LEGALZOOM.COM, INC. (LZ) stock intrinsic value fair value estimate & owner earnings analysis

LegalZoom is an online legal-services platform for small businesses and consumers in the United States. Its main entry point is business formation (LLCs, corporations and DBAs, about 500,000 formations in 2025). It then sells recurring subscriptions: registered-agent service, annual-report and compliance packages, attorney advice plans, virtual mail, and tax and accounting, including a partnership with 1-800 Accountant signed in December 2024. Subscriptions were 65% of 2025 revenue of $756 million, and paid subscription units reached 1.94 million at year end, up 10%. Customers pay up front, so the business collects cash before it earns revenue. It has no borrowings: its $100 million revolving credit line was undrawn at December 31, 2025. In February 2025 it bought Formation Nation, a higher-priced "do it for me" formation provider, which added about $51 million of 2025 revenue. How we measure earnings. We start from operating cash flow, strip out timing swings in working capital (mainly growth in prepaid deferred revenue), subtract stock-based compensation as a real cost, and subtract the capital spending needed to maintain the platform (mostly capitalized software). Stock compensation is the key line for this company. It was $66 million in 2023, $72 million in 2024 and $114 million in 2025, when it reached 15% of revenue. About $56 million of the 2025 figure came from special awards made to the new leadership team in 2024, most of it from a November 2024 grant tied to share-price targets. Measured this way, owner earnings were about $15 million in 2023, $28 million in 2024 and $28 million in 2025, or about $0.15 per share in each of the last two years. Years before 2023 are dominated by stock awards tied to the June 2021 IPO and, before the IPO, by a large term loan, so they describe a different company. Why we start above the historical level. By December 31, 2025, only about $18 million of expense remained on the 2024 leadership awards. The first half of 2026 confirms the run-off: stock compensation was $44.9 million versus $60.4 million a year earlier, and the part tied to the 2024 leadership awards fell from $26.7 million to $9.3 million. Cash earnings before stock compensation rose to about $73 million from about $51 million. Over the latest twelve months, owner earnings were roughly $65 million. For comparison, owner earnings per share fell about 4% in 2025, so our starting point is a large step up, and we accept it only because these dated facts in the filings support it. We also checked whether new awards would simply replace the old ones. They partly do. In the first half of 2026 the company granted 10.7 million restricted stock units to employees, valued at $70.9 million when granted, which is about the same dollar amount as all awards granted in 2025 (7.4 million units, about $70 million). It also granted 5.3 million performance units to senior leadership, valued at about $44 million at target. These pay out on revenue over 2026 to 2028 (up to 300% of target) and on shareholder return through 2028 (up to 400%). Putting this together, we expect stock compensation of roughly $85 to $90 million in 2026, about 11% of revenue, easing toward 10% by 2028 if yearly employee grants stay near $70 million while revenue grows. The unit count is heavy: 16 million units granted in six months is about 9% of the 172 million diluted shares. Buybacks have absorbed this so far ($165 million in 2024, $81 million in 2025 and $89 million in the first half of 2026). We value the business on today's share count and count no further gain per share from buybacks. Base case ($7.46 per share). Revenue starts near $800 million over the coming year, close to the latest twelve months, and grows 4.5% a year for five years and 3.5% a year after that. That compares with organic growth of about 3% in both 2024 and 2025 and 6.6% in the second quarter of 2026. Cash margins before stock compensation hold at 20% of revenue, in line with the latest twelve months. Stock compensation is 11% of revenue in year one, 10.5% in year two and 10% after that, for the reasons above. Owner earnings are about $72 million in year one (about $0.42 per share) and rise to about $113 million by year ten. Beyond that, we hold earnings flat for ten years and then fade them to zero over the following ten. We keep a tail at all because of the recurring compliance base: in most states a business must keep a registered agent, and LegalZoom runs staffed registered-agent locations in all 50 states. We assume no growth in that tail because low-cost formation and registered-agent competitors are real and visible. Our earlier estimate of $8.01 assumed stock compensation would drop straight to about 10% of revenue; the new 2026 awards keep it nearer 11% this year, which lowers the base case. Bear case ($2.78 per share). The evidence here is market share. U.S. new-business applications grew 9% in 2025, but LegalZoom's formations grew only 4%, mostly because of the acquisition. In this case the share loss continues, and cheaper competitors and AI-driven document tools hold revenue growth to about 1% a year and trim the cash margin before stock compensation to 17.5%, from 18.7% in 2025. Stock compensation stays near 12% of revenue, which is what happens if the 2026 leadership awards pay out above target or if leadership awards of that size become a yearly event. Owner earnings sit around $44 to $48 million for a decade and then decline to zero over fifteen years. The loss of beneficial-ownership filing revenue after the FinCEN ruling of March 21, 2025 shows how quickly a regulatory product can disappear. The company has no debt, so leverage does not deepen the downside, and no case deducts debt. Bull case ($13.60 per share). The company's own levers work: bundled compliance and advisory subscriptions keep lifting units and revenue per unit, higher-value "do it for me" services from Formation Nation raise order values (average order value rose 8% in 2025), and AI keeps lowering fulfillment and support costs. Revenue grows 7% a year for five years and 5% after that. The cash margin before stock compensation rises to 23% over four years, which the company already matched in the second half of 2025. With stock compensation at 10% of revenue, owner earnings reach 13% of revenue, about $174 million by year ten. Earnings then grow 2% a year for another decade, hold flat for ten years and fade to zero over the following ten. What could make this wrong. The value depends mostly on stock compensation settling near 10% of revenue. The first-half 2026 grants show the company is still granting about $70 million a year to employees plus a sizable new leadership program, so if the leadership awards pay out well above target or are repeated each year at the 2026 size, stock compensation could run at $110 million or more and value would sit nearer our bear case. The second risk is continued share loss in business formations, which feed the subscription base. Amortization of acquired intangibles is small, about $8 million in 2025, so it does not distort the picture.