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- Zillow stock fell 5% on Tuesday following the memo from short seller Spruce Point.
- The company said legal and business headwinds could cause its stock price to fall by up to 60%.
- Spruce Point also raised questions about the governance of online real estate listing companies.
Zillow shares closed down about 5% on Tuesday following a report from short seller Spruce Point Management.
Spruce Point’s stock price has fallen after the company released a report detailing what it believes could be a material decline in the real estate listing site’s stock price as a result of changes in the industry and challenges to the company’s business model. The stock closed at $54.49, down 4.97% from Monday’s closing price of $57.34.
Spruce Point said it has a “strong sell opinion” on Zillow stock because it believes the company’s core business is mature and industry and legal headwinds pose risks in the long term. Ta. Zillow will also struggle to adjust its existing real estate commission structure, and recent growth efforts have been “mostly unsuccessful,” the report said.
The company believes there is an estimated 40% to 60% downside risk to Zillow stock, which would push the stock price between $23 and $35 per share, down from its current price of about $53.
“Key metrics indicate that Zillow is experiencing a rapid decline in web traffic, the foundation of its premier agent business,” Spruce Point said in its report. “Zillow has seen a sharp slowdown in both site visitors and unique users. Additionally, Premier Agent revenue per visit, Zillow’s measure of its ability to monetize traffic, has remained roughly flat since 2016. is.”
Meanwhile, legal challenges to real estate brokerage fees in the form of antitrust lawsuits are a headwind for the business, the company said.
The company also said it believes Zillow is masking its revenue and profits with a “very aggressive revenue recognition and expense policy,” which is concerning given that the company’s CFO resigned last year. He said it was an appropriate development.
Zillow did not immediately respond to Business Insider’s request for comment.
When it comes to legal hurdles, Zillow, like other real estate brokerages, is weathering several lawsuits that threaten to change the way agents are compensated, but Spruce Point says this will have a “drastic” impact on commissions. We believe that this is a factor that may give rise to
“We believe the outcome of these lawsuits could ultimately lead to significant reductions in advertising costs by buyer agents and commissions paid to Zillow via Flex,” Spruce Point argued. .
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