Zillow Group, Inc. (NASDAQ:Z) stock traded sharply lower Thursday after the real estate technology company reported weaker-than-expected third-quarter results and lowered its full-year revenue outlook.
Needham analyst Bernie McTernan reiterated a Hold rating on Zillow and cut earnings estimates, citing worsening housing market conditions and rising mortgage rates.
Needham Warns of Mounting Housing Market Pressure
McTernan said macroeconomic headwinds were worse than expected, prompting further reductions to his forecasts.
Mortgage rates climbed 100 basis points during the third quarter, reaching the mid-7% range at their peak.
The analyst described the increase as a two-standard-deviation move, highlighting the severity of the shift.
Needham now expects the housing market to decline 12.5% in the fourth quarter, compared with its previous forecast of an 8.5% decline.
The firm lowered its 2026 adjusted EBITDA estimate to $494.1 million from $730.1 million. It also reduced its 2027 forecast to $751 million from $893.4 million.
McTernan said Zillow’s third-quarter adjusted EBITDA fell 7% below Needham’s expectations due to weaker revenue and margins.
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Zillow’s Business Transition Offers Long-Term Potential
Despite the near-term challenges, Needham remains optimistic about Zillow’s transition from its Market-Based Pricing model to its Preferred model.
Zillow expects 75% of customer connections to move through Preferred by year-end. The company aims to complete the transition by the end of the first quarter or early in the second quarter of 2027.
Needham believes the shift could improve revenue generated per connection.
However, the transition also increases Zillow’s exposure to seasonal housing market fluctuations.
The analyst said falling earnings estimates make it difficult to determine whether expectations have reached a bottom, despite the stock’s inexpensive valuation.
Zillow Misses Earnings Estimates, Cuts Outlook
Zillow reported third-quarter adjusted earnings of 55 cents per share, missing Wall Street’s estimate of 67 cents.
Revenue rose 7% year over year to $724 million, below the $773.04 million consensus estimate.
Residential revenue declined 4%, while mortgage revenue increased 32% and rentals revenue climbed 26%.
Zillow expects fourth-quarter revenue of $635 million to $665 million, below the $740.76 million estimate.
The company also lowered its 2026 revenue forecast to $2.84 billion to $2.87 billion from its previous range of $2.92 billion to $2.96 billion.
Z Price Action: Zillow Group shares were down 9.38% at $30.72 at the time of publication on Thursday, according to Benzinga Pro data.
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