Zillow shares are getting crushed. Here’s why

Zillow Shares tumbled more than 9% on Monday on concerns that the online real estate platform may have a major new rival: Google Search.

Google appears to be running tests to include real estate sale listings in search results. Over the weekend, real estate tech strategist Mike DelPrete published mobile phone screenshots A list of Google Search results showing real estate listings that appear to be powered by real estate data company “HouseCanary”. Listings allowed users to view full details of a property’s page, request a tour, and contact an agent, similar to functionality offered on Zillow.com’s online market portal. While testing is ongoing, Google’s home searches appear to only work in certain markets and on mobile devices.

Zillow’s decline suggests investors are preparing for the ultimate impact of Google’s entry into the real estate market. The stock was down at least 11% at one point during Monday’s session.

But Wall Street analysts were quick to point out that Zillow’s exposure to organic search is quite small, limiting potential downside at least in the near term as more details about Google’s product come to light.

Wells Fargo analyst Alec Brondolo, who has an equal weight rating on Zillow, said he would “not expect a meaningful financial impact from listings on Google switching from organic to paid,” given that Zillow is not overly reliant on organic search results for traffic.

“The listing product appears to be similar to Google Hotel Metasearch results; promotion may increase the cost of traffic to Zillow, but it is unlikely the disintermediation will disappear,” Brondolo said in a note to clients Monday. “In the hotel category, Google sells hotel rooms in search results as a metasearch ad product for OTAs. We would expect a similar approach in real estate, with Zillow, Homes.com, Realtor.com, etc. bidding on home listing ad units, rather than Google trying to make money directly with an ad product sold to agents.”

But some analysts see Google’s tests as a long-term negative for Zillow and other online real estate portals.

Goldman Sachs’ Michael Ng wrote in a note to clients that he believes the search engine’s real estate listings, which he says are an advertising format for buy-side agents, compete directly with Zillow’s Premier Agent program by “facilitating lead generation” for agents from prospective buyers.

“Given that most of Zillow’s traffic is direct (e.g., Zillow.com, StreetEasy.com, mobile apps) and that Google’s new product is currently limited to certain markets and mobile browsers, we do not expect a direct impact on Zillow’s business in the short term, but we view this development as a long-term risk for real estate portals like Zillow,” Ng, who remains neutral on Zillow, said in a note to clients.

Oppenheimer’s Jason Helfstein said Google’s expansion into real estate could impact the number of consumers going to Zillow.com, which stood at 228 million in the third quarter, thus negatively impacting the company’s ability to monetize its platform. To be sure, “the impact will likely take years to emerge and will need to spread across the U.S. to meaningfully impact real estate portal traffic,” Helfstein said in a recent note.

Zillow shares are down more than 8% year to date.

Neither Google nor Zillow immediately responded to CNBC’s request for comment.