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

Welcome to Bernstein's TMT Conference.

Thanks for having me.

Absolutely. I'm sure many of you in the room already know Zillow. It is one of the leading online portals to search, discover and now increasingly transact when you're in the home buying process and the rentals process. The business continues to evolve and sort of expand its reach across multiple different services within the housing ecosystem, and we're going to get into all of that today.

Jeremy, I'd love to kick it off with maybe a look back, right? You just wrapped up 2025. The business grew about 16%. Adjusted EBITDA grew about 25%. You've seen GAAP earnings now start to come through on a more consistent basis. Look back on last year, what went well? What are areas that you're looking to continue to improve upon as a senior leadership team as you look ahead as well?

Yes. Yes, we're really pleased with how 2025 went. Business grew, like you said, 16% overall. EBITDA grew 25%. We were a GAAP net income profitable in all 4 quarters and for the full year, which was an important goal for us as a company. When I look beneath those overall drivers, we see green lights across the business. Our for-sale business grew quite nicely versus the market. Our rentals business grew 39% year-over-year. And then we're doing it with good cost discipline. So we're able to expand margins by about 200 basis points. And all of that put together against the housing market that is at 40-year type lows. So that all feels quite good in a very fluid and dynamic market. The business execution has been really solid.

And as I think about your financial framework for this year, it feels like more of the same is in order. You've talked about mid-teens growth for 2026, a little bit of margin expansion, but there's various components to your guidance and your framework for the year. Can you walk through that a little bit and the key variables that you think would push you above or below on some of those metrics? .

Yes. So we are expecting mid-teens growth again this year with not much coming from the housing market. So again, really good growth against a fairly depressed market and expecting to expand margins at similar rates to what we did last year and the year before. So the formula is the same in many ways. Beneath that, we are expecting rentals to grow another 30% or so in 2026. And that's on the back of it growing 39% in 2025 and 27% in 2024. So that business has done really well. And the for-sale business across residential and mortgage, we're expecting good growth again, too. So from a revenue drivers perspective, it's really the same strategy that we've been embarking on, which is taking all the great demand engagement that comes from having a brand as strong as Zillow and turning more and more of those folks into transactors. That's the strategy. That's what's driving the growth, and that's regardless of what the housing market does. Underneath the cost drivers, we're expecting to hold fixed costs effectively flat with inflation. We've done that since the second half of 2023. That's been a really good discipline for us, and we're able to continue to find ways to accelerate product development while keeping the same number of people. And then on variable, we grow. We're growing faster in the first half of the year than revenue, and that's really on the back of rental sales folks and Zillow Home Loans loan officers. But then we expect that to come closer to in line with revenue growth in the second half of the year.

And on the variables that would push you above or below, is that predominantly would you say macro driven? Or as you look at the product road map? Or are there things you're excited about that can be pulled forward if they're going well?

I think on the products side, everything like feels quite strong, right? You look at the metrics across the board and the strategy that we're going after. It has been able -- like the strategy is working quite well. We're executing well. So from a product perspective, we feel good. What would be a boom to us. We're not counting on it. We didn't model it, but what would be a boon to us to extend further would be some bit of macro recovery. But when we plan for the year, we plan our cost structure and we plan our revenue plan around consistent kind of not much changing in the housing market.

Yes. I think that's about as far as any of us can see out right now so that makes sense. You've described to the point of strategy, you've described it as becoming increasingly a housing super app walk through that vision a little bit more? Why is this the right strategy and vision for Zillow in the long run? And how do you think about some of these various initiatives coming together?

The whole goal for us is to be all things housing to consumers in the U.S. how we do that is we take a lot of great brand engagement audience and 80% of our audience is brand direct or is direct, I should say, less than 5% is in SEM. So just to give you a sense of the strength of the audience, it's 65% to 70% of category share, depending on how you -- depending on the month. So all of that has been built over 20 years. It gives us the opportunity to then go deeper into the transaction funnel across buy, sell and rent and increasingly create more of an operating system for the real estate transaction overall with some of the software and tools that we've either acquired or built over the years. So that all makes good sense to us from both an offense perspective and then also defense perspective as well. The further we get into the vertical, the more we're in the guts of the transactions across rentals and for sale, the more durable, we think the offering is. And that's been a strategy in some form or another that we've been on for almost a decade at this point and makes a ton of sense to us, and you're starting to see really good results that come out of it as well.

