LZ · LegalZoom.com
Conviction · Low · more likely to lag the S&P 500 over the next three months
Wrong if: a daily close above $6.06
Note written ·
Price against the kill line
17.7% clear of its kill line on the 13 November 2026 close.
How to read this
This note expects the shares to lag the market, so its kill line sits above the price: a close above the red mark would prove the view wrong. Prices run from low on the left to high on the right. The dot is where the stock closed on 13 November 2026, left of the mark while it is below the line; a dot right of the mark has closed through it.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a daily close above $6.06, on record since 11 November 2026. The shares are down 8.3% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A daily close above $6.06, the 50-day average of closes (11 November 2026), would show the shares leading the S&P 500 and prove this call wrong.
Research onlyNot in the portfolio.
Key figures from the filings · Technology
Quarter to 30 September 2026, filed 4 November 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 195
- Revenue, change on a year (%)
- +2.6
- Gross margin (%)
- 70.7
- Operating margin (%)
- 6.9
- Free cash flow, four quarters ($M)
- 137
- Price to earnings (×)
- 40.4
- Free-cash-flow yield (%)
- 16.6
All filed numbers
What LegalZoom.com reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| first filed | 195 | +2.6 | 70.7 | 6.9 |
| first filed | 205 | +6.6 | 68.2 | 5.2 |
| first filed | 207 | +12.9 | 64.0 | 1.3 |
| first filed | 190 | +17.7 | 67.6 | 6.6 |
| first filed | 190 | +12.8 | 67.3 | 3.4 |
| first filed | 193 | +8.5 | 65.0 | −1.6 |
| Pre-tax income ($M) | 14.9 |
| Net income ($M) four quarters: 20.4 | 8.1 |
| Diluted shares, change on a year (%) against the quarter to 30 September 2025 | −9.5 |
| Operating cash flow ($M) | 161 |
| Capital spending ($M) | 24.1 |
| Free cash flow ($M) | 137 |
| Cash and short-term investments ($M) | 182 |
| Debt ($M) | Not available |
| Net cash, cash less debt ($M) | Not available |
| Deferred revenue ($M) +2.8% on a year | 220 |
| Backlog, orders not yet delivered ($M) | 29.2 |
| Receivables ($M) | 23.9 |
| Inventory ($M) | Not reported |
| Shareholders' equity ($M) | 135 |
| Market value ($M) | 824 |
| Enterprise value, market value plus net debt ($M) | Not available |
| Enterprise value to sales (×) | Not available |
| Enterprise value to operating income (×) | Not available |
| Price to earnings (×) | 40.4 |
| Price to book value (×) | 6.1 |
| Free-cash-flow yield (%) | 16.6 |
Short interest (FINRA, settled 15 October 2026, published 26 October 2026): 7.8% of shares outstanding sold short, 4.8 days of average trading to cover, +4.1% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $0 | $3.1M |
| 12 monthsfrom | $769K | $4.2M |
The thesis
LegalZoom's cost cuts are holding profit up while its customer base shrinks, and the shares have not found support. The 4 November 2026 third-quarter report cut full-year adjusted EBITDA guidance to $180–185 million from $190–195 million, and the next two quarters decide whether subscription units stabilise.
The narrative is dead: the AI-led re-rating broke with the 5 August 2026 revenue guidance cut, and the 4 November 2026 report added a second cut, this time to profit. The shares closed at $4.71 on 10 November 2026, against $6.61 on 28 October 2026, on split- and dividend-adjusted daily bars. The close sits 54.7% below the 52-week high of $10.40, the three-month price change is −18.8%, and the 14-day relative strength index (RSI) reads 27.4.
Revenue itself met guidance. Total revenue was $195.1 million, up 3% year over year, and subscription revenue was $139.7 million, up 11%, per the company's 8-K earnings release. The problem sits in customer acquisition: management called it a "challenging customer acquisition environment", and subscription units fell to 1,854 thousand, down 5% year over year.
Bullish and bearish views on LegalZoom.com, Inc.
The bull case on LegalZoom.com, Inc. (LZ), in brief: subscription revenue keeps growing. The bear case: profit guidance was cut.
Bull case
- Subscription revenue keeps growing. Subscription revenue reached $139.7 million in Q3 2026, up 11% year over year, which the company described as its sixth straight quarter of double-digit growth (4 November 2026 earnings release).
- Profit is rising despite weak demand. Q3 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $50.0 million, a 26% margin, against $46.3 million a year earlier. Net income was $8.1 million versus $4.5 million.
- Cash generation is strong and debt is zero. Free cash flow was $34.1 million in Q3, and cash was $181.7 million at 30 September 2026 with no debt outstanding. The company repurchased $14.6 million of stock in the quarter and has about $65.8 million of authorization left.
- Revenue guidance held its midpoint. Full-year revenue guidance was narrowed to $797–803 million, with the roughly $800 million midpoint unchanged (4 November 2026 release). Q4 revenue is guided to $190–196 million, against a $194.235 million estimate cited in 4 November 2026 market data.
- The shares are deeply oversold. The 14-day RSI of 27.4 on 10 November 2026 follows a drop of about 20% to $5.49 on the report, per StockStory. LegalZoom launched an AI assistant for all customers on 29 October 2026, giving management a product response to changing search behaviour.
