By Jeremy C. Owens
Zillow Group Inc. revealed Thursday afternoon that it has sold or is in the process of selling more than half the homes it purchased in a home-buying spree earlier this year that led the company to end its Offers business.
Zillow (NAS:Z) (NAS:ZG) surprised investors last month by announcing it would end its Zillow Offers home-buying business and lay off a quarter of its staff after buying nearly 10,000 homes in the third quarter at prices that were projected to lead to huge losses. On Thursday, the company announced that revenue in the division will top its previous estimates, and executives plan to use some of the cash they built up to purchase homes to instead repurchase $750 million in stock.
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“We are pleased with the progress of our wind-down efforts and recognize that no longer operating Zillow Offers will allow us to have a more capital-efficient balance sheet and business moving forward,” Zillow Chief Executive Rich Barton said in a statement . “With that, we see today as an opportune time to announce a share repurchase program and reduce the cash balance we built up to support Zillow Offers.”
Opinion: Zillow thought it could rule the housing market. It was very wrong.
Zillow stated that more than 50% of its homes are now under contract or that it has agreed on disposition terms for them. Management now expects revenue of $2.3 billion to $2.9 billion for the home-buying business in the fourth quarter, after previously stating guidance of $1.7 billion to $2.1 billion. Executives said Thursday they continue to believe that the wind-down of the business will be cash-flow neutral at least, including the repayment of nearly $3 billion in secured debt.
Zillow shares gained nearly 9% in after-hours trading following the announcement. The stock was pummeled in the wake of last month’s revelation, and ended Thursday’s regular session down 45.2% in the past three months. Overall, Zillow shares are down 58.2% so far this year, while the S&P 500 index (S&P:SPX) has gained 20.2% in that time.