Zillow (ZG) Stock Falls on Report Company Paused Home Purchases due to High Demand, a Temporary Halt Yields a Chance for Competitors Says Analyst

October 18, 2021 7:15 AM EDT
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Price: $54.47 -2.92%

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Zillow Group (NASDAQ: ZG) has reportedly stopped buying U.S. homes until the end of the year, Bloomberg reported.

“We are beyond operational capacity in our Zillow Offers business and are not taking on additional contracts to purchase homes at this time. We continue to process the purchase of homes from sellers who are already under contract, as quickly as possible,” the company told Bloomberg.

Zillow bought 3,800 homes in the second quarter but will stop buying new properties and will instead focus on finalizing the backlog of contracts created amid high demand.

The company calculates the valuation and could eventually make an offer to the homeowner. If accepted, Zillow makes light repairs and puts it back on the market.

It appears that more and more homebuyers turned to Zillow to try and sell their property quickly so they can get a new one.

“Given unexpected high demand, Zillow Offers has hit its capacity for buying homes for the remainder of the year,” an unnamed official was quoted by Bloomberg.

BofA analyst Nat Schindler reiterated an Underperform rating and a $100.00 per share price target on the Bloomberg report.

“The recent supply/demand imbalance in the housing industry has contributed to rapid rise in home prices, which have started to weigh negatively on affordability and housing demand. We believe Zillow’s decision might be affected by slowing homes sales and company’s inability to sell through at the same rate at which it is acquiring as buyers take a step back. Per BofA US Economists’ ests, we expect existing US home sales to head lower in the near-term due to the combination of declining affordability and tight inventories,” Schindler said in a client note.

The analyst added that the halt represents a chance for main competitors - Opendoor and Redfin - to increase their market share.

“We also believe, this temporary halt might be beneficial for Zillow in the near-term as the company would avoid acquiring overpriced inventory in currently overheated housing market and prevent overextending its balance sheet,” the analyst added.

The report has also pushed BofA to revisit their 4Q and ‘22 Homes revenue estimates with investors likely to focus on this segment in the 3Q call.

Shares of Zillow are down nearly 5% in pre-open Monday.

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