Zillow Group was hit late Thursday with yet another investor lawsuit on the heels of the collapse of their iBuying program (“Zillow Offers”). Hillier v. Zillow Group, Inc. et al in the Western Washington District Court is seeking class action status in this federal securities lawsuit, alleging that Zillow failed to disclose to investors that they did not have the ability to price homes for their Zillow Offers program, and that paired with a known supply and labor shortage, led to an inventory backlog.
The suit claims that under these conditions, Zillow (ZG) knew they would have to end the iBuying program, which would hurt their bottom line, something investors were not made aware of. In fact, this suit notes that company leadership continued to speak positively in public, making “materially false and/or misleading statements” about the program despite their overpaying for numerous homes and selling them at a loss.
In the Notice of Related Cases filed, Braua v. Zillow Group, Inc., et al., and Silverberg v. Zillow Group Inc., et al. were cited, both of which are seeking damages for allegations of misleading investors. The Hillier suit is specifically seeking to certify a class of Zillow stock buyers who made purchases from Aug. 7, 2020, and Nov. 2, 2021.
The new lawsuit outlines the following (our words, not theirs):
- Zillow launched the home buying program in 2018 to rapidly flip properties.
- By close of 2019, they were in 22 markets, and the program accounted for half of their annual revenue ($1.4B).
- On August 05, 2021, the company released Q2 earnings, citing $772M from the iBuying program, roughly 60% of their annual revenue. In the release, Defendant Rich Barton said that their “iBuying business, Zillow Offers, continues to accelerate as we offer more customers a fast, fair, flexible and convenient way to move” and “is proving attractive to sellers even in this sizzling-hot seller’s market.”
- In October, RBC Capital Markets began cooling on Zillow, lowering their price target for the stock, warning that Zillow Offers would likely miss quarterly expectations, dragging ZG down from $91.40 on October 01 to $85.68 on October 04.
- Shortly thereafter, in October 2021, Zillow announced they would be halting the program through year’s end, and stocks continued to slip.
- In November, the company released their Q3 financials and simultaneously declared an end to the program and a 25% workforce cut.
It appears that the crux of the Hillier case is that leadership continued to praise the program even as it declined, right up until the Q3 earnings statements went public and it could no longer sustain the program.
“As a result of defendants’ wrongful acts and omissions, and the resulting declines in the market value of the company’s securities, plaintiff and other members of the class have suffered significant damages,” the suit concludes.
As recently as this week, InvestorPlace said, “it’s going to be a while before ZG stock could make a comeback,” noting that Zillow’s house is not in order.
