Research Group Slams Zillow: It’s Not Just the Ridiculous Valuation – it’s the Ridiculous Business Model
Your Edge...or Over the Edge?!
It's the company agents love to hate. Their Zestimates can have up to 20% margin of error, but that's not overtly explained to consumers. So, of course we realtors have to clean up their mess when sellers and buyers get confused by Zillow's inept values. Now, Citron Research has come out with a scathing report that clocks Zillow.com. Apparently their business model is bonkers. Read below!
From Citron Research:
When it comes to investing in Web 2.0 , the stampede is on – everybody wants a part of the Next Big Thing. The rewards have been great for companies like LinkedIn. But the risks of investing in anything less are devastating. The market has been unforgiving in punishing disappointers, as seen in recent collapses in Facebook, Groupon, Zynga Netflix and Pandora.
So what determines the difference?
Investible Web 2.0 companies have all of these critical success factors:
1) A new and disruptive way to use internet technology to meet a real market need
2) Exponential revenue growth driven by viral buzz, solidly founded on genuine customer loyalty
3) Soaring revenues free of heavy expense models – not dependent on overhead-heavy sales department headcounts
4) Revenue transparency throughout the complete business model
Zillow (NASDAQ:Z) has had an incredible run, doubling since January based on the hope it will become a Next Big Thing.
But Citron sees more than just shadows of doubt here – Zillow utterly failseach of the four points above. While management glibly talks the Web 2.0 game, Citron sees major red flags in every one of the four criteria above.
Zillow is one of the few IPO success stories this year. They went public mid-July and finally hit profitability for the first time in Q2. How this will improve Zestimates remains to be seen. In real estate circles, Zestimates are known to be fairly accurate or totally off the wall. On a small link on their site, you can find their median error %. Some areas are respectably within 4-5%, but other areas are off up to 38%!
Zillow can be a great tool to get a ballpark guesstimate of a property's value, but take it with a grain of salt. It works best in tract homes or cookie-cutter communities. It's dubious in areas that have a lot of property diversity & older homes, like is most urban cities.
A fancy algorithm just can not take into account intangible factors that affect value like view, curb appeal, layout, schools, and so forth. I'm just sayin'!
Should you trust Zillow.com?
Admit it, everyone has checked out their home's value (or your ex-spouse's house, if you are nosy like me) on real estate valuation sites like Zillow.com. But is it a good substitute for a real appraisal? Hmmmm....
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