Zillow's Stock Still Has Room To Run...For Now

Zillow Group, Inc.- Class C (NASDAQ: Z) is scheduled to report its 1Q16 results on May 3.

Benchmark’s Daniel L. Kurnos maintains a Buy rating on the company, while raising the price target from $33 to $34.

Medium Term

Kurnos believes that the “1Q16 results will be critical for proving/disproving the ARPA thesis, which has been central to the bear case.”

The analyst explained that ARPA would need to have grown at least 35 percent year on year, or almost 10 percent quarter on quarter, for Zillow Group to be able to achieve the mid-point of its guidance.

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“We think Zillow still has room to run over the medium-term on the rate front, with guidance also implying earlier monetization of ancillary products that will be key to the longer-term story,” Kurnos stated.

If the News Corp (NASDAQ: NWSA) litigation is resolved in 2016, it could benefit the shares through meaningful leverage in 2017.

Long-Term Story

“We have been consistent in our belief that the Zillow long-term story could be supported by little to no PA sub growth coupled with steady price hikes for power brokers,” Kurnos explained, while adding, “With the vast majority of direct connect completed, the narrowing of the information gap with Realtor has led to a significant improvement in lead quality.”

The analyst also believes that Zillow Group is formulating a stronger ancillary market strategy for the top tier markets and that the company would continue to pursue acquisition to strengthen its market position.