Analysts believe that the online real estate portal Zillow is struggling in the wake of its $2.5 billion acquisition of Trulia and strong competition from rival site Realtor.com, leading to questions over the company's long-term future, HousingWire reports.
Barclays analysts have just downgraded Zillow for the second time in three months, from “Overweight” to “Equal Weight” in April, and down to “Underweight” in its latest report. In addition, Barclays has lowered Zillow's price target from $90 to $70.
Barclays cites Zillow's slowing traffic growth, which is due to a combination of Realtor.com's own excellen growth and “category saturation”. Indeed, in June Realtor.com saw its traffic surpass that of Trulia, the first time in two years its achieved this. The Barclays analysts say Zillow Group's traffic is slowing across all of its main brands – which include Zillow, Trulia, StreetEasy, and HotPads – but said Trulia is the worst performer.
Zillow Group is still the leader in U.S. real estate's online market, pulling in 57 percent of all real estate traffic in the last quarter, but the analysts warn that Zillow's brands are close to saturation point.
A second concern is that Realtor.com now has a very big backer behind it in the shape of News Corp, which recently acquired Move Inc., the operators of Realtor.com.
“We believe News Corp has successfully leveraged its digital media assets like the Wall St. Journal and New York Post to funnel traffic to the site, in addition to investing incrementally in a branded advertising campaign,” Barclay's analysts Christopher Merwin and David Lee wrote in the report.
According to Merwin and Lee, Zillow seems content to let the Trulia brand “fade away”, but rather than benefiting the Zillow brand, it's actually going to help Realtor.com.
“Indeed, we believe Realtor.com may become the new Trulia, a large competitor that will relentlessly pursue audience market share, and will at the very least force Zillow to spend more on marketing than their current guidance for $100 million in post-merger cost synergies would suggest,” the analysts wrote.