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The Ratings Game: Zillow could deliver a ‘back up the truck’ reset with upcoming earnings, analyst says

Shares of Zillow Group Inc. fell Thursday after an analyst cautioned that the online real-estate company could be preparing to cut its financial forecasts when it reports earnings Aug. 4.

“Based on our Premier Agent (PA) checks, we think this is a bigger ‘back up the truck’ [quarter] where ZG estimates really get reset as 6 months of slowing buyer leads is driving an accelerated pullback in ad spend,” wrote RBC Capital Markets analyst Brad Erickson in a note that mentioned an expected “guide-down incoming.”

He’s bullish on Zillow


overall, though he acknowledged that there could be some near-term pain.

“ZG’s category leadership makes it a long-term outperformer for us but needs the bigger clearing event before compelling incremental buyers,” Erickson continued.

Read: ‘We could be facing years, not months, of fewer home sales,’ says Redfin CEO announcing 8% layoffs

He noted that his recent conversations with agents suggest that two-thirds have recently cut their Zillow spending or are planning to, which compares with 56% from when he conducted checks in late April.

“While the obvious, rate-driven retreat in transaction volumes the past few months…is obviously the culprit, the important nuance we detected was that quarters (plural) of declining lead volumes & conversion is finally taking its toll on agents and is producing bigger cuts than what we detected previously,” Erickson said in his note to clients.

Erickson kept his outperform rating on Zillow’s stock, though his cut his price target to $46 from $50 and lowered some estimates headed into the next report.

“We believe we’re too close to the cyclical trough (perception wise) to warrant downgrading the stock, even despite the clear negativity that our checks continue to find,” he wrote. Among current positives is that Erickson sees signs of high demand for the company’s Flex offering.

Zillow shares lost more than 3% in Thursday’s trading. They’ve dropped 69% over the past 12 months as the S&P 500

has fallen 7%.

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