Zillow Group, Inc. (ZG) Earnings Call Transcript & Summary

Good afternoon, everybody. Thank you so much for joining. My name is Nikhil Devnani. I cover SMID Cap Internet here at Benchmark, and it's my pleasure today to have Jeremy Wacksman, CEO of Zillow Group on stage with us. So thank you, Jeremy, and welcome to the SEC.

Yes. Thanks for having me. Good to see everybody.

Zillow is the leading housing portal in the country and increasingly in recent periods has been building a broader and more holistic ecosystem around the housing transaction, which we're going to get into in depth in this conversation. If you've bought a home in the U.S. or if you've ever been curious about how much your neighbor's home is worth, you probably found yourself on Zillow at various points. [Operator Instructions] and please refer to the Zillow Investor Relations website for any related disclosures on forward-looking commentary.

Jeremy, there's clearly a lot of unknowns on the macro side of things with housing, and we'll come back to that. But before we talk about macro, I'd love to talk more about what Zillow is doing and what you obviously have control over on your end. You've been able to grow in a fairly tepid housing market. You put up about 15% revenue growth last year. You're talking about low to mid-teens revenue growth this year. And in part, that's due to everything you're doing around this housing super app ecosystem, as you call it. So for those less familiar with your journey so far, can you just talk about what that is and what the broader vision is around Zillow that you're embarking on right now?

Absolutely. The housing super app for Zillow is really trying to solve the biggest problem we all have when we try and buy and sell a home, which is that it's still offline, it's still fragmented. It's still costly. It's still hard to get done. And Zillow, since its founding, has been about trying to make the home shopping and home buying process easier. And for our first decade, we did that really by building an information marketplace. And many of you all know Zillow well, come to Zillow, you browse homes, you shop on Zillow, you might look up your neighbors and friends homes on Zillow. That's all great activity for us. But once you started to actually go try and buy or finance or sell, you were handed off to the offline experience. And everyone has gone through the offline experience knows how painful it is and how painful it still is almost 20 years into the Internet. And so our housing super app strategy, which we started a few years ago, really set out to change that and set out to rewire the transaction so that you could not just find your home on Zillow, but you could actually buy it, finance it with Zillow Home Loans, find a great agent partner and use more of our services and our software to make that experience not just more delightful, but more integrated, all really in a one-stop shop. We're not there yet, but that is the strategy. And the business results of that strategy are to drive more transactions, right? Everyone in this room knows Zillow. 2/3 of the country is on Zillow or 2/3 of homebuyers are on Zillow in any given month. They're using us at some point in the process, but we only convert a small fraction of that audience into transactions. Only a small fraction of those folks end up working with an agent they met on Zillow, end up using our financing products, end up using our services. And our goal is really to just grow that share and convert more of the audience we have into using our transaction services. And the way we will do that is by building those services to make the buying and selling process easier.

You're approaching your 1-year anniversary as the CEO, and I know you picked up pretty seamlessly from where Rich left off. But anything you're doing differently in terms of strategically or how you're running the business day-to-day that investors should be aware of?

The strategy remains the same. And a planned transition, which is what this was, was really about recognizing that the strategy is working and setting up the team to really go accelerate and realize more of that strategy and grow the company. So I've been at Zillow for almost 15 years. I've held a variety of jobs across product, across marketing, across the business. And I took over as COO a few years ago really in preparation for this transition. So internally, it actually was incredibly smooth because on the org chart, not a lot changed. And then externally, that is really what the message has been to the industry and to our partners that this is just about a continuation of the strategy we put in place, and it's about helping accelerate that with myself and with the leadership team that has been mostly in place as well.

A core part of the strategy is building out what you refer to as these enhanced markets. If we start with a simple question of what is an enhanced market, right? And what are the suite of services available in these enhanced markets that are perhaps not available in the normal markets, if you will, how do those compare?

Yes. So we talk about enhanced markets. It's really the locations and places where you can start to get the super app experience. The reason we go market by market is it's not just software, it's also people. And the big operational lift to deliver this experience is finding, recruiting and retaining great agents and then pairing them up with great loan officers and then delivering all that on software that Zillow provides and manages for those third parties with our customers. So we're doing all that market by market. And so we talk a lot about our share of our customers to get that experience. And that will get to about 35% of our customers by the end of this year. We, of course, hope over time, we will get that to 75% plus of our customers. We want the majority of our customers to deliver this experience, but we have to do that market by market. So we talk about enhanced markets. And to answer your question, you could think about what the current enhanced market experience is as a way of just looking at what was it like before and what's it like today? And then we can all talk about maybe what will it be tomorrow in the future as well. But the old version would have just been coming to the website, find an agent to contact, submitting a lead and then becoming a part of that agent's business and really leaving the Zillow ecosystem. And in many ways, you're buying and selling the way that agent has set up however they do it, and they're going to find you financing and they're going to use their own software and their own systems and you're on your own. Today, what that looks like in Enhanced Market is a buyer doesn't just submit a lead. They actually take the actions they want to take. They book a tour with real-time touring the way you might book a restaurant on OpenTable. So it's on their schedule, it's instantly confirmed and an agent goes and meets that customer in that experience and tries to win that customer over to want to work with them. A buyer might get preapproved with Zillow Home Loans or at least fill out their viability, which is their way of understanding their budget as a way to start their financing journey. And then that person might get preapproved with a Zillow Home Loans loan officer before they even meet their agent. So those are the experiences the buyer is taking much, much different than a simple lead that's handed off to a real estate agent.

