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

Good afternoon, everybody. Welcome to the Zillow fireside chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing Jeremy Hofmann, who's the CFO of Zillow. My name is Mike Ng, and I cover Zillow as part of our real estate tech coverage here at Goldman Sachs. We have about 35 minutes for today's presentation. So first and foremost, Jeremy, thank you so much for being here once again with us. It's really a pleasure.

Yes. Thank you. Really happy to be here.

Great. So Zillow, clearly, a household name, strong brand awareness, over 240 average monthly unique users across apps and sites. Most people have obviously interacted with the portal either through the app or the website. But for those who may be a little bit less familiar with the business model, could you talk a little bit about the Zillow business and notable highlights from the business that you have this year so far?

Yes. So we have been on the journey of building what we're calling the housing super app. And what we want to do with the housing super app is being known for all things moving. That translates to historically having been known as a place to dream and shop and more frequently now being known as a place to buy, sell, rent and finance. So that's the product experience that we're building. Revenue comes through in 2 distinct segments. One is our for-sale market, and that is anybody that's buying or selling or financing home and then the others in rentals for folks that are renting a home or apartment. And with respect to results for this year, we have had a really good first half of the year. We're on track to grow revenue double digits, actually mid-teens at this point for a full year, and that includes a 40% growth rate in rentals as well. And that's on the back of strong performance in 2024, where we grew revenue across the company, 15% and expanded EBITDA margins by 200 basis points. We're on track to do mid-teens growth this year. We're going to expand EBITDA margin again and produce GAAP net income, which is important for us. And that's on the -- in the midst of a housing market that has bounced along the bottom of the cycle for the last 3-plus years. So we're quite pleased with all that we're doing and excited to dig in with you.

Yes. And there really is no doubt that this year was just another example of Zillow revenue outperformance, at least it's shaping up to be given the more sober housing backdrop. Maybe we can just dig in a little more on that for-sale umbrella. Residential revenue was up 6% year-over-year in the past quarter. Zillow is forecasting mid-single-digit growth for the third quarter. Maybe breaking down the for-sale between the underlying agent revenues or the software offerings, where are you seeing the most growth and been driving that relative outperformance compared to the market this year and perhaps as you think about next year into [ 2026 ]?

Sure. And so for-sale, which is a combination of our residential businesses. And our mortgage offering grew 9% year-over-year in Q2. That outperformed the by 800 basis points. So we're quite pleased with that outperformance -- performance we don't overly focus on the quarterly fluctuations, but the outperformance has been [ pertained ] over the last few years. We grew on a 2-year stack basis by 1,500 basis points outperformed as well. So feel really good about what we're doing. What's driving that is a combination of uses. We are consistently finding ways to help our premier agents convert more and more folks that are looking to buy homes and sell homes to actually transacting. So that's one big lever. Another lever is continued mortgage growth through our home loan origination business that we call Zillow Home Loans. And then that's coupled with a really exciting product we call Zillow Showcase, which is basically making listings look more dynamic on the sites and apps through a combination of rich media, floor plan technology, drones that circle the house and able to see kind of contextually where you are outside the home as well. And even today, we released a feature that allows these listings to have virtual staging on them. So all these really cool things in listing showcase, and that's now 2.5% all new listings in the country. We started selling that product about 18 months ago. So quite pleased there. And then that's coupled with just increased adoption of our follow-up of software as well. So when we look at the for-sale business, it's really a combination of things. We feel about that heading into the back half of the year. And even as you look out to our mid-cycle targets the way which we get to our mid-cycle targets in the for-sale business is really around the back of what I just talked about, roll out more and more of our enhanced markets, grows in Zillow Home Loans and continue to penetrate and Follow Up Boss and [indiscernible].

Right. So much more beyond just the core or historically core like lead generation.

You got a business, yes.

Rentals, I think, is a fascinating story within Zillow obviously the numbers kind of speak for themselves. You're guiding for 40% revenue growth in rentals for the upcoming quarter and for the full year. Could you talk a little bit about Zillow's history in rentals, why is it growing so quickly just now and provide a little bit of a history of why Zillow's and kind of the advantage position to do well in rental, yes.

