Nov 3 (Reuters) - Shares of Zillow Group Inc were set to open at over a 14-month low on Wednesday, as analysts expressed shock over the online real-estate firm's move to exit its business of buying and selling homes due to unpredictable home prices, three years after it was expected to disrupt the real estate market.
Zillow's Class A shares were down 14.1% at $73.39 premarket.
Volatility in home prices in the past few months have hurt Zillow's ability to forecast prices accurately, it said on Tuesday. The company concluded that "continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility."
For example, U.S. median home prices rose 18.4% in July, 14.9% in August before accelerating 18.7% in September.
"Our aim was to become a market maker, not a market risk taker," Zillow co-founder and top boss Rich Barton said in a letter to shareholders.
At least half of the brokerages covering the Seattle, Washington-based company cut their price targets on Wednesday following the news.
"A Shocking End to an Ambitious Project," said Wedbush analyst Ygal Arounian, who also called the move "a tremendous setback" for a business that was solely focused on disrupting the residential real estate. Arounian cuts price target on the stock by $19 to $67.
Brokerage Piper Sandler said though the move indicates that the company will return to its roots as an asset-light model, it is a major strategic shift and raises questions about the company's future direction.
Piper Sandler cut its rating on Zillow to ‘neutral' from ‘overweight' and cut the price target by $39.
After announcing its exit from the business of buying and selling homes, Zillow, which operates the popular home valuation model ‘Zestimates', said it would now focus on helping customers sell homes on its platform. (Reporting by Abhijith Ganapavaram and Tapanjana Rudra in Bengaluru; Editing by Shailesh Kuber)