UPDATE 1-Zillow shares slide as short-seller Citron resumes attack

Fri Sep 20, 2013 1:26pm EDT

(Adds details; updates share movement)

By Chandni Doulatramani

Sept 20 (Reuters) - Shares of real estate website Zillow Inc fell as much as 10 percent on Friday after short-seller Citron Research questioned its business model for the second time in a year and noted that senior executives have been selling the stock.

Zillow shares, which have tripled in value this year, fell after Citron said the company was spending huge amounts on marketing to push up sales.

"Zillow spent more getting revenue than the revenue itself. Is this a business?" Citron said in its report. (link.reuters.com/zap33v)

Zillow rejected the claim that it was buying an audience, saying website traffic had jumped 75 percent in the past year and revenue was up 69 percent.

"We are in growth mode, with tremendous opportunity to grow our brand," said spokeswoman Katie Curnutte. "We're thoughtfully and purposefully investing in advertising our brand."

In the quarter ended June 30, Zillow's sales and marketing expenses were 70 percent of revenue, up from 44 percent a year earlier.

The sales and marketing cost rose $20.7 million in the quarter, just above a $19.1 million rise in revenue.

Citron said the company, which generates revenue by selling leads to real-estate agents, has not made a "meaningful profit" in the seven years of its existence. "Citron doesn't see that changing any time soon."

Short sellers such as Citron make money when the stock price of a company drops. They sell borrowed shares in the hope of buying them back at a lower price and return them to the lender, and gain from the difference in price.

"Insiders have sold more in stock than the company has done in total revenue since IPO," Citron said in the report.

Some of Citron's other recent targets include consumer review website Angie's List Inc, drugmaker Questcor Pharmaceuticals Inc and skincare products company Nu Skin Enterprises Inc.

Zillow went public in July 2011 in an IPO that valued the company at about $540 million.

Zillow has a market value of about $3.7 billion with its shares trading around $90, up from the IPO sale price of $20 per share.

Citron said Zillow's future did not look bright as its "Zestimates" of property value were no longer exclusive as other real estate websites add their own estimate tools.

Citron published another report on Zillow about a year ago, saying the company did not have revenue transparency in its business model. (link.reuters.com/wuj82t)

At that time Zillow shares were trading around $44, half their current value.

Zillow reported second-quarter revenue ahead of Wall Street expectations and said subscriptions had surged due to a rebound in the U.S housing market. But the company's loss was much larger than analysts had estimated.

Zillow shares fell as low as $88.52 before recovering to $90.41 in afternoon trading on the Nasdaq. The stock was trading nearly twice its average 10-day volume. (Additional reporting by Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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