In a research report published Tuesday, RBC Capital analyst Mark Mahaney reiterated a Sector Perform rating on Zillow Group Inc (NASDAQ:Z) and reduced the price target to $103 (from $135) which implies an upside of 23% from current levels. The decreased price target comes after the company provided an operational update on its Trulia acquisition and its first proforma guidance, which was materially below consensus.
Mahaney noted, “Zillow management cited substantial delays and disruptions related to the FTC investigation into the Trulia acquisition as being the principal cause of the larger than expected transition challenges. We believe that these were a major factor. But we also believe that the relatively large size/complexity of the Trulia transaction is a large factor.”
Furthermore, “We believe that core Zillow trends are likely well intact, although our recently published Real Estate Survey carried mixed results for Z. Related to Trulia itself, we believe that its Market Leader asset is likely experiencing very modest growth prospects and will be sold. We also sense that Trulia’s (and Zillow’s) Display Revenue segments may have been over-monetized historically, causing additional volatility in current growth rates.”
Bottom line, “Near term, Zillow is facing substantial integration issues/challenges related to the Trulia acquisition, which means that Z is unlikely to outperform the market anytime soon.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a total average return of 22.3% and a 66.2% success rate. Mahaney has a 19.6% average return when recommending Z, and is ranked #18 out of 3574 analysts.