What Happened?
Shares of online legal service provider LegalZoom (NASDAQ:LZ) jumped 17.5% in the afternoon session after the company delivered a strong quarter, with next quarter's EBITDA guidance surpassing analysts' expectations. Looking ahead, both revenue and EBITDA guidance for the upcoming quarter came in above expectations, signaling continued momentum. Overall, we think this was a solid quarter with some key areas of upside.
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What The Market Is Telling Us
LegalZoom’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. But moves this big are rare even for LegalZoom and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 8 months ago when the stock dropped 31.6% on the news that the company announced a leadership change and lowered its full-year revenue and free cash flow guidance. LegalZoom announced in a press release that the current Chairman of the Board of Directors, Jeffrey Stibel, has been named CEO, effective immediately. This follows the announcement of the departure of current Chief Executive Officer Dan Wernikoff, who will also resign from the Board.
Separately, the company lowered FY'24 revenue expectation to a range of $675 million to $685 million (vs. previous guidance of $710m at the midpoint) and its free cash flow to a range of $75 million to $85 million (vs. prior guidance of $90m at the midpoint).
Following the announcement, multiple Wall Street analysts downgraded the stock's rating. JMP Securities lowered the stock's rating from Market Outperform (Buy) to Market Perform (Hold), adding, "Investors are likely to take this as a signal of newfound, operational troubles at the company. Since initiating coverage in February, we have been strongly optimistic about LegalZoom's (LZ) continued transition to a subscription-dominant platform. Our thesis — which expected improved results would bear fruit in 2H24 and 2025 — appears compromised."
LegalZoom is up 34.2% since the beginning of the year, but at $10.15 per share, it is still trading 25.3% below its 52-week high of $13.59 from March 2024. Investors who bought $1,000 worth of LegalZoom’s shares at the IPO in June 2021 would now be looking at an investment worth $268.03.
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