RBC Turns Bullish On Zillow After Beat-And-Raise Q3

Zillow Group Inc ZG Z reported third-quarter results that came in better than expected and prompted RBC analysts to turn bullish on the stock.

The Analyst: Mark Mahaney upgraded Zillow's stock (ZG) from Sector Perform to Outperform with a price target lifted from $74 to $147.

The Thesis: Zillow reported revenue of $657 million that was ahead of RBC's estimates of $579 million and the upside was driven by the Homes segment and internet, media, and technology (IMT), Mahaney wrote in the note. In fact, the IMT unit reached a "material inflection" as EBITDA came in at $195 million with a 47% EBITDA margin.

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Zillow's Premier Agent (PA) revenue growth accelerated from down 17% in the second quarter to positive 24% and this was 6% above expectations, the analyst wrote. Mortgage growth accelerated 114% due to a strong refinance environment.

"All in, Fundies for Zillow's core business were very strong, and we believe the inflection in IMT Rev and EBITDA is more structural," Mahaney wrote.

The analyst acknowledges the more than 125% run-up in the stock since the start of the year. But the reacceleration in PA revenue growth could be sustainable given record-high Unique Visitors. Also, the IMT segment EBITDA margins can be maintained once new investments ease and return to normalized levels.

Price Action: Shares of Zillow Group (ZG) hit a new 52-week high of $120.25 Friday and was up by more than 13% on the day.