William Blair Starts Zillow (Z) at Market Perform

William Blair analyst Stephen Sheldon initiates coverage on Zillow (NASDAQ: Z) with a Market Perform rating.

The analyst comments "(+) Leading Home Search Portal. Zillow is the clear leader among home search portals in visitor traffic, with first-mover advantages from launching almost two decades ago. Importantly, Zillow’s traffic share appears larger than that of its next three competitors combined, and it reports that about 80% of its traffic comes from organic or direct sources. This is a major competitive advantage for Zillow. (+) Should Benefit From Housing Market Recovery. Zillow’s monetization is closely tied to home volumes, which has been a headwind in recent years. Still, housing activity is likely near a cyclical bottom and could return to modest growth in the coming years, supporting a better backdrop. (+/-) Building “Super App” With Integrated Digital Tools. Zillow has been fleshing out the concept of a “Super App” for consumers, aspiring to pull together all the services needed in a home transaction into one place (home tours, mortgage, title, closing, moving, etc.). Zillow is making some early progress, including in mortgage and rentals, but it could face challenges and complexities integrating with so many third parties across the value chain. (-) Competition Intensifying. While Zillow is the clear leader in residential search, competition is intensifying, especially from CoStar’s Homes.com portal. Zillow also competes with CoStar in rentals and could face even stronger mortgage competition from Rocket after the acquisition of Redfin. Zillow may need to spend more to maintain its competitive positioning, limiting margin expansion. (-) Potential Industry Changes Pose Risk. Almost half of Zillow’s revenue comes from agents predominantly representing buyers, and we believe buyer-side commission rates could decline following changes from recent industry lawsuits and settlements. Zillow is working to diversify its revenue (rentals, Showcase solution for listening agents, etc.), but its high buyer-side exposure could impact financials at some point. Zillow also relies heavily on IDX feeds into the MLS for listings, so changes to Clear Cooperation rules could limit access to certain listings. Valuation and Risks. On 2025 estimates, Zillow trades at 8 times gross profit, 25 times adjusted EBITDA, and 33 times free cash flow. Risks to consider include:1) cyclicality; 2) increasing competition; 3) high exposure to buyer-side agent monetization; 4) inconsistent margin expansion; and 5) M&A integration."

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

Shares of Zillow closed at $62.57 yesterday.

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