Zillow Group Upgraded On Prospect Of New Price Increases

George Askew of Stifel upgraded shares of Zillow Group, Inc. (NASDAQ: Z) (NASDAQ: ZG) to Buy from Hold with a price target boosted to $43 from a previous $36.

Upgrade Justification

Askew's upgrade is based partly on Zillow's approximate 50 percent price increase on leads in its Premier Agent program for new contracts. The analyst suggested this move, which was completed in early February, will add at least 500 basis points to the company's total revenue growth rate throughout 2017.

Askew noted that he analyzed the projected six-month ROIs of 400 listings across 400 zip codes which have been calculated by the company and presented to its Premier Agents. The analyst added that the projected ROIs declined "sharply" as of February 1, which reflects the higher prices the company is charging for the leads.

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Catalysts For Change

Askew continued that these changes to pricing can only happen if: 1) lead prices increase, 2) lead conversion rates decline or 3) there are material changes in either average home prices or commission rates.

Askew further noted home prices and commission prices have likely remained stable and doesn't believe conversion rates have fallen. As such, pricing is the only possible explanation for the change in ROIs.

Bottom line, the analyst believes the impact of these pricing changes will be realized as existing Premier Agents budgets roll over in the next six-to-nine months.

At last check, shares of Zillow Group (Z) were up 4.83 percent at $36.89. Shares of Zillow Group (ZG) were up 4.67 percent at $36.41.