Shares of Zillow Group Inc. experienced a drop in value on Wednesday, following a Wall Street analyst’s recommendation to stop purchasing the stock. The analyst, Curtis Nagle from BofA Securities, believes that the current prices of Zillow Group already reflect a recovery in the housing market.
Adding to the concerns, Nagle highlights potential uncertainties related to lawsuits regarding the commissions paid to real estate agents. These legal concerns could put additional pressure on the online real estate services company’s stock in the upcoming months.
As a result of Nagle’s downgrade from “buy” to “neutral,” the more active Class C shares (Z, -1.91% ZG, -1.88%) dipped by 1.7% during morning trading.
This decline marks the sixth loss out of the seven trading sessions in 2024, resulting in a year-to-date decrease of 5.8%. It’s worth noting that Zillow’s stock experienced a notable surge of 41.3% in December 2023, making it the best performing month since the company went public in July 2011. Comparatively, the S&P 500 gained 4.4% during December.
Citing the December rally, Nagle argues that the stock has already factored in a “steady recovery in housing in 2024.” However, he expresses concerns that even with expected declining interest rates, the housing market might face continued challenges due to “near record-low home affordability.”
Furthermore, a recent court ruling found that the National Association of Realtors and two real estate brokerages colluded to inflate commissions. This ruling has the potential to negatively impact Zillow’s buy-side-agent lead-generation business, which currently accounts for nearly half of the company’s revenue.
It remains crucial for investors to closely monitor developments in the housing market and assess the potential implications these factors might have on Zillow Group Inc.’s stock performance.
Zillow Faces Potential Challenges Amid Lawsuits
In a recent client note, analyst Nagle expressed concerns about the potential impact of commission sharing lawsuits on Zillow’s revenue and homebuyers. Although a complete ban is not expected, Nagle believes that Zillow will need to adapt to changes in revenue diversification. However, until there is more clarity on the issue, there may be uncertainty surrounding valuation. As the final verdict for the Sitzer case is awaited in April, investors face risks such as a decrease in the number of real estate agents, lower commission amounts due to fee transparency, and uncertainty regarding buy-side commission responsibility.
An additional concern for Zillow is that with Nagle’s downgrade, a significant portion of analysts covering the stock have now become neutral. Out of the 28 surveyed analysts, 13 are neutral, 14 are bullish, and one remains bearish. Moreover, while Nagle’s stock-price target of $60 is above the average target of $52.50, it still suggests a potential downside of approximately 4% from current levels.
Also read: The hottest real-estate market of 2024 will be this snowy Northeastern city, Zillow says.