Evercore ISI cuts Zillow stock price target on weak housing outlook

Evercore ISI cut its Zillow price target to $35 from $40, maintaining an In Line rating, and reduced 2026–27 revenue estimates by 3%–5% and EBITDA projections by 11%–13%. The firm expects Q4 revenue roughly flat year over year, with For Sale and Residential down 9%–15%, while Rentals is expected to grow 26%; 2026 EBITDA margin is projected at about 24%, versus 26% previously. Zillow’s Q3 adjusted EPS of $0.55 and revenue of $724 million missed consensus of $0.59 and $754.4 million, respectively; Evercore cited housing and mortgage headwinds and said it is waiting for clearer evidence of growth and margin improvement.

Analysis

The key issue is whether Zillow can keep monetizing audience growth while transaction-linked demand weakens. A growing Rentals business may cushion revenue, but it does not automatically offset lower conversion in For Sale and mortgage-related activity; if those segments drive the marginal contribution, flat consolidated margins could prove harder to sustain than the revenue mix suggests. Competitors such as CoStar Group and Realtor.com may compete for rental-advertising budgets, while a prolonged transaction slump pressures the broader portal and agent-advertising ecosystem. These are channel risks, not evidence of share shifts.

Near term, the lowered forward estimates and recent execution miss keep estimate revisions—not the analyst target itself—as the likely share-price driver. Over 1–3 months, watch quarterly For Sale trends, mortgage-pipeline rebuilding, Rentals growth, and evidence that cost controls protect margins. Over 6–18 months, sustained housing-rate pressure or prolonged Preferred-transition headwinds could defer a growth inflection; a meaningful recovery in transactions could instead restore operating leverage. The balance-sheet cash cushion reduces near-term financing risk but does not resolve earnings uncertainty.

Contrarian point: after the steep drawdown, another cautious target change may be less informative than actual leading indicators. Still, apparent cheapness is not a catalyst when estimates are being cut. The thesis improves if segment-level demand stabilizes and margins hold; it fails if For Sale weakness persists and EBITDA expectations continue to fall.

Key Decisions for Investors

• No immediate directional position in Zillow (Z): the revised target is close to the quoted share price, while uncertainty around estimate revisions leaves an unattractive near-term signal. Reassess after the next results or a clear improvement in leading demand indicators.
• For existing exposure, size risk against operating evidence rather than the analyst target. Track For Sale and Residential demand, mortgage-pipeline trends, Rentals growth, and EBITDA-margin guidance; persistent segment weakness or another margin reduction would argue for reducing exposure.
• Treat a sustained housing-transaction recovery as a potential re-entry catalyst, not a rate-cut assumption alone. Falsification of the cautious view would require improving conversion or pipeline metrics alongside stable margins; further estimate cuts despite Rentals growth would reinforce it.
• Monitor CoStar Group and Realtor.com for evidence of rental-advertising share gains, but do not trade a relative-value pair without data showing advertiser shifts or differentiated segment performance.