Zillow (Z) is a stock that has made no sense to us all year. Not just from a valuation standpoint but from a competitive one and most importantly from a sentiment standpoint. Back in the Spring when it seemed like every internet service/social media stock was crashing, this one showed tremendous relative strength with a mere 20% peak to trough decline. Zillow was the first web stock to make a new high back in May once the market put in a bottom We did our best to stay away from this stock on the short side because it felt like it traded like “someone knew something” if you know what I mean. Which is what it is a bit ironic that the stock reached a sort of buying crescendo in late July when the company launched a takeover bid for competitor Trulia (TRLA). The stock crashed UP, which at the highs was up 105% on the year:
This chart is Exhibit A for the existence of that “bubble” that had been debated about some sub-sectors of Tech for the better part of the 2014. To be fair last night’s guide down in sales for the balance of the year was marginal. (per Bloomberg: sees 2014 rev. $322.5m-$323.5m, saw $321m-$323m in Aug).
So whats the problem here? Sentiment. Plain and Simple. This sort of guidance miss back in Q1 would have most definitely been considered “sandbagging”, but not anymore.
While I find the price action in this stock in 2014 a bit nauseating, I don’t exactly find the recent weakness broadly negative for the market as a whole. If anything it is some of the most rational behavior we have witnessed all year in high growth/high valuation stocks. The money that was chasing these stories in Q1 is hopefully finding a less speculative home.
I have the feeling that BABA and FB have sucked out billions from other players in the internet space like AMZN, NFLX, PCLN, YELP, P, TWTR since mid September. It’s hard to know for sure if that’s what’s happening here but it does seem that those chasing momentum in dotcom have moved on this Fall. What happens when the momentum stops in BABA and FB and what that money chases next is anyone’s guess.