Zillow shares are getting crushed. Here’s why

Zillow shares plunged more than 9% on Monday on worries that the online real estate platform could have a big new competitor: Google Search.

Google appears to be running tests on putting real estate sale listings into its search results. Over the weekend, real estate tech strategist Mike DelPrete published mobile phone screenshots of Google Search results showing real estate listings, which appeared to be powered by real estate data company “HouseCanary.”

The listings allowed users to view the full details of a property’s page, request a tour and contact an agent — similar to the functions offered on Zillow.com’s online marketplace portal. Google’s home searches appear to work only in select markets and on mobile devices as testing is underway.

The decline in Zillow signals investors are bracing for the eventual impact of Google’s foray into the real estate market. The stock was down at least 11% at one point during Monday’s session.

However, Wall Street analysts were quick to point out that Zillow’s exposure to organic search is fairly small, limiting potential downside at least in the near term as more details around 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 shifting from organic to paid” — given that Zillow is not overly dependent on organic search results for traffic.

“The listings product appears similar to Google Hotel Metasearch results; introduction could increase traffic cost to Zillow, but disintermediation unlikely,” Brondolo said in a Monday note to clients. “In the hotel category, Google merchandises 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 for home listing ad units rather than Google attempting to monetize directly with an ad product sold to agents.”

But some analysts see Google’s testing as a longer-term headwind to 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 said are an advertising format for buy-side agents, directly compete with Zillow’s Premier Agent program by “facilitating lead generation” for agents from prospective buyers.

“While we don’t expect a direct near-term impact on Zillow’s business, given that most of Zillow’s traffic is direct (e.g., Zillow.com, StreetEasy.com, mobile apps) and Google’s new product is currently limited to select markets and mobile browsers, we view this development as a long-term risk for real estate portals like Zillow,” Ng, who remains neutral on Zillow, wrote in a note to clients.

Jason Helfstein of Oppenheimer said that Google’s expansion into real estate could impact the number of consumers going to Zillow.com — which was 228 million in the third quarter — and therefore could take a hit on the company’s ability to monetize its platform. “The impact would likely take years to play out and would need to be rolled out across the US to meaningfully impact real estate portal traffic,” Helfstein said in a recent note, to be sure.

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

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