Zillow Climbs on Needham Upgrade to Buy From Hold

Zillow stands to benefit coming out the coronavirus pandemic, a Needham analyst says.
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Zillow  (ZG) - Get Report was climbing Monday after the online real-estate platform and brokerage was upgraded to buy from hold by a Needham analyst who said that the coronavirus pandemic has increased Americans' willingness to be introduced to a realtor on the internet.

Shares of the Seattle-based company were climbing 6.3% to $63.06.

Analyst Brad Erickson, who has a $80 price target on the stock, said in a note to investors that he believes Zillow "stands to benefit coming out of the pandemic in a variety of ways."

"First, we think prospective home buyers will exhibit a greater comfort level with engaging with realtors online as a function of being forced to move much of their lives online through (work from home) and shelter-in-place," he said. "Next, we think smaller realtors face increasing headwinds due to challenged lead generation and low inventory, which will cause real estate agent consolidation towards larger agencies and thus enable those agencies to spend more on advertising to take share."

Erickson also said he was optimistic that work-from-home and remote work may drive an accelerated transaction cycle over the next few years, benefiting the entire total-addressable market. 

The analyst also said he liked Zillow's Flex program's ability "to layer at least some additive, margin accretive growth over the next few years even as it cannot fully replace MMR (monthly recurring revenue) for a long time."

Zillow said on its website that Flex "makes it easier for service-oriented agents, brokers and teams to grow their business by providing connections to home shoppers at no upfront cost."

Erickson said that key downside risks are low inventory leading to protracted transaction softness and perceived macro risk. However, he noted that his most recent, more positive realtor checks suggest Zillow agents are thriving, not just surviving. 

"We view these risks as low probability if at all given the current macro technology," he said.