Zillow Group (ZG, Z) is facing a challenging environment driven by fragmented real estate listings supply and new competitive developments and will likely need stronger traffic and other key performance trends to improve its stock multiple, RBC Capital Markets said.

Alphabet's (GOOG, GOOGL) Google has re-entered real estate listings search more directly, with agentic aggregation demonstrated at the recent Google I/O event, according to the note Wednesday.

Meanwhile, Chicago's largest multiple listing service MRED announced it will cut off Zillow from its listings following Zillow's lawsuit against it and Compass alleging collusion to hide listings.

MRED accounts for roughly 1.5% to 2% of total US listings and the loss is likely to be partially offset by agents uploading their listings to Zillow on their own, which should result in little or no fundamental impact to Zillow, RBC said.

Zillow's leading position in online real estate search still keeps it well positioned in the space but the recent developments have made conditions more challenging for the company in the meantime, the analysts said.

RBC has an outperform rating on the company's stock with a price target of $95.

Shares of Zillow were down 2.3% in Thursday trading.

Price: 36.07, Change: -0.85, Percent Change: -2.30