The stock market is a funny place; sometimes you can be right and wrong at the same
time. Over the past two years, Citron Research has been critical of Zillow’s business
model. Zillow’s financial performance has repeatedly proven us right – generating
topline and bottom line misses and downward revisions. Yet the stock price has
proven us wrong: 40 to 140 in 18 months! …
http://www.citronresearch.com/wp-content/uploads/2014/06/Zil…
Rizzz,
Really good read, thanks for sharing.
As much as I try to puzzle it out, I simply do not understand the infatuation with Zillow. There are so many competitors, and they don’t provide a service that doesn’t exit elsewhere in other forms, often for free. Interesting how much they’ve spent on advertizing, and Craig’s list is in the same ballpark for realtor preference, without spending a dime.
I’m excited for the Auction.com IPO. They don’t compete with Z directly, but they will move in to that space for sure, and already have an established profitable revenue stream.
Slips.
That was one of the few Citron pieces I’ve read that really made sense.
Citron did call the shoddy China connection in TTS.
They talk about how Austin, TX shut Z out and that’s possible in other r e markets as well. The realtor groups aren’t going to just hand over their databases to Z they have their own proprietary websites.
Good read.
I am a Realtor in Phoenix. Most of the top producing agents despise Zillow. Mainly for what they have done with our own listings.
I pay for a professional photographer to come out to my clients home and shoot photos that are top notch quality. Zillow then takes my listing from the MLS (along with the photos) and puts it on their website…
MY LISTING is showing up with 3 different Realtors information on it. All 3 of these Realtors pay anywhere from $500-$2500 a month to be the preferred agent in a specific zip code, it all depends on the amount on impressions to buy…
The ONLY way I can be represented on MY OWN listings (up to 10) is if I join Zillow’s “Premier Agent” program. That costs $100 a month. That seems a little “not right” to me.
There are two ways to look at it:
Put yourself in the seller’s shoes… Do they want their home listed with the maximum marketing exposure possible? Yes. Would you as a Realtor pay $100 a month to get ALL the leads from your own listings from the #1 Real Estate website consumers go to? Yes. Would a Realtor spend $1200 a year to get potentially $10,000-$30,000 more a year in commission income? Yes. Etc…
Zillow is terrible for taking what’s mine and charging me to get my own buyer leads. The information is not as accurate as it should be. Zestimates makes everything worse.
I came to the realization that if I can’t beat them I should join them. If I don’t pay to be the Realtor shown on my own listings (all priced right with nice photos) then someone else is and they are taking all of my potential clients!
Hopefully this helps some of you understand the inner workings of Zillow and how they make their revenue.
-Nate
Was long Z at $24 and took the quick 2 month profit at $34 in January 2013 (STUPID!!!)
Nate,
The most telling thing for me is the subtext I get from your post. It doesn’t seem like you gleefully handed them money over, in order to use a great service. It sounds like you were strong armed, or had little choice, and did so begrudgingly.
I don’t see that as a sustainable business model. But that’s probably the reason I’m just posting on some forum, and not driving a multi-billion dollar business, I suspect. =)
The most telling thing for me is the subtext I get from your post. It doesn’t seem like you gleefully handed them money over, in order to use a great service. It sounds like you were strong armed, or had little choice, and did so begrudgingly.
This sounds a lot like Priceline.com and what it has been doing the travel industry. I wish I had invested in PCLN.
But that’s not what I really wanted to post about.
I just purchased a house, and like a lot of people, I used Zillow and Trulia to do my research. Even so, I still needed a real estate agent on my side to protect my interests and make recommendations.
But here’s the thing. I’m convinced that Zillow (and to a lesser extent, Trulia) is the one app that I will use forever and multiple times a week even if I’m tapped out of buying power now. Why is this? When I move from my area, I’m either going to rent or sell. So I’m planning my future, and one of the few ways I can do this is with Zillow. It allows me to constantly monitor the market in my current location, my future location, and my past locations because I still maintain a rental property in another location. I need to see how much I can expect in rental income by looking at how much others are renting for, either for my current rental property or when I move from this new house and determine whether to sell or rent. Also, it’s fun to browse through properties, look at the photographs and histories of the properties, and get ideas for my own residence.
The real estate market is similar to the stock market in the same way that if you wanted to monitor your stocks, you’d need to log into your brokerage website. I use Zillow in the same way. And I have to monitor my properties’ value because I have a finite amount of capital, so I always think about the pros and cons of selling and buying. Some of this is due to my job as I have to transfer every few years, but I only see the users for Zillow increasing each year, especially as the real estate market in the U.S. strengthens and people do more buying and selling in concert with the U.S. economy strengthening and allowing more people to transfer, move to set up new businesses, etc.
