Spruce point reveals short position on zillow, citing business model strain amidst falling web traffic and legal concerns.

Investment management firm Spruce Point announced a short position in real estate company Zillow (ZG.O) on Tuesday, citing challenges to its core business model due to declining web traffic exacerbated by rising mortgage rates impacting home demand.

Expressing concerns over Zillow’s performance, Spruce Point suggests a potential downside risk of 40-60%, translating to approximately $23-$35 per share. Zillow has yet to respond to Reuters’ request for comment on the matter.

Spruce Point’s report also highlights the ongoing litigation against the National Association of Realtors (NAR) and other home brokerages, alleging artificial inflation of real estate commissions. The investment firm anticipates a “significant impact” on Zillow’s operations as a result of this legal dispute.

The litigation, if unfavorable for Zillow, could lead to a scenario where home sellers may no longer pay both listing and buyer agent commissions. This potential reduction in agents’ revenue might compel them to cut expenses, impacting their spending on Zillow’s services, as outlined in the report.