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Is Zillow in Trouble?

There’s a lot of buzz going around after Zillow reported their second-quarter earnings. A couple of days ago, the stock plunged 16% in one day! Are they in trouble?

Anyone who uses Zillow or follows the stock market probably knows that the company’s shares tanked just a couple days ago. Why? The common misconception is that the shares dropped because Zillow announced that they purchased a mortgage lender. That’s not necessarily true.

The real reason why the shares dropped is because Zillow cut their revenue forecasts for the rest of the year. Their reasoning behind this is that Zillow is trying to tap into several potentially lucrative, but riskier, revenue streams in the real estate market. A major venture of the company is to buy homes and flip them to Zillow users. And by buying a mortgage lender, Zillow can now help their home buyers finance the purchase. Due to the higher priority on diversifying their revenue streams, investors have downgraded Zillow to a “hold” stock. The challenge for Zillow in entering the transactions market is trying to make the transactions move quickly. People can sell their homes to Zillow quickly, but the struggle is for those sellers to find a new home in this competitive market.

Everyone who’s looked at Real Estate knows Zillow. Some follow it, some worship it, others can’t stand them and their valuation practices. What’s your take on the future of Zillow?

Check out this CNBC link for more info.