And bringing some of these factors in-house, right, bringing mortgage in-house, bringing aligning how you monetize with agents. Is it -- should we think about this as sort of improving the quality of service at the end of the day and improving conversion rates around the business at the end of the day?

In a lot of ways, yes. I think we want to have best consumer experience, and we want to align those folks with best real estate professionals, which is not that hard a concept to think about, but it is hard and practice to do. The learning we had 2017 or so time frame was back when we were just doing pure lead gen. Like somebody would just submit their name, submit their phone numbers, submit their e-mail and off they went. What we learned at that point in time, consumer wasn't getting called back 50% of the time. Like that is just not going to work for a long-term value proposition. We can continue to aggregate demand, but if consumers aren't getting what they want and agents aren't getting what they want, we're going to have to figure out something different. And that drove so much of what is now a much more deeply verticalized transaction-based business. And you're right to say that alignment mechanism of real estate agents, we get paid when the real estate agent gets paid, has been really good to drive just alignment and then it allows us also to keep pushing on conversion to make that experience better for consumers. It makes it better for real estate agents as well if they're converting more customers. And then you do it in an integrated way with mortgage and closing and all the other services associated with it all inside their Zillow app, that ends up being a far easier consumer experience and a far better agent experience.

That's probably a good segue to a broader topic around AI as investors are now trying to evaluate which business models have moats that are durable and which ones are more susceptible to change. This AI disruption narrative, which started significantly in software is completely bled over into consumer Internet now. And I think if I were to frame very simply what the bear case would be is that, hey, housing data is, in fact, commoditized, and there's not a lot of proprietary information in this industry. And there's a risk over time that the way you search and shop and engage with agents and go around a home transaction might change in the long run. I know the company recently put out your rebuttal to the AI bear case and where you think Zillow adds value and why you think it can be a positive for you. So can you recount some of that a little bit? Why is the bear case wrong in your opinion? And what is it missing?

I think it's obviously like very hectic time in the capital markets at the moment. And whenever technology shifts occur, there is, okay, how does this all play out. And how do you think about a future state. So I don't necessarily think of it as like their case, bull case, it's just how do we feel day-to-day on what we're doing and why do we feel like we're advantaged as a result of using generative AI. Start with the top of the funnel on the brand. So brand is very strong. Consumer preference has never been higher for us. 80% of our traffic is direct. 65% to 70% depending on the month is of real estate shoppers that are coming to us. So that feels very good. The term Google -- excuse me, the term Zillow is more often Google than the term real estate. Just to give you a sense of like how much Zillow has become a verb. So that is a great start, but it's not the end, right? How people first discover real estate listings, that has been commoditized for a very long time, right? Anyone that signs up as a brokerage can get access to all the inventory. We've been competing in that world for 20 years, where we add value is far beyond just that first search. It's start -- let's just use the user journey, the buyer journey in this case. It is then understanding the -- what's actually going on inside the house. We have proprietary technology that captures 3D images, floor plans, walk-throughs, that's on 10% of all listings today. That has grown quite nicely. So that's a richer experience than a typical just photos on the Internet. And then you go down the funnel and by the time that somebody is looking to actually transact, the first thing they want to do is tour the home. We own showing time. Showing time power is 90% of all tours in the country. The experience is different than anywhere else on the Internet. If you look to take a tour, right? So that's proprietary to us. That's interesting data that makes our LLM smarter. You then get prequalified or preapproved. We have Zillow Home Loans. We're doing that today. You then work further down the real estate agent who is going to meet this consumer works and Follow Up Boss. 100% of our preferred agents use Follow Up Boss, which is CRM that we own, that has interesting and unique data to make the LLM experience on Zillow, even stronger. And then you get through offer rating Dotloop, which we own has 50% of all offers in the country go through Dotloop. And then we're starting to ramp up Zillow Closing. So you put all of that together, and there's a lot of interesting data and unique data to us, not just at the tippy top of the funnel, but all the way through the transaction that allows us to make our proprietary LLM smarter. That will be the experience on Zillow over time. And that's pretty well differentiated in a real estate category that is highly fragmented, highly complex, infrequent and messy. We're doing all that. We've been doing it for a very long time, and AI just accelerates all of what I just articulated. I think one of the things that I've realized over the past 2 or 3 weeks as this has been a bigger conversation is so many of the investor community doesn't use Zillow the way that we get paid right? So if you look at it and you use Zillow solely to just search homes at night, that's not how we get paid. We get paid all the way through of what I just articulated and part of why we're doing this AI day on March 24, is to really expose that entire transaction life cycle and really understand from a buyer, a seller, a renter and an agent what is their experience within Zillow's ecosystem. It's wonderful for me to talk about all the things I just talked about. But until you feel it, until you understand what we actually do and how we get paid, the quick their case will be, oh, but what if somebody gets MLS data. Like, okay, like somebody's going to get MLS data, they will get access to photos, that is a world we have lived in for a very long time. We've built so much more value all the way down the transaction, and that's how we get paid. So we see it as this really substantial accelerator for us because of all the unique data that we can feed into our own proprietary experiences, but we've got to go prove that out. And it's important to be out and chatting with you all while you're trying to figure it out.

