Earlier this year, Zillow launched a new strategy of buying and selling homes directly to users, expanding its offerings beyond real estate brokers. The company in August bought a mortgage lender to assist with sales.
The new business segment appears to be taking off, posting quarterly revenue of $11 million, compared with company expectations of between $2 million and $7 million.
But the company's core agent-backed services rang in below revenue estimates amid rising interest rates, a stalling housing market and tweaks to the company's Premier Agent business that pairs brokers with real estate leads.
"The negative feedback received over the past several months has been far greater than the company had anticipated. Management found many Premier Agents were displeased with the lower lead volume, despite leads being higher quality," analysts for Stifel wrote in a note.
Zillow plans to adjust the new system, but risks to the broader housing market could still weigh on transaction leads.
Last week, total mortgage applications dropped to a 4-year low, according to the Mortgage Bankers Association's seasonally adjusted index, as the average contract interest rate hit an 8-year high.
"People aren't shopping for homes because they become less affordable as rates rise," trader Jon Najarian, of the Najarian Family Office, told CNBC on Wednesday. "What [the Federal Reserve and Chairman Jerome Powell] meant to do, slowing down the growth of the economy, they have accomplished. And now if they keep basically putting their foot on the brake, they're going to hurt it."
— CNBC's Michael Sheetz and Diana Olick contributed to this report.
Correction: An earlier version of this story mistakenly calculated Zillow's new business in billions of dollars instead of millions.