Analysts gave Zillow an “overweight” rating, which means they expect Zillow to outperform peer companies. The report also sets Zillow’s share price target at $48 by December of this year.

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Despite a rough market and a recent earnings report that ended up in the red, a group of analysts this week gave Zillow a vote of confidence and suggested shares in the company could rise in 2023.

The analysts hail from JP Morgan and were led by Dae K Lee. In a report published Monday, Kee and company gave Zillow an “overweight” rating which is similar to a “buy” recommendation. The rating means the analysts expect Zillow to outperform peer companies. The report also sets Zillow’s share price target at $48 by December of this year.

By comparison, shares in Zillow were trading in the mid $42 range as of early Tuesday afternoon. Zillow’s current share price is a considerable jump from last October when it fell to barely more than $26.

Credit: Google

The JP Morgan report acknowledged Zillow’s share price growth, and said it reflects “headwinds stabilizing.” The report also notes that Zillow’s “leadership” as the most-visited online real estate platform makes it well-positioned to navigate challenges in the industry and “emerge stronger on the other end.”

The report goes on to praise Zillow’s Premier Agent lead generation program, its relationship with customers and its investments in the brand — all of which “should allow Zillow to be more resilient through the downturn than other real estate businesses.”

The report also notes that industry headwinds haven’t disappeared, though analysts do envision improvement on the horizon.

“This industry, however, is cyclical, and we are starting to see signs of stability,” the report reads. “We believe the down cycle is close to the bottom, if not already there, and we expect recovery back to normalized levels.”

Though the report ultimately offers an upbeat perspective on Zillow and predicts share price growth, the $48 target is still below the company’s all-time high price of just over $200 per share back in February 2021.

In addition to Zillow, the report also discusses Redfin. The analysts write that they like Redfin “as one of the online real estate leaders with opportunities to drive strong growth and expand margins.”

However, according to the report, Redfin’s brokerage model — it pays agents a salary rather than a more standard commission — “makes navigating through the current volatile environment more challenging, and Redfin has not yet delivered consistent adjusted EBITDA profit.”

The report ultimately sets a December 2023 share price target for Redfin at $8. That’s up slightly from the $7.55 shares were fetching mid-afternoon Tuesday.

Credit: Google

The JP Morgan analysts issued the report because they are now initiating coverage of the two real estate giants.

The new report comes just days after both Zillow and Redfin published their most recent earnings results. In Zillow’s case, the company revealed that it brought in $435 million in revenue during the fourth quarter of last year. That’s down 19 percent compared to the same period one year prior.

The fourth quarter of 2022 also saw Zillow suffer a net loss of $72 million. That loss was down from the $261 million Zillow lost in the fourth quarter of 2021.

Redfin earned $479.7 million in revenue during the fourth quarter last year, according to its earnings report. That’s a 25 percent drop compared to the fourth quarter of 2021. The company lost a total of $61.9 million, up from $27 million during the same period one year prior.

The earnings reports from both Zillow and Redfin reflect a housing market that slowed considerably in the latter half of 2022. The slowdown took place as mortgage rates shot up in response to the Fed’s attempts to tamp down inflation.

A dip in rates boosted home sales in January, though analysts expect those gains to be short-lived as rates resumed their climb in February. That situation has cast an air of uncertainty over the real estate industry as it prepares for the normally busy spring housing market.

In that context, the conclusions in the new JP Morgan report on Zillow and Redfin may offer a glimmer of hope even to observers who aren’t investing directly in the two portals.

“Overall, we are positive on our online real estate coverage on improving fundamentals and secular tailwind opportunities,” the report concludes, “which over time should create many profitable winners in our view.”

Email Jim Dalrymple II

Redfin | Zillow
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