LegalZoom's Disappointing Earnings Lead to Stock Drop
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1 hour ago
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Should l Buy LZ?
Source: Fool
- Weak Revenue Growth: LegalZoom reported slightly over $190 million in revenue for Q4 2025, an 18% year-over-year increase, but fell short of analyst expectations, resulting in a nearly 7% stock drop in the following trading session.
- Subscription Revenue Performance: Subscription revenue rose by 20% to almost $131 million, while transaction revenue increased by 12% to just over $59 million, indicating some stability in the company's revenue structure despite overall disappointment.
- Net Income Decline: Despite revenue growth, LegalZoom's non-GAAP net income fell by 5% to $31 million, or $0.17 per share, missing analyst expectations of $0.18 per share, reflecting pressure on profitability.
- Cautious Future Outlook: The company forecasts 2026 revenue between $805 million and $825 million, representing a maximum growth of 9%, while expanding its share repurchase program by $100 million, indicating a cautious approach to future growth prospects.
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Analyst Views on LZ
Wall Street analysts forecast LZ stock price to rise
7 Analyst Rating
4 Buy
2 Hold
1 Sell
Moderate Buy
Current: 7.050
Low
9.00
Averages
12.42
High
15.00
Current: 7.050
Low
9.00
Averages
12.42
High
15.00
About LZ
LegalZoom.com, Inc. provides an online platform for legal services, transforming how individuals and small businesses navigate the legal system. The Company offers the tools and guidance people need to confidently manage everything from business formation and compliance to estate planning and ongoing legal support. Its platform includes professional expertise and other products, both legal and non-legal, to meet the needs of small businesses. Its offerings include ongoing compliance, business licenses, accounting, virtual mailbox and e-signature solutions, trademark filings, and estate plans. Its transaction products for small businesses include business formation and intellectual property. Its transaction products for consumers include consumer, estate planning and other. Its compliance subscriptions provide assistance with state-mandated regulatory filings, such as corporate annual reports. The Company operates across 50 states and in over 3,000 counties in the United States.
About the author

Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
- Significant Revenue Growth: LegalZoom reported full-year 2025 revenue of $756 million, an 11% increase exceeding initial expectations, indicating successful strategic integration of AI and human resources, with projected revenue for 2026 ranging from $805 million to $825 million, reflecting approximately 8% year-over-year growth.
- Strong Subscription Performance: Subscription revenue rose 13% to $131 million in 2025, with subscription units reaching 1.94 million, a 10% year-over-year increase, demonstrating the effectiveness of ongoing investments in high-value subscriptions and AI-driven services, enhancing customer loyalty.
- Operational Efficiency Improvement: The management completed a 5% headcount reduction to improve operating leverage while preserving investments in high-growth initiatives, with adjusted EBITDA expected between $190 million and $200 million for 2026, reflecting improved gross margins and effective cost management.
- Market Strategy Adjustment: LegalZoom plans to increase market share by expanding human-in-the-loop services and high-value subscriptions, with management emphasizing a continued focus on quality customer acquisition and operational discipline to support sustainable future growth.
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- Weak Revenue Growth: LegalZoom reported slightly over $190 million in revenue for Q4 2025, an 18% year-over-year increase, but fell short of analyst expectations, resulting in a nearly 7% stock drop in the following trading session.
- Subscription Revenue Performance: Subscription revenue rose by 20% to almost $131 million, while transaction revenue increased by 12% to just over $59 million, indicating some stability in the company's revenue structure despite overall disappointment.
- Net Income Decline: Despite revenue growth, LegalZoom's non-GAAP net income fell by 5% to $31 million, or $0.17 per share, missing analyst expectations of $0.18 per share, reflecting pressure on profitability.
- Cautious Future Outlook: The company forecasts 2026 revenue between $805 million and $825 million, representing a maximum growth of 9%, while expanding its share repurchase program by $100 million, indicating a cautious approach to future growth prospects.
