Maxed out versus not maxed out.
That's what divided last night's high-profile earnings reports.
Twilio Inc. (TWLO) and Etsy Inc. (ETSY) are so NOT maxed out it's incredible. Etsy is just scratching the surface of the homemade, craft marketplace, which is extraordinarily large. It's a question whether it can handle all the business it has.
Twilio has got this call center business going that is making Facebook Inc.'s (FB) WhatsApp into a messaging powerhouse. It's the next big thing for enterprises to use. It's also integrated into the Google services businesses. That's how you get 54% growth.
But Zillow Group Inc? By its own admission, Zillow (Z) will max out on the traditional listings business that has been so great for it. So it is going into the home selling business, which is why it bought Mortgage Lenders of America so it can buy homes, refurbish them and then offer one of its premier agents the listing and then get some of the vig from the mortgage.
In other words, Zillow, which dominates the real estate advertising business, now feels compelled to sell homes, not just be an advertising site.
But on the call it is clear that this won't be easy. Even with the small sample of homes -- it purchased 19 of them -- CEO Spencer Rascoff admitted that it's a much more complicated business than he thought. When Rascoff announced this business last quarter, it sounded so exciting -- a handshake, a quick refurb and then a flip.
This time we learned it can take more than a month or longer to have the transaction close. And Rascoff made it clear that this isn't a flipping business, it is a service business.
It has taken Zillow from a clean beat-and-raise story to a convoluted forecast-cutting dilemma, and it is causing some real revulsion in the analyst community. As Brent John Thill from Jefferies said:
"Spencer, when you look at the five businesses that you're in, you basically took down guidance for three out of five and took the Premier Agent business up." He continues: "Is this just the case of just getting too overzealous on guidance as it relates to some of these businesses:"
To me the issue here is that Zillow has gone from a fast-growing digitized real estate business to a real estate broker that owns homes and fixes them up. That's a cross between Realogy Holdings Corp. (RLGY) , with a 12 price-to-earnings multiple, and Citi Holdings which had a lot of distressed homes that it had to fix up and sell, a terrible business that I can't even put a price-to-earnings multiple on.
But let's forget the Citi negative, because as bad as Zillow's stock is today I can't give it Citi's 11 multiple. No matter, to me Zillow is running out of room to grow and has become something that I don't want it to be, a Realtor like Realogy.
Is it the end of Zillow being a growth company like an Etsy or a Twilio? Perhaps yes. And that's a shocking development that will cause a deserving re-rating downward, just like the re-rating upward that Etsy and Twilio are experiencing.
It's a very unhealthy development.