Yes. So maybe I'll start with the renter problem that exists. The renter problem has historically existed where there wasn't one place to find all of the inventory of homes into rent. We are going after that. We are trying to get as many single fam for rent as possible on our sites and apps and couple that with as many apartments for rent as well. And that has been a journey on the single-family size has been a journey for a long period of time. We've increased the focus on apartment buildings over the last few years. But the goal really is to aggregate as much or all of that supply in one place on Zillow so that a renter can just come to Zillow to find all the inventory. That's the supply side of the market. That's coupled with really strong demand. So as we've been able to build supply, we're roughly 60% of all single fan homes for rent in the country are on Zillow now. That's the most of anywhere. We still have a long way to go, but that's the most of anywhere. And a lot of that is unique content to us. And then we're coupling that with apartment buildings. The apartment building story has been a really good one, and I'll double click into that. We call that multifamily revenue. That was 3 years ago, about 27,000 buildings on Zillow. We are now at 64,000 as of the end of Q2. So we've really grown that quite nicely in the revenue profile has grown consequently that has been able to allow us to drive more traffic. So on the supply side, it's build as much inventory as we possibly can. On the demand side, as we build that inventory, we build up demand and the 2-sided marketplace starts to really spin. And all of that is really taking us to -- our revenue stores quite compelling. So in Q1 of this year, we grew 33% in rentals. In Q2, we grew 36%. We expect to grownership 40% plus in Q3, and we expect 40% overall growth for rentals in 2025. So that implies acceleration throughout the course of the year. And within the multamily business, we grew proper count 45% year-over-year, and we grew that revenue base 56% year-over-year. So everything is really spinning nicely and it's a really nice business to build for a variety of reasons, and we're quite pleased.

Yes. And rentals is unique because there is no central marketplace like there might be for sale with the MLS, right? And could you talk a little bit about maybe why you're in a unique position from an inventory perspective, like a rentals inventory perspective, like why were family homes neglected by other rental sites and, yes.

Yes, we're in a unique position, I think, because Zillow the brand means more things to more people right? Zillow means housing to people. So that could be homes for sale, homes for rent, apartments for rent mortgages, you choose the thing that we go -- go in and go after. That's a pretty unique opportunity because aggregating the supply on the homes for rent is really hard because the vast majority of those homes are rented by mom-and-pop landlords. And mom-and-pop landlords, you can't really sell into. You have to have a brand and a product that means something that allow them to list their home for rent and ultimately fill that rental. And what we provide for them on the single-family side is the ability to take applications, to take payments, to take leases and that's all for free for them. And then they get leads as well that ultimately convert to leases. So we've been able to build a really unique set of supply there that has then allowed us to actually go into multifamily. And that opportunity is one that just feels like if we can build the supply side as well as we think we can, you have most of, if not all, of the inventory, you start to be known for all things, rental, and we love that as an opportunity. And it's allowed us to really go into the apartment building space as well.

Yes. So single-family homes, mom-and-pop landlords maybe not the best in terms of modernization, but amazing for engagement and consumer traffic.

Yes. If you think of yourself, some folks look -- some people are apartment-only shoppers. Some people are home-only shoppers, but there are a good number of people that are thinking about either or we want to have all the supply for them in one place and that is there's nowhere on the Internet that has that offering like we do.

Great. The Zillow Redfin partnership went live in, I think in April and expanded Zillow's distribution and introduced more multifamily customers and they're choosing Zillow Rentals. Could you just unpack some of the moving parts around the Redfin partnership given that there were so many moving parts?

