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Needham Upgrades Zillow as a Post COVID-19 Play

By Donna Fuscaldo – Jun 8, 2020 at 6:57PM

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Needham thinks consumers are way more comfortable purchasing homes online, which bodes well for Zillow.

Zillow (ZG 2.53%) got a ratings upgrade on Monday, enabling its stock to finish the trading session up nearly 5%. 

In upgrading the stock from "hold" to "buy," a research report from Needham said the online real estate company was poised to benefit in a post-COVID-19 world. Even as stay-at-home rules are being lifted, people are still skittish about venturing out, making online real estate an attractive alternative.

A couple sitting on a couch looking at real estate online with boxes around them.

IMAGE SOURCE: GETTY IMAGES.

Consumers across the country are also growing more comfortable with a digital world, as millions have been working from home for months. That will make it much easier for them to shift to homebuying online, said Needham analyst Brad Erickson.   

"We think prospective home buyers will exhibit a greater comfort level with engaging with [real estate agents] online as a function of being forced to move much of their lives online through [work from home] and shelter-in-place," the analyst wrote, as reported by TheStreet.com

He also said consolidation is coming in the real estate market, with bigger competitors likely to gobble up smaller agents. Those larger agencies will in turn spend more on advertising to become the dominant player, which bodes well for Zillow.

Another driver of growth for the tech stock, according to Needham, is its Flex program, which connects real estate brokers with home shoppers.  That gives Zillow the ability to add a business that will have margin growth in the coming years, the analyst said. 

Needham now has an $80 price target on Zillow, implying shares can appreciate 28%. Year to date, the stock is 38% higher.

Donna Fuscaldo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares). The Motley Fool has a disclosure policy.

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