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Zillow exec to Wall Street: We aren’t flipping houses

Brian Sozzi
Editor-at-Large

Zillow wants to set the record straight after watching its stock slide since June amid a risky new push into buying and selling homes and offering mortgages.

“We aren’t flipping homes,” Zillow (Z) president Jeremy Wacksman said on Yahoo Finance’s Midday Movers show Tuesday. Wacksman leads Zillow Offers, which launched this year and has expanded to three markets in the U.S. (Phoenix, Las Vegas, Atlanta). Homeowners can now head to Zillow’s website, enter their address and quickly receive an all-cash offer from the company for their home. After making repairs on the home, Zillow then lists its for resale within a few weeks.

Wacksman said Zillow is simply trying to make it easier for increasingly digitally savvy consumers – and especially those used to doing everything online – to sell their homes.

But Wall Street continues to have its reservations about Zillow Offers and the company’s purchase of Mortgage Lenders of America. In fact, when Zillow announced the purchase of the national mortgage lender on Aug. 7 shares plunged about 20% on the session. To investors, Zillow is taking unnecessary risks by buying and selling homes and offering mortgages.

Zillow up to this point was primarily an online real estate listing service. The company recorded no sales from the new Zillow Offers line for the second quarter (ended June 30); it will report sales for the third quarter on its next earnings report. “We expect to record Homes revenue in future quarters as we close on the resale of homes we purchase,” the company said in its latest filing.

“While we continue to believe in the long-term opportunity for Zillow to leverage its brand, traffic, data, and resources to create efficiencies in the real estate marketplace, these results [second quarter] reflect the early-stage risk in the Instant Offers business, the challenges of a tight housing market, and the company’s need to move closer to the transaction longer term,” Goldman Sachs analyst Heath Terry cautioned in a note to clients Aug. 7.

Zillow’s founder and CEO Spencer Rascoff has tried to squash Wall Street’s worries as well. In an interview with Jen Rogers at Yahoo Finance’s All Markets Summit in September, Rascoff likened the business model shift to Netflix’s decision years ago to enter original content. While the choice was unpopular on Wall Street at the time because of the costs associated with it, the move has since been proven correct by way of greater business for the streaming media giant.

Rascoff acknowledged the business model shift is a “bold” move that is “not without risk.”

Wall Street would agree on both accounts.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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