Wait Out Zillow's 'Transitional' Phase, Raymond James Says

Zillow Group Inc Class C ZZG traded down 43 percent over the last six months, but one Street expert doesn’t expect the pressure to let up soon.

The Rating

Raymond James analyst Justin Patterson maintained a Market Perform rating on Zillow.

The Thesis

Zillow’s earnings before interest, tax, depreciation and amortization (EBITDA) faces near-term pressure from a tough housing market, reinvestment in payroll and technology, the expansion of Homes and the slow recovery of Premier Agent.

“We see risk to Premier Agent's 1H19 recovery, as existing home sales remain weak and it takes time to prove out ROI of phone versus email leads,” Patterson wrote in a note.

He cut his 2019 and 2020 EBITDA estimates by 9 percent and 4 percent, respectively, and expects execution pressure and the rough housing market to stunt earnings.

“Neither of these are short-term fixes, and we continue to see risk to Street 2019E and 2020E EBITDA,” Patterson wrote. “Until consensus resets and housing shows signs of stability, we continue to see shares range-bound.”

Raymond James assures improvements will follow after the Street resets estimates.

“The silver lining amid the near term noise is that traffic (via Google Trends) appears fine,” the analyst wrote. “Zillow is still the destination for real estate, and that will eventually be monetized.”

Regarding recent insider purchases, he suspects no impending cost cuts.

Price Action

At time of publication, Zillow Class C shares traded around $32.50.

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