Stock market success is different than long term business success. It is the ability to convince Wall Street that you will eventually have business success. This is more easily done when Wall Street is flush with cash that it NEEDS to invest, as it has been for the last few years. Zillow has done far better at stock market success than most everyone imagined. Noone that I am aware of two years ago predicted a valuation of the company at $5.8 billion.
But here is the conundrum of stock market success: There comes a time when carefully crafted Quarterly reports, each timed with the latest acquisition, must be met with the reality.
Zillow is not profitable. Period. I have tried to point this out several different ways. There is no better way than this one. Using Generally Accepted Accounting Principles they lost 26 cents per share this past quarter and 41 cents per share for the year. And I understand that they did it by CHOICE. For now.
Zillow’s path to Stock Market success was to convince Wall Street that they had a strategy to take over online real estate.
First they went to everyone and said we want your listings data to put on our site. To secure this data (which supposedly had little value 🙂 ) they spent millions. In many cases they pitted the industry against itsself. It went something like this:
To the Franchisors: Let us have the data and then you can charge your agents for it, turning THEIR data into a profit center on YOUR bottomline.
To selected brokers: Pay us a little and we will give you special exposure that will be exclusive to you.
To other brokerages: Well you can get “similar” stuff, but they danced around the exclusivity that they had sold.
To MLSs – Same premise as Franchisors, except they enlisted Agents to insist that MLSs and brokers provide their listings to Zillow
To Teams – They originally treated them the same as agents, but as the teams invested in their leads, they ratcheted up the costs and lured them with special stuff that the smaller players and payers could not get.
So everyone is betting on Zillow liking THEM the best and (essentially) screwing over the “other guy”.
That cannot happen. Somebody HAS to be the screw-ee in this relationship. There HAS to be a deep pocket that comes up with the money for Zillow to repay the Wall St crowd that WILL come calling. And they are STILL not profitable.
Sooner or later, they HAVE to choose which of these entities they are going to side with for REAL and which they are going to compete with. (Truth is that they compete with Agents, Teams, Brokerages, Franchisors, AND MLSs, but noone in this industry seems prepared to admit it to themselves.) When they choose sides, they are COUNTING on the fact that the side that they choose to take out of the equation will feel that they have NO ability to respond.
Brokers are looking and each other and saying what do I do?
Teams are saying the same thing.
MLSs are as well.
And franchisors are offering their weak acceptance of the reality that Wall Street has chosen Zillow (unprofitable) over REMAX (profitable) by a whopping 5.8 Billion to 330 million. That’s right, the street thinks that Zillow is worth roughly 18 times what REMAX is worth. Dave Liniger once called them “interlopers”, now he kisses up to them. Why? $5.8 Billion reasons.
So why does Zillow have to worry? Because the conundrum is that now they HAVE to pick winners and losers. They have done all of the clever Quarterly statements that they can to disguise their lack of profitability. There are no more Trulias out there left to buy. We are at terminus. It is soon approaching put up or shut up time and they HAVE to jack up rates on SOMEBODY.
They can no longer cut the deals that they used to with franchisors to have them pillage the industry to line their own pockets. Someobdy has to lose and they have to choose soon so that they do not become the loser themselves. If Wall Street senses hesitance at all on their part or lack of ability, the stock will drop and drop fast.
The must pick and winner and take on the rest or they become a loser. If I was a TEAM with only syndicated leads as a source of business, I would be concerned right now. Same for a brokerage with out a strategy.
Those are my thoughts. What are yours?