Online real estate database company Zillow, suffered its worst trading day in almost seven years after announcing that it plans to acquire Mortgage Lenders of America.
The stock saw a loss of over 16% earlier this month after reporting second quarter earnings. It was the company’s largest single-day loss since 2011.
“Zillow reported Q2 results that revealed several moving parts,” analysts for Canaccord remarked in a note. “There are enough dislocations in the quarter to create a period of negative sentiment in the near term.”
The company delivered non-GAAP earnings of 13 cents per share in the second quarter of 2018, which came ahead of the Zacks Consensus Estimate of 9 cents per share. The figure also was a growth of 225% from the year-ago figure of 4 cents per share.
For the quarter, Zillow revealed a revenue increase of 21.9% YOY to $325.2 million. This was slightly behind the analysts’ expectation of $325.5 million. It was however within the company’s guidance of $322-$327 million.
During the quarter, traffic saw an increase of roughly 7.4% to 188 million average monthly, unique users. During the quarter, visits also surged 14% year over year to 1.9 billion.
Looking ahead, the company lowered its full-year revenue guidance from $1.43 billion to $1.58 billion to $1.32 billion to $1.35 billion.
“Zillow bought 19 homes in 2Q, and we estimate another 30 or so in 3Q, based on public records, but the company has only sold nine homes so far, putting it significantly behind its aggressive sales goals,” analysts for Stifel wrote. “Management noted the average length of time between sellers accepting offers and the corresponding closing dates has been a month or more, longer than initially forecast, which is delaying the planned ramp-up in the business.”
Zillow also announced that it acquired Mortgage Lenders of America to bolster its home-flipping business. Analysts weren’t digging the news as several downgraded the stock over concerns that moving into mortgage lending could hurt profitability next year.
CEO Spencer Rascoff defended the move Tuesday on CNBC’s “Squawk Box,” and said, “It allows us to monetize the Zillow Offers business a second way. First, we can make money from buying and selling. Second, we can make money from mortgage origination. Third, we can make money by passing the home seller, who doesn’t want to sell their home to us, off to a premier agent.”
Analyst Shyam Patil at Susquehanna Financial lowered his stock price target from $45 to $42 while Canaccord Genuity’s Maria Ripps reduced her target from $65 to $62.