{ "docId": "019dd923-622c-750b-8b99-74af5c9e9edb", "docSlug": "de028a1085e6", "documentTitle": "Zillow Group, Inc. (Z)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-03-05 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 10, "pageCount": 103, "prevPage": 9, "nextPage": 11, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 5, "notes": "The slide uses a yellow background to highlight critical arguments against Zillow's business model.", "elementsJson": [ "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-74af5c9e9edb/10", "deckHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb#slide-10", "components": [ { "bbox": null, "kind": "callout", "text": "Spruce Point believes these efforts are a smokescreen to cover declining fundamentals in its core business and the potential significant earnings volatility by switching from MBP to purely Flex.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-70f3-714d-84bb-12a8cfe13f53", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.28, "w": 0.96, "x": 0.02, "y": 0.39 }, "kind": "paragraph", "text": "The Flex program takes time to set up in each market and we believe the conversion rate necessary to make the Flex model revenue accretive is difficult to achieve. Flex partners are required to use Zillow's CRM so Zillow should know exactly what the conversion rates are for each Flex partner and for the entire Enhanced Market. If the conversion rates were compelling, Spruce Point believes Zillow would be disclosing these metrics, but they are not. Again, Zillow stated they would update the number of customer transactions but have pulled back on that promise. The new 2024 investor presentation speaks to significant growth in customer transactions in the early test markets of Atlanta and Phoenix but have those markets been revenue accretive from the MBP model? Management has not disclosed this vital detail.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2f388a23-67e6-48d9-9124-d032d3a09bff", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.96, "x": 0.02, "y": 0.16 }, "kind": "paragraph", "text": "We believe that the best brokerage firms and agents do not need to rely on Zillow for buyer leads. It is also a very expensive proposition for agents to become Flex partners. Typically, real estate agents split ~50% of their commission with their brokerage firm. For example, on a $500k home the buyer agent would typically earn a 2.5% commission or $12,500. Zillow is now taking 35-40% of the commission, therefore, net to the agent after the brokerage firm split is ~$4,000. If the agent is part of a team there is another revenue share; the ~$4,000 commission shrinks even further.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "389c242a-5f32-4d35-a24f-0a6318550238", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.96, "x": 0.02, "y": 0.68 }, "kind": "paragraph", "text": "Spruce Point believes a very large part of the success to this strategy falls outside of Zillow's control unless it builds a large support team to train and partner with Flex agents to increase the conversion rates. This in turn could significantly increase Zillow's operating costs and the profitability of the Flex or Enhanced Market model.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "50a4f553-7928-4014-bb99-7e583cb21ef5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.8 }, "kind": "paragraph", "text": "Zillow is also pitching its Housing Super App or \"Five Growth Pillars\": financing, touring, seller solutions, enhancing partnerships, and integrating services. A former senior Zillow employee we spoke with called the Super App a glorified CRM and a former Zillow Senior Executive called it a bit of an eye roll or oversell. Spruce Point believes these efforts are a smokescreen to cover declining fundamentals in its core business and the potential significant earnings volatility by switching from MBP to purely Flex.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b1392ad4-1ade-45fc-925b-9ec4bd555584", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "A former senior Zillow employee we spoke with called the Super App a glorified CRM and a former Zillow Senior Executive called it a bit of an eye roll or oversell.", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-70f3-714d-84bb-15a3535fd6a4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.45, "x": 0.31, "y": 0.04 }, "kind": "title", "text": "Executive Summary (Cont'd)", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "53afef30-01f6-45e2-a2a9-4504f27c54a0", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "31b77fe6-a606-4da9-82e3-d35660f51c9b", "evidence": "Continues discussing Zillow's strategies and the challenges associated with them.", "confidence": 0.9 } ], "frameworks": [], "arcBeats": [ { "to": 20, "from": 6, "beatId": "41072135-1487-41b4-a046-fb8cc35f95b6", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Complication", "beatSlug": "complication", "evidence": "The document presents a series of complications, including Zillow's mature business model, litigation risks, and management concerns.", "position": 1, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }