Zillow Falls After Announcing House Flipping Plans, Competitor Redfin Declines

Shares of Zillow (Z, ZG) dropped in morning trading after the company announced plans to enter the home-flipping business just in time for the Spring selling season. Zillow, which has focused on just the listing part of the real estate business, announced last night along with quarterly and yearly revenue, that it will expand Zillow Instant Offers to Phoenix this month. With this expansion, Zillow said it plans to participate in the marketplace, buying and selling homes with Premier Agent partners in the Phoenix and Las Vegas markets. Zillow began testing Instant Offers in May 2017 with Premier Agent partners in Las Vegas and Orlando and will add Phoenix this month. According to Zillow, the program “gives real estate agents the opportunity to acquire new listings by connecting them with motivated sellers who have taken a direct action to sell their home. Across all testing, Zillow found the vast majority of sellers who requested an Instant Offer ended up selling their home with an agent, making Instant Offers an excellent source of seller leads for Premier Agents and brokerage partners.” “Even in today’s hot market, many sellers are stressed and searching for a more seamless way to sell their homes,” Zillow Chief Marketing Officer Jeremy Wacksman said in a statement. “They want help, and while most prefer to sell their home on the open market with an agent, some value convenience and time over price. This expansion of Instant Offers and Zillow’s entrance into the marketplace will help us better serve both types of consumers as well as provide an opportunity for Premier Agents to connect with sellers.

A “WASH” FOR SHAREHOLDERS: Craig-Hallum analyst Brad Berning downgraded Zillow to Hold from Buy after the company announced the expansion of the Instant Offers program to Phoenix in addition to Las Vegas and Orlando. The program will require what he estimates to be about $3B of capital, which Zillow intends to fund using its balance sheet, while only creating what he estimates will be about $3B in incremental shareholder value, Berning told investors. Thus, he sees the expansion as “a wash” for shareholder value, but one that comes at the price of potential added risk. Berning lowered his price target on Zillow to $50 from $58.