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  "documentTitle": "Zillow Group, Inc. (Z)",
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  "presentationDate": "2024-03-05 00:00:00",
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  "notes": "This is a classic activist short thesis slide, focusing on 'broken promises' and 'aggressive accounting'.",
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      "text": "Zillow has a history of broken promises.",
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      "text": "downside risk: 40% To 60%",
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      "text": "After conducting a forensic review of Zillow Group, Inc. (NYSE: Z or “the Company”), Spruce Point believes Zillow’s core business model has been under pressure for years, new growth initiatives have largely failed and come with significant risk, and legal challenges to the existing real estate commission structure will only exacerbate Zillow’s predicament. On top of this, we believe Zillow uses wildly aggressive revenue recognition and expense policies that can be used to embellish revenues and earnings, which is alarming in context of Zillow’s CFO departing last year. Zillow’s auditor even added a new testing method for select Premier Agent revenue transactions, an area where the Company can book revenue simply by sending out leads which may never convert to cash. Our research indicates Zillow’s core business began to mature around 2018/19. Attempting to diversify its revenue stream, Zillow launched iBuying (“Zillow Offers”) – a home flipping business disaster that lost $881 million in 2021 – and the Flex model which we believe is still unproven and in its infancy after ~5 years.",
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      "text": "Zillow has a history of broken promises. When it acquired Trulia in 2014 in a $3.5 billion dollar deal, it projected combined company 2023E revenue and Adj. EBITDA would reach $5.6 and >$3.0 billion, respectively. Actual results came in at $1.9 billion and $391 million. In 2022, Zillow made outlandish 2025 estimates that included increasing revenue from $2.1 to $5 billion (24% annualized growth) by building a new revenue model and network of adjacent services that would enable it to grow its share of the real estate market total transaction value. Not surprising to us, Zillow recently retracted its $5 billion revenue target by 2025 but continues to project that Adj. EBITDA margins will grow from 20% to 45% but removed 2025 as the target date.",
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      "text": "Zillow’s 2022 investor presentation seemed to focus investors on the total number of customer transactions. In fact, its 2022 10-K said, “We estimate Zillow participated in approximately 360,000 customer transactions with both buyers and sellers in 2021, which is the first time we reported this metric. We anticipate providing this metric for 2022 in a future quarter.” Zillow has never updated its transaction figure, potentially because it ceased growing. Zillow’s 2024 presentation now seems to put the focus on its minuscule penetration rate of their total addressable market. Said better by CEO Rich Barton on the latest earnings call: “Oh, my, so much blue ocean.”",
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      "text": "“We estimate Zillow participated in approximately 360,000 customer transactions with both buyers and sellers in 2021, which is the first time we reported this metric. We anticipate providing this metric for 2022 in a future quarter.” — Zillow 2022 10-K; “Oh, my, so much blue ocean.” — CEO Rich Barton",
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      "kind": "title",
      "text": "Spruce Point Is Short Zillow Group, Inc. (Nasdaq: Z), Sees 40% To 60% Downside Risk",
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