An analysis at Seeking Alpha takes a look at the all time highs posted by Zillow and says now is the time to sell. Here is a link to it. They list a number of reasons why. Zillow’s current valuation is for over 4 BILLION dollars. In my estimation that is beyond stupid and due for the biggest of corrections. I have documented this is the past.
What struck me as interesting though is that Wall Street is FINALLY picking up on the REALTOR fatigue with Zillow’s premier agent program. They are FINALLY seeing what those of us in the industry have seen for the last couple of years:
1) Zillow has increased revenues by using MASSIVE marketing on REALTORS. Endless phone calls that cost the company almost as much to make as they produce in revenue…and annoy the CRAP out of REALTORS…
2) REALTORS are jumping out of the Zip codes because they are not working. At least not cost effectively to justify the expense that Zillow is charging. This is especially true where you have newly marketed people who sign up and then bail out.
HALLELUYAH. Finally Wall Street is sensing the unsustainable nature of Zillow that we have been documenting! About dang time in my estimation. What was once pushed aside as “industry angst” is now taken seriously. Or at least starting to be.
Here are the important quotes from the Seeking Alpha sell analysis:
“Though Zillow refuses to disclose churn (bizarre, to say the least), Zillow’s soaring marketing costs (+120% in 2013 vs. just 69% revenue growth) suggest it is very high. SA contributor Srinivasan Selvan estimates it to be nearly 38%. This is evidence of Zillow’s weak value proposition to agents, and will make it very difficult for Zillow to achieve a high level of profitability, as marketing costs are likely to remain elevated. This will also present a growth headwind (must add many new agents to replace those which are leaving).”
EXACTLY. Wall Street is starting to get the picture.
Seeking Alpha has an interesting way of estimating Zillow’s “churn rate” (for REALTORS – this is the rate that people use Zillow’s services and get leads, but then leave the service…Wall Street GETS the fact that there are only so many REALTORS and that Zillow is running out of time and people). Read their methodology, real estate industry friends. I find it to be pretty solid. Would love your thoughts.
So to sum it up. Seeking alpha puts the churn rate for REALTORS at Zillow at 38%. I think that is LOW. Way low. (This is based on my own observations and conversations in the industry.) My methodology has no scientific merit. It is just my point of view. Of course if the Seeking Alpha guys were off at all and Zillows churn were LOWER, you would think that Zillow would ACTUALLY TOUT THEIR CHURN RATE. They have not.
They need to. It is time (in my opinion) for a company valued at 4.2 BILLION and losing profitability to be TRANSPARENT about the true picture of their business. Of course that is just my opinion.
It is time for Churn Rate Transparency in my estimation.
What is yours?