And since you mentioned it, what is the tomorrow aspect of this? Where do you think this goes beyond financing and real-time touring and other services you've offered already or started to offer?

Yes. I mean the end dream is to have the entire process from start to finish, including title and escrow, including insurance, all wrapped in the software that a consumer can use. And then the integration of all those things along the way, all -- you never have to leave your phone. And we're a little bit of the way there today. So in many of our markets, a buyer is actually messaging their agent and their loan officer inside of the Zillow app and the buyer is using Zillow and the agent is using a software we own called Follow Up Boss. That's their daily CRM that they are all using to manage their business, and they're conversing seamlessly. And so take that example to its natural conclusion, the home buying process, even once you find the one is weeks and months and many visits to Zillow and many conversations. And for those of you that have been through it, all that happens over e-mail, a lot of that happens via documents, a lot of that happens via very opaque and not connected processes. And so pulling all that data together and allowing you to have a one-stop shop as a buyer where your agent, your loan officer, your partners are plugged in. That's really the future vision.

You've talked about how once you launch an enhanced market, it typically takes about 12 months or so for the revenue growth to inflect on the back of it. Can you just speak to that a little bit more, the lag there? Is that a function of simply brand awareness of what's being offered? Is it something deeper than that in terms of maybe how you're training some of the agents and other folks in the market to engage? What drives that delta?

The 2 biggest things are both people-based constraints. One is agent training and rollout and the second is loan officer capacity and loan adoption. And those are both driven by the agent and the loan officer. So when we go into enhanced market, we are asking an agent team who's been with Zillow for a long time in many cases to learn how to run their business differently. A good example of that, many agents have built teams to take the Internet leads and they do everything over the phone and they have specialized labor to think about the phone. What we've said to them, hey, the highest quality buyers are actually booking towards on our own, they want you to just meet them at the house. They have to train their teams to manage that relationship and train their agents to do a good job differently and manage their workforce differently. Then we have to introduce them to Zillow Home Loans and earn the right with those agents to be their loan provider. And so we show up with training and we show up with our opportunities for those agents, and that takes time as well. So the lag really comes from the people part of the process more than the software part of the process, but both the agent and the loan officer and getting that relationship right is super important because if you put yourself in the shoes of one of those agents, the individual agent is doing maybe 5 or 10 transactions a year. And so they want to use the systems that they know work well. And when we're asking them to change how they do things, it's a big risk for them. And so it takes time for us to go and then have them try something new on their next transaction and then experience the benefits of it and then convert to it. So that's really what the lag comes from.

And so we think about that time series broadly, if you're exiting this year with 35% of your connections going through these enhanced markets, that's now becoming a pretty decent chunk of the business and the connections overall. So would you start to expect an inflection in revenue on the back of that as you look at 2026? Is that a decent way to think about it?

Well, we haven't talked about what our share in 2026 will be. But you're right, our goal is to get 35% of our connections into that experience by the end of this year, and we're well on our way. And that is a mix of going deeper in the markets we're in, so finding more partners, helping those partners grow and going into new markets. We recently announced some new markets we're going into. We'll be doing that throughout the year. That's what's driving the revenue growth we expect to see this year. We -- total company, we expect to grow low to mid-teens this year off the backs of continual rollout of our enhanced market strategy plus our rentals business. And that's against the housing market that's been largely flat last year, and we expect to not see much relief from this year. So we will continue to do that. And we put a number out there for everyone to think about as 75%. 75% is not the ceiling. We don't really know what the ceiling is. We just wanted to give folks a way to think about a from to for Zillow. We want to get the majority of our customers there. We're going to try and get every customer that comes to Zillow to have an enhanced market experience if we can.

And Zillow Home Loans and the financing overall is a bigger and bigger part of the strategy as well. it's incremental revenue for you today. Is this a business -- how do you think about it? Is it a business that you're excited about on a stand-alone basis? Or is it a business that excites you because of the potential to drive synergies with the other parts of your revenue, whether it's Premier Agent or other revenue streams?

Yes. I mean it's really both. It's both those things. Zillow Home Loans is a fantastic business for us and will be as it grows, and we can talk about that. And it's required to deliver this integrated transaction because 80% of buyers need a mortgage. So 80% of buyers need to get 2 things lined up to actually get their purchase done. They need a great agent and they need financing and being able to deliver both those things is what the customer is going to want and therefore, becomes a really good integrated business for us. But on a stand-alone basis, Zillow Home Loans has been growing nicely alongside this enhanced market strategy. The growth has come from bringing home loans and our loan officers to more of our agents so that when they talk to our shared customer, we're able to recommend a set of integrated services and participate in those more. And you're seeing double-digit adoption rates of Zillow Home Loans in our enhanced markets as we continue to roll them out. So we like the business because it's a great business, but we also like it because it's part of its integrated strategy.

