillow was particularly hard-hit due to its soft revenue guidance and the ongoing challenges in the housing sector. High inflation reduces the likelihood of near-term Federal Reserve interest rate cuts, keeping mortgage rates elevated and potentially dampening homebuyer demand.
Zillow’s new reporting structure, which now separates revenue into For Sale and Rentals segments, revealed that the Rentals division was a bright spot, growing 25% year-over-year. This segment’s momentum is particularly important as affordability issues push more consumers toward renting rather than buying homes. The company expects its Rentals business to continue expanding, driven by its recent partnership with Redfin.
Redfin’s Stock Soars on Zillow Partnership
While Zillow struggled, Redfin (RDFN) saw its stock surge over 11% following the announcement of a strategic partnership with Zillow. Under the agreement, Zillow will become the exclusive provider of multifamily rental listings on Redfin’s platform and its affiliated rental sites, Rent.com and ApartmentGuide.com. This partnership significantly enhances Zillow’s rental network, which already includes Realtor.com and its proprietary brands like HotPads and Trulia.
Although financial details of the agreement were not disclosed, Redfin CEO Glenn Kelman expressed optimism, stating that the collaboration would drive traffic and improve profitability in Redfin’s rental business. The syndication of Zillow’s 50,000 multifamily rental listings is set to begin in the spring, expanding Redfin’s reach in the competitive rental market.
Looking Ahead: A Tough Road for Zillow, Bright Spots for Rentals
Zillow’s weak Q1 guidance suggests that the housing market remains challenging, with existing home sales turnover near historic lows. However, the company’s strategic push into the Rentals sector could provide a buffer against the sluggish For Sale market. Analysts remain divided on Zillow’s outlook, with some maintaining cautious stances due to continued losses and market uncertainty, while others highlight the company’s long-term potential, particularly in rentals and mortgage services.
Redfin, on the other hand, appears well-positioned to benefit from its Zillow partnership, gaining exposure to a broader rental audience at a time when demand for rental listings is surging. The coming months will reveal whether Zillow’s diversified approach can offset the challenges in home sales or if investor skepticism will persist.
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