Zillow Group, Inc. (NASDAQ:ZG) (Z) shares dropped more than 5% Tuesday after Spruce Point Capital Management said it is short the stock.
After conducting a "forensic review" of Zillow Group, the short-selling firm said it sees a potential 40% to 60% downside risk, as the company'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," claims Spruce Point.
The firm also criticized Zillow's revenue recognition and expense policies, noting the company's CFO departed last year.
Furthermore, the short seller argues that "key indicators show Zillow is experiencing a rapid decline in web traffic," which is the foundation for the Premier Agent business.
"Zillow has seen a sharp deceleration in both site visitors and unique users; additionally, Zillow's measure of its ability to monetize traffic, Premier Agent Revenue Per Visit, has essentially been flat since 2016," they add.