Zillow Group ($ZG) Investor Settlement
Zillow Group agreed to settle claims that investors were misled about the growth, pricing practices, customer demand, and operational performance of the Zillow Offers home-buying business.
Outline:
Zillow rapidly expanded its Zillow Offers business during 2021. Investors allege that the company boosted home purchases by increasing offers above values generated by its pricing models. At the same time, Zillow allegedly concealed growing renovation and inventory problems while attributing its growth to stronger technology and customer demand. The parties have now agreed to settle the securities litigation, although the provided materials do not state the settlement amount or terms.
Timeline:
May 4, 2021: Zillow said home purchases were below expectations and it was improving its pricing models.
June 15, 2021: Zillow announced an upgraded Zestimate model designed to improve home valuations.
August 5, 2021: Zillow reported a record 3,805 home purchases, citing strong demand and improved pricing models.
September 13, 2021: Zillow continued to report record demand and improvements in Zillow Offers.
October 4, 2021: RBC warned that Zillow appeared to be overpaying for homes, and Zillow shares declined.
October 18, 2021: Zillow paused new home purchases because of renovation backlogs and capacity problems.
November 1, 2021: Reports indicated that many Zillow-owned homes were worth less than the company had paid for them.
November 2, 2021: Zillow shut down Zillow Offers, cut about 25% of its workforce, and announced major inventory write-downs.
Background:
Zillow launched Zillow Offers as a major expansion beyond its traditional online real estate business. Through the program, Zillow purchased homes directly from sellers, renovated them, and then attempted to quickly resell them. The success of the business depended heavily on accurately predicting home values, controlling renovation costs, and purchasing enough homes to achieve scale.
By early 2021, Zillow was falling behind its internal home-purchase targets. According to the lawsuit, the company responded with an initiative known as “Project Ketchup,” which was designed to increase purchasing volume and help Zillow catch up with competitors such as Opendoor.
Plaintiffs allege that Zillow began applying automatic pricing adjustments on top of values generated by its algorithms and analysts. One alleged overlay could increase an offer by as much as 7%, and former employees described other adjustments that sometimes added tens of thousands of dollars to home offers. Zillow’s purchases increased from 1,856 homes in the first quarter of 2021 to 3,805 in the second quarter and 9,680 in the third quarter.
At the same time, Zillow allegedly reduced the scope and cost of renovations. Plaintiffs claim these changes made Zillow jobs less attractive to contractors, causing some contractors to refuse work and leaving the company with more homes than it could renovate and resell efficiently.
Investors allege that Zillow did not fully disclose these problems while reporting strong customer demand, improved pricing technology, and durable operational efficiencies. In October 2021, Zillow disclosed a renovation backlog and paused new purchases.
On November 2, 2021, the company announced that it would shut down Zillow Offers, reduce its workforce by approximately 25%, and recognize hundreds of millions of dollars in inventory write-downs.
What Can Investors Expect Now?
Zillow Group agreed to settle claims that investors were misled about the growth, pricing practices, customer demand, and operational performance of the Zillow Offers home-buying business.
If you were damaged due to this situation, you can file for a payout and get your share of the settlement. You can check if you are eligible and other details in the FAQ section.