You mentioned their Zillow proprietary LLM or some sort of experience. When do you think we can start to experience that as consumers using more conversational search in the home search process. I think I could see that being a differentiator for certain portals that are able to get to that point. And it's eventually going to become the consumer expectation on search across almost anything I would imagine as you look out 5, 10 years. So when do you think we get there and the level of investment and product development required to make that happen as well?

We're live now. We're testing it with a small number of users, and we're testing with a small number of users because it just has to keep getting better, right? Like you don't want to just -- and when you're releasing something like that, that could be pretty transformative for us. You don't want to release it very widely, and it's not a great experience, right? It has to get better. So we are live now. But what's unique about what we are doing, and you'll see more of this as we get to our AI day. What we are doing is not just chat bot about a listing it is an assistant that takes you through all of the transaction process. All the things I just articulated our assistant will guide you through that. So it is not just, hey, what is going on, on this property and how many homes does it -- or how many bedrooms does it have, something like that. It is here's what's going on with the home, let's help you understand that. And then when you're able to take a tour, we're going to facilitate that. And when you're going to meet a lender, we'll facilitate that. When you need an agent, we'll facilitate that. And all of the proprietary data that comes into those experiences, we're going to guide you all the way through the transaction process. That's going to be really hard to replicate because of the brand scale we have, the audience we have and the unique data that flows through. So that's where we get really excited. The other thing we get really excited about in that future experience is it really widens the aperture for us to interact with consumers, right? Today, a map-based search with filters, it's great. It's as good as it can be, but there are a lot of questions we can't answer. And even in the early days of testing our identic experience, you're seeing these really rich conversations that would otherwise have no possibility to do for a consumer. So the amount of queries come up the amount of time you spend on Zillow comes up, and we're going to make you more and more qualified so that when you're ready to meet a real estate agent, you are really understanding what you're doing, which ultimately will mean higher conversion, which is a good thing for consumers and obviously a good thing for agents. So that's what we get really excited about. We've got to go prove all that out. But it's pretty obvious to us that it's a big win because it likely is going to have people spend a lot more time with us through the shopping cycle. And in real estate, it's a really long transaction cycle. There's a lot of starts and stops. It's not just like buying shoes, it's -- you're going to go and make the biggest purchase of your life. Let's have Zillow alongside an Agentic experience that can help you through that discovery process and also help you through the entire transaction process.

Do you foresee any risks or changes longer term to the role of the buyer agent, the human agent in these connections?

