‘Adult Frat House’ Allegations Could Harm Zillow Stock

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The legal department at Zillow Inc (Z) has been busy lately. The company, which operates an online platform to search for real estate properties, mortgages and rentals, has been named in four employment lawsuits. Some of the details from the complaints are definitely worthy of concern.

Zillow stock earningsThese lawsuits might represent a legitimate problem for Zillow, and Z stock is already beginning to feel the pressure. During the past quarter, Zillow stock is off by about 9%.

To get a better sense of the impact these lawsuits are having on Zillow stock, let’s take a look at each one:

Zillow Lawsuit #1

The first lawsuit is a class-action claim, representing employees at the Orange County, California, office. Former employee Ian Freeman believes that Zillow manipulated its time-clock system to reduce the number of hours paid — by as much as $5 million. No doubt, this is small stakes for a multi-billion dollar operator. But the lawsuit could still hurt Zillow stock if the company is engaging in wide-scale practices to dampen compensation.

Zillow Lawsuit #2

This lawsuit also points to a possible breakdown of internal operations, which could be a red factor for Zillow stock. Former employee Ashley Boehler claims that Zillow engaged in forged contracts and dealt with unlicensed real estate agents. Boehler claims he was fired for discovering the misconduct.

Zillow Lawsuit #3

Jennifer Young, who suffered injuries from a car accident, alleges that she was forced by Zillow management to stand up for prolonged hours, which ultimately resulted in her being hospitalized. When she returned, she wanted more accommodations but management refused. She was eventually terminated for job abandonment.

Zillow Lawsuit #4

Former employee Rachel Kremer claims that she was the victim of rampant sexual harassment, including managers ranking woman according to breast size and sending sexually explicit photos to sales reps.

All these lawsuits have been filed against Zillow’s Orange County office, and that the lead attorney on the lawsuits is Mark Geragos. Geragos has a long history of representing celebrities like Chris Brown, Michael Jackson and Nicole Ritchie and is a commentator on CNN. In other words, Geragos has lots of media influence and savvy, which could be a threat to Zillow stock.

Geragos also says there will be more lawsuits filed.

As for Zillow, the company has already taken actions, such as with terminations of various employees involved in the alleged employment situations. The company also indicated that it takes all lawsuits seriously and is investigating the allegations.

Yet the lawsuits could ultimately be a good thing for Z stock in the long haul. Zillow management can take this as an opportunity to take real actions to improve its operations and enforce better standards. This kind of reputation isn’t uncommon for relatively young companies like Zillow. But if it wants to be a mega player in its industry, Zillow will constantly need to find ways to improve systems.

In the near-term, however, there are obvious risks. Geragos is definitely aggressive and looks like he is just beginning his attack. At the same time, Z stock is still selling at a hefty valuation, with a forward price-to-earnings ratio of about 126. For comparison, Facebook (FB) trades at a forward P/E of 40 and LinkedIn (LNKD) trades at 78 times forward earnings.

So for now, it is probably best to avoid Z stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli.  As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/zillow-stock-frat-house/.

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