So much for CEO Spencer Rascoffs $8.4M TV Ad campaign over the summer when Zillows Unique User numbers slump from 63.7M in August to 58.4M in September. The genie is out the bottle as people find inaccurate and useless data on Zillow causes nothing but chaos and confusion when searching for homes. The infamous Zestimate accuracy problem with 17% of Zestimates more than 25% incorrect is just the tip of the iceberg, as its 'stale' listings that waste so much valuable time for home seekers that cause most frustration. Even if the User numbers are adjusted for 1 fewer day in September the numbers are down by 5.3% month on month. The Zillow stellar PE Ratio is unworthy of such a lousy performance and the stock deserves to fall substantially as a consequence. Z stock price has fallen 20% in the last few weeks and with this news it deserves to fall a lot further.
Am I surprised by the massive drop in User Numbers? NO - when YouTube hits for the Zillow TV Ad are 54,000 in the same period as Geicos 'Hump Day" Ad gets 15 million hits, it demonstrates the total lack of any consumer connectivity with Zillow. Also when the CEO says he spends up to 2 hours a day walking on a treadmill in the Zillow HQ, has a dedicated computer for his meaningless Twitter postings, and takes non executive directorships with Trip Advisor, Julep Beauty Inc and Zulily Inc, then it is clear he has lost focus on the day job and the slump in user numbers reflects these distractions.
Full Disclosure: I am a Zillow cynic who takes issue with Zillow imposing nonsense Zestimates on private property and refusing ALL reasonable requests by the homeowner to correct or delete these erroneous valuations, even though Zillow accepts that 17% of 100 million Zestimates are more than 25% inaccurate.
Will Zillows Unique Users improve in October after the disastrous slump in September? The interesting question from Alexa Rankings is that 2.7% of visitors to Zillows website are located in India and Pakistan where Zillow has no presence. Obviously no revenue is generated by these 1.6 million visitors and it begs a number of questions about the validity of these users.
Well the answer was a resounding NO as Unique Users continued to fall a further 2% in October to 58.1M. The only thing that has increased is the number of Users located in India and Pakistan which rose to 3% or 1.8M. Fascinating that Zillow delayed announcing the October bad news until the day after the history making social media earnings call moderated by The Motley Fool. You would think that Analysts would call out Zillow CEO Spencer Rascoff on this matter, particularly when it was obvious that the $8.4M TV Ad campaign failed miserably as the September and October User number demonstrate.
With the news that September existing homes sales fell by 1.9% that doesn't bode well for Zillow for the rest of the year as the market enters its 'quiet phase'. It will be interesting if Zillows monthly uinique users recover any growth, or stagnate in the 4th quarter. Difficult to see how they will maintain revenue growth in this market and the stock must surely drop despite Pacific Crest's advice to buy Z ahead of 3rd quarter earnings.
internet traffic to real estate sites always drops in September, and will bounce back in January. Happens every year. That does not mean that Z is way over priced still -- it is. This stock is very vulnerable to competitors and the next disruptor. I'd sell if I still owned any!
Sentiment: Strong Sell
The big question of course is how the slump in September Unique User numbers reflects in 3rd Quarter Revenue with lower revenue growth than previously projected, or if this is more a 4th quarter issue as Display Ad revues drop relative to the lower user base. Zillow has invested heavily in real estate and Sales & Marketing and if revenues drop then there is a straight bottom line hit.