Carl
This sounds a lot like Priceline.com and what it has been doing the travel industry. I wish I had invested in PCLN.
I didn’t know that was how Priceline operates. I guess I’m personally more comfortable with corporations using leverage against other corporations, rather than the “little guy” (i.e. Realtors.).
In any event, I can’t imagine how a tiny miss step won’t result in a slip of the stock price for Z. With a Forward P/E of ~75, If a mouse farts at TSLA we see a 20% dip. Z is currently at a Forward P/E of 163.
Hi Nate. I’m a bit confused about the process and how much Zillow is hurting realtors like yourself. I’m not a realtor so I don’t know the nitty-gritty details, but the way I understand the process in the scenario you describe you would be the seller’s agent and entitled to half the commission no matter what agent represents the buyer. It’s even recommendeded that a buyer should have a different agent from the seller’s agent to avoid any conflict of interest. Is it more typical that you handle both sides?
I’m sure you’d like the have the entire commission, but when you list on MLS aren’t you essentially putting in the “public domain” for other agents to sell? The only thing I really see as a negative is that it would be good if Zillow would list the seller’s agent by default, either voluntarily or by some method of coersion by realtors. Maybe realtors should “suggest” that to Zillow or is there anyway their access to MLS listings could require that?
Am I missing something?
From the buyer’s perspective I find it difficult to imagine some online service like Zillow not being the first place to look. Nothing personal against realtors but the cost of having them in the process has always seemed excessive to me. I’m sure you have a VERY different opinion on that. 
Steve
I guess I’m personally more comfortable with corporations using leverage against other corporations, rather than the “little guy” (i.e. Realtors.).
I don’t believe that the realtors are the little guys in the same way as calling the car dealers little guys when they are trying to protect their turf against Tesla.
The little guy is me (the consumer). I don’t have much money, and I want what’s best for me and family. I feel that a lot of real estate agents were gauging the consumer by charging huge fees when they bought or sold properties. A lot of them provided little value to the consumer other than what they knew about the market, which was hidden from the consumer.
Please don’t misunderstand me. Many real estate agents provide huge value to the consumer. There are a lot of ways that they do this that Zillow cannot (at least at this time). I’d have been lost without my realtor.
But a lot of realtors did little work and collected huge fees. Sites like Zillow cut costs for the consumer. That saved money goes to the consumers (millions of people) rather than a select few (realtors).
Carl
I don’t believe that the realtors are the little guys in the same way as calling the car dealers little guys when they are trying to protect their turf against Tesla.
Don’t get me wrong, I don’t like middle men, either. I think your analogy is flawed though, in that I fail to see what value a dealer provides outside of a service center. Buying and selling a house, however, is far more involved than walking down to the car lot and saying “I want the blue one!”
Anyhow, I know a few realtors who are basically self employed, and don’t work on a big team, etc., and the Zillow costs would be coming out of their own pocket. That to me is a little guy.
If all of this data, the listings, is open and available to anyone, does that mean all Zillow has is a reputation?
Anyway, I hope Z keeps going all the way to the moon, honestly. I just want to understand why I see this as top heavy, while others do not. I’m here to learn!
Don’t get me wrong, I don’t like middle men, either. I think your analogy is flawed though, in that I fail to see what value a dealer provides outside of a service center. Buying and selling a house, however, is far more involved than walking down to the car lot and saying “I want the blue one!”
I don’t think my analogy is flawed, but I’m not trying to make it seem as if the analogy is totally applicable, either.
There are a lot more cases like Zillow, Priceline, and Tesla. These businesses have one great thing in common, even though they do it in different ways: they bring value to the consumer.
Maybe it’ll help if I describe Priceline. Did you know that hotel owners hate Priceline as well? Consumers use Priceline to see where they can get the best value. Hotels compete for our business, and if they don’t advertise on Priceline, they don’t get the consumers’ eyes and potentially fall behind their competitors. So a lot of them are forced to use Priceline’s services, and Priceline takes a cut of their business. But what is the result for the consumer? Now the consumer can shop around for the best value with little time and research, and when the hotels know the consumers are going to be armed with the information, they are forced to provide better value (either lower prices or better hotel services). Priceline and Zillow offer possibly the greatest benefit of all: transparency.
I hope I’m not sounding rude and insensitive. Probably the realtors and hotel owners hate what I have to say, but transparency is ultimately good for the market and for the country.
