Zillow Was Just Downgraded For This Reason

Bank of America has downgraded shares of Zillow, an online database real estate company, citing a “greater risk” to profits from added mortgage lending.

Bank of America Merrill Lynch has lowered its rating from “buy” to “neutral” on the stock. Analyst Nat Schindler explained that the company’s recent plan to acquire Mortgage Lenders of America could hurt the company’s fiscal 2019 profits

Zillow’s big move into mortgage lending may hurt its profitability next year, said the firm.

Shares of the stock fell nearly 20% on Tuesday, a day after the company reported second quarter results. Revenue at $325 million was slightly below the $326 million expected.

The company also announced that it intends to acquire Mortgage Lenders of America during the release.

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

The analyst also lowered his price target on shares from $70 to $60.

Disclaimer: We have no position in Zillow Group Inc Class A (NASDAQ: ZG) and have not been compensated for this article.