Canaccord Maintains On Zillow Following Q3 Report

Michael Graham of Canaccord maintained a Buy rating on Zillow Inc Z on Thursday with a price target lowered to $125 from a previous $150 in response to the company's third-quarter results which were reported Wednesday.

“Zillow reported another solid set of results characterized by the fourth straight quarter of Premier Agent revenue growth acceleration (to 86% y/y in Q3),” Graham wrote. “Zillow continues to emphasize selling more impressions to veteran agents who can afford to pay the most, and this is causing growth in agents to slow considerably.”

The analyst adds that Zillow's Premier Agent business is on “very strong footing.” However, near-term volatility related to slower customer growth is a possibility, but the analyst believes there is a long runway for growth.

Zillow's Premier Agent revenue did accelerate for the fourth quarter in a row to 86 percent, from 81 percent last quarter and 76 percent in the quarter prior. However, Premier Agent subscriber additions declined year-over-year and were below expectations. Additionally, higher margin display revenue was weaker than expected.

Zillow lowered its EBITDA guidance for full year fiscal 2014 to $51 million to $52 million (from $52 million to $54 million), partly due to large financial institutions cutting back on display advertising beginning in the third quarter. The company did emphasize that this creates space for higher-monetizing content like re-directing traffic into the Zillow Mortgage Marketplace.

Graham expects the company's merger with Trulia to close in the first half of 2015 which will result in a period of “sustained strength.”

Graham's lowered price target is a result of the company's revised estimates. The analyst revised his 2015 revenue estimates to $434 million from $438 million resulting in an EBITDA estimate lowered to $88 million from $131 million.