Zillow's Expanded Offering 'Should Only Further Sew Up Its Dominance': Needham

Zillow Group Inc Class A ZG announced an expanded service offering in select markets, beginning in 2021, that will allow customers to sell homes through licensed Zillow Homes employees. 

The Zillow Analyst: Needham analyst Brad Erickson maintained a Buy rating on Zillow and increased the price target from $110 to $125.

The Zillow Takeaways: Zillow's new offering achieves two critical things that it has been lacking: allowing direct access to multiple listing service data and better attachment to seller transactions versus its historical presence, Erickson said in a Wednesday note.

Until now, Zillow never had direct access to MLS data, which is the most comprehensive data repository for residential real estate in the U.S., the analyst said.

"Having at-market data with any other brokerage should only further sew up its dominance for potential homeowner engagement."

Needham also sees meaningful cost savings and margin benefits longer-term versus the intricate and expensive arrangement Zillow had to build to get data as a non-broker before, Erickson said. 

Historically, over 90% of Zillow's leads are geared toward buyers, which are only half of the brokerage total addressable market and of lower value, given that sellers often end up buying, the analyst said.

Zillow can improve conversions and monetization over time, capitalizing on its ability to bid on homes combined with a licensed employee directly following up on all inbound requests, he said. 

"Ultimately, we think Z will be in a position to capture the entirety of potentially two transactions with structurally better margins than a traditional brokerage." 

ZG Price Action: At last check, Zillow shares were rallying 2.16% to $100.73.

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Photo courtesy of Zillow.