Why Zillow Stock Dropped Today
Key Points
Zillow's rentals and mortgages businesses are growing quickly.
Yet a projected earnings shortfall drove many investors to sell.
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Shares of Zillow Group (NASDAQ: ZG)(NASDAQ: Z) sank on Wednesday after the real estate marketplace said legal costs would be a drag on its earnings in 2026.
By the close of trading, Zillow's stock price was down roughly 17%.
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Zillow's ancillary businesses are performing well
Zillow's revenue rose 18% year over year to $654 million in the fourth quarter. The gains were fueled by a 45% jump in the company's rental revenue, to $168 million, and a 39% increase in mortgage revenue to $57 million.
"Consumers are increasingly choosing Zillow to help them move from discovery to transacting," CEO Jeremy Wacksman and CFO Jeremy Hofmann said in a letter to shareholders.
Zillow's profitability also improved. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 33% to $149 million.
Legal costs could weigh on earnings in 2026
Investors, however, appeared to focus more on Zillow's guidance. Management expects revenue of $700 million to $710 million in the first quarter, with adjusted EBITDA of $160 million to $175 million. That was below Wall Street's expectations, which had called for adjusted EBITDA of about $184 million.
Zillow said legal expenses related to several ongoing lawsuits are likely to reduce its adjusted EBITDA margin by 2 percentage points in the first quarter.
"We are confident in our positions and approach, and we do not expect these matters to have a material impact on our financial position or long-term strategy," Wacksman and Hofmann said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.
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