Real estate portal Zillow’s stock price has taken a hit today following the release of a scathing report from Citron Research calling the company’s second quarter a “complete disaster” and criticizing its business model.

Citron Research calls itself an online stock commentary website, though the Associated Press has described it as a “short-seller’s research firm.” Short-sellers make money by betting that a stock they sell will drop in price. Citron published a similar report last year questioning the company’s reliance on selling leads to real estate agents and brokers.

Zillow’s stock price started out the day at $98.45 per share and dipped below $90 at times during heavy trading today, according to Yahoo Finance, making up up some of those losses in the afternoon.

Citron’s 12-page report blasted the company for ramping up its sales and marketing expenses in order to “juice” revenues in the second quarter.

“Zillow spent more getting revenue than the revenue itself. Is this a business?” the report said.

The firm painted Zillow as a company that no longer had anything “unique or proprietary owned” to offer and was reliant on call centers reminiscent of boiler rooms full of stressed-out telemarketers.

A Zillow spokeswoman said the company welcomes “all accurate and thorough research opinions” — but this is not it.

“The Citron report, written by a company known for being paid by short-sellers who stand to financially benefit from falls in Zillow’s stock price for such reports, is anything but accurate and thorough,” she said.

“Zillow routinely discusses our growth and prospects with investors and analysts, and also through our publicly available calls. We are in growth mode, with tremendous opportunity to grow our brand. We’re thoughtfully and purposefully investing in advertising our brand. Last month nearly 64 million unique users visited Zillow, up 75 percent year over year.”

During the second quarter, Zillow boosted spending on sales and marketing by 163 percent from second-quarter 2012, to $32.9 million. That’s about 70 cents of every dollar that came in the door in April, May and June — a record $46.9 million.

The company’s investment in growth helped drive a $10.2 million net loss for the quarter, compared with the $1.2 million profit the company turned during the same period in 2012.

Zillow CEO Spencer Rascoff told investors during an earnings call that the investment helped increase Zillow’s audience market share twofold since the beginning of the year at the expense of competitors and Trulia. The company’s main focus would no longer be to offer real estate agents technology tools, but rather to grow audience, he said. “Selling access to our audience is the big pie,” he said.

Citron scorned the idea of traffic necessarily translating into a viable business model and pointed to a lack of differentiation among real estate agents — Zillow’s customers — among Zillow, Trulia and

“While Zillow might claim to have mindshare of Internet visitors, it does not have the mindshare of of its own primary revenue generator base,” the report said.

Ron Josey, a senior Internet analyst at JMP Securities, which helped manage Zillow’s IPO and is also a Zillow “market maker,” disagreed.

“Most of the agents that I talk to … generate the significant majority of these leads from Zillow, followed by Trulia, followed by Move. So I haven’t come across an agent that says they’re all the same. The biggest differentiator is the size of the traffic,” he said.

In general, Josey said, a lot of the issues raised in the report are “largely understood” and “not necessarily new in the market.”

“We understand the concerns, but we also believe, for example, the advertising spend Zillow is doing is the right thing to do in the longer term. More traffic will lead to more advertisers,” he said.

Zillow is in a good position to help multiple large, “underpenetrated” verticals such as mortgages and home improvement come online, he added.

Citron cited Zillow executives’ stock sales as evidence of their lack of confidence in the company. “Insiders have sold more in stock than the company has done in total revenue since (their initial public offering),” the report said.

But Josey said the sales did not worry him. “That seems to be typical for most businesses in high growth,” he said.

Citron noted that Zillow had recently lost its point man with multiple listing services, Bob Bemis, which didn’t bode well for the future of the site’s listing accuracy, which Citron said was one of Zillow’s “biggest Achilles’ heels.”

“What would happen if the head of Tesla battery technology said, ‘We just can’t get a battery to power electric cars in the future’? Or more on point, what if the head of Netflix content said, ‘We just can’t find a way to acquire content from networks or studios’?” the report said.

Josey said Bemis’s departure didn’t necessarily concern him because the Zillow Pro for Brokers program was “growing relatively quickly” with more than 120 brokers sending Zillow direct listing feeds.

Citron noted real estate agents get most of their leads from referrals and repeat business and the majority of real estate agents are harnessing the reach of social media to build on that income stream.

“The Internet economy has become increasingly review- and referral-based. Trusting your network is important, paid sponsorship on websites has become transparent. The days of boiler rooms selling ‘top of page placement’ in platinum and gold packages is a thing of the past … it is sooooo 2003. But somehow, chatty CEOs like Spencer Rascoff can still convince Wall Street that this model is not only relevant, but compelling enough to run up huge deficit spending to chase it,” the report said.

“There is a reason why Facebook is $45 a share and Twitter just filed for an IPO. People trust people they know. Networking is important. Realtors know it and investors should know it as well.”

Josey agreed that word of mouth was the best business generator, but said it was “not scalable.”

“(Referrals are) not always easy to come by, so if you’re a new Realtor or agent and you’re looking to scale your business I think Zillow and the Internet in general can help you extend your reach. Zillow is a one-stop shop, and I think that’s the value that they provide,” he said.

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