Zillow’s stock shrieks following move into mortgages

Bank of America Merrill Lynch issues "neutral" rating

As Ben Lane reported on Monday, real estate giant Zillow is getting into the mortgage business, and judging by the stock's rocky movement on Tuesday, investors were a little uncomfortable with the news.

To quickly recap: In order to power its expansion into mortgages, Zillow is buying Mortgage Lenders of America, a national mortgage lender based in Overland Park, Kansas. Zillow explained the acquisition will allow the company to “streamline and shorten the home-buying process for consumers who purchase homes through Zillow Offers.”

The company’s stock took a dive upon news of the move into mortgages, closing at $49.40, a drop of 16%, on Tuesday.

Additionally, Bank of America Merrill Lynch downgraded Zillow shares, lowering its rating from “buy” to “neutral,” citing increasing concerns over its business model shift to home selling and mortgage lending, according an article by CNBC.

From the article: 

The integration of that business poses a risk for 2019 results at a time when Zillow is already under pressure, analyst Nat Schindler said in a note to clients. "The quarter revealed challenges for multiple business segments that limit our optimism on FY19 upside," he said.

Appearing on CNBC’s Squawk Box on Tuesday, CEO Spencer Rascoff defended the company’s move into the mortgage space.

"It allows us to monetize the Zillow Offers business a second way," he told the network. "First, we can make money from buying and selling. Second, we can make money from mortgage origination. Third, we can make money by passing the homeseller, who doesn't want to sell their home to us, off to a premier agent."

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