Gloomy analyst report sends Zillow’s shares tumbling

Zillow’s stock dropped nearly 7 percent today on fears from investors that the real estate site is lacking in long-term potential.

More than a few of these investors seemed to have read this report from research firm Citron, which took Zillow apart, piece by piece.

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The report’s conclusion? Zillow’s basic business model stinks

“The unvarnished truth is that the willowy story Zillow has been telling Wall Street is a completely inconsistent with company’s underlying business metrics,” the report says.

A part of the problem, Citron concludes, is that Zillow is a Web 1.0 company pretending to be a Web 2.0 company. In plain English, this means that Zillow is essentially a sales company that just happens to be online.

“Let us not forget what Zillow is — an aggregator web site of syndicated MLS listings that sells leads to real estate agents. It is not doing anything either disruptive or new, and certainly not better than the others,” the report says.

Zillow, for its part, is just coming off of a $27.8 million revenue quarter, so the income is certainly there despite Citron’s accusations. The company also just completed a secondary offering potentially worth $135 million.

The Citron report comes a week after Zillow competitor Trulia went public. Trulia’s stock  closed the day down by less than a percent at $22.25.

The most ironic part about the Citron report? “This purpose of this article is not to cause a sudden drop in stock price.” Whoops.

VentureBeat asked Zillow for a response to the report, but the company declined comment.

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