{ "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": 11, "pageCount": 103, "prevPage": 10, "nextPage": 12, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 2, "notes": "The slide uses a red border to highlight critical risk areas.", "elementsJson": [ "headline_text", "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-74af5c9e9edb/11", "deckHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb#slide-11", "components": [ { "bbox": null, "kind": "callout", "text": "The single biggest risk factor for Zillow is employee malaise.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-3f42-76f3-adc6-e2f6e6393e5d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.45, "w": 0.96, "x": 0.02, "y": 0.33 }, "kind": "paragraph", "text": "Zillow’s mortgage business is part of the “Five Growth Pillars” which lost $214 million between 2020 and 2022. We do not know if the mortgage business lost more money in 2023 because Zillow stopped disclosing Operating Income/(Loss) by segment. In addition, Spruce Point’s research suggests Zillow is pushing cross-selling of mortgages onto its Flex partners, which increases business risk as it must comply with the Real Estate Settlement Procedures Act (“RESPA”).(1) By default, Zillow pre-checks the box “I want pre-approval information from Zillow Home Loans” or “I want financing information” which forces consumers to opt-out rather than opt-in. Spruce Point interviewed a legal expert familiar with the CFPB’s enforcement practices. According to the source, while Zillow may have some defenses that it complies with RESPA, the CFPB has been very interested in these digital “Dark Patterns” which default consumers into granting something they may not want. Because of tight existing relationships between agents and their local loan officers and limited product competitive advantages, we believe Zillow’s mortgage business will continue to struggle.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "390af5ee-4d35-4714-82ba-d3d7ebf714db", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "paragraph", "text": "Checks indicate CEO Rich Barton is a visionary without a deep bench of executives that can execute on these new strategies. In addition, Spruce Point believes Zillow’s fully remote work policy will only increase the likelihood of execution failures. The former Senior Executive opined, “The single biggest risk factor for Zillow is employee malaise.”", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3d54b0a3-d90e-4608-aadd-4511f3b29d0c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.96, "x": 0.02, "y": 0.79 }, "kind": "paragraph", "text": "If the Enhanced Markets ultimately fail, we believe it is going to be extremely difficult for Zillow to rebuild the relationships with the ~90% of former Premier Agents the program may alienate, therefore potentially impairing the business model that built Zillow. Even if Zillow can regain the lost MBP revenue, we believe the Company is back to a mature, slow growth business that should trade at a significant discount to current multiples.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f9a6b682-b8ed-4148-8817-cc9bbbdda092", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "“The single biggest risk factor for Zillow is employee malaise.” — Former Senior Executive", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-3f42-76f3-adc6-e5a4bbc75675", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.15, "x": 0.02, "y": 0.94 }, "kind": "source-note", "text": "(1) CFPB investigation.", "attrs": { "numbered": true }, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "16a4272b-be3b-41cb-bd5f-33e34d388cb0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.38, "x": 0.31, "y": 0.04 }, "kind": "title", "text": "Executive Summary (Cont'd)", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "61ba735a-fb0e-48c8-8311-b2ff2e354c03", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "cddd90f7-e8b2-46f0-b652-70ab368ef850", "evidence": "More details on Zillow's mortgage business and the risks associated with its new strategies.", "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 }