Zillow shares have fallen as much as 28% this week, reeling from the failure of its home-flipping business. The online real estate company reported disappointing earnings and said it plans to take a $304 million impairment charge related to its iBuying service. But Cathie Wood's Ark Invest is looking to buy the dip, buying about 300,000 shares on Tuesday.
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Zillow shares fell 10% on Tuesday and another 14% on Wednesday as the company's bid to buy homes and quickly flip them for a profit has failed. But fund manager Cathie Wood sees opportunity.
The online real estate listings company reported third-quarter results on Tuesday that fell short of analysts' expectations and took a $304 million write-down related to its home inventory. The company is now officially shutting down its iBuying home service.
“Home price unpredictability has far exceeded our expectations and we have determined that continuing to expand the scale of Zillow Offers would create too much volatility in our earnings and balance sheet,” Chief Executive Officer Rich Barton said.
As Zillow's stock price plummeted, Wood's flagship holding, the ARK Innovation ETF, bought an additional 300,000 shares on Tuesday to buy the dip.
The stock purchase is already down given the sell-off in premarket trading on Wednesday, but it shows Ark is sticking by the company as its home-resale problems have been apparent for some time.
Zillow got into the physical home buying, renovating and reselling business in 2018, but the company said the global pandemic has made it nearly impossible to predict how home prices will perform in the short term.
And even as home prices soared to record highs, Zillow still couldn't consistently sell its inventory at a profit. Instead, the company would often buy homes, invest thousands of dollars in cosmetic fixes, and then quickly put them up for sale at a loss.
The wind-down of Zillow's home-resale business is expected to take several quarters as it sells off its remaining home inventory, which will result in the company cutting its workforce by about 25%.
Burton told CNBC on Tuesday that the company is not in “fire sale” mode to clear its housing inventory, but is “rushing” to prepare for sales.
He said investors shouldn't take Zillow's home-flip failure as a sign the housing market is nearing a peak, adding that housing market fundamentals remain “pretty strong.”
Zillow's shares have fallen nearly 30% this week alone and are down 42% since the beginning of the year.
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