Bear case
- Profit guidance was cut. Full-year adjusted EBITDA guidance fell to $180–185 million from $190–195 million on 4 November 2026. Management attributed more than half of the cut to channel-diversification spending and about a quarter to higher paid customer acquisition costs.
- Subscription units are shrinking. Units were 1,854 thousand at 30 September 2026, down 5% year over year and below the 1,892 thousand reported at the end of Q2.
- Transaction revenue fell by double digits again. Q3 transaction revenue was $55.5 million, down 14%, versus $71.9 million in Q2 2026. The line tracks US business formations.
- Earnings missed on a per-share basis. Q3 adjusted earnings per share were $0.19 against a $0.20 estimate (4 November 2026 market data).
- Analysts are cutting. BofA Securities downgraded the shares to Neutral on 5 November 2026. JPMorgan lowered its target to $6 on 5 November 2026 and Citigroup lowered its target to $5.50 on 10 November 2026, both with Neutral ratings.
- Insider selling and legal overhang remain. The chief financial officer sold 500,000 shares on 20 August 2026 and 21 August 2026, and Levi & Korsinsky announced an investigation into securities claims involving LegalZoom on 13 August 2026.
Price setup
The shares closed at $4.71 on 10 November 2026. That is below the $5.50–6.00 range that held in June. The October rebound to $6.61 on 28 October 2026 has been fully reversed.
StockStory reported the shares fell about 20% to $5.49 after the 4 November 2026 report, and the close on 10 November 2026 is lower still. The 52-week high is $10.40 and the three-month price change is −18.8%.
An RSI of 27.4 shows heavy selling pressure. Crowding in the sense of heavy retail attention or a wide gap above a rising moving average is not present. The main supply evidence is the CFO's August sale and analyst target cuts. Buybacks slowed to $14.6 million in Q3 from $45.5 million in Q2.
Catalysts ahead
- ~11 December 2026 (est.): Census Bureau November business applications. A second month of formation data shows whether transaction demand is stabilising before the Q4 report.
- ~26 February 2027 (est.): Q4 and full-year 2026 report. Tests Q4 guidance of $190–196M revenue and $48–53M adjusted EBITDA and whether subscription units stabilise.
Elapsed catalysts
- ~12 November 2026 (est.): Census Bureau October business applications. Gives a national read on business formation, which drives LegalZoom transaction revenue after the 14% Q3 decline. (passed)
- ~14 November 2026 (est.): Form 10-Q for Q3 2026. Shows GAAP results after $5.8M of restructuring charges and any update on the securities-claims investigation. (passed)
What would change the view
A daily close above $6.06, the 50-day average of closes (11 November 2026), would show the shares leading the S&P 500 and prove this call wrong.
What it trades with
LegalZoom's transaction revenue follows US business formation, so Census Bureau business application releases move the read. Search and AI-assistant traffic shifts drive its customer acquisition costs, as management described on 4 November 2026. Its moves have followed company-specific guidance rather than a sector theme, and no current theme carries the name.
The evidence, claim by claim (8)
- Q3 2026 revenue $195.1M, up 3%; subscription revenue $139.7M, up 11%; transaction revenue $55.5M, down 14%. LegalZoom Q3 2026 earnings release (8-K Exhibit 99.1) · as of
- Q3 adjusted EBITDA $50.0M (26% margin) versus $46.3M a year earlier; net income $8.1M versus $4.5M. LegalZoom Q3 2026 earnings release (8-K Exhibit 99.1) · as of
- FY2026 adjusted EBITDA guidance lowered to $180–185M from $190–195M; FY2026 revenue narrowed to $797–803M; Q4 revenue guided to $190–196M and adjusted EBITDA to $48–53M. LegalZoom Q3 2026 earnings release (8-K Exhibit 99.1) · as of
- Subscription units 1,854 thousand at quarter-end, down 5% year over year, versus 1,892 thousand at Q2-end. LegalZoom Q3 2026 earnings release; Q2 2026 earnings release · as of
- Cash $181.7M with no debt; free cash flow $34.1M; $14.6M repurchased in Q3; about $65.8M of authorization remaining. LegalZoom Q3 2026 earnings release (8-K Exhibit 99.1) · as of
- Shares fell about 20% to $5.49 after the Q3 report. StockStory, 4 November 2026 · as of
- Adjusted close $4.71, 54.7% below the 52-week high of $10.40; 14-day RSI 27.4; three-month price change −18.8%. Split/dividend-adjusted daily bars · as of
- BofA Securities downgraded LegalZoom to Neutral (5 November 2026); JPMorgan Neutral with target lowered to $6 (5 November 2026); Citigroup Neutral with target lowered to $5.50 (10 November 2026). Company news and analyst-action headlines · as of
Sources
- LEGALZOOM.COM, INC. - Form 8-K - FY2026 · sec.gov
- LegalZoom Reports Third Quarter 2026 Financial Results · morningstar.com
- LegalZoom's (NASDAQ:LZ) Q3 2026 sales top estimates but stock drops 20.3% · stockstory.org