So what we did, as we've been building the supply on the apartments front, it's been growing pretty rapidly. And when you're building a 2-sided marketplace, you start to see supply grow and grow, and we've got to make sure we're bringing demand alongside that because otherwise, you're going to have new suppliers not necessarily thrilled with the experience that they're having. So we've been really [Technical Difficulty] manage the marketplace that way. As supply has grown, we want to make sure demand is growing commensurate. We have a lot of demand between Zillow, Trulia, HotPads and StreetEasy already in the sites that we own, but we look to that demand through distribution partnerships with both realtor.com and Redfin, realtor.com, we started in early 2024, Redfin, we announced in early 2025. And the arrangement is effectively -- we are now the supplier of those multifamily buildings. We distribute that content to Redfin and to realtor.com. They bring consumers onto their sites and apps, those consumers get interested in the apartments that are better there. And then that all flows to our shared property management. company customers. So from a property management company, the payer that is paying us the revenue, they're thrilled, right? Not only are they getting high-quality customers from below truly a HotPad, StreetEasy. They're now seeing folks from realtor.com and Redfin's apartment folks brands as well. So it increases distribution for us meaningfully. And it's a win for consumers. They're seeing more inventory. It's a win for the property management company payers because they're seeing great ROI, and it's a win for Zillow realtor.com and Redfin because we're all sharing in those economics.

Right. And you're paying for that lead and it's upon you to convert that into this contract and actual rental.

You got it. Yes. So they -- both Redfin and [ rent.com ] generate leads, we pay them that cost of acquisition and then we translate that into selling more buildings and gaining building count alongside looking for ways to make the packages that we sell even more appealing such that the folks that were already with us are looking to upgrade as well.

Shifting gears to mortgage. Just contextual of fast Zillow's mortgage business is growing. Revenue was up 41% year-over-year last quarter, 48% origination growth. Could you talk a little bit about how Zillow is growing the mortgage business, Zillow Home Loans this quickly and what's a pretty sober housing market and how do you think about sustainability of mortgage revenue in the long term?

Yes. So the mortgage business, I think if you just step back for what we're trying to do, generally, we want to be -- we've long been known for dreaming and shopping. We want to be known for buying, selling, renting financing. Financing is an important piece of the puzzle. So for any buyer, the vast majority of folks need a mortgage and they need an agent. We want to do that as well as we possibly can through Zillow Home Loans financing and then our really high-quality Premier Agent partners. So we've been investing against the Zillow Home Loans originations business -- like you said, it grew 41% year-over-year in Q2, originations grew 48%. And that's really on the back of the relationships that are being built between our Premier Agent base and our Zillow Home Loans loan officers. That's driving the bulk of the growth. And we think that's a really good formula go forward. A lot of that comes together in what we call enhanced markets which is basically our go-to-market motion across all of the buy and sell side is to have every bit of the best consumer experience, best agent experience market-by-market rollout. And Zillow Home Loans is a key piece of that. So as we expand the enhanced markets, Zillow Home Loans grows alongside that because we start to see the relationships build between the Premier Agent and the Home Loans loan officer and then originations start to flow accordingly. And consumers are pleased, right? They're able to do both of those things in one place. So we're starting to play more and more coordinator and project manager for them through Zillow rather than they, the buyer having to do that. So there's a lot of integration positives that come from it. It makes the experience simpler, and we're seeing the revenue translate quite nicely. We have a long way to go in mortgage. We're growing quite nicely, but we think the opportunity for us in mortgage is far bigger than we are today. We think we should be one of the biggest purchase mortgage originators in the country over time. That's going to take a long time, but we're off to a good start and the growth algorithm is really going to be primarily on the back of this enhanced market rollout.

Yes. And the revenue model for mortgage is mostly gain on sale?

Gain on sale and origination fees some combination of both of those things and critical point for those of you that may be newer to the story, we are looking to build a purchase mortgage origination business. We don't have designs on big refi or servicing, any of that type of stuff. We originate the mortgage, we hold those loans on balance sheet for a week or 2, and then we sell them off either to government of these or to capital markets providers, but it is not a balance sheet heavy business.

Right. You mentioned enhanced markets. I think enhanced markets cover about 27% of transactions as of last quarter and the company is targeting 35% plus the end of the year. Just to take a step back for a moment, could you remind everybody, what is the enhanced market rollout look like from a product availability perspective? And maybe you can talk a little bit about the monetization models for Flex versus MBP.