Yes, economically, do you think about it needing to run at the margin profile that a typical originator would need? Or do you think you can almost cross-subsidize it a little bit and accrue benefits elsewhere in your customer lifetime value?

It's the latter for sure, and that's part of what that integration provides. Zillow has the unique advantage that we can think about acquiring a customer once and deliver them that entire integrated transaction. The challenge a lot of stand-alone mortgage originators follow is customer acquisition cost is very expensive. 25% of their loan revenue is sometimes spent on customer acquisition cost. We're able to not just think about our acquisition cost across the whole services, but we have built-in organic acquisition for most homebuyers, and it's really more about converting and introducing them. So when we're at scale, which we're not today, you could think about us as not just a standard lender unit economics profile, but one that maybe has a CAC advantage in it as well. And then the other piece that makes it interesting is that's thinking about the mortgage P&L, but the reinforcing mechanism of bringing customers in who think about financing first and getting them preapproved and prequalified, that's a higher intent customer for the agent and vice versa. When the agent is recommending Zillow Home Loans because the customer wants to start with a tour, that's a higher intent customer for Zillow Home Loans. So there's a reinforcing mechanism, again, back to the customer problem. The customer has to get both things. They just get them in different orders. And so if we can help introduce one to the other, no matter which order they came in, we're helping solve the customer problem, and we're able to share in the economics with us and our partner.

Have you seen that halo effect yet on having both businesses together? Or is it more so far a stacking of mortgage revenue on top of pre-existing revenue?

We see some of both. And you see that in the anecdotes, if you all do channel checks with our agents, you'll see agents talk about the customers who came off of financing first. They started with a financing question, and that's a really high-intent lead for them, and it's a way for them to win. And then vice versa, you see the agents who are taking our touring customers and introducing them to Zillow Home Loans. So we see a little bit of both, but then it's also additive because enhanced market versus pre-enhanced market, we just weren't doing Zillow Home Loans. So again, it is part of why we're so excited about mortgage is because 80% of the buyers need it. And we can't really deliver any great transaction without it. And when we can get them to think about Zillow Home Loans, that's an incremental customer to the agent versus what they were getting before. And then vice versa, they can give us incremental customers for Zillow Home Loans. So the flywheel at scale, we get really excited about.

And that human-to-human interaction between the loan officer and the Premier Agent, is that something that can be systematically built up?

That's the long pole on rolling out enhanced markets. As I said before, put yourself in the shoes of an agent who's talking to hundreds of customers a year and will convert 5 or 10 and have 5 or 10 commission checks. You have to win them over and show them you provide great service and you provide great products and a great offering. And once you win them, it's a very sticky relationship. You earn the right to be one of their preferred lenders, but it's really hard to short circuit that process because it is a human-to-human relationship. It's why we took the strategy we've taken, which is let's go market by market, let's go partner by partner and let's create a really good way to introduce them to Zillow Home Loans, get them to have a great experience and earn their business over time. It's the answer to the why not faster question that you asked, but we all ask ourselves all the time. But the good news about that is it's a very durable advantage once we build it, right? Building the trust with these agents who are some of the best agents in the industry earns us the right to keep that business because we're delighting their customers. And that's then what they want to make sure they can do with the next customer that comes.

Maybe I'll weave in an audience question here related to mortgage just around the differentiation between what you're doing and what maybe we're going to see from Rocket and Redfin on that combination. So what differentiates you versus that competitive set?

I think at its highest level, Rocket's announced acquisition of Redfin is a reflection of this integrated transaction strategy is the future real estate. right? That's what we've been talking about for a while. This is really maybe the first other company that said, yes, the buyer is going to want this integrated set of services, how can we help offer it too? And it's a huge market out there, right? We are the largest portal, as you said, and we're single-digit transaction share. They're the largest mortgage originator and they're single-digit mortgage transaction share. So we can both grow nicely. My guess is they'll be doing some things differently. They have different capabilities, right? Redfin is a different operation than we are and Rocket is obviously a different originator than we are. But there's obviously a lot of room to grow. And I think it's more just a validation that where the Internet-enabled real estate services are moving is into this integrated transaction future.

And this is all on the buyer side of things. When we think about the seller side of the equation, you've been scaling a business in Zillow Showcase. Talk to us about how big you think Showcase can get? And should we think about it as growth of listings? Or should we think about it as listings plus revenue per listing that can improve over time? What's the vision with the Showcase product?

