Zillow announced that it will start flipping homes in Phoenix and Las Vegas and that it is expanding its Instant Offers service, according to a company release. When Zillow purchases a home, it will aim to quickly flip the home, making updates and repairs and listing it as soon as possible. An agent will represent Zillow in each transaction, explained the company.
Zillow’s announcement prompted Morgan Stanley to downgrade its investment rating on Zillow stock, raising concerns about the risks associated with this type of business venture. “We appreciate the option value but see it as lower quality and riskier,” wrote the investment firm in a research report covered by MarketWatch. The firm noted that the new business venture has “emboldened” short sellers, or those betting that the stock will decline, because of the lower margins associated with the new business.
Morgan Stanley analyst Jonathan Lanterman downgraded Zillow shares to equal weight from overweight and lowered the firm’s price target to $50 from $55, warning that 2018 will be volatile. With a price target of $50 per share, the Wall Street firm expects the stock to gain around 6% this year. With the prior target, the firm had expected a 17% rise in the share price.