Housing Market Trends Spark Warning Sign for Zillow: Investor

Spruce Point Capital Management, a New York-based investment firm, says that the real estate platform Zillow’s business is saturated and faces competition that will put pressure on the company’s growth going forward.

The challenges that Spruce Point believes Zillow is facing presents a risk to the company’s share price to potentially decline by 40 percent to 60 percent, to between $23 and $35 per share. Part of those issues include a business model that relies on web traffic, which, Spruce Point says, is declining and hurting revenues.

“Zillow is the go-to website/app for residential real estate search but our research indicates its core revenue model is saturated in selected markets meaning all the
desirable zip codes across the U.S. are sold out and there is very little interest shown by agents for the less desirable ones,” it said in its report.

The investment firm also claimed that Zillow is facing competition from other emerging platforms, like Homes.com, that could dilute its presence in the online real estate marketplace.

“For the first time, we believe Zillow will face a well capitalized competitor in Homes.com,” Spruce Point said in its report. “We believe Homes.com will continue to take visitor share from Zillow, which will ultimately cause further pressure for the Premier Agent business.”

Another key challenge to Zillow’s future business, Spruce Point says, comes from legal actions alleging that real estate agents may have been inflating their commissions. Those legal challenges could lead to less revenue for agents, which in turn could lead to eventually less earnings for Zillow, according to the investment firm.

Zillow did not respond to Newsweek‘s request for comment when contacted via email on Wednesday.

In February, however, the company reported a 9 percent jump in revenue on a yearly basis, amounting to $474 million for the fourth quarter of 2023. For the year, revenue was down slightly, by 1 percent, to $1.9 billion.

“We reported great revenue numbers across the whole of our increasingly diversified and growing business,” Rich Barton, Zillow co-founder and CEO, said in a statement. “This is evidence of the progress we’re making to transform the way people buy, sell, finance and rent homes by continually adding more functionality, software and services to Zillow’s housing super app.”

For the first quarter of 2024, the company said in a letter to shareholders that it forecast revenue of $495 million to $510 million.

On Wednesday, the company’s share price closed up more than 3 percent, to $56.21 at the close of trading, according to Google Finance, with a market value of nearly $13 billion.