Yes, I'll start with what Showcase is in case anyone in the room is not familiar. So Zillow Showcase, think of it as a super listing. Many of you know listings on Zillow and other sites, and it's a set of photos and a set of text and some facts and features, and it's pretty static. Zillow built some homegrown technology that's machine learning, computer vision-based that takes the content a photographer already captures, so the photos and the pans they capture when they go set up a listing, and it generates a 3D walk-through. So with low -- with very accessible hardware, it can generate a really immersive 3D walk-through. It generates a floor plan that's very accurate. And it actually makes that floor plan interactive and it drops all the photos on the floor plans, you can actually walk around the house and see where the photos were taken in the room and you just get a much deeper sense of the home. Now unsurprisingly, we see buyers spend about twice as much time with those listings. And if you go play around with one on Zillow, you'll do the same thing. You will spend time in all the content, and you will really get a deeper sense of that home than you do from just browsing the pictures. And so that's what Showcase is. Showcase is building that content on a listing on top of a listing. And because it's so engaging to the buyer, it unsurprisingly helps sell the home faster. So we see that Showcase listings sell faster and they sell for about 2% more than similarly priced non-Showcase listings because it gets more exposure to the buyer. And then that's what drives agent interest, right? Agents are interested in serving their clients. They're also interested in winning more listings. And we see agents who are using Showcase in this early phase winning about 30% more listings. So it's this really great flywheel where the buyer benefits, the seller benefits and therefore, the seller's agent benefits. And to your question, we are at about 2% of all new listings now. We started selling it nationwide last year. So that's great progress. We put out a mile marker that said, well, when we get to 5% to 10% of listings, that will be about $150 million to $300 million of incremental revenue. And that's not the end. We hope and expect to see Showcase become more of the default-like experience for listings. It's just that 5% to 10% is a really good initial phase mile marker to think about getting the flywheel going and getting it into markets to get it more broadly exposed because today, most buyers and sellers don't know about it, right? And they're discovering it, and you really do have to get the agent and the seller on board to try it. And then once you do, they see the max and the power of it and they want to keep using it.

And from your perspective, are you finding it to be an incremental dollar that you are generating an incremental revenue dollar for you? Is there any concern theoretically of cannibalization if the flow for a consumer now is to go to a listing agent rather than a Premier Agent? How does that work?

Yes. We don't see any cannibalization. It really is a different use case and a different benefit. And again, that's because think about the agent. What the agent is doing is they are buying Showcase to go win more listings, right, which is a bit of a -- it's a part of building their business. The same way Followup boss is software they buy from us to run their business more effectively. The same way buyer connections is a way for them to grow their business with buyers who start with the buyer, some of them turn into sellers as well. So it's all about helping them grow their business. But the benefit of Showcase is it really helps solve this unique problem of it's better for the seller and it's better for the seller's agent, which has really long been the challenge on the sell side of the business is you have to find a way to advantage the seller and advantage the seller's agent.

And so when you put all these different kind of revenue initiatives together, there's a lot you're working on. At the same time, this is still a bit of a cyclical industry at the end of the day, right? And so not that I expect you to -- I'm not going to hold you to some sort of macro housing view, but it is helpful to get your perspective given the data that you see on your end. And overall, it feels like housing is just a bit stuck right now. We're in this treading water in this low 4 million existing home sales range. Typically, you would think about it being $5 million to $6 million in a normal environment. Prices still high, mortgage rates are high, supply maybe is constrained. So I guess, in your mind, how do you think we get out of this current backdrop for housing?

We have an affordability problem in the housing market. But the primary driver of the affordability problem is really an availability problem, as you alluded to in your question. So mortgage rates are elevated off of what were very low mortgage rates for a while. But that's not really the balance of the affordability challenge. The balance of the affordability challenge is lack of supply, right? We are underbuilt historically as a country in new construction and then many sellers have been trapped in their mortgage rate and have not -- have put off making the move and bringing the listing online. So that supply-demand imbalance is really what causes the affordability problem, which is what causes low volumes. Now the good news is you are starting to see some things roll over in some markets. There are markets that have done a better job building in the last few years, the Sunbelt states, Austin, Florida, the Carolinas, where new build and rental and for sale has kept up. And lo and behold, if you go check, home prices actually come down year-on-year a little bit. They're down 2% to 4% in those markets. Listings are up. Sellers are maybe having to sit with longer days on market. Those are trying to feel like more balanced market metrics. So you see the seeds of that coming. But I think it's really important to zoom back out and think about it relative to the longer time series. Maybe we're 2% or 3% down, but we're 100% up pre the pandemic in those markets. So affordability relative to what wages were 5 or 6 years ago is still a challenge. And so until home prices ease enough and wages catch up, it's going to be a challenging market. Now obviously, the good news for us at Zillow is we're able, as you mentioned, to grow through that, right? We grew double digits last year against a flat housing market, and we're expecting to grow double digits again this year because we're fortunate that our strategy is really to gain an increasing share of the transactions from the audience already on our site, and we are such a small share of the transactions today that we're a little bit buffered from whether it is 4% or 5.5% or 6%. So someday, it will turn back into a tailwind, but we're not expecting it anytime soon.

And I would assume at the industry level, you would prefer it, your agents would prefer it in terms of a housing market that's driven more by volume rather than pricing as it has been in recent years. I guess how do you think about that? Is that a fair statement? Are there an impact if prices are coming in, maybe there's some short-term impact to transaction value. But in the long run, affordability helps people buy homes. So that's ultimately what we should be thinking about in terms of a backdrop for Zillow revenue over time?

