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Zillow's labor shortage woes

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Yahoo Finance's Brian Sozzi, Brian Cheung, and Julie Hyman break down how Zillow is faring in Monday's market.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: Welcome back to "Yahoo Finance Live." Lots of hot tickers right now on the Yahoo Finance platform. Guys, let's start with Zillow here. The stock is really getting hammered here in the pre-market, and rightfully so. The company said it is pulling out of the initiative that they launched in 2018, Brian, to start buying their own homes. And really another disappointing development for Zillow, whose shares are down close to 30% this year. Not a good look.

BRIAN CHEUNG: Yeah, and for those that are familiar with Zillow-- a lot of people will be familiar with Zillow after stalking their coworkers' houses on the platform, but it's really a listing site, but Zillow Offers is really where they make a lot of money, right? This is the kind of useful advantage that they have, with all the data that they have on the platform, to be able to look at a home that someone wants to list and say, actually, we'll just buy that directly off of you and then flip it ourselves. So the Zillow Offers business, again, as you mentioned, launched only a few years ago, has become enormously profitable.

I want to read you this statistic that shows just how profitable. They had about $772 million in revenue in the second quarter. That made up 59% of the company's revenues. And the big story here that's developing is that, apparently, they say they're beyond operational capacity to buy any new homes through the remainder of 2021. And this is still despite the fact that we're a few months out from the New Year's Day.

So I think it's interesting because they're saying that it hasn't necessarily stopped their ability to sell homes that they already have in inventory, which means that they could still have revenue coming in pretty solid in the third-- rather, in the fourth quarter, but I think it does kind of underscore just how major this is for their business line. And this is happening despite the fact that their competitor, Opendoor, which sold almost-- actually, more than double the amount of homes in the second quarter compared to Zillow, they apparently are having no issues. So whatever supply chain or labor issues Zillow is facing is apparently not an industry-wide story. But I think that explains why the company, I guess to put in a technical term, is getting the business this morning. Down about 8% in the pre-market, guys.

JULIE HYMAN: Yeah, and just to sort of drill down a little bit into what exactly appears to be the problem on Zillow, according to reports out there, when you talk about labor issues, basically what Zillow has been doing has been flipping, right? It's been in the flipping business. And what it has done for people who are selling their homes is to provide a quicker source of liquidity. In other words, you put your home on the market, you don't know how long it's going to take to sell, whereas if Zillow comes in, it's telling you when it is going to sell.

And in fact, for many people selling to Zillow, will allow you to set your own closing date. Now, if you set your closing date six months from now and Zillow then needs to book contractors to paint your house, put new carpet in, put new flooring in, whatever needs to be done to cosmetically improve it, it's very difficult to predict-- to project labor out to that extent. Or even if you're closing today, as we all know, it's difficult to get the labor that people need today. So that appears to be at least part of the bottleneck issue for Zillow here. But to your point, investors definitely-- whatever the reason is, investors aren't happy about it.

BRIAN SOZZI: Brian, you're stalking where I live? Delayed response there. I mean, wow, that's pretty impressive.

[INTERPOSING VOICES]

BRIAN CHEUNG: I'm also looking up your [INAUDIBLE] on Kelley Blue Book, dude.

BRIAN SOZZI: Well, good thing I have that under the [? covers-- ?]

JULIE HYMAN: Wow.

BRIAN SOZZI: --so you can't get your eyes on it. But--