Cathie Wood bought the dip in Zillow as it plummeted after throwing in the towel on its house-flipping business

• Zillow stock is down as much as 28% this week as it reels from the failure of its home-flipping business.
• The online real estate company reported disappointed earnings and said it plans to take a $304 million writedown related to its iBuying Service.
• But Cathie Wood's Ark Invest is buying the dip with a nearly 300,000-share purchase on Tuesday.

Zillow stock fell 10% on Tuesday and is down another 14% on Wednesday after the company reels from its failure in buying and quickly flipping homes for a profit. But fund manager Cathie Wood sees an opportunity.

The online real-estate listing company announced third-quarter results on Tuesday that missed analyst estimates and included a $304 million writedown related to its housing inventory. The company is now officially ending its iBuying home service.

"We've determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility," CEO Rich Barton said.

As Zillow stock tumbled, Wood's flagship ARK Innovation ETF bought the dip on Tuesday by adding nearly 300,000 shares.

While that share purchase is already under water based on Wednesday's pre-market decline, it signals that Ark is sticking with the company as its home-flipping troubles have been apparent for a while now.

Zillow waded into buying physical homes, fixing them up, and then reselling them in 2018. But according to the company, a global pandemic made it nearly impossible for it to predict home price movements in the short-term.

And despite home prices surging to record highs, Zillow was still unable to sell its housing inventory for a consistent profit. Instead, it often bought a home, invested a few thousand dollars for cosmetic touch-ups, and then quickly listed the house for a loss.

Zillow's wind-down of its home-flipping business is expected to take several quarters as it sells the rest of its housing inventory, and will result in the company reducing its workforce by about 25%.

Barton told CNBC on Tuesday the company is not in "fire sale" mode to get rid of its housing inventory, but is "in a hurry" to get them ready for sale.

Investors shouldn't take Zillow's failure in flipping homes as a sign that the housing market is nearing a top, he said, adding that the fundamentals of the housing market remain "quite strong."

Zillow stock is down nearly 30% this week alone, and has plunged 42% year-to-date.