Zillow Group - 2 Analysts Weigh In With 2 Widely Different Views

On February 19, analysts from CRT Capital and JMP Securities weighed in on earnings and revised price targets for the freshly named Zillow Group, Inc.

, reflecting its merger with Trulia. There was a significant difference between the revised price targets updated by these two firms.

The chart above shows how price swings in Zillow shares seems to reflect a tug-of-war playing out between Zillow bulls and bears. CRT Capital - "Fairly Valued" $125 PT CRT uses a different nomenclature than most investment banks. Fairly-Valued appears similar to Equal Weight/Hold/Neutral. Here is the rationale behind the CRT Capital price target:  CRT noted that Zillow, simultaneously with the merger, announced the elimination of 350 positions (~15% of total headcount), with 280 roles eliminated immediately and 70 scheduled for 2Q, primarily in sales and support functions.  CRT view's Zillow's restructuring as a solid first step toward delivering $100M+ in annualized cost savings by 2016.  CRT revised forecasts to reflect consolidation of Z and TRLA, and take a slightly more conservative view on 2016 revenue given management's commentary regarding the strategic review (and potential rationalization) of Market Leader.  CRT views the combined entity 2016 EBITDA potential remains largely unchanged (now forecasting $327M of EBITDA in 2016, up from the sum of our standalone 2016E EBITDA forecasts for Z and TRLA of $247M). JMP Securities - Market Outperform $145 PT JMP reiterated its Market Outperform rating and increased its price target to $145 from $140 on the shares of Zillow (Z) following the closing of its $2.5B acquisition of Trulia. JMP noted:  "…significant revenue synergies exist as Zillow integrates its advertising platform across Trulia, including shifting Trulia to an impressions based model from share-of-voice, selling total impressions vs. mobile and desktop impressions separately, and building out Trulia's lender co-marketing program…"  Cost synergies are likely to be meaningful, and Zillow has already announced a right-sizing of the company by reducing 350 positions.  Conversion rates from lead to sale are improving, suggesting that ARPA (average revenue per agent) growth can continue.  Second half 2014 agent net additions may have been impacted from acquisition activities.  Zillow is increasingly prepared for the pending migration away from ListHub as more MLSs and brokerages establish direct connects, including two of the top three MLSs nationally. JMP projects combined 2015 revenue of $737M (+27% Y/Y), EBITDA of $149M (20.2% margin), and PF EPS of $0.95. The updated JMP price target of $145 is based on an unchanged DCF analysis with a WACC of 10%, a 12.0x terminal multiple, and three-year revenue and EBITDA CAGRs of 30% and 78.5%, respectively.