Zillow announced today that it will shut down Zillow Offers, the iBuying segment of its business that focused on buying and selling residential real estate. As part of the decision, the company also said it will reduce its workforce by 25% over the next few quarters.
Zillow Offers accounted for nearly 68% of total revenue for the quarter ended September 30, 2021. It also resulted in significant net losses since its launch in 2018: In the most recent quarter, Zillow's Homes segment cost $237 million more to operate than it made.
Zillow CEO Rich Barton and CFO Allen Parker released a letter to shareholders explaining the decision: "Ultimately, we determined that further scaling up Zillow Offers is too risky, too volatile to our earnings and operations, provides too little opportunity for return on equity, and serves too narrow a portion of our customers."
The move does not bode well for other iBuyers. Opendoor's stock fell nearly 15% today. Redfin stock dropped nearly 5%. Zillow, which also released its earnings, dropped 11.5% during trading hours and a further 8% after hours as of this writing.
The letter from Zillow suggests that iBuying involves too much pricing volatility to be consistently profitable. Barton and Parker said they determined that the scale necessary to run a profitable iBuying business "would require too much equity capital, create too much volatility in our earnings and balance sheet, and ultimately result in far lower return on equity than we imagined."
Barton and Parker provided the following guidance on the future of Zillow: "Before today, our seller offering was overly focused on Zillow Offers and was able to serve only a small number of the available customer set. Going forward, rather than having to buy a customer's home to help her sell, we are now simply going to help her move. We will expand our view and explore a marketplace of scalable selling solutions that give certainty, convenience, choice, simplicity and speed, all while addressing the broader opportunity for Zillow."