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Zillow’s withdrawal from iBuying will weaken its second place in the industry, but its absence will likely be short-lived, analysts say.

The market sanctioned Zillow’s action and rewarded that of its main competitor, market leader Opendoor, after Zillow’s Monday announcement that it would stop buying homes under its Zillow offering program for the rest of the year because it is operating with an inventory backlog.

Zillow management cited the challenges of operating in an “economy limited by labor and supply within a competitive real estate market”. But that rationale leaves several unknowns, analysts said. While investors see quarterly home sales figures, they don’t have much information on how Zillow or its competitors decide which homes to buy, or how they source labor and materials. for renovations.

Zillow, Opendoor, and other iBuyers such as Offerpad and Redfin allow customers to request instant offers for their homes. The iBuyer then buys the property, renovates it and puts it back for sale, with the aim of making a profit on the fly.

Home prices in the United States have broken records this year, but investors are wondering if Zillow, with its in-depth data resource, could see warning signs others are not seeing, White said, analyst at DA Davidson & Co., who rates Zillow to “buy.”

“The big debate for this group over the past few months has been how does this business model behave when house prices do more than just go up, up, up? “

Zillow’s announcement ahead of its third quarter results is likely an attempt to “control the narrative,” said Jason Helfstein, an analyst at Oppenheimer, who rates Zillow as “performing.”

Opendoor, Offerpad and Redfin don’t seem to face the same challenges when it comes to finding labor and materials for renovations and closing sales, he said.

Indeed, Offerpad announced shortly after Zillow’s statement that it would soon be launching in California for the first time.

“Offerpad continues to operate as usual on our iBuyer side and with our other Offerpad offerings,” a company spokesperson said in an email. “There is no slowdown here.”

Opendoor, meanwhile, is “open for business and continues to develop and grow,” the company said.

Opendoor and Offerpad are pure-play businesses and have been in the iBuying business for a few years longer than Zillow, which entered in 2018. But Zillow’s estimated 34% market share is now lower than Opendoor’s 48%, Helfstein said.

Zillow bought 3,805 homes in the second quarter, a record for the company and more than double its first quarter number, and sold 2,086 homes. Opendoor bought 8,494 homes and sold 3,481.

Many Zillow investors were betting on the company’s continued success in the high-growth iBuying market, which at the start of the business seemed to depend on its borrowing capacity, Helfstein said.

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“In a higher interest rate environment, this could be the case,” said Helfstein, who cited Zillow’s “very healthy” balance sheet. “But in today’s environment, where money is basically free, it seems the growth limiter is your ground game – your ability to renovate these homes quickly and cheaply.”

Zillow’s temporary withdrawal represents a “runtime error” and a “lost opportunity” for the company, but it is an issue that can be resolved, said Evercore ISI analyst Mark Mahaney.

Mahaney, who rates Zillow as “outperforming,” still enjoys the company’s core advertising business and the opportunities offered by its dominant residential real estate platform. iBuying was a natural strategic hub for Zillow, and he expects the company to reorganize the business by early 2022.

“It’s better to stop something because you can’t meet the demand than to stop something because there is no demand,” Mahaney said. “Maybe that point was lost yesterday.”

After taking a 10 percent hit on Monday, Zillow’s stock price rebounded 4 percent on Tuesday, closing at $ 88.86.

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