Citron's Top 10 Reasons Why Zillow Will Trade Below $40 Within A Year
In a report issued Friday, Citron Research looked into Zillow Group Inc (NASDAQ: Z), a company of which the firm has been skeptical for some time now. After three years of “no real profits to show and endless amounts of insider selling, plus round after round of lowered guidance, Citron believes that this sucker is finally ready to break, as the company has run out of tricks and finally has to show profits.”
However, they ask, how low will the stock go?
The firm suggests $40 is a “fair starting point.”
Below are the firm's top 10 reasons why Zillow is going to trade under $40 in the next year.
1. “Zillow is a lead generation company for real estate agents and mortgage brokers.” As such, it will ultimately trade at an adequate valuation. For instance, TrueCar Inc (NASDAQ: TRUE) currently trades at roughly 2.5 times its revenue, and Bankrate Inc (NYSE: RATE) at about 2x. Zillow, however, trades at 4x 2015 revenue.
2. “In what Citron believes is the ‘jump-the-shark’ moment... the CEO wants investors to view the company” in terms of decades, instead of years or quarters.
3. Despite wanting investors to be patient, CEO Spencer Rascoff got rid of all of his Zillow stock. The chief executive sold almost $14 million in stock over the past year.
4. After 9 years of service, CFO Chad Cohen resigned.
5. “The company is net losing customers.”
6. At the current share price, no one would acquire the company. In fact, the recent Yelp Inc (NYSE: YELP) “No Sale” validates this point.
7. “Zillow has been unable to make a real profit in one of the largest real estate booms in history --with less competition than it faces now. Besides promises, management has never discussed HOW the business will improve in the future.”
8. Analysts have been losing credibility on this name for years.
9. Competition is only getting substantially stronger. “Just go to any real estate conference – Realtors know that Zillow is sooo 1.0. Not to mention --Murdoch!” the experts add.
10. “Zillow has been forced to cut deals with national real estate brand operators for ‘listing protection.’ These have cut deeply into the amount of inventory (ad space on listings) available to sell. Needless to say, a good part of their quality inventory is unavailable for sale, which lowers ROI on what is left. This trend is self-perpetuating. Less inventory = less leads. Blocked Inventory = lower quality leads.”
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