Zillow (ZG) faces challenges from weaker buyer demand, deteriorating lead quality and friction in its Preferred transition, with recent agent checks largely negative, RBC Capital Markets said in a note emailed Tuesday.
The firm believes Q3 results could come in toward the lower end of
guidance. The company is slated to release its quarterly results on Wednesday.
The brokerage said buyer intent weakened amid affordability and interest-rate pressures, particularly at the lower end. Feedback on Zillow Home Loans was mixed, with concerns over underwriting and product options offset by positive comments on responsiveness and preapproval speed.
RBC noted that rental lead substitution could weigh on demand, while the accelerated shift to Zillow Preferred faced transition challenges. Zillow visits and monthly active users also declined for a second consecutive quarter in Q2, with further weakness possible in Q3, according to the note.
The analyst lowered its Q4 revenue and adjusted earnings before interest, taxes, depreciation and amortization estimates to $688 million and $175 million, respectively. The firm also noted the chances of Google exploring its own portal-type of solution as a negative catalyst risk.
RBC maintained its outperform rating on the stock but lowered its price target to $45 from $55.
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