LegalZoom.com, Inc. (LZ): A Bear Case Theory

We came across a bearish thesis on LegalZoom.com, Inc. on X.com by Fierce__beast. In this article, we will summarize the bulls’ thesis on LZ. LegalZoom.com, Inc.'s share was trading at $10.38 as of September 30th. LZ’s trailing and forward P/E were 68.06 and 11.11 respectively according to Yahoo Finance.

LegalZoom, Inc. ($LZ) currently presents a compelling downside opportunity, with a price target below $6 per share, implying more than 45% potential decline. The recent price move reflects short-covering and market excitement around the OpenAI and Perplexity partnership, but underlying fundamentals suggest limited upside. Full-year EBITDA is projected at $165–169 million, lagging implied revenue growth due to higher customer acquisition costs, increased marketing spend, and price concessions, indicating weak revenue quality. The 1Q25 acquisition of Formation Nation added approximately $12 million in revenue, leaving 2Q sequential growth negative and year-over-year growth at just 1.1%.

Competitive pressures are intensifying, as OpenAI partners with Stripe and Intuit to provide business formation services at lower prices, while multiple startups, including a Gemini partner, further fragment the market. Free cash flow to equity (FCFE) for 2026 is estimated between $20–30 million, and applying a base case of 4% perpetuity growth and an 8% required return results in a net present value of roughly $5.35 per share, including net cash.

These assumptions account for capitalized software, recurring M&A, and stock-based compensation as real expenses, positioning the stock below headline management guidance. Overall, the combination of modest EBITDA growth, competitive pressures, and limited free cash flow potential supports a significant downside, while the recent move creates a favorable risk/reward scenario. Investors may view the current price as an entry point for short exposure, with multiple catalysts pointing to further stock weakness.

Previously we covered a bullish thesis on Applied Digital Corporation (APLD) by DoU92 in December 2024, which highlighted the company’s strategic pivot toward AI-driven data center growth, scalable infrastructure, and positive adjusted operating income. The company's stock price has appreciated approximately by 140% since our coverage. The thesis still stands as APLD remains a vital AI infrastructure enabler. Fierce__beast shares a contrarian perspective but emphasizes LegalZoom’s limited upside and competitive pressures.

LegalZoom.com, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held LZ at the end of the second quarter which was 32 in the previous quarter. While we acknowledge the potential of LZ as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.