That's right. We definitely benefit, and I think the industry benefits from a more affordable housing market. And so price easing is a good thing because it, in theory, would drive volumes back up, allow more buyers to get into homes, allow more sellers to get unstuck in their mortgage and allow more moves to happen. So if you want to think about it as [ P10Q, ] yes, well, volume helps us, but it helps the industry because we are so gummed up right now, getting back to a more normalized housing market is going to help. And you can see that in our financial targets we put out to, we gave a composition of how do you see organic growth from Zillow in for sale and rentals and then where will macro help? And that macro recovery is not prices going up, it's volumes coming back.

On the rental side of things, that business has been growing quite nicely recently. You have unique inventory. There's no MLS system, right, in the rentals business. So it's kind of a healthy 2-sided marketplace in that regard. How do you think about revenue -- the revenue opportunity there? You've talked about a $1 billion target. Just kind of walk us through the bridge to that number.

I'll start with our strategy, and then I'll get to our revenue performance and our targets. So our rental strategy is really unique in the industry. We set out to solve the renter problem, which is try and organize as much supply as possible. And the challenge in rentals, as you said, there's no national database of all rental listings. There are companies that organize most of the professionally managed buildings. There's 140,000 of those, but they're the minority of inventory. So a renter who has a month or less to find their next place, they just want to find as much as possible. And so our strategy for years has been to try and organize not just the big buildings, but the actual long tail of listings, which is the majority. And we've been doing that. We are now the largest source of rental listings in the country. More than 2 million rental listings are on Zillow. That's still barely more than half, we think, but it is the most. So when you're a renter and you furiously scour the Internet, you find Zillow Rentals, you trust Zillow Rentals the most. And you see that in our audience metrics now. We are the largest rental audience in the country by far, and that lead is growing. And the brand preference for Zillow Rentals gets stronger every year because we're solving that problem because people have to scour 5 or 6 or 7 sites, but they see more from us and they see a great experience from us more often and they learn to trust us. So that's the business strategy. And that strategy works well. As you know, it's a bit of a classic 2-sided marketplace. But that strategy is now allowing us to attract and serve more of the multifamily advertisers. And that's where really the revenue growth is coming from. There are 140,000 multifamily buildings out there. As of early May, we had 60,000 of them advertising on Zillow. That's up from 40,000 at the end of Q1 last year. So really strong organic growth in our building advertisers and property managers because they're seeing a larger audience, and we're able to fill more of their vacancies for them. They're able to manage their portfolios more with our audience network. So that's what's driven the revenue performance to date. That's also what is driving that $1 billion target you talked about. We see a path to $1 billion in revenue in rentals largely on the back of multifamily growth as we expose our audience to more of those advertisers and they start to see benefits from tapping into our audience from the 40,000 to the 60,000 to more of those buildings.

And just to clarify, the bridge between number of listings and revenue per listing, is it more the former or equal combination, you think?

I think it's much more the former. We provide great ROI to our advertising partners, and we want to make sure we continue to. And we can talk a little bit about the partnership we struck with realtor.com and the new one we struck with Redfin to provide even better ROI to our partners, but it really is about organizing more of the supply. And again, that goes back to the strategy. The strategy is not to squeeze the advertiser. The strategy is to provide a better and better rental experience, getting more of that content on in any package is better for the renter. And then the advertiser sees the benefits of our high-quality audience and they start using more of the package to advertise more of the portfolio. So for us, it is really about volume and the revenue growth comes from more advertisers and more of their portfolio coming on to Zillow.

Can we talk about that Redfin and those Realtor deals for a second? Given -- just to push back and hear your thoughts, like given it is unique content that you're accruing to your portals, was there any discussion or thought of over maybe giving away our unique content to a redfin.com? How do you think about the trade-off there between that and kind of retaining that unique content? And obviously, you saw the opportunity to do it. So what was the vision with that partnership overall?

It's not really a trade-off. It's more Zillow Rental network is the place to come advertise, and it's more that realtor.com and now Redfin are parts of our rental network. So the rental network is still exclusive to our rentals they are just a partner in that, a syndication partner that allows the advertiser to see even better ROI. And it's really a great -- if you think about it, it's a great win-win, right? The advertiser is getting exposure not just on Zillow sites, now on realtor sites, now on Redfin sites. They're getting exposure to more renters. As big as Zillow is, there are still renters that find Realtor and find Redfin sites and find other sites. So it's more exposure for their ad dollar. And then the renter on any of those sites is getting more content for free, right? Redfin is going to have more buildings than they would have had stand-alone. Realtor has far more buildings than they have stand-alone. So the renter benefit because it's all free to consume is stronger for the renter. So it really is about more of an advertising network distribution partnership, which allows them to benefit and allows us to benefit.

And a question here from the audience is just around the durability of your market share gain within the rental space. I think last year, there was a bit of a window of opportunity based on some moves from your competition. Do you think of it as a durable share gain dynamic there?

