Zillow Cuts 500 Jobs as Wall Street Abandons Its Growth Story

Zillow reported some of its strongest top-line numbers in years on August 5, then watched two Wall Street firms walk away the next morning.

<cite index="20-10">Revenue for the quarter rose 18% year-over-year to $772 million, beating the consensus estimate of $757.91 million.</cite> Adjusted EPS came in at $0.52 against an analyst estimate of $0.45. That should have been a clean beat. It wasn't read that way.

<cite index="19-5">A $36 million restructuring charge from layoffs announced alongside the earnings pushed the company to a $4 million net loss.</cite> More to the point, the forward numbers disappointed. <cite index="17-10,17-11">Zillow's guidance for the second half of 2026 showed the Residential segment expected to post no year-over-year growth in the third quarter. The company attributed the weakness to revenue shifting from Residential to Mortgage, timing lags on Mortgage revenue recognition versus mortgage-backed securities, and increasing business seasonality.</cite>

<cite index="21-9,21-10,21-11">Zillow is cutting more than 500 jobs even as it reports some of its strongest revenue growth in years. The apparent contradiction became clearer on the company's earnings call on August 5: Zillow is lowering its fixed costs as it accelerates a major transition.</cite> That transition is the company's move toward a Preferred agent model, which routes buyers to a smaller pool of agents who pay for the privilege. The theory is higher revenue per transaction. The risk, as Bernstein and Evercore ISI both flagged, is that the model is being tested in a housing market that's already weak.

<cite index="21-5,21-6">Evercore ISI analyst Mark Mahaney downgraded Zillow to "In Line" from "Outperform" and cut his price target to $40 from $80. Evercore described Zillow's second-half outlook as "notably soft" and pointed to the monetization pivot, weakening fundamentals, and the continuing weakness of the housing market, according to analyst notes reviewed by TheStreet.</cite>

<cite index="21-3,21-4">Bernstein also downgraded Zillow to "Market Perform" from "Outperform" and cut its price target to $38 from $50, saying it had "lost conviction" in its fundamental thesis following the results, citing private-listing disputes, potential competitive pressure from Google, lawsuits, and elevated interest rates.</cite>

<cite index="18-1">Zillow's shares slid more than 12% in late morning trading</cite> on August 6, the day the downgrades landed. That move put the stock roughly in the range of both new targets before the session closed.

The structural problem both firms are circling is the same one. <cite index="21-7,21-8">The downgrades highlight the tension underlying the layoffs: Zillow's new model may eventually generate more revenue and profit per transaction, but the company is accelerating the transition at a time when fewer Americans can afford to buy homes.</cite> That's a timing bet, not a thesis.

<cite index="20-3">Cost cuts still support 26% fiscal 2026 EBITDA margins at the midpoint, up 200 basis points year-over-year,</cite> which is something. But margin expansion funded by layoffs during a housing slump is a different story than margin expansion funded by volume. <cite index="17-9">Third-quarter revenue growth is projected to slow to approximately 11% year-over-year, with full-year guidance suggesting 8% to 9% growth in the fourth quarter at the midpoint.</cite> That deceleration from 18% to single digits in two quarters is the number investors are holding.

Citi kept its Buy rating but <cite index="19-2">lowered its price target on Zillow to $52 from $68</cite> after the report. That leaves the bull case at a modest premium to the newly cut neutral targets, which is not much room for the company to prove the model works before the next earnings test.

Zillow didn't respond to a request for comment by publication time.

Sources cited:
- TheStreet (https://www.thestreet.com/employment/zillow-cuts-7-percent-workforce-despite-growth)
- Investing.com (Evercore ISI note) (https://ca.investing.com/news/stock-market-news/evercore-isi-cuts-zillow-stock-rating-on-monetization-shift-93CH-4780281)
- Investing.com (Bernstein note) (https://ca.investing.com/news/stock-market-news/bernstein-downgrades-zillow-stock-rating-on-revenue-concerns-93CH-4780402)
- CNBC Markets (https://www.cnbc.com/2026/08/05/stock-market-today-live-updates.html)
- Stock Analysis (ZG) (https://stockanalysis.com/stocks/zg/)