Online legal and compliance solutions platform LegalZoom (NYSE: LZ)
stock is in price discovery mode after its recent IPO. The two-decade-old company based out of Glendale, CA, is a premier forerunner to the subscription model for legal forms, busines
s compliance, trademarks and copyrights, and legal advice. The Company has a mission to democratize law with services including business forms, formation, wills, power of attorney forms, estate planning
and IP protection. Rather than pay attorneys high fees to have them use premade documents, you can simply subscribe and have access to these common forms. The Company has been around for two decades and continues to grow as more and more people set out on running their own businesses and handle legal matters in a do-it-yourself
(DIY) manner. LegalZoom is ushering in the new normal
that was accelerated by COVID-19
pushing forward e-commerce
, digital acceptance, migration, and innovation. Prudent investors looking for exposure can watch for opportunistic pullbacks in LegalZoom shares.
LegalZoom is a subscription service that provides legal software and services to small businesses and individuals. The Company was founded in 2001 in Glendale, CA. It disrupted the market for legal services being one of the first companies to provide affordable and conveniently accessible technology to help its customers create legal documents by themselves. The competition includes RocketLawyer and LegalShield and obviously actual attorneys and law firms. LegalZoom has been operating profitably until the most recent quarter. The Company generated $408 million in 2020 with a $46 million operating profit. In 2020, the Company continued to increase revenues by 18% despite the pandemic to $470 million with $49 million in operating profits. In Q1 2021, nearly 60% of new customers opted for the annual subscription on their initial purchase. The average revenue per transaction was $488 in Q1 2021. Revenues for Q1 2021 rose 27% year-over-year (YoY) to $134.8 million equating to roughly a $540 million annual run rate. However, the Company did lose (-$4.4 million). The IPO was for 19.1 million shares between $24 and $27, which enables the Company to raise $535 million in the IPO. The shares actually opened at $36.75 on its IPO on June 30, 2021. The Company plans to use the proceeds and private placement to repay in full the $523 million outstanding debt under its 2018 Credit Agreement.
On July 21, 2021, eight brokerage firms simultaneously initiated coverage of shares of LegalZoom. Raymond James started LegalZoom at a Market Perform rating. JMP Securities started at a Market Outperform with a $48 price target. William Blair started with an Outperform rating. Credit Suisse started coverage with an Outperform rating and $50 price target. Morgan Stanley initiated coverage with an Equal-Weight rating and a $44 price target. Citigroup started at a Neutral and $40 price target. Barclays started at an Overweight rating and a $45 price target. Jeffries started coverage with a Hold rating and a $39 price target. On July 26, 2021, Credit Suisse upgraded LegalZoom price target to $50 stating, “In-line with the methodology we use to value our US Internet coverage universe, our $50 target price for LZ shares is based on the DCF that assumes a WACC of 11.5% and a terminal growth rate of 3%. Risks include competition with other online and offline solutions, slower-than-expected CMB adoption on online legal services, macroeconomic uncertainty, and regulatory risk.”
LZ Opportunistic Pullback Levels
Using the rifle charts on the daily time frame provides a precision view of the price action for LZ stock. Since this is a recent IPO, the data is still being accumulated to produce the indicators on the daily and weekly rifle chart. However, the daily chart has the basic indicators appearing. Keep in mind that shares are still experiencing the price discovery period until at least the first earnings report release and reaction. The daily rifle chart peaked perfectly at the $40.94 Fibonacci (fib) level. The daily 5-period moving average (MA) has been falling at the $35.90 fib. However, shares attempted to coil to the daily 15-period MA at the $36.76 fib. Shares formed a daily market structure high (MSH) sell trigger on the breakdown under $39.90. The corresponding daily market structure low (MSL) buy triggered on the rising breakthrough $35.42. Risk tolerant investors can monitor for opportunistic pullback levels at the $34.67 fib, $33.93 fib, $33.65, and the $32.74 fib. The upside trajectories range from the $39.90 fib to the $43 level.
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