Zillow (NASDAQ:Z) stock is in the news Wednesday after the real estate website manager was hit with a short report from Spruce Point Capital Management, LLC.
Spruce Point Capital points to a few reasons why trouble is brewing for Z stock. That includes its plans to generate revenue through web traffic.
The problem with this is weakening demand in the home-buying sector. This comes about as inflation and high interest rates are keeping potential homebuyers from using the service.
There’s also a lawsuit involving the National Association of Realtors that could affect Z stock negatively. This litigation may bring about the end of broker cooperation on sharing commissions for home sales. If that happens, a large portion of businesses could leave the industry. If that happens it would harm Zillow’s revenue.
The final issue with Zillow raised by Spruce Point Capital has to do with its accounting practices. The firm claims that Zillow is using aggressive accounting to “pre-book” revenue.
What This Means for Z Stock
Spruce Point Capital concludes that all of these issues could result in a 40% to 60% downside for the stock over the long term. That could see the price of Z drop to between $23 per share and $35 per share. For comparison, Z stock was trading at $54.49 per share when markets closed yesterday.
Despite the short report, Z stock is up 1.7% as of Wednesday morning.
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On the date of publication, William White did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
