Zillow valuation multiple expected to re-rate higher in H2 2023 – UBS

By Sam Boughedda

UBS analysts initiated a Buy rating on Zillow Group (NASDAQ:), assigning a price target of $50 per share in a note to clients on Friday.

The analysts said the firm fully expects near-term housing trends to deteriorate but is upbeat on where stocks could end up on a 12- month basis, adding that the current period of maximum uncertainty is a “good entry point for Buy-rated Zillow shares for longer-term investors.”

“Shares currently price in 16% revenue growth, and we forecast Zillow to grow revenue at 18.5% in 2024E and 15% in 2025E, which we see driving multiple expansion as the macro environment improves,” wrote the analysts. “We think the mortgage funnel is the largest under-appreciated potential driver of Zillow’s goal to double its transaction share from 2021 through 2025, and in an upside scenario we believe this funnel alone could drive those gains.”

In addition, the firm expects Zillow to see “more tangible progress” towards its goal to double transaction share from 2021 through 2025, and as macro improves and Zillow executes against its goals, UBS “expect the valuation multiple to re-rate higher, likely in 2H of 2023.”

“Our agent checks also endorse the notion that Zillow can monetize higher transaction volumes, driving healthy top line growth on the other side of the current environment,” the analysts continued.

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