LegalZoom.com, Inc. (LZ) has gained traction in the legal tech industry. The company offers a wide range of online legal and compliance services, simplifying complex legal processes for small businesses and individuals, from business formation and intellectual property protection to bookkeeping and tax preparation.
Recently, the stock has been on an upward trajectory, fueled by an upgrade from J.P. Morgan, which raised its rating from underweight to overweight and increased its price target from $8 to $9. Analysts are also optimistic about its financial outlook, projecting a modest rise in fourth-quarter revenue to $161.01 million and a 23.9% uptick in earnings per share to $0.16. Moreover, the company’s consistent surprise history, beating the consensus EPS and revenue estimates in three of the last four quarters, further strengthens investor confidence.
Shares of LZ have gained 46.1% over the past six months and 19.6% year-to-date, closing the last trading session at $8.86.
Here are the financial aspects of LZ that could influence its price performance in the near term:
Strategic Partnerships
On December 16, 2024, LZ announced a multi-year partnership with 1-800Accountant, allowing LegalZoom customers access to year-round bookkeeping and tax services. This move enhances its suite of business solutions, ensuring small business owners receive seamless tax preparation support. By integrating these services, LZ strengthens its value proposition, making its platform more comprehensive for entrepreneurs navigating legal and financial challenges.
On November 21, the company expanded its collaboration with Defy Ventures, a nonprofit focused on providing career training for formerly incarcerated individuals. This initiative includes funding for mental health and well-being programs, reinforcing the company’s commitment to social equity. By investing in initiatives that promote economic empowerment, LegalZoom not only strengthens its corporate social responsibility efforts but also expands its reach within underrepresented communities.
Strong Financials
LZ’s total revenue for the fiscal third quarter (ended September 30, 2024) increased 1% from the prior year to $168.60 million, with a 5% year-over-year uptick in its Subscription revenues. Its gross profit grew 5% from the year-ago value to $113.88 million (with a margin of 68%). The company’s non-GAAP net income amounted to $29.70 million or $0.17 per share, representing an increase of 27.4% and 41.7% year-over-year, respectively.
On an adjusted basis, LegalZoom’s performance was even stronger. The adjusted EBITDA amounted to $47.09 million, up 39.6% over the prior-year quarter. Additionally, LZ reported an adjusted free cash flow of $21.98 million, representing a 13% year-over-year increase.
For fiscal year 2024, LZ expects its revenue to range from $678 million to $682 million. Adjusted EBITDA is projected to be between $144 million and $148 million, while free cash flow is expected to range from $80 million to $85 million.
Rosy Annual Forecasts
The consensus revenue estimate of $681.08 million for fiscal year 2024 (ended December 31) reflects a 3.1% year-over-year increase. Likewise, the company’s EPS is anticipated to increase 26.1% from the previous year, reaching $0.52.
Looking ahead, analysts anticipate a 2% revenue increase for the fiscal year 2025 (ending December 2025), with projections reaching $694.99 million. Similarly, EPS for the current year is expected to grow 8.8% from the prior year, settling at $0.56.
Robust Profitability
LZ’s trailing-12-month gross profit and levered FCF margins of 64.14% and 13.65% are 101.2% and 99.6% higher than their respective industry averages of 31.89% and 6.84%. Likewise, its trailing-12-month Return on Common Equity (ROCE) of 23.61% is 75.3% higher than the industry average of 13.47%. Furthermore, the stock’s 21.66% trailing-12-month Return on Total Capital (ROTC) compares to the 7.14% industry average.
POWR Ratings Exhibit Solid Prospects
LZ’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. LZ boasts an A grade for Quality, reflecting its higher profitability metrics compared to industry standards.
It also earned a B for Growth, consistent with its strong financial performance in the last reported quarter. Moreover, the stock’s B grade for Momentum is justified by its share price currently trading above its 50-day moving average of $8.08 and 200-day moving average of $7.84.
Within the A-rated Internet industry, LZ is ranked #4 out of the 47 stocks.
Beyond what we’ve stated above, we have also rated the stock for Value, Stability, and Sentiment. Get all LZ ratings here.
Bottom Line
LegalZoom’s strong estimate revisions have drawn solid investor interest, driving the stock up 16.2% over the past four weeks. However, there may still be room for further upside. The company’s shift to a software-driven subscription-based model is positioning it for long-term growth. At the same time, its focus on AI-powered enhancements is expected to attract high-value customers and expand its subscription-based offerings, ultimately boosting EBITDA margins in 2025.
Given its strong financials, robust profit margins, and bullish analyst sentiment, LZ appears well-positioned for continued growth. Thus, adding shares of this A-rated stock could offer significant upside potential for your portfolio.
How Does LegalZoom.com, Inc. (LZ) Stack Up Against Its Peers?
While LZ has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Internet industry: Meituan (MPNGY), Yelp Inc. (YELP), and Expedia Group, Inc. (EXPE), all of which carry A (Strong Buy) ratings. To explore more internet stocks, click here.
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LZ shares were trading at $9.01 per share on Tuesday afternoon, up $0.15 (+1.69%). Year-to-date, LZ has gained 19.97%, versus a 2.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
Is LegalZoom.com Inc. (LZ) the Legal Tech Stock to Buy Now? StockNews.com
