CoStar, Zillow slide as Google real estate listing test sparks concern

Shares of CoStar (CSGP) and Zillow (ZG) are under pressure on Monday as Wall Street digests news that Google (GOOGL) is testing new real estate ads. Piper Sandler recommends investors buy Zillow as it sees concerns related to the Google news as “overblown.”

NEW REAL ESTATE AD FORMAT: According to a screenshot of a Google search result shared in an article by Mike DelPrete titled “Google Enters the Portal Wars,” the search engine giant is putting for sale listings directly into search results, in what appears to be a test with a limited number of markets and only available on mobile. This is reportedly part of a new paid-for partnership with the AI-powered real estate brokerage HouseCanary.

OVERBLOWN CONCERNS: Piper Sandler calls fears around Zillow following this report “overblown,” noting that this is not the first time Google has attempted to use MLS data in search. Piper does not see an impact on Zillow’s business and questions if Google has the right to use MLS data in its searches. It recommends buying Zillow on weakness and keeps an Overweight rating on the stock with an $85 price target.

LITTLE FUNDAMENTAL RISK: Also commenting on the news, RBC Capital notes Zillow’s exposure to SEO, or Search Engine Optimization, is small. While the firm can’t say there would be no impact from a top of funnel discoverability perspective, it will say that the company’s SEO exposure is fairly limited relative to mobile app usage and even smaller when it comes to engagement that translates to revenue. Overall, RBC sees the headline as “negative,” but fundamental impact as “less likely.” The firm has an Outperform rating on Zillow with a price target of $95 on the shares.

Voicing a similar opinion, Wells Fargo told investors in a research note of its own that given Zillow’s limited reliance on organic search and modest marketing spend relative to revenue, any shift from organic to paid traffic is expected to have only a minor financial impact. Wells Fargo has an Equal Weight rating and $73 price target on Zillow shares.

PRICE ACTION: In afternoon trading, Zillow Group is down almost 9%, or $6.15, to $66.23. CoStar, which owns Apartments.com and Homes.com, is down 7% to $63.46.