I’ve gotten more than one request from readers to discuss the brutal analysis report on Zillow by Citron Research. I didn’t think I’d have much to add to a stock analyst’s report that tends to be heavy on financial metrics and such, but it turns out that the Citron Research report is indeed worth reading. And opining about. Seeing as how I don’t own any Zillow, haven’t shorted Zillow — or anyone else, and no one is paying me for this post… you may value my thoughts at what you’ve paid for them.
Fundamentally, Citron’s report isn’t an attack solely on Zillow; it’s an attack on the entire business model of Zillow, Trulia, Realtor.com, and everyone else in the “aggregation” business:
We can all agree the internet is not a new technology. Internet-generated leads to realtors have been getting sold for close to 15 years. Zillow itself has been around for seven years. If, after seven years and hundreds of millions of dollars of Wall Street’s money, all it has generated is a $100 million revenue run rate, why should the future be exponentially better than the past—especially with a plethora of well capitalized competition? That Zillow has captured a whopping 1% of real estate ad spend after seven years, definitively reveals a history of rejection of their model by their core market. This is not a broken business model; it is a business model that has never worked. (Emphasis in original.)
I think that’s going a step too far, and ignores some of the real simmering fault lines bubbling under the surface in the real estate industry. Since Citron isn’t new to covering the real estate technology business (“yes, we are veterans in this space”), I would have thought they’d be more aware of those fault lines. If they’re not, I invite them to subscribe to this here blog, since I often discuss them.