If all of this data, the listings, is open and available to anyone, does that mean all Zillow has is a reputation?
I feel Zillow is a great investment because if they have millions of users, they can use their site for things other than charging the realtors for advertising. Any business that wants advertising will want to use Zillow, and Zillow may start to offer other products as well, anything having to do with the process of buying or selling homes. Can Zillow someday become a one stop shop for buyers and sellers and totally cut out the realtors, attorneys, etc? Possibly. But this doesn’t have to be their end goal. Zillow just has to offer more and useful products like they have been doing for them to keep growing users and profits.
Carl
Wow this seems to be Yelp business model also. Giving power to the consumer, making business players invite Priceline, Yelp, and Zillow a seat at the table. Brilliant business models.
Yes, I agree with the Yelp analogy also.
However, I’ve heard stories that Yelp employs mafia tactics against the businesses. I’ve heard that Yelp will approach a business and solicit them to advertise on Yelp. If the business refuses, there start to be bad reviews on Yelp, or the good reviews of the business are taken down. If it’s true, that is not cool.
Carl
http://th217.photobucket.com/albums/cc35/ielbrand/th_orangat…
re: Z
FYI: Below are what the boyz and gurls are doing. Peruse at your leisure.
http://www.secform4.com/insider-trading/1334814.htm click on the persons name (insider) to go down deeper.
http://www.j3sg.com/Reports/Stock-Insider/xxxgen.php?tickerL…
http://www.j3sg.com/Reports/Stock-Insider/generate-Instituti…
Quillnpenn -
That Citron post is the most bearish thing I’ve read about any stock in forever. I’m not familiar with Citron. Are they always raging bears?
I’m not familiar with Citron. Are they always raging bears?
Chris, They are professional short sellers. Their method of operating is to sell a stock short, then once they have a large sold position, they put out a report, with some facts and lots of exaggerations and innuendos, to scare people and get the price to go down just long enough for them to buy back the shares they’ve shorted. That’s what they do, that’s their business.
Saul
For FAQ’s and Knowledgebase
for this board, please
go to Post #2176
They are professional short sellers. Their method of operating is to sell a stock short, then once they have a large sold position, they put out a report, with some facts and lots of exaggerations and innuendos, to scare people and get the price to go down just long enough for them to buy back the shares they’ve shorted. That’s what they do, that’s their business.
By the way, I just read the article, and it’s amazing how few actual facts there are in it. At least they did point out that they’ve thought Z was going down from the time it was $40, and now it’s at $140.
I thought it was overpriced at $29, and ELLI was also at $29, and I thought that ELLI was a better play on the real estate market. Boy, was I wrong! But I admitted to myself that I was wrong, and have been in and out of Z off and on since about $50.
On the other hand, I have no idea where they’ll go from here, but I wouldn’t bet against them by going short. No way!
Saul
For FAQ’s and Knowledgebase
for this board, please
go to Post #2176
Citron has been bashing Z for at least the last two years - this is at least the third short report I’ve seen them publish over that period.
I haven’t read this article, but I think the gist of their argument is that Z isn’t a Web 2.0 company because they rely on their salespeople to sell to more premiere agents, which means that they don’t have any operating leverage. Probably the dumbest argument I’ve ever heard - salespeople on a phone in Irvine, CA don’t convince realtors to advertise on Zillow - hundreds of millions of eyeballs visiting a website each month do that. Just like it will for rentals eventually, and probably home improvement with Digs.
I’ve found Citron’s bear thesis to be completely shortsighted and lacking fundamental understanding of the concept of the network effect.
Having said that, Z is currently valued at almost 25 times TTM revenue - that’s optimistic even for me and I’m as big of a Z bull as you’ll find.
For those new to the stock my suggestion is to be patient - the price will likely come back to you. I bought a couple of additional lots late last fall in the low 70s after it tumbled from the 90s after their 3q conference call for no logical reason. I doubt we’ll see 70s again but it wouldn’t surprise me in the least if we see 90s or low 100s - this stock goes everywhere!
My $.02
Jason
Long Z
Long Spencer Rascoff
And fully expecting them to one day be the dominant real estate website
In any event, I can’t imagine how a tiny miss step won’t result in a slip of the stock price for Z. With a Forward P/E of ~75, If a mouse farts at TSLA we see a 20% dip. Z is currently at a Forward P/E of 163.
Z is currently spending large amounts on advertising and sales to grow market share. I don’t know if that is factored in to forward PE or not, but it would be something to look at.
Jeb
Long Z
