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Investing.com – Zillow stock (NASDAQ:ZG) plunged 17% in Wednesday’s premarket to a 16-month low, after the company decided to shutter its struggling home-flipping business.
The decision comes after the home-flipping operations, Zillow Offers, left a hole of around $381 million in the company’s third-quarter earnings. Zillow made a total net loss of $328 million in July-September, against a profit of $40 million in the same period last year.
Zillow Offers is a service to homeowners to sell without having to coordinate repairs or host open houses or showings. After buying a home, Zillow prepares it for sale by doing the same type of projects a typical seller would, then lists it on the open market.
The business suffered as Zillow tweaked its algorithms to grab share in a hot property market, overpaying for houses just when the prices were beginning to cool off. Having overpaid for houses earlier this year, it wrote down $304 million in its third-quarter accounts and expects another $265 million in writedowns in the current quarter, due to its misjudgments.
A further consequence of Zillow Offers being closed down will be a reduction of around 25% in the group’s headcount.
Last month, the company suspended new home purchases to focus on clearing the backlog of already-signed contracts. The company had then blamed an ongoing labor shortage and other supply issues for its move.
Total revenue in the third quarter jumped 164% to $1.73 billion, driven by increased purchase and higher volumes in the refinance loan origination business and growth in the mortgage marketplace.
