Weighing Machine
Long/short equity

6 Reasons Zillow Is A Sell

While most momentum stocks are well off their 52-week highs, Zillow (NASDAQ:Z) shares hit a new all-time high Monday. At $103/share, investors are assuming a fast-growing and highly profitable future for Zillow. Is this reasonable? While Zillow has increased the number of consumers visiting its website, there are several reasons for investors to be cautious, including:

  1. Zillow's business model is not scaling. Increased revenue has not produced increasing operating margins, in fact, it has produced the opposite - last year, Zillow earned a 3% EBITDA margin (vs. 15% in 2012) after growing nearly 70%. I do not believe Zillow will ever achieve its EBITDA margin target of 30-35%.
  2. Zillow has a weak competitive position as one of many
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