Zillow Soars 20% But Are Analysts Just As Bullish?

Online real estate platform Zillow Group Inc ZG reported fourth-quarter results, highlighted by a revenue beat and a much better than expected loss. Here is a summary of how some of the Street's top analysts reacted to the print.

The Zillow Analysts

Goldman Sachs analyst Heath Terry maintains a Neutral rating on Zillow's stock with a price target lifted from $39 to $57.

Bank of America analyst Nat Schindler maintains at Underperform, $35 price target.

Morgan Stanley analyst Brian Nowak maintains at Equal-weight (under review), $40 price target.

Wedbush analyst Ygal Arounian mainatins at Neutral, price target lifted from $39 to $65. 

Goldman Sachs: Exceeding Expectations

Zillow reported a 158% year-over-year revenue growth at $943.9 million and an adjusted EBITDA of ($3.2 million) versus expectations of $814.6 million and ($32 million), respectively, Terry wrote in a note. The company's beat is attributed to outperformance in the Homes business which handily exceeded revenue expectations of $488.3 million at $603.2 million.

Aggregated unique visitors across Zillow Group properties accelerated from 5% growth in the third quarter to 10% at 172.6 million while visits slowed from 11% to 9%, the analyst wrote.

During the quarter Zillow bought 1,787 homes and sold 1,902 homes while 2,707 homes were held in inventory. The segment lost $82.5 million in EBITDA in the quarter which came in better than the $85.3 million loss expected.

"We continue to believe in the long-term opportunity for Zillow to leverage its brand, traffic, data,
and resources to create efficiencies in the real estate market, particularly reflected in strength in Homes segment growth and an improving Premier agent business," the analyst wrote.

BofA: Real Core Revenue Growth Concerns

Zillow's core Premier Agent revenue accelerated in the reported quarter but the growth is mostly due to easy comps and an improving housing market, Schindler wrote in a note. Core growth on a multi-year stack is estimated at a single-digit and will likely remain so moving forward.

Meanwhile, there is no evidence that Premier Agent revenue growth can reaccelerate beyond easy comps in 2020, the analyst wrote. The minimal growth prospects moving forward implies the bearish case for the stock remains unchanged.

Related Link: Zillow Could Be Primed For A Short Squeeze

Morgan Stanley: Bulls Win Q4 But Concerns Remain

Zillow's EBITDA beat "likely emboldens bulls" and the momentum should continue as management's 28% IMT EBITDA margin guidance for 2020 would represent a new record, Nowak wrote in a note. Management's focus on expense discipline and productivity improvements are showing results.

However, Zillow is still a company in investment mode with "little to no company-wide EBITDA," the analyst wrote. As such, the stock's performance moving forward hinges on investors' confidence in management's ability to show a path towards long-term profit.

Wedbush: Risks In Homes Remain

Zillow managed to sell more homes than expected in the quarter as management continues to learn from its resale strategies, Arounian wrote in a note. This suggests consumer demand for the segment exists but unit economics on homes have declined from negative 1% after interest expense in the first quarter to negative 2%. This suggests the business is sensitive to even "slight changes" in the cost structure.

The unit ended 2020 with a $300 million EBITDA loss and still suffers from unproven unit economics and high capital intensity.

"The opportunity is large, but Zillow is going through a gigantic pivot that we don't want to underestimate the challenges of, particularly as the race to dominate the end-to-end residential real estate technology stack picks up," Arounian wrote.

ZG Price Action

Shares of Zillow hit a new 52-week high of $66.96 and was higher by around 18% at time of publication.

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