The $130 million settlement of Zillow Group, Inc.-Class A ZG with News Corp NWSA and the National Association of Realtors removed a "significant overhang" on the shares of real estate website, according to JMP Securities.
"Importantly, the settlement does not alter any of Zillow's business practices, is strictly monetary, and was settled amicably and with prejudice," analyst Ronald Josey wrote in a note.
Josey, who reiterated his Market Outperform rating and $35 price target, said the settlement, which was less than the suitors' original claim of about $1.8 billion, accounts for about $0.67 per share, compared to Zillow's about $513 million in cash as of first quarter.
Further, the settlement allows the company to focus on its core business — the newly integrated platform with Trulia, which is leading to newer products and services. They include the Premier Agent Concierge (PAC), the updated Premier Agent app and the pending national roll-out of the self-serve Premier Agent ad buying tool.
"Combined, we believe these products and those pending in the pipeline, could result in continued strong lead growth — leads grew 60 percent Y/Y in 1Q — and improved conversion rates, to produce high-margin ARPA going forward, continuing the momentum from1Q16," Josey noted.
In the first quarter, Premier Agent count stabilized at about 92,000, traffic reached a high of 166 million unique devices in March, and leads grew 60 percent overall to 4+ million, of which "we believe leads grew +65–70 percent at brand Zillow, on improved profitability as ARPU grew 40 percent Y/Y on a PF basis."
The analyst expects 2016 EPS of $0.20 on revenue of $831.5 million, while the Street expects EPS of $0.09 on revenue of $831.13 million.
Shares of Zillow closed Monday's regular trading session at $30.78. In Tuesday's pre-market, class A shares of Zillow were up 9.68 percent.
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