Zillow Group (ZG) PT Cut to $31 at Susquehanna on Mediocre 3Q and Soft Outlook

November 2, 2016 6:54 AM EDT
Get Alerts ZG Hot Sheet
Price: $37.65 +0.67%

Rating Summary:
    3 Buy, 2 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 24 | Down: 17 | New: 14
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Susquehanna analyst Shyam Patil reiterated a Neutral rating and lowered his price target on Zillow Group (NASDAQ: ZG) to $31.00 (from $35.00) on a mediocre Q3 and soft outlook.

Patil Highlighted:

  • Our thoughts going forward and upcoming catalysts. We reiterate our Neutral due to: 1) the lofty valuation (~7x EV/sales, which is the third highest in our group); and 2) mediocre fundamentals. Traffic and leads are decelerating, and we continue to hear cautious feedback regarding lead volume and quality for some larger agent customers. Upcoming catalysts include third-party traffic data for Zillow/Trulia and quarterly results.
  • Mediocre 3Q… The key revenue line—Premier Agent revenue—was in-line with expectations. While EBITDA of $59m did come in ~$9m ahead, it was primarily due to lower opex which is being pushed into 4Q. Leads and traffic growth continued their pattern of deceleration.
  • …And softer 4Q outlook. Overall revenue and EBITDA guide is below previous implied 4Q guide, our estimates and consensus. Premier agent revenue is expected to come in at $162m, largely in line with our previous estimate, but rentals & other revenue (one of the key future growth streams) was guided down ~9% vs previous implied 4Q guide. Management noted that PA revenue guide is conservative, though couldn’t quantify the magnitude when asked on the call. EBITDA is expected to come in at ~$48.5m, 2% below our estimate and consensus, as ZG noted that some expenses slated for 3Q will be pushed into 4Q.

For an analyst ratings summary and ratings history on Zillow Group click here. For more ratings news on Zillow Group click here.

Shares of Zillow Group closed at $32.78 yesterday.

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