Zillow (Z): Listhub Issues Look Problematic, Lawsuit Flimsy, Says Deutsche Bank

February 23, 2015 8:10 AM EST
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Deutsche Bank analyst Lloyd Walmsley said Zillow (NASDAQ: Z) and Trulia's issues with Listhub look "problematic," and he warned Trulia could potentially lose 40% of its listings in a few days if its restraining order filed against ListHub fails. He also said Zillow's lawsuit against Listhub looks "flimsy."

"We believe Trulia could lose 40% of its listings if its restraining order filed against ListHub fails. After speaking with Zillow, we understand that it cannot use its own direct deals to power Trulia listings without renegotiating. While Zillow renegotiates, News Corp (NASDAQ: NWSA) may go on the attack marketing its data supremacy," said Walmsley. "The sudden loss of listings may also weaken Zillow’s negotiating position with brokers who seek conditions (e.g. ad blocking or preferential pricing). The reaction from Zillow feeds the bear case re Zillow not owning its content, could be very disruptive over the intermediate term, and speaks to a hot competitive environment. RMV/REA-like margins seem very far away,"

"Zillow/Trulia is suing ListHub, claiming that its acquisition of Trulia was not technically a “change of control” and the deal should be intact (1) until its original expiration in June 2016, or at least (2) for the allegedly required 30-day contract termination notice (versus the 5-day notice given). Zillow maintains that it “structured the Trulia acquisition” so that the Trulia corporate entity remained intact. We struggle to see how the deal was not a change of control. We spoke to a prominent corporate lawyer, who noted it would largely depend on how the “change of control” provision was written in the ListHub contract, but agreed with our instinct that it sounded difficult to defend (“if not MOVE needs new lawyers”)," continued the analyst.

Walmsley added, "Bottom line – this appears to be something Zillow did not have in its play book and stands in stark contrast to its protestations that it did not need ListHub made days ago."

For an analyst ratings summary and ratings history on Zillow click here. For more ratings news on Zillow click here.

Shares of Zillow closed at $125.42 yesterday.

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