Goldman Sachs: Zillow's Long-Term Path Intact

Goldman Sachs commented on Zillow Group Inc Z Tuesday and maintained a Buy rating while raising its price target from $120 to $155.

Analysts led by Heath P. Terry said the company guided 2015 pro forma revenue at $690 million and pro forma adjusted EBITDA at $80-$85 million with Q4 margins in excess of 20 percent.

The guidance followed an update on integration of Trulia into the company.

“While the integration issues, largely around sales turnover at Trulia, pricing models, and advertising partnerships are more significant than we anticipated, we continue to believe there is more value in Zillow Group’s ~100 million monthly visitors (70 percent of the online real estate audience) than the company’s market cap implies,” according to the analysts.

Terry felt the Trulia acquisition would “accelerate the shift of real estate dollars online” and create an opportunity for Zillow to outperform.

Addressing the listing issue with the termination of the ListHub relationship, Terry noted that the company had “added direct feeds with hundreds of MLSs and brokerages to reach more listings now than it would have under the ListHub agreement.”

Over the longer term, the company felt it could reach 40 percent EBITDA margins by focusing on a smaller number of high-performing advertisers, according to the company’s update to analysts.

Goldman Sachs lowered its 2015-2017 revenue and adjusted EBITDA estimates by 14 percent and 37 percent each “to reflect the impact of ad product changes and sales force integration challenges at Trulia.”

The firm expected 2015 revenue at $993.0 million with EPS of $(0.40).

The $155 price target was based on an 85/15 percent blend of 40X 2016E EV/EBITDA and a $148 M&A value.

Zillow closed at $91.65, down 1.39 percent.