Yes. So enhanced markets are -- where the product experience comes alive most vividly. And that's a combination of what we've done in touring with real-time touring lifting showcase on the sell side, follow-up loss. So we're at a point now where all of our enhanced market partners are using Follow Up Boss and that's a CRM can talk about a bit more as well, that really powers kind of day-to-day operations for these agents. And then we couple that with a tight [ issue ] between our Premier Agent partners and Zillow Home Loans. That is what we call enhanced market experience. We are rolling it out on a market-by-market basis, priorly because the relationship between the Zillow Home Loans, Loan Officer and the Premier Agent is one that is relationship driven, and there's trust that has to come with that. That is more from the person than it is soft. So when we find ways to expand these things faster nationally, we will go do that. Listing showcases national, Follow Up Boss usage is national [ reinforcing ] is national, but the enhanced markets are really governed by -- we've got to get the mortgage and for agent relationship, right? And we're now at a point where 27% of all of the connections that go through Zillow are in this experience. That will be 35% by the end of the year. And then our mid-cycle goal is to get that to 75%. 75% is a mile marker, we think it should be more than that. But as we were thinking about how investors should think of modeling the business and monitoring progress, we put that out there. But ultimately, the experience should be one that deals really integrated and all done within Zillow's app to the point that when you're at a cocktail party, when I'm in the party. My goal in the few years is when I'm in a cocktail party, I'll get less questions about some of these and more questions or positive responses about I bought with Zillow and it was really differentiated. So that's what we're trying to build, and we're rolling that out mostly because of the integration between Home Loans and Premier Agent. And then with respect to monetization model, we monetize our Premier Agent in 2 ways. One is upfront advertising since we call that market-based pricing, EP. And then the other is where we take a percentage of the commission check and we call that Flex. As the enhanced markets grow more and more, you'll see more and more of this go into Flex, because it's the right alignment mechanism to align Zillow, the customer and the Premier Agent at the revenue event. Everybody is happy when the transaction goes and everybody gets paid accordingly.

Yes. And maybe just on the MBP versus dynamic, is Flex clearly better than MBP or is it really something evaluated on a market-by-market basis. And then from a Zillow standpoint, do you see Flex as an opportunity to just get a greater share of wallet because kind of removed the psychological barrier for the agent of not knowing what the return on this upfront investment is? Or is it a pricing opportunity as well?

We think about it as a alignment mechanism. It's not so much a pre-mechanism or a monetization opportunity as much as -- the Flex versus MBP are a bit of a wash at this point. Yes. So really, the reason we go to the commission sharing model is because it just better aligns us with our partners. They know that we have skin in the game together to deliver this customer experience. So that's why we're doing that. As we roll these enhanced markets out, we both launch new ones, and then we expand deeper into the ones that we're in already that's where Flex starts to take more and more share. But the reason that we expand into these deeper markets or launch new ones is really Zillow Home Loans. And then it just happens to be that the monetization model changes alongside but Zillow Home Loans is the driver of it more than it is Flex versus MBP.

Yes. And in talking about the enhanced markets, you also mentioned a Follow Up Boss [indiscernible] maybe you can expand on that a little bit more. Is it better than the CRM that's typically offered to your typical agent?

We think no. Yes. So Follow Up Boss we bought in late 2023. And the reason was we thought having a CRM that we were lead tightly with our partners made sense like having a shared software platform made a bunch of sense to us and to our agents as well at that point in time Follow Up Boss already a long-term partner of ours and had worked with a bunch of our high-performing Premier Agent partners already. [Technical Difficulty] close to 2 years, we are now seeing all of our enhanced market partners on follow-up. And it's really good software. It was purpose-built for high-performing teams. 43 out of the top 50 teams in the country, Zillow or not, are on Follow Up Boss as a proxy. So I think it's really great software. We're very excited about it. And we think the ability to help agents be more productive and better convert leads and connections that we send to them. There's a lot we can do on the consumer-facing side, but Follow Up Boss is a big driver of that as well.