We think so. We've been growing nicely for the last couple of years. I think we think less about maybe what competitors are doing and more just about the 2-sided marketplace build. And you can just look at our audience growth over the last 3 to 5 years and then our supply side penetration that keeps up with that pace. and we expect that to continue. And that was growing nicely organically before you even add the latest partnership on that will help grow as well. So when you build a 2-sided marketplace, you really want to carefully manage supply and demand. And we've been doing that nicely for a number of years now, and that's what leads to advertiser ROI. There are more advertisers coming on, but they're continuing to see great ROI because the demand on the site continues to go up and they can find more renters. And we grow both those things in parallel. And we've been doing that for the last couple of years, and we expect to continue to do that this year as well.

So we tie it all back to the financial targets you've provided the Street. You did a little over $2 billion in revenue last year. The goal is to get to $5 billion. How do these various product initiatives add up to that $5 billion number?

The simple math there is think about $1 billion of incremental organic revenue from for sale, so from residential mortgage on that enhanced market rollout. So taking our customers from where we are today to that 75%, that's the $1 billion in for sale, another $500 million in rentals, the $1 billion target we've just spent time talking about. And then the last $1 billion plus is macro recovery. So we wanted to carefully show, hey, if the housing market does not do anything, there's $1.5 billion of us organically to go get just on the strategy we're doing today. Before you think about any future things we might do or any wishcasting of new things we might do, that's organic growth. And then when the housing market starts to get back to a more mid-cycle normalized environment, there's going to be a tailwind to our business to the tune of $1 billion plus as well. So that's how you think about the path from $2 billion to $5 billion.

And if I could just follow up on the for-sale piece, the $1 billion there, I think you've talked about Showcase. Between mortgage and other aspects of residential, how do we think about the contribution?

Yes. We didn't break it out, but think of it as conversion of customers, more on the buy and sell but both, right? Agents converting more customers, adoption of services that's Zillow Home Loans and then business building capabilities like Showcase and seller offerings as well. So all 3 of those things contribute to that $1 billion plus from the smaller set of customers that get exposed to those agents today to the larger set that will get them tomorrow.

And if we move down the P&L, nice to see you've hit the GAAP net income positive threshold. You've talked about that being positive for this year overall. I think transparently, something that's puzzled investors is why haven't we gotten here sooner. So how do we think about this journey to positive GAAP earnings and higher GAAP earnings over time? Has it been a function more of reinvestment mandates? Has it been a function of revenue scale? What in your mind was, I guess, the roadblock to getting here sooner? And how do we think about that as a priority now for the business going forward?

I think I'll start with -- the investments we made was because we saw this huge opportunity. I mean it's the biggest asset class in the world, the first or second largest asset class in the world, the U.S. real estate market. It's a very broken process, as we talked about a little bit ago, and investing in the software, the technology and the people operations to go deliver an integrated transaction, the prize is huge. And we just talked about what the price could be in a market target, right? So the investments we made were to really go realize that. And we were really clear that we were forward investing during a pretty depressed housing market because we wanted to seize this opportunity. And now you're seeing the results of that start to play out. for the last number of quarters and both last year and this year, we've held our fixed cost base relatively flat and grown our revenue double digits on top of that. And you see the strength of the profile of the business deliver that to margin and that down to net income. So we expect to continue to do that this year as well. And so we feel well invested in our fixed costs to be able to go deliver against that revenue growth and those share gains, and that's why you're going to see margin expansion that we delivered last year, and you're going to see margin expansion we deliver this year as well.

And you're generating cash flow, you've been a strong buyback story as well. As you think about other uses of capital, you've done a few bolt-on deals. I guess where does M&A broadly fit into your kind of vision for uses of capital? And one thought that we've had over time is like does it make sense for Zillow to be more of a global business and there are some interesting portals out there in other markets. Is that something of interest? Or is the focus really on predominantly just the U.S. market?

I'll take international first and then M&A. We have no plans to go international. As I just talked about, the U.S. real estate market is an enormous TAM and opportunity, and we are very, very focused on transaction share and gains and rewiring this industry. So the U.S. market remains our focus and will be. On M&A, yes, we've done, I think, really smart acquisitions over the last -- I mean, really since I've been here, we've done dozens of them. But over the last couple of years, we've had 2 very, very pivotal acquisitions in Follow Up Boss ShowingTime. And I highlight those because they have been fairly accelerant to our strategy, right? Follow Up Boss is the -- we're all using Zillow's consumers. Agents are all using Follow Up Boss. It's the other side of the glass. And when we bought Follow Up Boss, we did it because over a decade, that team built the best CRM for real estate agent teams. And lo and behold, many of our teams were using it, and that's what led us to it. Now we've taken that from 50% to 90% of our enhanced market teams are using Follow Up Boss, and we expect to continue to grow that. So it helps them do a better job and run their business. It helps them do a better job converting more of our customers. And so it was a fantastic accelerant because we could not have built what they built nearly as well as they did in the time frame they did. ShowingTime is similar. That's the reservation system that powers real-time touring that the majority of the industry is using to manage listings. So when we find capabilities to integrate into the super app that allow us to get there faster, that's what we'll use the dry powder for. It's typically going to be accelerant and tuck-in M&A. It's not going to be transformative M&A, and that's partly because we're just seeing such success with the strategy. It's more about how do we get there faster.

