Will Zillow’s New Stripes Cause Stock to Decline

by Victor Lund on February 3, 2016

WAV Group does a lot of work on Wall Street. We work with leading analysts to deliver research and insights from Main Street about what is happening behind company shareholder reports. Z is making some significant strategic changes and it will be very interesting to see how the market reacts. It may be poiszillowed for incredible growth or the slide the stock has experienced may continue.

Media Company vs. a Product Company

Zillow Group® has been traditionally valued as a media company. Purchasing product companies like DotLoop change that. Expunging MarketLeader™ after buying DotLoop is asymmetrical. Marketing tools like MarketLeader™ are aligned with media companies supporting their clients. Do transaction tools? DotLoop is kind of like the Wall Street Journal purchasing an eCommerce company for its advertisers.

The signal that the DotLoop purchase signaled to agents and brokers is that they plan to compete with the services normally offered by MLSs, Associations, or Brokerages. We look forward to watching the market react. So far, our clients are looking to create separation from DotLoop and companies like Instanet, ZipLogix, and DocuSign are filling in. The REESIO purchase by Move has not shown to be material yet. All of the balls are in the air. Where they fall will be interesting to observe.

Sell to Agents vs. Selling to Brokers

Last year, our research to the investor community was to look carefully at inventory. In what I believe is a good strategic move for Z, they changed up their broker and franchise program. They listened. Brokers want their brand and their listing agent clearly displayed on their listings. For brokers, that is now free today. There is one caveat – the listing broker and agent are not exclusive. If you want exclusive representation, you pay. And, you do not pay by listing, you pay by Zip Code. In some markets this has led to major price increases for brokers who were buying exclusive listings.

The move pacified some brokers, but it had the benefit opening up Premier Agent inventory. Now, Zillow has a lot of new inventory to sell to Agents. Zillow now has an opportunity to gain many more dollars per listing than they ever did with the broker exclusive program. If they execute effectively and agents open their wallets, they have a good opportunity for driving revenue.

Revenue Could Go WAY UP

When you sell to the top 1000 brokerages and top 5 franchises in America, you can scoop up about 75% or 80% of the inventory. Ten sales people with a hundred clients each can do the heavy lifting. But those sales are at a discount, almost like wholesaling. That was Zillow and Trulia’s past. Now, Zillow and Trulia will be depending on revenue directly from the agents – 1.2 Million strong. It will be a much broader direct sales effort. Moreover, we have seen this story play out with every publisher that has come before them, and they brought in Errol Samuel who is a master at this strategy. It costs a lot of money to convert an agent to spend. It costs a lot of money and a lot of effectiveness to keep the agent paying. Customer churn is a key index. Greg Schwartz is also attacking the mortgage industry in great strides. They may hit home runs in both sectors.

Smart investors will be watching carefully to see how this plays out in the next few quarters.

Trulia Who?

The investors’ lawsuit alleged that Trulia directors breached their fiduciary duties in approving the stock-for-stock merger and the Delaware Court agrees!

http://www.bna.com/del-court-applies-n57982066712/

I listen to the media for signals; I do not watch the case play out in court. Zillow used investors to acquire Trulia and there is a lot of speculation about directors making a choice to enrich themselves over the benefits to shareholders. They gutted Trulia after the acquisition. Some call it streamlining. They lost a lot of good people and Trulia has begun to shrivel rather than grow. Perhaps they have a strategy for Trulia that is not apparent yet, but so far they are underperforming.

Reputation Management

WAV Group is doing research about Zillow Group’s reputation. We are in the process of creating a survey to fisurveynd out what a variety of personas think of Zillow Group. We intend to collect the attitudes of real estate brokers, real estate agents, industry leaders and consumers. We are going around the room to measure that delicate balance between friends and foes. Anecdotally, we know the answer – It depends on whom you ask. There are many personas that are raving fans. We plan to ask the tough questions. Do you think their value is fair for the price? Do you plan to renew. Would you rather seek an alternative? How does their value compare to Realtor.com or Homes.com?

If you want to participate in the research by sharing our survey with your agents and brokers, please contact jenna@wavgroup.com. You will get your survey responses back for your group along with the overall survey responses. It will allow you to benchmark attitudes for you to determine how you may be different or similar to the national survey. Although a survey sample of 100 would be statistically relevant, we want to do better. Our goal is to get over 10,000 responses. This means that we need to amass 100,000 or more agents and brokers and consumers to take the survey. Please Help!

 

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