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Buy Zillow After Class C Issuance: Stephens' John Campbell

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  • Stephens’ John Campbell maintained an Overweight rating on Zillow (NASDAQ: ZG), while lowering the price target from $130 to $35.
  • The target price has been lowered following the recent issuance of Zillow’s Class C capital stock, as well as dividend for the Class A and B shares.

According to the Stephens report, “Zillow delivered two class C shares for every one class A or B share owned by investors. The Class C shares are trading under the original "Z" ticker symbol while the Class A shares are trading under the new ticker symbol "ZG".”

Although the new Class C shares do not entail voting rights, they offer the same economic benefit as the other shares.

The company’s board has asked Zillow’s founders, Rich Barton and Lloyd Frink, to enter into transfer restriction agreements and non-compete agreement amendments.

“Beginning on the date on which they no longer serve on the Zillow Group Board of Directors, the agreements will require Mr. Barton, Mr. Frink and their affiliates to transfer at least one share of Class B common stock for each two shares of Class C capital stock transferred,” Campbell explained.

Although the move to issue Class C shares is not without precedent, Campbell believes that there are some investor concerns regarding accountability related to near-term business decisions.

“While we do believe Zillow is the clear industry leader with a substantial addressable market ahead, we think the timing of the Class C issuance amidst a difficult transition year causes some unrest,” the report stated.

However, this move does allow the company to take the needed steps to position itself better to capitalize on its large addressable market. Campbell also expressed optimism regarding the company’s prospects in 2016.

The non-GAAP revenue estimate for 2015 has been slightly raised, while the non-GAAP EPS estimate has been left unchanged to adjust for the management’s guidance which calls for “pro forma” D&A of $90 million.

The GAAP EPS and adjusted EBITDA estimates for 2015 have been lowered.

Latest Ratings for ZG

Aug 2016Deutsche BankMaintainsHold
Aug 2016BarclaysMaintainsEqual-Weight
Jun 2016BarclaysUpgradesUnderweightOverweight

View More Analyst Ratings for ZG
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