Zillow shares have slumped 10 percent over the last two sessions after two negative headlines hit the company, Bernstein said in a note on Tuesday.
The stock’s slide follows “a lawsuit being filed against the company on Friday and the announced merger of Compass and Anywhere yesterday,” Bernstein wrote.
On the lawsuit, Bernstein said, “At first glance, we believe the lawsuit is less of an issue. We are obviously not lawyers, and our view here could change as we learn more.”
The complaint argues that consumers are misled into thinking they are contacting listing agents, that Zillow’s Flex fees are hidden, and that the fees inflate home-buying costs.
But Bernstein said the case “doesn’t provide concrete evidence that Zillow’s Flex program leads to higher costs for home buyers relative to like-for-like industry transactions.”
The analysts added that “Zillow could probably take steps to improve transparency.”
The Compass-Anywhere merger could prove more significant, Bernstein said. The combined brokerage would have 18 to 19 percent of market share and could drive further consolidation.
“Agents on the ground are ultimately Zillow’s customer, and remain likely to follow leads, transactions, and ROI,” Bernstein wrote, suggesting the company could still thrive.
The bigger risk could be Compass’s support for private listings, which may pressure Zillow’s listing standards in the future, according to the analysts.
Bernstein concluded: “Two negative headlines back-to-back, but in recent years such events have proven to be good buying opportunities.” The firm kept an Outperform rating on Zillow with a $105 price target.
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