I think our view is work with productive agents, work with the best agents in the country because a real estate transaction is so infrequent, so expensive, such a big part of your net worth and so emotional. People like advisers there, and they like good advisers. So that's what we have oriented the business around. 2015, we were -- let's bring as many real estate agents as possible on to the platform to work with our customers. We've been pretty significantly calling that to the point that now 20% of all agents do 80% of all transactions, and we work with that group of people. Our perspective is all the things that we've just talked about and AI can make them more and more productive and the more and more productive agents who are using our technology who are working with our highly qualified consumers end up being the winners. That's been a story for a longer period of time, like we've been on that journey for a long period of time. We think AI pushes it even further so that we can take so much of the busy work out of their day-to-day and let them work with consumers and do what they do best. That's our expectation. Our expectation is you're still going to want that advice. At the end of the day, you're going to want a human being on the ground to really be your therapist through a big purchase. We're just going to do as much as we possibly can to have that be the real estate agent's job rather than the busy work. And we do that follow of is a good example. We are now allowing the AI to listen -- obviously opted in, but allowing the AI to listen to calls that agents have, type up smart messages, give them text messages that allow them to not have to go and write all their stuff down. Like we're saving hours a day already with like fairly rudimentary stuff comparatively. And we feel like we can make so much more productivity gains as we get smarter and smarter with the LLM.

The core part of your enhanced market strategy is that you bring the various pieces of the business together between Premier Agent, home loans, again, software services for these agents. And you've talked about 44% of the connections are now happening through these enhanced markets. The ambition is for that to be 75% plus. What variables dictate the pace at which this strategy rolls out, which aspects of it take longer to build as you think about that road map?

The biggest gating item for us in terms of rollout for the enhanced market is getting the integration between the loan officer, the Zillow Home Loans Loan Officer and the preferred partner agent. That relationship has to be really good. It's a mutual sales cycle where an agent and a loan officer have to work well together, and they have to service the mutual customer really well, and building trust takes time. . Like you really only get -- if we want a shot at the mortgage business and we ask a real estate agent to give -- help give us a shot and work with mutual customers, they have to believe that we're going to do a good job. And you really only get 1 chance at a first impression, particularly in a real estate market where transactions are hard to come by. So we're going to be methodical there. We're obviously moving as fast as we possibly can. But getting the mortgage integration with the real estate agent, right, is what paces the move into the enhanced markets.

On that point of mortgage, what is the long-term ambition for how big and significant Zillow Home Loans can be for the business? Where do you see it going? And what's the general aspiration there?

Yes. And for context for anybody that's not as deep in this as I am, we grew mortgage 53% this past year on Zillow Home Loans that is. And we are now probably just around the top 25 lender in the country. So we've made good progress over the past few years. but we're still basis points of share. The mortgage market in purchase is extremely fragmented. The leader in the space maybe has 5%. So we look at that and we say, we should be one of the biggest lenders in the country. We have great technology. We have a great brand, and we have really good real estate agents to pair with the mortgage product and an integrated experience. we're growing quite nicely, but the opportunity set from where we are today, which is great and growing and all the things, but where we could be is a lot bigger. And it's on the back of really fragmented marketplace and one that we should be able to grow quite nicely. We haven't put out some long-term target around it, but our ambitions are to be one of the biggest purchase lenders in the country.

If we come back a bit to the residential portion of the business, it's undergoing a bit of a business model shift, right, from market-based pricing, which is your traditional lead generation model to now preferred which is more of a transaction-based sort of revenue or commission share agreement with agents. Can you just talk a little bit about how that transition in the business model impacts your sort of relative performance, right? My understanding is there's a bit of a J curve as you move people over. You may be upfront lose a bit of co-marketing dollars. But then over time, as transactions happen, you should be making that back. And we talked earlier about incentives being aligned longer term as well. So can you walk us through that piece a little bit?

Yes. So whole strategy is delivered a tone of consumer value, deliver a ton of partner value. We think the best way to do that between buyers and real estate agents is to align where we get paid when they get paid. So that's the preferred model. That is the model that will be the majority of the business and growing to 75% plus, as you highlighted earlier. . As we go through that, what we're doing is we're changing the revenue from prepaid advertising to sharing at the commission. What happens there primarily is just you go through a point in time where the mortgage revenue from Zillow Home Loans comes later because the transaction happens later. Whereas, when you referenced co-marketing, that's where a mortgage lender is paying alongside a market-based pricing advertising model, that happens at the same time. So what's different is you start to see the mortgage revenue come in a little bit later. And we go through that model shift. It's we knew that, that was going to happen, and it's totally comfortable, and we feel really good about the growth of our residential business our for-sale business, which is the combination of residential and mortgage and obviously, total company, but we are going through that shift and there's just a lag in the revenue that comes off of mortgage as a result.

