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Why LegalZoom Stock Slipped Today
Key Points
The online legal assistance specialist posted a mixed fourth quarter.
It easily topped the consensus analyst estimate for revenue, but whiffed on profitability.
Investors were clearly not inclined to judge LegalZoom's (NASDAQ: LZ) recent performance favorably. The company's release of its final set of 2025 figures after market close Thursday was met with a sell-off the following trading session. When the dust cleared, LegalZoom stock had lost nearly 7% on Friday.
Guilty of disappointment
In its fourth quarter of 2025, LegalZoom earned slightly more than $190 million in revenue, up 18% year over year. Of that, subscription revenue rose by 20% to almost $131 million, while transaction revenue advanced 12% to a bit more than $59 million.
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However, net income not in accordance with generally accepted accounting practices (GAAP) went in the other direction. It melted by 5%, landing at a shade over $31 million, or $0.17 per share.
Compounding that, analysts were expecting a slightly higher figure -- their consensus for non-GAAP (adjusted) profitability was $0.18 per share. On a brighter note, LegalZoom beat the average pundit projection of under $185 million.
In its earnings release, the company attributed its gains partially to the rise of artificial intelligence (AI). It quoted CEO Jeff Stibel as saying the technology "is transforming how legal work starts, which is opening up new markets."
An unnecessarily harsh sentence
Despite this, LegalZoom doesn't expect full-year 2026 revenue growth to top last year's final quarter. It's guiding for revenue of $805 million to $825 million, which would represent a maximum 9% improvement over the 2024 tally. Yet it exceeds the analyst consensus of under $801 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is forecast to hit $190 million to $200 million, for anticipated growth of 16% at most.
LegalZoom also expanded its existing share repurchase program by $100 million, adding to the roughly $70 million from its existing initiative.
I don't feel LegalZoom deserved the investor drubbing it took. It still has plenty of growth opportunities ahead, even if the future rises aren't as impressive as the trailing quarter's rates. I'd consider this an opportunity to snap up shares at a discount.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.