Bob Peck Believes Zillow's Core Revenues Set To Accelerate After 2016 Guidance

• Shares of Zillow Group, Inc.- Class A ZG have plunged 73.66 percent over the past six months, dropping to a low of $17.12 on February 9.
• Robert S. Peck of SunTrust Robinson Humphrey has maintained a Buy rating on the company, while lowering the price target from $26 to $25.
• Peck believes the FY16 revenue guidance implies acceleration in growth and that the company is positioned as the category leader in the online search segment.

Analyst Robert Peck explained that Zillow Group reported its 4Q revenues in line with expectations, while the EBITDA (ex legal) beat expectations.

For 4Q15, the company reported 28 percent year on year core marketplace revenue growth, driving by acceleration in ARPA and robust performance of the Mortgage, Rentals and Other businesses.

“More importantly, FY’16 revenue guidance shows acceleration in core Premier Agent and Marketplace,” Peck noted, while adding, “We believe Zillow’s continued focus on new growth areas like Rentals and Mortgages as well as Premier Agent tools and ad units sets up well for growth in 2016 and beyond.”

Zillow Group expects 2H16 to be stronger, driven by its product sets and momentum. However, the company’s agent count declined by more than 4,000 and Peck expects that agents would be “phased out as a metric.”

The significant reduction in agents and the meaningfully lower EBITDA guidance for FY16 might have led to investor concerns, according to the SunTrust report.

The 1Q16 and FY2016 revenue estimates have been raised, while the EBITDA estimates have been lowered.