And how do you think about the monetization of the residential, like the Premier Agent piece in new model versus old model? Does that eventually, over time, get better with the new model? And how do you -- what have you learned, I guess, from the markets that have already gone live with this?

Yes. The key there is more transactions, right, driving more transactions. That's through a combination of bringing more people through and also higher conversion. And we see across these enhanced markets, continued conversion uplift, and that makes us really excited about it, why we're moving as fast as we can. And then we're also seeing consistent adoption of Zillow Home Loans. So the 2 key metrics regardless of MVP versus preferred or any headwinds in luxury versus first-time homebuyers like market will always move around. The key to us, what we look at is cancel all that noise out for a second. It's are we converting more customers and are we adding more revenue per transaction. And we're seeing that consistently feel good about it and why we're running as hard as we can at the enhanced market opportunity.

It's obviously a tough macro backdrop to be running against. You've got existing home sales that are bouncing along this $4 million number, give or take. On the last earnings call, I heard you sound more optimistic about the backdrop than I think in previous periods, the main factor being affordability is starting to get better. What are you seeing with your agents on the ground? What's the feedback on -- from operations on the ground around affordability? And how that is feeding into your broader view of existing home sales for this year?

Yes. So we did not model much of anything in terms of macro improvement, where we are a little bit more excited is your point on affordability, which is we're starting to see wage growth outpace home price appreciation, and we're starting to see affordability come down as a result. So at the peak of unaffordable 2 years ago, roughly 38% of your income was going towards housing, that number at the end of December was 32%. The magic number from economists is around 30% that you start to say, okay, this feels affordable. So we see affordability getting better. It's on the margin, right? Like when I say maybe I'm a little bit more excited than I've been in the last few years, I don't expect some ramp up in a way that we see 5 million or 6 million home sales this year, but I do think their affordability on the margin is getting better. We have not seen that play out in activity yet in this winter, but some of that has been weather related. Like it's tough to put your home in the market when there's 30 inches of snow type stuff going on. As many of you, I assume, I have felt.

It's on the way to this conference in particular. I think you've talked about a $1.3 billion revenue opportunity as the market hopefully eventually recovers to that $6 million a year normal cadence of transactions. What are the underlying assumptions you've made there on market share in that bridge?

They -- the market share assumptions are we stay where we are, like that is just purely a macro move. We thought that was the right way to think about it. Like we tried to isolate -- these are our mid-cycle targets. We try to isolate what's totally in our control and then what's macro, and macro, we didn't expect that we would have more share, which just said, the share that we are, you get the macro improvement. What does that mean? . Obviously, we want to take share. We expect to take share. But when we put that assumption in, we want to be as intellectually honest as possible.

Maybe a quick aside and a reminder for folks in the audience, if you'd like to submit questions, you can do so via the QR code, but I have plenty more here that we'll get into. On -- we've talked a lot about the For Sale and -- For Sale piece of the business. If we switch gears a little bit to rentals. This is a portion of your business that's doing quite well. You've talked about 30% growth this year even as you start to lap that arrangement that you struck with Redfin last year. So good underlying growth there. Supply continues to grow. How do you get from the $600 million-plus revenue run rate to that $1 billion target? When you think about the components of supply mix shift as you upsell customers on more premium plans and then pricing on a like-for-like basis. Walk us through some of the components of that longer-term target.

