Citron Research Slams Zillow
Citron Research released a scathing report on real estate marketplace Zillow (NASDAQ: Z), scolding the company for being far overvalued and a poor investment. In the report, Citron stated, “The unvarnished truth is that the willowy story Zillow has been telling Wall Street is a completely inconsistent with company's underlying business metrics. Meanwhile corporate and insider actions reveal a completely different agenda.”
The research firm went on to say that not only was Zillow's valuation ridiculous, but its business model was ridiculous as well. The report stated that while other companies offered “very expensive stocks” with a great product that customers loved, Zillow does not possess that and is operating in a hotly contested market.
Zillow's small market niche of real estate agents was also highlighted, showing a troubled limit to the company's market cap. In addition, it was brought to light that Zillow does not use any high tech and scaleable method of signing on real estate agents, but rather cold calls them each individually. This process brought further scathing comments from Citron, which stated that Zillow is “a web 1.0 business presenting itself as a web 2.0 investment”.
Citron continued to bash the Zillow model by showing the company's sales spending against revenue; it spent $3.8 million on sales, while only generating $4.8 million in revenue. It contrasted this figure with OpenTable's (NASDAQ: OPEN) model of spending 21 percent of revenue on sales, and LinkedIn's (NYSE: LNKD) model of spending 33 percent of revenue on sales. Zillow was also scolded for providing only two profitable quarters since 2006, a troubling statistic for a company on the open market.
The company laid out four major attributes that a successful web 2.0 company must possess, which stated what it likes to see in tech companies. When it applied this list to Zillow, it said the company had failed to meet a single point. Needless to say, Citron does not believe Zillow is a Buy.
Shares of Zillow are currently trading down 2.84 percent at around $43.15.
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