Zillow shares slide after Google emerges as potential threat
Zillow's (Z) shares fell as much as 11% during trading on Monday after concerns were raised about the online real estate platform potentially facing new competition from Google (GOOG).
Real estate tech strategist Mike Delprete shared mobile screenshots over the weekend showing what appears to be Google testing out a new product that includes real estate sales listing in search results.
"Sometimes a picture is worth a thousand words, and I think this might be one of those times," Delprete wrote, showing the screenshots of US real estate sales listings for homes in the cities of Denver, Chicago and Austin.
According to Delprete, the feature appears to currently be in the testing stage and that it's being run in a limited number of markets. It is also only available on mobile devices.
Nonetheless, this could end up creating a new headwind for companies like Zillow.
"Google putting for sale listings directly into search results — even if it's a test — is a big deal,” Delprete said. “The functionality includes full property detail pages, links to request a tour, and contact an agent — you know, the core business model of real estate portals.”
According to the screenshots, the listings are the result of a partnership between Google and ComeHome, which is part of the real estate platform House Canary.
A notice highlighted by Delprete points out that the listings are "a curated selection of properties" that were part of the paid partnership between the two companies and "not supplied or sponsored by listing agents or brokers."
"There are a lot of potential implications here, from the incumbent portals to exclusive listings to AI and international, but for now it's all speculation," Delprete wrote.
And while the implications of Google's entry into the real estate market are hypothetical at the moment, Goldman Sachs analysts, led by Michael Ng, flagged the development as a possible risk for Zillow going forward.
"While we don't expect a direct near-term impact on Zillow's business, given that most of Zillow's traffic is direct (e.g. Zillow.com, StreetEasy.com, mobile apps) and Google's new product is currently limited to select markets and mobile browsers, we view this development as a long-term risk for real estate portals like Zillow," Ng wrote in a note to clients on Monday.
Ng maintained his Neutral rating on Zillow's shares, while also reiterating a $78 price target.
Ng added that Google's product "directly competes with Zillow's Premier Agent program by facilitating lead generation for buy-side agents from prospective homebuyers."
However, Wells Fargo analyst Alec Brondolo sees less of a threat to Zillow's bottom line, noting that the company's business model is not heavily dependent on organic search results in order to generate traffic to its platform. That's why he doesn't “expect a meaningful financial impact from listings on Google shifting from organic to paid," Brondolo wrote in a client note.
In Zillow's latest earnings, the company reported $676 million in revenue for the third quarter, which beat Wall Street's expectations of $670.90 million for Q3.