Chris Hill: Shares of Yelp down 30% on
Friday after a rough third quarter report. Yelp also cut revenue
guidance for the full fiscal year. And Zillow shareholders had
a week that was almost as bad. Zillow lost a quarter of its market cap after
the online real estate platform’s third quarter report included a similar cutting
of guidance for the full fiscal year. Let’s start with Yelp, Jason. How bad is this? Jason Moser: It’s probably not as bad
as the market is making it out to be. But a business built on selling ads based
on its network effects, they need to be adding advertisers in order for the market to feel
good about it. And unfortunately, they are not. What you have here is basically
a resetting of expectations. I think the reaction, generally
speaking, is the appropriate one. It may be a little overdone.
Yelp is a profitable business. It does suffer, I think, from a little bit
of an identity problem. Is it for restaurants? Is it for traveling?
What is it really for? It’s a little bit of all of that stuff. And there’s some question as
to the reliability of some of the reviews. But all of that considered, like I said,
it is a profitable business, and things could be worse. Hill: Speaking of which, how bad is Zillow? Moser: I used to think this company had more
potential than a slinky at the top of the stairs, Chris. I really did. I don’t think that anymore. I’ve been bearish on this company for a while,
internally, even here at the company. I think that anytime, as investors, when we
hear the words “transformational innovation,” we tend to get pretty excited. However, in this case, I think
you need to be very, very concerned. That phrase was basically how they opened
up the shareholder letter this quarter. The problem is that they’ve
been basically innovating forever. They’ve been trying to do
this ever since they’ve been public. They’ve not yet recorded a profitable year,
and that’s in the face of a really good housing market. Now, we’re seeing the housing market starting
to tighten up a little bit, and unfortunately, the go-to for this business, the premier agent
side of it, is showing some signs of weakness. I’m not sold on the changes
that they’ve made there. And then, the Zillow Offers side of the business
that they’re talking about growing out, totally not scalable,
and I’m not sure it’s going to be nearly as profitable as perhaps management wants it to be.
Hill: Is either one of these stocks of value play to you? Moser: Personally, I would
not invest in either one of them. I think they’re probably more value traps.
But, again, at least Yelp is profitable. They can point to something there.
Zillow really has to get its act together.