Yes. Let's talk a little bit about some of Zillow's recent product launches [ tour ] itineraries viability. How are these and other product launches viewed within the company? Are these more revenue sources that you might be able to charge a discrete fee for? Is it more of a conversion driver love to hear about perhaps some of those new products and then your thoughts around products generally?

Yes. We are, without a doubt, a product-led company, like we have been since the inception of the company will continue to be. We are always for ways to innovate on behalf of consumers and on behalf of our partners. So the ones that you highlighted are in that vein. Ultimately, what they should do is drive more engagement, more conversion and ultimately more revenue. Will we just create fees TBD, but really the context so much of the product development that we do is how do we make a consumer's life easier? How do we help them transact. And then how do we make an agent's life easier and help them transact and be more productive and the way in which we develop products kind of hangs off of that on the for-sale side. And obviously, similar principles exist for the rentals business as well.

Maybe going back to some of the numbers. As you mentioned mid-teens revenue growth is the outlook for this year. Could you just talk a little bit about your confidence in the rest of the year the back half? And maybe talk a little bit about why comparing Zillow's revenue growth to the growth in the market, right, can be -- not the appropriate thing to do, right, in any given quarter -- like how much of that do you guys look at internally in terms of Zillow versus market?

Yes. We feel quite confident. So at the beginning of 2025, our annual targets were low to mid-teens revenue growth expanded EBITDA margins and positive GAAP net income. Fast forward to halfway through the year, we feel good about how we're performing. The updated guidance was mid-teens growth, expanding margins on the EBITDA front and positive GAAP net income. So we're on pace and tightened up the lower end of the range as a result. The drivers of that is a lot what we've talked about. Continued expansion and enhancement continued adoption of listing showcase, continued adoption of Follow Up Boss, continued growth into Home Loans and then the rentals business is just really humming at the moment. So that's what gives us the confidence going forward. I think when we think about our how we're doing. We measure ourselves on, are we growing in a way that feels consistent with the opportunity in front of us. We grew 15% total company in 2024, we're on track for mid-teens in 2025. That feels quite good to us versus a housing market that has been really bouncing along the bottom for a long period of pleased there, it's important, though, that not just the revenue growth comes, but we also get leverage on top of that for EBITDA and ultimately, net income, and we've done that well as well. So I think we feel really confident where we don't spend the time is the quarter-to-quarter fluctuations just because when macro is -- housing macro is as odd as it has been for the last 3 years, there's always gyrations. So we're just trying out and say, are we taking share over annual periods over 2-year periods or periods? And can we continue to do so? We're confident that we are. We love the growth levers we have of us. And our job really is to go execute and grow regardless of the macro environment.

Great. And on your topic of kind of operating leverage, margin expansion, Zillow's obviously done a good job of getting to GAAP profitability, I think you were positive GAAP net income for the last 2 quarters, and you're forecasting that for the full year. Let's talk a little bit about the cost discipline and the operating leverage in the model, how you think about fixed versus variable?

Yes. So our cost -- this is for EBITDA cost. Breakdown in 3 buckets. We have roughly $1 billion of fixed cost in the business, and then the rest of the, call it, $1.7 billion base is in variable and in marketing. We have been really disciplined on the fixed cost bucket for the last few years, and we expect to do so going forward up to these mid-cycle targets. That has been great discipline for us. I think we forward invested ahead of that discipline. And now we're starting to see the like fruits of our labor come through. And we like keeping our fixed costs flat. There will be some inflation in there, but generally try to keep them as flat as possible and feel like we're well invested for the growth opportunities in front of us. So that's been able to drive the leverage you see in the model. And then variable in marketing, we will dial up and down depending on opportunities we see. So marketing is a good example 2024, we felt like there was real value in doing an apartment-only marketing campaign. Zillow is actually not all that well known for apartments today versus homes for rent and homes for sale. So we lit up a distinct campaign there. It did quite well. You can see the growth that's coming in, in the rentals business. But that's one where we're going to push on the gas same for the rentals business overall across sales and some of these distribution partnerships and the Zillow Home Loans, Loan Officer account, like they are good variable investments in front of a really interesting growth opportunity. We can do that while also being dependent on fixed and driving leverage. So that's really the formula. That's been the formula for most of 2023, 2024, '25 into the future. The nice part about that as well is stock-based comp, which sits below EBITDA costs. 90% of that stock-based comp charge sits in that fix it. So when we get leverage on the fixed cost, we're also getting leverage on stock-based comp. Stock-based comp was down 12% year-over-year for us in Q2, and we expect it to be down 10% for full year 2025. So I think that's how we think about how do we drive leverage while making sure we're really well invested to keep growing and all the exciting stuff we have going on.

