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Last updated on December 6th, 2021 at 08:57 am
Zillow Group Inc. is stopping its tech-powered home-flipping operation, after the company’s vaunted pricing algorithms proved unequal to the task. In late trading, the company shares dropped as much as 11% to $76.22.
According to a statement, they plan to take writedown close to $569 million and reduce their workforce by 25% as it winds down the business in the coming months.
The company’s third-quarter results showed a loss of more than $380 million in the operation, they decided to abandon home flipping.
In recent months when Zillow tweaked its algorithms to make more aggressive offers, it affected the business causing the company to overpay for homes when the market began to cool.
Zillow’s Chief Executive Officer Rich Barton said with the losses mounting, it was too risky to scale the business.
On Oct. 18, the company issued a statement confirming that it wouldn’t make any new offers on houses for the rest of the year as the company had overpaid for properties and was taking bigger losses on sales.
Earlier this year, they borrowed more than $1 billion through two bond offerings and became the first iBuyer to tap the securitization market.
In the third quarter, the company bought approximately 9,700 homes and also booked a $304 million write-down on inventory owned at the end of the period.
In the fourth quarter, they expect to buy roughly 9,000 homes and said planning to take a write-down of as much as $265 million on home purchases.
It’s obvious that Zillow misjudged the housing market, making more aggressive offers while their competitors were more cautious.
The company decided to get out of the business and get into something that is broader and less risky which is more brand-aligned ways by focusing on asset- and capital-light solutions.
Reference Source: Yahoo Finance
