Zillow' s decision to bail on its iBuying program for real estate forced several formerly bullish Wall Street analysts to downgrade the stock. The real estate company missed estimates in its third-quarter report on Tuesday and announced that it would end its offers program, which buys and sells houses, citing potential volatility to its earnings and balance sheet. The company had already paused purchases through the program last month. Evercore ISI analyst Mark Mahaney downgraded the stock to in line from outperform, saying the move eliminated a bullish case for the stock. "In closing down this segment after three years of investment and growth, [management] cited its inability to reasonably forecast home prices and its concern that further scaling the business would generate excessive earnings and balance-sheet volatility," Mahaney said in a note to clients on Wednesday. "We were very surprised by this decision. Our Long thesis on ZG has been partly based on the option value implied in Zillow's long-term participation in this segment and in its synergies with Zillow's core businesses." Piper Sandler analyst Thomas Champion downgraded Zillow to neutral from overweight, saying in a note to clients on Wednesday that the decision raised questions about the company's leadership. "We downgrade to Neutral because ex-Home we no longer see upside to shares. Also, management's abrupt strategic shift leaves us questioning the long-term strategy. Execution may be a problem. Minimum there are 1-2 quarters of restructuring and retooling ahead," the note said. Shares of Zillow were down more than 19% in premarket trading to about $70 per share. Evercore and Piper Sandler cut their price targets on the stock to $89 per share and $78 per share, respectively. JMP Securities and Truist also downgraded Zillow to market perform and hold, respectively. -CNBC's Michael Bloom contributed to this report.
The Zillow app on a mobile phone arranged in Dobbs Ferry, New York, U.S., on Saturday, May 1, 2021.
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