Zillow Analysts Say 'Execution And Innovation' Key To Achieve Long-Term Targets Following Q4 Print

Zillow Group Inc. Z shares are advancing to their highest level in about a month after the online real estate company reported its quarterly results.

The Zillow Analysts: DA Davidson analyst Tom White affirmed a Buy rating on Zillow shares and reduced the price target from $125 to $78.

Needham analyst Bernie McTernan maintained a Hold rating.

KeyBanc Capital Markets analyst Edward Yruma maintained a Sector Perform rating on shares.

The Zillow Theses:

Substantive Transaction Share Gains Possible For Zillow, DA Davidson Says: Zillow's fourth-quarter results showed modest upside in its core Internet Media and Technology, or IMT, segment and very strong EBITDA outperformance, DA Davidson analyst White said in a note.

The omicron surge in mid-December may have weighed on housing/listing activity, pressuring IMT results for the fourth quarter as well as the IMT guidance for the first quarter, the analyst noted.

The company's commentary that buyer demand is still very strong should bode well for a potential February/March catch-up, should omicron wane, White said.

Related Link: Zillow Sells 2,000 Homes From Failed iBuying Program To NYC Investment Firm: Report

The positive stock reaction despite the soft guidance is due to the management's "ambitious new" 2025 financial targets, the analyst said. The long-term guidance calls for $5 billion in revenue and $2.25 billion in adjusted EBITDA for 2025, implying 24% CAGR in revenues and a 45% margin, the analyst noted.

"We'd expect a 'post-iBuying' ZG to have better success driving substantive transaction share gains," the analyst said.

The 6% U.S. transaction share implied by the 2025 guidance, up from 3% currently, is not a stretch, White said. The company has fewer distractions now, and has ample capital and a de-risked balance sheet following the winding up of its iBuying business, he added.

Zillow will also benefit from the broader real estate's attempt to accelerate its pace of digital transformation, the analyst said.

Zillow Needs to Execute On Strategy, Needham Says: At this point, Needham is taking a conservative view on the 2025 revenue guidance, waiting for evidence of execution on this strategy, analyst McTernan said.

"That said, we are incrementally bullish on the business, as Z aims to better monetize its core asset," the analyst said.

KeyBanc Sees Slowing Housing Market Hurting Near-term Results: Zillow provided a high-level view of new growth opportunities for its go-forward business, KeyBanc analyst Yruma said.

The company said it believes that it can leverage its existing traffic into more services, and in particular, untapped sell-side opportunities, the analyst noted.

"We have concerns that a slowing housing market may pressure NT results; the achievement of LT targets requires strong execution and innovation," KeyBanc said.

Z Price Action: At market close Friday, Zillow shares were up 13.55% to $55.40.

Related Link: Is The iBuying Model Doomed To Fail In The US Housing Market?

Photo by Tierra Mallorca on Unsplash