What Happened?

Shares of online legal service provider LegalZoom (NASDAQ:LZ) jumped 7.2% in the morning session after the stock received a double rating upgrade from JP Morgan. JP Morgan upgraded LZ's stock from Underweight (Sell) to Overweight (Buy), adding that the company is at "an inflection point." The firm added, "Accordingly, we place LegalZoom on Positive Catalyst Watch, expecting management to guide 2025E ahead of the Street for profitability during its 4Q24 earnings release (expected in February)."

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What The Market Is Telling Us

LegalZoom’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 6 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 Jeffrey Stibel as CEO, effective immediately. This follows the announcement of the departure of Dan Wernikoff. 

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 haves 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 4.6% since the beginning of the year, but at $7.91 per share, it is still trading 41.8% 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 $208.85.

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