Why Zillow Stock Dropped Today

Shares of Zillow Group (NASDAQ: ZG) (NASDAQ: Z) fell on Monday following reports that Alphabet was entering the online real estate arena.

By the close of trading, Zillow's stock price was down roughly 8% after falling nearly 13% earlier in the day.

Image source: Getty Images.

A new competitive threat

Google is reportedly adding home sale listings directly to its search results in select markets.

The tech titan appears to be testing demand for the new features, which include property details and the ability to contact a real estate agent and request home tours.

These services also happen to be some of the key features of Zillow's digital property platform.

Near-term concerns, long-term worries

The short-term impact on Zillow's business is likely to be muted, as most of its web traffic is direct rather than search-derived.

Yet therein lies Zillow's dilemma.

If Google rolls out its new real estate informational services to more markets and people get used to seeing this data in their search results, they may have less incentive to visit Zillow's sites.

And if Zillow is forced to pay ad fees to show its listings in Google's search results, its marketing costs could skyrocket.

Neither option is appealing to Zillow's investors, and many of them decided to sell their shares today.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Zillow Group. The Motley Fool has a disclosure policy.