Investment Research report

Zillow Group, Inc.

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Zillow Group, Inc.
Zillow's Sinking Foundation
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Research Overview

S&P 500
Real Estate
Mar 5, 2024

After conducting a forensic review of Zillow, an operator of real estate-related websites and mobile applications, Spruce Point believes Zillow’s core business has matured and new growth initiatives will come with significant near-term and long-term headwinds which will likely ultimately curtail its diversification and growth efforts. Based on our investigation, we estimate a 40% to 60% downside risk, or $23.00 -$35.00 per share.

The report highlights several key concerns with the Company, including:

  • Zillow's core business model is under pressure from declining web traffic and growing industry litigation and regulatory risks that are poised to disrupt the real estate commission structure
  • Evidence of additional business pressures against Zillow from – now owned by the CoStar group – which represents an underappreciated threat to Zillow’s market positio
  • We believe Zillow uses various aggressive accounting and financial policies that can enable premature revenue recognition and margin enhancement
  • Questions regarding Zillow’s governance, including Board entrenchment, the lack of a formal clawback policy, and compensation schemes devoid of firm financial targets

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