Zillow Group (ZG) continues to face a muted housing market with slow demand and rising inventory, RBC Capital Markets said Wednesday in a report.

The company is transitioning from a market-based pricing model, where agents paid upfront for leads, to a Flex model, in which Zillow earns a referral fee only when a transaction closes, sparking agent friction, the report said.

Despite the transition challenges, Zillow's long-term outlook remains strong with expectations for enhanced market growth and strong performance in rentals and mortgages, RBC said.

Flex agents are generally more positive, and the reallocation of zip codes to Flex is seen as accretive, the report said.

RBC has an outperform rating on Zillow's stock with a $88 price target.

Price: 74.65, Change: +0.49, Percent Change: +0.66