UBS maintains LegalZoom stock with $9 target post earnings

Tuesday, LegalZoom.com Inc (NASDAQ:LZ) shares remained under scrutiny as UBS analyst Stephen Ju reiterated a Neutral rating and a $9.00 price target. The online legal technology company, which maintains impressive gross profit margins of 64%, recently pre-announced its financial results, delivering revenue of $161.7 million, which was at the higher end of its forecasted range of $158 million to $162 million. This figure also slightly exceeded the general market expectations of $160.7 million but fell just short of UBS estimates of $162.4 million. According to InvestingPro analysis, LegalZoom appears undervalued at current levels, with 14 additional key insights available to subscribers.

LegalZoom’s adjusted EBITDA reached $44.2 million, aligning with the upper limit of its guidance between $40 million and $44 million. This performance modestly surpassed the consensus estimate of $42.9 million and was nearly in line with UBS’s prediction of $44.4 million. The company’s financial health score of 2.83 (rated as GOOD) by InvestingPro reflects its solid operational performance and strong cash flow generation capacity.

The company’s financial update coincided with the announcement of its recent acquisition of Formation Nation, which operates under the name "Inc Authority." LegalZoom acquired the entity for approximately $64.75 million in cash, including $49.3 million paid upfront and $15.4 million to be paid after one year. Additionally, the deal involves 2.2 million shares of LegalZoom stock, bringing the total transaction value to around $85 million, based on the closing price of $9.22 per share on the day of the announcement.

Ju noted that the acquisition appears to be a strategic move by LegalZoom to broaden its customer acquisition funnel. Inc Authority is known for its lower-cost business formation services, which could complement LegalZoom’s existing offerings and potentially attract a wider customer base.

LegalZoom’s latest financial results and the strategic acquisition indicate the company’s efforts to enhance its market position and expand its service offerings. The UBS rating and price target reflect a cautious but watchful stance on the stock’s near-term performance potential.

In other recent news, LegalZoom has been making significant strides in its market position. JPMorgan analyst Ella Smith recently raised the price target on LegalZoom to $11.00, up from a previous $9.00, maintaining an Overweight rating for the company’s stock. This follows LegalZoom’s acquisition of Formation Nation, a strategic move aimed at expanding its small business subscription solutions. Furthermore, LegalZoom’s preliminary fourth-quarter results for 2024 showed adjusted EBITDA at the high end of the company’s guidance range and a free cash flow more than double the implied guidance range and consensus estimates.

LegalZoom recently announced the appointment of Charles Thomas as its new Chief Accounting Officer, further strengthening its management team. In other developments, JMP Securities maintained its Market Outperform rating on LegalZoom, reflecting confidence in the company’s leading position in the business formations sector despite acknowledging potential challenges such as tough comparable results from previous years and rising competition.

These recent developments highlight LegalZoom’s ongoing efforts to strengthen its market position and financial performance. The acquisition of Formation Nation, coupled with strong financial performance and strategic appointments, contributes to LegalZoom’s continued growth and profitability.

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