Zillow was good because they were growing and that caused people to pile into the stock. Now that they've captured the real estate market, they still aren't making money. That's a bad sign. What's worse is their agent churn....as they've crammed more agents into zip codes they tolerated it because the rapid growth offset it. Now they are pretty much tapped out, their existing agents are fleeing, so they can't cram any more into already saturated zip codes. They might save some cash not having to out-advertise Trulia now, but Trulia has the same issue, they are tapped out and not making money.
The largest thing they need to be scared of is brokers pulling their listing information. It's happening in a few pockets of the country, and if it gains momentum not only does it erode areas where Zillow has paying customers, but it leads to a bigger problem all around as it makes Zillow irrelevant, as the consumer will figure out where the data is and then just move onto the next site that has it.
Sentiment: Strong Sell
Man, it is way overpriced, but who knows when a good time to short would be. Don't forget that Greenspan said the market was irrationally exuberant, but back in '96.
I have been in real estate for almost 30 years as an owner/broker and now working for Sotheby's. No one "buys" advertising on zillow other than new agents who have no base. It takes information that anyone can get from realtor.com or numerous other sources and then tries to lure buyers so they can "sell" their buyer referrals to agents. Most legitimate buyers come from referrals- those that come from zillow are not trustworthy. Take your money and run.
I'd like to agree that Zillow can become Ad Central for Housing..Rentals..even Commercial Builders and Architects, etc. BUT the days of General Electric, Radio Corporation, Amalgamated Motors, etc. are past. This is the age of fads: Twitch,Crunch, Botch, Gulp, etc. Zillow is in the end another fad stock in generic Construction. Maybe it should rename to Zoogle.
Ariel- that is a great analysis. Well thought out. I agree with most of it but you hit on a key point for future growth when you stated "perhaps Z can find other sources of revenue". That is what I think will happen. Everyone assumes that it's only realtors/financiers who want to reach Zillows audience. I don't think that is true by a long shot. Anyone associated with the building process or remodeling will also want to reach them. This is one of the largest sectors of our economy. It's where the moneys at so companies will follow with their desire to tap into this market. I am confident they will use their technology to reach other consumers in the future and open up other revenue streams. For instance, if I had a remodeling company, it would make sense to advertise to anyone searching for new or used homes in my vicinity. These are people who will update or customize the home after purchase. Anyone offering remodeling supplies should also be interested in advertising their wares.
I don't see a slow bleed. The institutional investors will ride this out knowing they have sucked in so many short sellers. They can make it quite painful for this group. It will move with the overall market. I would like to buy some shares back under $125.
You guys sit back and wait for your ship to come in. I agree Zillow is no Amazon. I made that comparison in response to Zillow losing money. Amazon is still in the red after many years but are building the infrastructure to dominate in the future. Enough said.
Facebook has a moat to prevent entry? Really? Tell that to MySpace and countless other social networks that have come and gone. Facebook owns nothing just like Zillow. All content is supplied by users. But yet, Facebook flourishes! Imagine that. Trulia was the second largest site by user count. Where did you come up with the idea they were failing? It was a very good site that did pretty much the exact same thing as Zillow. This was a smart move by Zillow. They can now quash any little startups that come along.
Zillow is not a site used for getting estimates of your home value. Their new Zestimate sucks and is inaccurate. But they are a wonderful tool for doing research prior to starting a home search or to sell your own home. That's it but it has tremendous value as a time saver.
You guys both seem to have a bone to pick with Zillow.You comment as if they offer no viable product. Tell that to the millions of users who visit daily. Is it overvalued? Time will tell but it appears that the market has spoken and shorts are on the wrong side of the equation.
I've read many posts here comparing Z to TSLA, FB and even GOOG. It's worth focusing on how Z earns its revenue. It sells advertising to real estate brokers. (Yes, it also has a fledgling mortgage referral business that contributes about 2-3% of revenues). Last year the total amount of commission earned by all residential real estate brokers was about $60 billion or 6% of $1 trillion in residential sales. How much did the Brokers plow back into marketing? The estimates vary greatly, but according to Spencer Rascoff, Z's CEO, that number was $10 billion. Bear in mind that's TOTAL marketing - not online advertising. Z keeps stressing that its combined revenue with Trulia represents only 4% of total dollars spent by brokers on marketing. They need to keep hammering that point hoping that antitrust regulators will ignore the real question - What % of ONLINE advertising will the company control? Some estimates are that Z/TRLA will control as much as 80 % of broker online advertising spend. This leads me to the critical conclusion that the combined Z+TRLA prospects for future growth are limited because they will have already captured most of the addressable market. The addressable market can grow organically if brokers spend more but I think that is unlikely given that interest rates are likely to climb. The addressable market can also grow if brokers shift more of their marketing dollars to online advertising. This is plausible, but this shift will occur incrementally and is unlikely to occur at Z's growth rate to date. Perhaps Z can find other sources of revenue, but Rascoff has nixed the idea of Z getting into the brokerage business. Once the merger closes (Or should I say, if the merger closes) comps will become very hard and this stock will come down to reality. But don't expect Z to fall hard and fast. Too much institutional money. More likely it will be a long slow bleed as investors slowly realize that Z is a nice little company but no TSLA, FB or GOOG.
I'm not short Z... I've got a series of puts on them, and even if they go to the moon, I'm not out that much. That said, your comparisons don't hold water. AMZN has huge investments in distribution centers, massively complex commerce systems, the most commonly used cloud platform, etc. They own something. Facebook has something close to a billion users ever day. 3/4 of online adults use it. I hate Facebook, personally, but damn if I don't use it, anyway, to talk to Aunt Fanny.