Yes. And I guess coming back briefly to margins, you think about your current margin profile, the target is 45%. Should we think about that as revenue growth, as we've already discussed against a fairly stable fixed cost base? Is that the primary leverage factor?

Short answer, yes. We expect to continue to get leverage on our fixed cost line, and you see that in our EBITDA expenses, but you also see that in our SBC. 90% of our SBC expense is awarded to folks that sit in the fixed cost base. So as we fight inflation, hold the fixed cost base flat, you see leverage on the SBC line as well. So as revenue grows against the fixed cost EBITDA base and against SBC, then you see EBITDA margins expand and you see stronger net income profitability.

There have been a few big headlines on the industry front. Last year, a lot of talk and conversation around NAR changes and the flow-through that might have to commission rates for agents and maybe the trickle-down effect that might have on your business. Can you just talk to what you've observed and seen in the market from a commission rate standpoint? And what have you seen with your agent base in particular, relative to the broader pool of agents out there?

Yes. I cannot speak to the industry broadly because our strategy allows and affords us the ability to work with really the top end of the agents. The majority of the agents Zillow work with are in the top 20% of producers in the country. They do 80% of the deals. They are the majority of our agents. And we haven't seen their business really impacted at all. If anything, I would say having to have a conversation about price and value with the consumer allows good agents to differentiate themselves more versus less experienced agents. And so in some ways, they see it as a benefit because great salespeople can demonstrate why they're great salespeople. And before they maybe couldn't have a conversation about it. So a lot was written about how things might change. I think what you're seeing is maybe more dispersion of commissions, which is a great thing for consumers. You want to hire the best professionals and the best professionals should command more price than those who are not as good. That really aligns well with our strategy, right? Our strategy is find and help higher and higher intent consumers on Zillow get introduced and then find the best agents and help them convert more customers. So any regulatory changes or industry changes that help separate really the wheat from the chaff in the agent population is a benefit to us. And that's definitely what we've seen at least in the early days here.

And more recently, you drew a line in the sand on Car cooperation. Can you just talk about how prevalent you think pocket listings are and why you made the decision you did in terms of counteracting some of the commentary out there?

Yes. So for those who don't follow the industry closely, we're getting really into the inside baseball now. I'll try and do a brief 101. Zillow published listings access standards recently to help the majority of the industry practice what they were already practicing, which is for the vast majority of listings, if you're going to market them, market them to all buyers and sellers. That's how you maximize price for your listing. That's how you ensure that the marketplace is transparent and buyers and sellers can do their job and agents can do their job. There have been a lot of conversations in the industry about not allowing access to all listings and taking what has been an exception trading price for privacy or exclusivity, something that is a choice that some sellers should make, a few sellers should make and turn that into the default. And so many in the industry don't want to see that. And so we took the step to put out standards and say that we're going to make sure that if you're going to market a home to some buyers, you have to market it to all buyers. You can't put a rope around it and only show it to who you want. And we've been really pleased to see most of the industry really rally in support of that. What we're doing is really helping enforce the MLS rules that are out there today and making sure that agents can cooperate with each other, that buyers can see the most inventory and that sellers broadly market their home and know the trade-offs if they don't want to market broadly, which is a big part of this topic, too. So it's a lot of inside baseball about how agents and brokers are cooperating with each other. I think the way you should all think about it is we have the most transparent marketplace in the world. We're the only place that has great cooperation, all of content available for free. We don't want to see the Internet put back in the box. There is a place for all these other forms of listing. They are typically exceptions, not the rule. And it's really just about making sure buyers and sellers are educated on their options.

As we think about where Internet search is going and how people engage with the Internet is going, obviously, generative AI and some of these chatbots are becoming increasingly prevalent. How do you evolve search on Zillow to ensure that you're kind of keeping up with what people expect from a search experience? And how do you weave in some of this new technology into? Because I think where this stuff could be really impactful is in areas where search is difficult and complicated and nuanced, and I can't think of too many examples that are more complicated and difficult than home search, right? And so how do you think about the impact this might have on your business over the long term?

