Oppenheimer Weighs In On Zillow Shares - Reboots Model

On April 14, Oppenheimer & Co. (Opco) published a note updating their model on Zillow Group

after CEO Spencer Rascoff lowered Zillow guidance for FY 2015. Highlights from the Zillow conference call, included:  FY 2015 EBITDA lowered to just $80 - $85 million vs. a prior consensus of ~$146 million.  FY 2015 adjusted sales of $690 million vs. prior consensus of $753 million.  Trulia sales business was disrupted by both the FTC delays in allowing integration of the efforts with Zillow, as well as the closing of the Trulia San Francisco sales office, and elimination of 350 previous positions.  Rascoff announced that while existing customers will still be supported, he is winding down Trulia's Market Leader advertisings/CRM sales agent platform. http://www.benzinga.com/analyst-ratings/analyst-color/15/04/5407991/buildzoom-chief-economist-says-zillow-inventory-loss-har Tale Of The Tape Zillow shares have continued to rebound since the conference call, closing up over 4 percent at the closing bell on April 15.

Zillow shares have traded in a 52-week range of $81.07 to $161.90. Oppenheimer - Zillow Group: Maintains Perform rating There was no Opco 12 to 18 month price target given for Zillow Group. However a price range table is included in Opco Exhibit 3 below, based upon current revenue assumptions and various EV/Enterprise Value multiples. Oppenheimer - Zillow Group: Updated Guidance

 Opco lowered 2015E and 2016E estimates 13% and 17%, respectively, on lower Trulia and Market Leader revenue."  Opcos's 2015E and 2016E EBITDA margins "decreased 749bps/724bps on lower sales assumptions; as a result, EBITDA decreased 46% and 40%, respectively."  Long-term model assumes Zillow captures "14%/23% market share of overall real estate/online real estate advertising spend." Oppenheimer - Zillow Group: Revised 2016 Revenues/Sensitivities

 Zillow revenue guidance: of 19 percent increase Y/Y, represents a considerable deceleration from 54 percent in 2014.  Zillow EBITDA guidance: was "46%/44% below Opco/Street." Integration delays due to slower than anticipated FTC approvals, and lower Trulia revenue negatively impacted margins. Oppenheimer - Zillow Management Takeaways  Opco noted, "Zillow's core is operating at full capacity," (not impacted by the Trulia merger and related FTC approval delays in integration).  Zillow "expects ARPA to outweigh net subs in terms of growth."  Notably, Zillow is not seeing a change in the competitive dynamics from News Corp's

acquisition of Move, Inc. (operator of the realtor.com site).  "Management guided that the loss of the ListHub contract will not materially impact revenue, and Z now has more active listings than if it were still operating under the prior ListHub contract."  Zillow intends to "lower Trulia advertising expense in 2015 and reiterated $100M of expense synergies in 2016."