In both cases, there are huge barriers to entry. Huge. Zillow? Essentially none. They use public data to create real estate data sheets. They have, realistically, a few 10s of millions of users, most of whom are just looking at what Zillow thinks their house is worth at the moment. They don't issue loans. They don't build houses. They are basically the modern day equivalent of the people who put the realtor's face on the bus stop bench.
Buying market share from a failing competitor? Smooth. If you're Starbucks, do you go across the street and buy Ma-n-Pa's coffee shop? Walmart pays for all the dying hometown Goldman's Menswears? They're doing it because they couldn't lose money fast enough without Trulia? They have the same advertisers. Trulia was already on their way out. What operational efficiencies could an internet business have that would justify such a thing?
I'll give them this, it's been brilliantly played. The stock shot up, they've sold boatloads, and everyone wins, right? Except they don't. When this turns, it'll turn hard, and all that magically appearing money will go away. That will happen. If you think this is anything like Apple, Facebook, or even Netflix, you're deluding yourself.
The only issue with your thesis is that Zillow is no dominant, does not own anything and any big competitor like Google can kill them in one day. Yes, one day. Can google kill FB? AMZN? NFLX ? No.
Zillow does not own any listing, no loyalty of customers. Google comes and say that all realtors can have free listings and all realtors simply move to Google site.
No one will ever buy Zillow because they can build better than Zillow in 2 months. They can buy Move for much less and just kill Zillow if they want. And remember big techs are not in sales, they dont run call centres and call every single relator to buy marketing packages ... Zillow model is not scalable.
New push to enter digital space by PLWY gets momentum after management announces a new rev share deal with AppRocket Studio. Traders flex their muscle as the stock looks to break .60 a share
It's amazing how "short" sighted you shorts are. They lose money? So? How much money is Amazon making? What's that? They aren't? But, aren't they the MAMMOTH GORILLA that EVERYONE turns to when they want buy something online?
Zillow buys their leading competitor? Have you ever heard of buying market share? Didn't think so.
You mention Facebook. A company that lost tons of money until they got to a position of dominance and now they are reaping the benefits. Sound familiar? Could it be Zillow is using the same game plan?
Seriously, you guys got caught with your "shorts" down and are now nitpicking , Zillow is the leading player in one of the most important sectors of our economy. You can whine all you want but companies are lining up to advertise their services on the site and reach all of these potential customers whether they are on their laptop, cellphone or iPad. Or maybe all of them at once. Who cares how they are being counted. The fact is they are using the site. At some point they will reach critical mass just like Facebook and others before them and the profits will roll in.
You guys need to take a serious look at your short positions before this runs away like Netflix or Amazon. I repeat, this is going to be scooped up by one on the big tech titans and then you are all going to be "locked" in to your losses.
Most here will agree that Zillow has a ridiculous evaluation but when is a good time to short and make some money? This stock has fooled many but when will it collapse? I bet people are dumb enough to buy this stock once the deal with Trulia gets approved.
Let's compare Zillow to another company with similar revenue but the other company is PROFITABLE.
I'm not saying that Zillow should be a 320M market cap stock but $6 billion is absurd.
market cap: $6 Billion
Qtr Sales of $78.7 million
diluted non-GAAP net loss per share was -$0.05
Qtr Sales: $72.5 million
diluted non-GAAP per share was +$0.13
OK, just to be clear... Zillow, which loses money, has no path to profitability because of their marketing expenses to acquire viewers (even when it lies about them), is farting around wasting time and diluting shareholders by acquiring a direct competitor that ALSO loses money and has near complete overlap in revenue (so they'll lose more), and is basically a thing that people use to look at what their house might possibly be worth, just out of curiosity...
Is the same as Apple, which makes unfathomable profits, and Facebook, which is used, essentially, by everyone everywhere every day (and also makes bucketloads of money).
So, from all that, you get that it makes sense that this real estate advertising niche company is reasonably valued at nearly six billion dollars? Sure. OK. That's fair.
Sentiment: Strong Sell
I have been commenting for some time about Zillow including duplicate Users in its Unique User count. But when the CEO claims a First Amendment Right as justification for publishing inaccurate Zestimates on homes then nothing surprises me regarding the accuracy of any statement he makes.
I recently posted the following comment on seeking alpha regarding Zillows Unique Users
"Zillows 80 million Monthly Unique Users is a myth with the 'real' number for June being 46 million according to ComScore. The reason for the difference is that Zillow counts Users accessing with multiple devices as different Users."
Back in January this year when Zillow reported 69.9M Unique Users which was a staggering increase of 34% over the December UU number and I was surprised no Analyst didn't ask Zillow to clarify what drove this increase, or if they have changed the methodology for counting Unique Users. It seems that smooth talking Spencer Rascoff has had an easy ride with Analysts who never ask 'real' meaningful questions on what is really happening at Zillow. Too much hype and puffery
Oh my goodness I hope so. I really ought to put the rest of my money into shorting it but this market doesn't make any sense to me at all. I was right about Lululemon tanking but man, I had to hold my short for over two years. I really don't want to stay short in this thing for that long.
Take your pills. Get a second job. Don't short on margin. Move on.
That is the same lame argument that can be made about ANY SITE. You can question Facebook, Apple or any other site. It's all relative. Who cares? They are THE LARGEST real estate site around. They have the greatest reach of any player in the industry so they are going to get the most advertising dollars. That's it.
That's pure rubbish. How do you know where the "stops" are? I'd bet there are more shorts teetering on financial ruin if this stays in the $140's much longer then longs who are sitting on major profits and can afford to ride out the ups and downs.