Yes. We are really excited about the potential of generative AI, both for the consumer but also for the professional. So we'll talk about the consumer case first because that's what you asked about. We have always rushed at the new platforms and technologies as a way to figure out how to help the buyer and seller more. And what we found in every phase shift is if you can deliver better technology, they will spend more time because as you said, it's the most complicated things. So we are piloting and trying things with our generative AI capabilities everywhere to try and figure out how to make search better because search is still really hard. We recently did a pilot with Google Gemini around rentals to try and figure out how to plug into what they're working on. So we're always going to experiment and try and find a way. And we've done that since we were founded in 2006, right? We were founded in the search paradigm that moved to the mobile paradigm that's now moving to the AI paradigm. So we love the potential of technology on the consumer side. I will say the lower-hanging fruit is actually on the professional side. And we're equally investing as much on the consumer side as we are on the agent side and the loan officer side because they have a very hard job with a lot of paperwork, a lot of busy work and a lot of repeated data entry, and those are things that generative AI are tailor-made to help make better. So we've done low-hanging fruit things like summarizing calls automatically for agents when they hang up the phone, starting to suggest next steps. We're going to get to a place where we can automatically take those next steps to those agents, conversing and following up and doing documentation between agent and customer and loan officers. So there's a lot of great potential to really pull away the waste in the transaction process and make the transaction process easier, while we also think about how could you actually get a better search experience. I think one of the through lines that we've seen is every time technology comes, the consumer consumes it and then they want to push the help button more. One of the things that always surprises me is we ask every year, a buyer and seller survey, we do a huge survey across the nation, and we ask a lot of questions. And one of them is sort of where do you find your agent and then do you still want an agent? And since the Internet was invented or came to real estate, the percentage of buyers say they want an agent has gone up, which is maybe a little bit confusing to people who would expect technology would let you to do more on your own. They don't. They need more help. They get more ground in data and technology and process, and they want to push the help button even more. Now obviously, what changes when things like GenAI come is what you want in help changes, right? Before the Internet, the agent just had information we didn't have. They were an information arbiter. Well, those days are gone. Great agents are the ones who are negotiators, consultants, market experts, all those things. So even as GenAI come it maybe does some of that work for it, it's going to just elevate what you use an agent for. So that's how we think about it broadly. Tremendously excited about the consumer opportunity, but we are equally excited about the operator opportunity for it.

Have you been able to deploy it internally as well within Zillow in the, call it, the R&D function of the company?

Yes, we have. I mean we have asked all teams to explore and innovate and retrain, and we see really great use of cursor in our engineering teams. We see really great use of Replit in our product and design teams. And even in our shared services functions, folks starting to use just the LLMs to help them do their daily work. So it's still early. We talk about it a ton. We're finding great places where we're seeing folks learn how to do their job differently. What I'm excited about is how that plays out over the next few years as well because these capabilities, as exciting as they are, they get better every week. And the tools that we're talking about on stage today, we'll be talking about different tools 9 months from now.

And if we come back to the consumer angle of this, if we think about housing with the MLS system, to some degree, there's commoditized inventory across the space. And so if consumers are accessing housing information through AI agents or whatever that portal looks like in the future, what kind of data does Zillow have and can layer on top of that to ensure that you are still the most effective source of that information and continue to get that traffic to your properties?

Well, I think you alluded to maybe the opportunity in the real estate category for GenAI. It takes a tremendous amount of data. It definitely can't hallucinate, and it's highly regulated and localized. Like when you buy a house in Austin, it's very different than you buy a house in Seattle. And so you have to be able to sit on top of that data to create experiences that work and work 100% of the time. And the MLS data set that is commoditized is a small fraction of the data you actually want to use to generate and train a better real estate -- so what we think about is we are trying to build a better transaction experience because ultimately, once you get done searching, you actually want to go through the transaction process. And yes, we want to make search better, but we ultimately want to make the transaction process better as well because that is something you still have to get through with your professionals and with your bank and with the counterparty to get the transaction done.

Maybe I'll weave in an audience question here around, I guess, in your mind, what is the biggest risk to Zillow? And what metrics, if any, are you tracking closely to ensure that execution stays on track?

That's a question we get at our town halls with our employees, too. And the answer we give them is the same answer I give you. Our biggest risk we focus on is our own execution. We are very, very fortunate to have a strategy to gain share from a very small share of our customers and have this fantastic brand and audience asset to convert from. And because of that, because the macro is depressed, we're able to grow through it because when the macro grows, it will be a tailwind, we're able to really drown out a lot of the exogenous noise and just focus on execution. And if we talk about why haven't we gotten to those targets faster or what keeps us from getting those targets, it's going to be our own execution. And so we spend a lot of time making sure we are doing our best work. We're hiring and training our best people. We're prioritizing the right things. We're not rushing the agent loan officer relationship. We're hiring the best agents. We're helping them train and manage their team. It's all of the operational walk from here to that end state or to that mid-state that we talk about. That's really what we worry about most.

And between the various growth opportunities ahead of you in terms of where you're allocating time, resources, energy, are they -- you look at them all equally? Are there some that you see more near term versus longer term?

I mean, as a company, we look at them all equally. As a leadership team, you invest in different parts of the team based on the maturity curve of them. So we talked a lot about the enhanced markets rollout. That's a few years in. So there are great leaders inside of our operations group under Jun Choo, our COO, that are focused on scaling, and they're focused on doing things better, faster and not losing on quality as we take it to more markets. The team that's working on Showcase where we're just now at 2% of listings, we're still innovating. We're still maturing the products. There's equally an R&D effort as there is to a sales effort, as there is to a pricing effort, right? So they're all important, but maybe where they are in the maturity curve dictates which parts of the company are focused at what level on them.

Great. With that, we are right about at time. So Jeremy, thank you so much for your time today. And thanks, everyone, for joining.

Thanks.