Zillow Group saw its stock plunge nearly 20% late Monday after announcing it would move into the online mortgage sector, while also warning that its revenues would be below analyst expectations this year.
Investors awaiting a quarterly earnings report from Zillow received a bonus announcement: Zillow is buying Mortgage Lenders of America, an online-mortgage lender based in Overland Park, Kansas. The move will expose Zillow to a new revenue stream but also a historically risky industry.
Founded in 2006, Zillow became a popular real-estate listings service which has since expanded into other areas such as directly buying and selling homes, offering custom mortgage quotes, and services for landlords such as rent collection.
The company said that its purchase of Mortgage Lenders of America is aimed at helping its customers simplify and shorten the home buying process, especially for those who buy homes through Zillow. Mortgage Lenders will remain a part of Zillow’s mortgage marketplace, where it originated 4,400 mortgages last year.
“Getting a mortgage can be the toughest, most painstaking and time-consuming part of the home-buying process,” Greg Schwartz, president of media and marketplaces at Zillow, said in a statement. “Having our own mortgage origination service as an option for consumers will allow us to streamline the process for people who buy a Zillow-owned home.”
Zillow investors greeted the news with more than a sense of caution. The company’s stock fell as much as 18.4% on the news, although it had stabilized somewhat and was trading down 16.3% at $48.67 a share in after-hours trading Monday.
The acquisition announcement coincided with an earnings report that delivered guidance below what Wall Street analysts had been expecting. While second-quarter revenue growth of 22% was in line with expectations, Zillow said revenue for the full year will come in between $1.32 billion and $1.35 billion. Wall Street had been forecasting revenue of $1.48 billion this year.
On Twitter, some market observers expressed a cynical skepticism about Zillow’s announcement, while others seemed cautiously optimistic.
Zillow buying a mortgage lender is interesting. They are now buying homes and financing buyers purchasing those homes. This is a meaningful business model pivot by an internet company. Also looks like they guided core EBITDA well below the street. Stock prob up 15% tomorrow.
— modest proposal (@modestproposal1) August 6, 2018
This Zillow stock implosion is major news…the markets hate Zillow moving the business model a la Opendoor but it seems like a smart long term move to me… (no position…but eyeballing)
— Coronado 'Porch' Lindzon (@howardlindzon) August 6, 2018