Zillow Offers drives revenue beat, but mortgage segment loses money

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Zillow Group reported third-quarter revenue that beat estimates as growing sales in its online marketing and home-flipping businesses sent shares higher in late trading. It also had increased mortgage revenue but the business recorded a pretax loss.

Shares jumped as much as 13% on Nov. 7 after the company posted revenue of $745 million, exceeding the average analyst estimate of $718 million.

Zillow is juggling big changes to its business model, using advertising sales to fund a push into buying and selling homes. It sold 1,211 homes in the third quarter, generating $385 million in its Homes segment, up from just $11 million in the same period last year.

The rapid growth of Zillow Offers, the algorithm-driven spin on home-flipping, has come with mounting losses. The company reported a net loss of $65 million, with the results weighed down by the new business. Still, investors appeared willing to focus on revenue growth in the quarter.

"The great thing about Zillow is that we have this core business that is extremely profitable," Chief Executive Officer Rich Barton said in an interview. "That money has been fueling our really rapid growth into Zillow Offers."

Premier Agent, the company's online marketing business, generated $241 million in revenue for the quarter and has stabilized after unpopular changes led to an agent revolt last year.

Zillow's mortgage banking business also reported a pretax loss for the third quarter although revenue was up 37% over the prior year. Zillow Home Loans, formerly Mortgage Lenders of America, was acquired last October.

The mortgages segment had revenue of $25.3 million, up from $18.4 million one year prior. But the segment lost $12.3 million for the quarter, compared with a pretax loss of $623,000 in the third quarter last year. In the first nine months of the year, the mortgage segment had a pretax loss of $32.3 million.

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