Citi analyst Ron Josey is sticking with on his bullish call on Zillow (Z) stock.
In a recent client note, Josey reiterated a Buy rating on the stock with a price target of $68 in the wake of last week’s groundbreaking $418 million settlement from the National Association of Realtors that settled lawsuits regarding its commission rules.
News of this settlement sent shares of Zillow and other real estate players lower last Friday, with investors seeing this ruling as a negative for real estate agent fees and, in turn, marketing spend and lead gen on platforms like Zillow. Zillow stock was down about 1% on Friday, trading just below $51 per share.
But Josey doesn’t see this development fundamentally changing the story for Zillow.
“Our view here is that the settlement doesn’t cancel or get rid of the commissions for buy-side agents. In fact, you can still move forward with that. And a sell side agent can still do that, just maybe not within the MLS,” Josey told Yahoo Finance Live.
As part of its settlement last week, the NAR announced a new set of rules that prohibits agent’s compensation from being included on portals like the Multiple Listing Service (MLS) where the majority of homes sold in the US are listed. But those changes won’t impact Zillow’s online home listings platform, according to Josey.
“We don’t envision a major disruption at least immediately to the overall business,” Josey said.
“Now, to be clear, [it is] still early… the new settlement goes into effect I think in mid-summer of this year. And so we’ll have to see what happens.”
Other analysts, however, aren’t so sanguine about the impacts of this settlement.
“Zillow has historically gotten buy side leads and the kind of thought right now [is that buying agents] their commissions are going to be under pressure, potentially going to zero, which is bad for Zillow,” JMP Securities analyst Nicholas Jones’ told Yahoo Finance in a phone interview.
According to Jones, Zillow has a market based pricing approach — based on how much the agent spends, the platform funnels leads to whoever spends the most. And about 70% of the lead volume tends to be buy-side engagement.
In theory, “if [buyers’ agents’] revenue goes down, well, they spend less [on] advertising dollars, right? That’s kind of the debate,” Jones said.
Meanwhile, real estate firm Compass said on Friday it reached a $57.5 million settlement to make changes to its commission practices, the first deal to be announced since the NAR’s agreement last week. And as The Wall Street Journal noted Friday, several other brokerages have also settled suits related to commission fees within the last year.