Right. How is Zillow using AI, whether for end consumer or agent-facing tools or inside the company?

Everywhere is the short answer. We lead in pretty heavily, pretty early. And now I'd say the investments are in 3 buckets. So on the consumer front, we are looking for ways all the time to make the experience better using Generative AI and it's still early days there, but we feel well positioned just given the strength of our brand the amount of direct traffic we have and the differentiated data we have. So you start to think about all the cool things you can do with Generative AI as a result of that. And then on the operator side, that's bucket 2. We want to make Loan Officer and real estate agents more productive. That's good for them. That's good for our business. It's good for consumers. So we've spent a lot of our resourcing and effort on delivering AI tools for Follow Up Boss, for example. So things like call recordings that are then summarized up for these agents, smart list, how do you [Technical Difficulty] what's the next action you're supposed to take using Generative AI for that. And anecdotally, we're saving hours of time a day for people. Where they can no longer do these administrative tasks, but instead spend their time with their customers and our customers. So we're really pleased with that. And then the third bucket is just employee productivity. And the vast, vast majority of our code now is being touched with AI in some form, and we're making our own employee base more efficient, which helps us just get more out of the folks that we have in the building going forward as well.

Earlier this year, you settled your convertible notes and the company is now convertible debt-free. Could you talk a little bit about your capital allocation priorities? And what's your appetite for M&A?

Yes. One of the big goals for the year was to get to convertible debt-free. So we retired the last $400-some-odd million in May, and we're now clean balance sheet there. So that was a great thing to get done. We've also bought back roughly $400 million or so through the first 2 quarters of the year in stock, which more than offset any stock-based grants for employees. So we're pleased on both of those. When we look more broadly and longer term, the stock base -- excuse me, the buyback program has been really good for us. We started in end of 2021, we have bought well over $2 billion worth of stock back at an average price of $48. So it's been a great program over the course of whatever it is, 4 years or so. Share count has decreased over that period of time, and we like it as a tool and the toolkit going forward. And then the last bit of our capital allocation is M&A. There, we always look at stuff and we tend to buy a company or 2 a year, depending on the year. There's no set formula there. But when we think about that, that is an accelerant to a product-led company. Like we are absolutely, first and foremost, a product organic led company, and then M&A supplements that in the places where we can fill in gaps.

Yes. Just in the last couple of minutes that we have, maybe you can talk about your key strategic priorities over the next 12 to 24 months. What are you most excited about? I mean a lot of it is not even assuming that we get back anywhere close to mid-cycle on the macro, I would love to hear your thoughts there.

Yes, I get this question a bunch and it's like, who's your favorite kid, right? We're excited about everything we're doing at the moment. Like we have -- we feel like across the for-sale business, we are growing quite nicely in a pretty depressed market. The mortgage business continues to grow really well, follow-up losses in more people's hands. And we're just doing more and more to help our agents and consumers effectuate transactions. So there, we're excited. We will continue to roll out these enhanced markets to roughly '25 into 2026 and beyond. So that will be a big focus. Because so much of the product experience actually comes to life there. And then we'll couple that with continued rental growth. And that will be primarily on this multifamily execution journey that we've been. When you put those 2 things together, and listing shifts. We feel like there's a really interesting revenue opportunity. Couple that with cost discipline feels like about exciting time to be at Zillow that we've had in a long time.

Jeremy, it's been such a privilege to have you on stage here with us. Really appreciate it.

Thanks for having me.

Thank you.

Yes.