{ "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": 8, "pageCount": 103, "prevPage": 7, "nextPage": 9, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 2, "notes": "The slide uses red text to highlight key negative impacts on Zillow's business model.", "elementsJson": [ "paragraph", "callout_box" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-74af5c9e9edb/8", "deckHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb#slide-8", "components": [ { "bbox": null, "kind": "callout", "text": "Early analysis indicates agent commissions could fall as much as 200bps and that the overall industry commission TAM could be reduced by as much as 30%.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-3f42-76f3-adc6-6f4795d0df93", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "commission TAM: 30%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-3f42-76f3-adc6-733aba25389b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.45, "w": 0.9, "x": 0.05, "y": 0.17 }, "kind": "paragraph", "text": "With the verdict, it appears likely that the NAR will no longer be able influence brokers to engage in cooperative compensation to participate in the MLS. In other words, home sellers would no longer be on the hook for paying both the listing and buyer agent commission, setting the stage for a situation where home buyers would have to contract with their agents directly, which may lead to agents offering lower rates to be competitive, reducing their revenue and in turn the amounts they are willing to spend on Zillow services. While the verdict is being appealed, our analysis indicates it is likely that the status quo real estate commission structure will be dismantled, causing buyer agent commissions to compress. Early analysis indicates agent commissions could fall as much as 200bps and that the overall industry commission TAM could be reduced by as much as 30%. Spruce Point believes this will have a dramatic impact to Zillow as two-thirds of Zillow’s revenue comes from its Premier Agent program, which has significant exposure to the advertising budgets of agents representing home buyers. Spruce Point agrees with management that these lawsuits will take years to settle but we believe any share gains in their diversification plan will be entirely offset by overall share losses in TTV related to commission compression.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "166cb77d-e787-4d32-a233-1cb1527de333", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.9, "x": 0.05, "y": 0.62 }, "kind": "paragraph", "text": "Zillow’s new growth initiative/diversification is Flex/Enhanced Markets and the Housing Super App strategy. Zillow Flex was introduced in 2018 as an alternative revenue model to its MBP model. In the current MBP model, buyer agents can either purchase ad space on Zillow home listings and/or pay for leads by zip code. We believe the MBP model is saturated in selected markets as either the zip codes are sold out with waiting lists or there is very limited to no demand for the remaining sub-tier zip codes.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3b71d8cb-e5eb-491d-bb5c-6a9db702df19", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.9, "x": 0.05, "y": 0.78 }, "kind": "paragraph", "text": "While some may believe Zillow’s share price is tied to interest rates, Spruce Point does not believe that to be true. Again, two-thirds of revenue comes from Premier Agent which is mostly MBP to date. According to our research, the most desirable zip codes have been sold out for years. If rates come down that does not guarantee MBP revenue is going to go up. The Flex model within Premier Agent, where Zillow is paid when a real estate transaction closes, is more closely tied to interest rates but Flex represents a much smaller percentage of the overall Premier Agent revenue mix.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8ce83d2f-c3cf-4f4b-a1d5-90b0d7426f5a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "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": "55ba58ed-d705-4da1-9fa5-e9827b5d0912", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "edf4c849-d841-40d4-aeca-7f55fe885fb1", "evidence": "Further continuation of the executive summary, discussing Zillow's growth initiatives and potential impacts.", "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 }