Short-seller sends Zillow shares into a nosedive

September 21, 2013 04:00PM

Zillow’s shares plummeted after a critical report on the company was released by a short-seller. The real estate website’s stock fell by as much as 10 percent, following a report by Citron Research that challenged the site’s business model.

The report claims that Zillow — which recently acquired listings website StreetEasy — is spending excessive amounts on marketing in an effort to drive up sales, writing that Zillow has “been around for seven years, operating the same business model, and it has not made a meaningful profit over that timespan.” However, Zillow argued that sales and marketing costs that grew $20.7 million in the second quarter was money well spent, according to HousingWire.

“We are in growth mode, with tremendous opportunity to grow our brand,” Zillow spokesperson Katie Curnutte said. “We’re thoughtfully and purposefully investing in advertising our brand.”

Curnutte also pointed out that Zillow saw a record revenue of $46.9 million, a 69 percent increase year-over-year.

According to HousingWire, Citron is a short-seller: a firm that profits when a company’s stock drops. A short-seller sells borrowed shares with the goal of buying them back at a discount.

Zillow also noted that their marketing efforts are paying off. Google Trends showed a 61 percent increase in searches for the word “Zillow,” while general real estate related searches only grew 16 percent. [HousingWire]Christopher Cameron