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- Significant Revenue Growth: LegalZoom reported over $190 million in revenue for Q4 2025, marking an 18% year-over-year increase, with subscription revenue rising 20% to nearly $131 million and transaction revenue up 12% to just over $59 million, indicating strong market performance.
- Profitability Decline: Despite beating revenue expectations, net income fell by 5% to just over $31 million, or $0.17 per share, missing analysts' consensus of $0.18, highlighting pressure on the company's profitability.
- Cautious Future Outlook: LegalZoom forecasts 2026 full-year revenue between $805 million and $825 million, representing a maximum growth of 9%, yet this is lower than the growth rate seen in the last quarter of 2025, suggesting challenges ahead for sustained growth.
- Share Buyback Program Expansion: The company expanded its existing share repurchase program by $100 million, adding to the approximately $70 million from its previous initiative, which may enhance shareholder value in the long run despite the negative market reaction.
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- Earnings Performance: LegalZoom reported a Q4 non-GAAP EPS of $0.17, missing expectations by $0.01, while revenue reached $190.3 million, a 17.7% year-over-year increase, exceeding forecasts by $5.59 million, indicating resilience in revenue growth despite EPS shortfall.
- Financial Guidance: The company anticipates Q1 2026 revenue between $200 million and $203 million, reflecting a 10% year-over-year growth at the midpoint, showcasing confidence in ongoing growth initiatives, although timing shifts in marketing investments may impact short-term profitability.
- Full-Year Outlook: LegalZoom expects full-year 2026 revenue in the range of $805 million to $825 million, with an 8% year-over-year growth at the midpoint, while adjusted EBITDA is projected between $190 million and $200 million, reflecting a 13% year-over-year growth, highlighting improvements in cost management and gross margins.
- Market Reaction: Despite strong revenue growth, LegalZoom's shares fell by 3.12%, reflecting investor caution regarding profit expectations, which may affect the company's future market performance and investor confidence.
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- Earnings Announcement Date: LegalZoom.com (LZ) is set to release its Q4 earnings on February 19 after market close, with consensus EPS estimate at $0.18, reflecting a 5.3% year-over-year decline, while revenue is expected to reach $184.85 million, indicating a 14.3% year-over-year growth, showcasing the company's potential for revenue expansion.
- Historical Performance Review: Over the past two years, LegalZoom has beaten EPS estimates 75% of the time and revenue estimates 88% of the time, indicating a level of stability and reliability in financial performance that could bolster investor confidence going forward.
- Expectation Revision Dynamics: In the last three months, EPS estimates have seen one upward revision and one downward revision, while revenue estimates have experienced one upward revision with no downward adjustments, reflecting a cautiously optimistic outlook from analysts regarding the company's future performance.
- Market Reaction: LegalZoom presented at Barclays' 23rd Annual Global Technology Conference, and despite a downturn in enterprise software stocks as analysts assess growth acceleration amid AI impacts, LegalZoom's performance remains in focus, potentially influencing its stock price trajectory.
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- Market Panic Intensifies: Following Anthropic's rollout of a legal automation tool, software and data service stocks faced pressure, with the S&P 500 Software & Services Index dropping 4% on Thursday and nearly 20% year-to-date, reflecting heightened market fears of AI-driven disruption.
- Shorting Trend Emerges: RBC BlueBay's CIO Mark Dowding noted that short interest in the software sector has reached a two-year high, with many private debt funds having as much as 30% exposure to software, potentially leading to further reverberations across capital markets.
- Traditional Lending Risks: Dowding emphasized the significant representation of software in traditional bank lending, as the bearish sentiment on software stocks has led many business development companies to trade at discounts of 20% to 30% of their net asset value, indicating market concerns about future stability.
- Dual Nature of AI Impact: Despite market fears regarding the disruptive potential of AI tools, a16z partner Anish Acharya stated that there is still much software to build, asserting that while AI can automate tasks, it cannot fully replace human jobs, highlighting the importance of personal relationships in customer support.
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