Bernstein cuts Zillow rating after disappointing guidance

Investing.com -- Bernstein downgraded Zillow Group to Market-Perform from Outperform on Thursday, telling investors in a note that it has lost conviction in its thesis on the real estate platform following its second-quarter results.

Analyst Nikhil Devnani said the firm is "throwing in the towel" on its Zillow call, lowering its EBITDA run-rate estimate by 10% and cutting its price target to $38 from $50.

He acknowledged the firm "got this one painfully wrong -- most certainly with our timing on the upgrade," but said the bigger issue is a loss of conviction in the original fundamental thesis after the quarter.

Bernstein’s bull case had rested on expanding share gains from Zillow's revenue model transition to Preferred and significant operating leverage.

But the second-half revenue guide disappointed, with Residential guided to no growth year over year in the third quarter, and share gains excluding Mortgage appear to be compressing.

The firm attributed that to revenue accruing to Mortgage over Residential, a timing lag on Mortgage revenue recognition, and increasing seasonality. While it expects the headwinds to dissipate by the second half of 2027, Bernstein said they "could keep a lid on Residential revenue growth over the course of 2027," and expects investors to debate monetization risk.

Devnani also flagged the question of "the right multiple to put on the stock if revenue gets recognized through Mortgage origination vs. advertising."

Though margin expansion should improve in 2027, he believes underwriting above-consensus numbers while the core profit center faces subdued growth is a challenge.

You May Also Be Interested In

• Zillow July report shows 7% sales gain as pending data dims outlook
• Trump held multiple undisclosed calls with Fed Chair Warsh, reports say
• AppLovin stock: Piper Sandler cuts rating after first guidance miss since IPO