Bob Peck Comments On Zillow's Remodeling

In a report published Wednesday, SunTrust’s Bob Peck provided some insight on Zillow Group Inc Z's ongoing remodeling. The analyst also trimmed his price target from $115 to $110 and reduced his near-term growth projections.

Shares of Zillow were up more than 3 percent at $94.82 Wednesday afternoon.

Peck and his team now expect revenue and EBITDA of $690 million and $86 million for fiscal 2015, down from from $767 million and $141 million. For fiscal 2016, they project $899 million and $167 million, from $1 billion and $250 million.

The note outlines the firm’s incremental key takeaways from the company’s call on 2015 outlook and merger integration:

• The reductions to revenue and EBITDA were “slightly worse than expected.”
• “Drivers of the cuts are shifts in the revenue models for core Trulia products.”
• SunTrust believes investors “will look past the 1Q results and focus on the 4Q run rate and implications for 2016, and more importantly a more normalized 2017.”

Related Link: Goldman Sachs: Zillow's Long-Term Path Intact

Peck said that “management noted they are ahead of schedule with several integration efforts” and the firm believes “it is prudent to make necessary adjustments quickly.” While SunTrust maintains its Neutral rating, the reduction of the price target implies a review of implications to its analysis of “the long-term real estate opportunity as well as Zillow Group financials.”

The report continues to look into “the revenue model changes at Trulia and disruption from the merger [which] are having a larger negative impact on short term results than expected – particularly for Trulia’s agent business which we [the analysts] believe has a higher short-term contract mix.”

Looking at the long-term value, the report stated that “bottom line is that investors requiring a >15% IRR would need to assume 2017 revenues and EBITDA targets of ~$1.15B and $275M (24% margin) and a 30x multiple (vs. revenue and EBTIDA growth of ~30% and ~50%).”

The firm’s sensitivity suggests that “this would result in high single-digit to low double-digit agent growth, and high teens to low 20s ARPA growth.”