(Adds details; updates share movement)
By Chandni Doulatramani
Sept 20 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
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
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)