{ "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": 14, "pageCount": 103, "prevPage": 13, "nextPage": 15, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 8, "notes": "The slide uses a red border to highlight the content as a critical summary of the activist thesis.", "elementsJson": [ "headline_text", "paragraph", "callout_box" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-74af5c9e9edb/14", "deckHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb#slide-14", "components": [ { "bbox": null, "kind": "callout", "text": "Spruce Point believes the voting control paired with exceptionally long tenured directors has effectively turned the Company's Board into a \"good old boys club\"; four of Zillow's seven independent directors have been on the Board since 2005.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-3f42-76f3-adc6-f8e3c0f793e4", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "revenue multiple: 6.2x", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-3f42-76f3-adc6-fed5e581091b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.42, "w": 0.94, "x": 0.03, "y": 0.55 }, "kind": "paragraph", "text": "We believe Zillow's share price offers a poor risk/reward given growing risks and repeated failures to execute on growth opportunities. We believe the market hasn't fully come to grips with the ramifications of the NAR/MLS lawsuits, which we expect will be a net negative for Zillow as real estate commissions compress thereby lowering the amount agents may be willing to spend on Zillow services. However, even if there is no impact from the lawsuits, we believe Zillow's core MBP model will continue to be pressured given its maturity. Spruce Point believes lower interest rates will not boost Premier Agent revenue in the near-term. If and when Flex/Enhanced Markets come online then that associated revenue will be more interest rate-driven. We believe none of Zillow's growth initiatives are likely to solve its business issues especially with growing pressure from Homes.com. We believe its Flex program, Enhanced Markets and the Super App will not provide the incremental growth necessary to support its ~6.2x revenue multiple. By retracting its $5 billion 2025 revenue target, Zillow effectively lowered its 2024 revenue forecast yet sell-side analysts collectively increased their consensus price target to $60.14 per share, implying 5% upside. Spruce Point believes there is a big disconnect and estimates 40% - 60% downside, or $23 - $35/share, based on 2.5x – 3.0x and 25x – 30x our estimate for 2024 sales and free cash flow. We expect Zillow to significantly underperform the real estate, software and technology indices.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "480dcfd8-b17e-4e35-ba23-0023dc8a45d0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.38, "w": 0.94, "x": 0.03, "y": 0.16 }, "kind": "paragraph", "text": "Spruce Point has serious concerns with Zillow's governance and shareholder alignment. Through ownership of the Company's 10-1 voting Class B shares, co-founders Rich Barton and Lloyd Fink have voting control. In the aftermath of the Zillow Offers disaster, ~$8 billion of shareholder value was destroyed and executives came away largely unscathed. In fact, executives received base salary increases and additional stock awards every year since 2016. Executive compensation is not tied to financial performance and Zillow does not have any formal clawback policy that would enable the Company to recoup compensation given to executives in the event of a financial restatement. Spruce Point believes the voting control paired with exceptionally long tenured directors has effectively turned the Company's Board into a \"good old boys club\"; four of Zillow's seven independent directors have been on the Board since 2005. On January 9, 2024, Zillow appointed William Gurley back to the Board after serving from 2005-2015. He currently serves on the Boards of Nextdoor Holdings (Nasdaq: KIND) and Stitch Fix (Nasdaq: SFIX), both technology companies that have destroyed value.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "65238c3b-2569-4697-9039-7411a0ac4f6d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.43, "x": 0.31, "y": 0.04 }, "kind": "title", "text": "Executive Summary (Cont'd)", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "24b75db1-5ad4-429f-a6aa-71177b3218de", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "5b385875-6f58-4c2d-a895-ac0ae2aba621", "evidence": "This slide is an executive summary, which is a common section in reports and presentations.", "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 }