A couple of weeks ago, we posted Steve Eisman’s comments against a rosy future for Zillow. Today, we’re posting his reasoning.
Eisman, currently a Neuberger Berman portfolio manager who in the mid 2000’s bet against sub-prime mortgages, sat for an interview with CNBC’s “Power Lunch” team to discuss his reasoning for betting against Zillow. (The technical term for “betting against” a company is called “shorting a stock.” Shorting a stock translates into making money if the price of stock in a company declines, ie. making money when a company is failing to deliver.)
In his CNBC “Power Lunch” interview, Eisman said, “Zillow has one of the most flawed business models I’ve seen in a very, very long time…I actually think the company doesn’t understand the real risks of this (iBuying) business, which are massive.”
Eisman recognizes the importance of “local” to the thousands of mini housing markets throughout the US as well as “the incredibly different risks” specific to each local mini-market. He believes that even if Zillow’s capital intensive iBuying business has “…some level of success, there will be massive problems that will be uncovered…” such as write-downs and impairments specific to each market.
To sum up his interview, Eisman said, “And, I’m convinced that (Zillow’s) investor base doesn’t have a clue about what this (iBuying) business is really about.”
Zillow CEO Rich Barton, when explaining his particular iBuying business via Zillow Offers, evokes similarities of his business to “market making” businesses that earn fees for buying and selling a product. In Zillow’s case, Zillow Offers earns fees for buying and reselling houses. In Ameritrade’s case, the stock brokerage business earns fees for buying and selling stock.
In response to Eisman’s comments made during his CNBC’s “Power Lunch” interview, Emily Heffter, Zillow’s Director of Corporate Communications, said, “Our market making approach to buying and selling homes for the benefit of consumers who want to move is working. We remain confident in our long term strategy to create a seamless, integrated real estate transaction for consumers.”
