Cautious Outlook: Sell Rating for LegalZoom Amidst Acquisition Concerns and Profitability Challenges

Elizabeth Porter, an analyst from Morgan Stanley, maintained the Sell rating on LegalZoom (LZ – Research Report). The associated price target remains the same with $8.00.

Elizabeth Porter’s rating is based on several factors tied to LegalZoom’s recent acquisition of Formation Nation. While the acquisition is expected to contribute positively to LegalZoom’s Adjusted EBITDA and earnings by FY25, there are concerns about the lower EBITDA margin profile of Formation Nation due to its service-heavy business model. This could potentially weigh on LegalZoom’s overall profitability.
Furthermore, although the acquisition could enhance LegalZoom’s market strategy and offer opportunities for cross-selling, the benefits are more focused on go-to-market improvements rather than product innovation. As such, Porter suggests a cautious stance while awaiting better execution and clearer revenue synergies, leading to a Sell rating for LegalZoom’s stock.