Sure. And maybe I'll zoom out on the rental strategy first because it is pretty unique and interesting. In For Sale in the country, there's the MLS. That is the organizing function of supply. In rentals, there is no MLS. Our goal is to be the one-stop shop for all things rentals. That's what the consumer wants. The consumer wants to see all homes for rent that are single-family homes, and they want to see all homes for rent that are apartments or condos or whatever else. So that's the strategy we've been pushing on. We now have over 70% of all the single-family homes in the country on Zillow, which is primarily unique to us as well. So going back to some of the questions around content, rentals, single-family homes, primarily unique to us. That drives really good traffic because we have more selection than anyone else. So it allows us to drive organic traffic. That organic traffic allows us to show up at a multifamily operators office and say, we should be taking your apartment buildings on Zillow as well because we have more traffic and higher quality traffic than anyone else. So that in a nutshell is the strategy. It has been a labor of love for a long period of time. Single-family home rentals are very hard to fund and very hard to make unique, but we've been able to do it quite well with great product ingenuity and brand. And now we are really well monetizing the apartments portion of the rentals market. And that's been really the main driver of growth the last few years. Stats wise, we are now at 72,000 buildings as of the end of -- as the end of December, that's more than double 2, 3 years ago. So the growth has been really strong, and that's translated quite nicely to revenue. So revenue grew 27% in 2024, 39% in 2025, and expecting to grow 30% in 2026. How do we grow further, right? So we're -- the rentals category for us is $630 million at the end of 2025. We've been quite clear that we have a clear path to $1 billion plus in that business in these mid-cycle targets, and we think there's a far bigger business to build beyond that. The way we do it is continue to add more buildings where 72,000 buildings out of an addressable market of 140,000. So we need to keep adding buildings. We need to keep adding value such that existing buildings and new buildings want to spend more money with us. And that's just through really good ROI. And that's -- those 2 levers are the ones that we think about growth from here. We have been -- we have best-in-class ROI, and that's by design. We want to be able to be a preferred advertising source for these operators across not just Internet listing sites, but also they spend a lot of money with folks like Google. And they're telling us that our ROI is better than anyone. So it's like, okay, let's go get the share of all of that as best we can. That really is going to come down to, can we keep adding more buildings adding more -- adding wallet share, and that's going to come off of like can we fill more leases? And can we keep growing traffic, which is that's been a good formula, and we think it's a really good formula from here. We're a lot less focused on pulling price because we think there's so much wallet share to go get and so much market to still get.

Do we know what the ceiling on building count or volume count can be?

Yes. So the addressable market is 140,000. I think when you get into the tail end of that, there will be things like senior living and student housing, things like -- so it's not going to be all big apartment buildings in New York, but we think there's still plenty of apartment abilities to get. And again, if you zoom all the way back, we want to wake up in some time in the future and have most, if not all, of the rentals, no matter what it is on Zillow because consumer wants that. And if a consumer wants that, and we become the one place for them to go look for a rental because we have all the inventory, there are a lot of business opportunities for rentals beyond just multifamily advertising as well.

And with the single-family homes, is there a monetization opportunity there as well? Or is it -- should we primarily think about it, as you mentioned, traffic acquisition and then it feeds that overall network effect?

It's primarily traffic acquisition and network effect. We likely monetize it today, but a natural question is like why have we been able to build so much supply, why have we been able to get so much of it unique to us. You cannot sell. You cannot build a sales force to sell into the dentist in the middle of the country that owns 2 rentals. Like there's no enterprise sales effort that you can possibly do. You have to be able to attract that person via brand. So Zillow's brand known for housing, like is a great start. We have a bunch of these people already on Zillow. We've been able to attract them that way. We then make the ability to get leads to take payments to create leases, all effectively free to that landlord. So they're able to basically fill their vacancy on Zillow without having to pay any money, that's huge value, and they don't go anywhere else because they're satisfied. So that's the supply portion of the single-family homes business. On the consumer front, the way we monetize is via an application, primarily. And that application, if you're in our network, you pay one time and it travels to any home that's for rent in the network. So it's a common application, which is a real benefit to a consumer. They don't have to apply all these different times. The 1 application they take goes throughout the network. So that is how we created it. It -- we started that in 2015, '16 something in that time frame. So it's a long slog, but it feels very, very durable, and it's now allowing us to grow the business substantially with multifamily operators as well.

Speaking of rentals, one of the aspects that investors have been debating recently has been around some of the regulatory or legal headlines that have hit the business in the last few months. One of them has been specifically focused on the rentals business, which is the FTC case that is placed against the arrangement between yourselves and Redfin. Any impact on how you were thinking about running the rentals business this year, right? And given there is some sort of pending risk that maybe that agreement has to be unwound, how does that influence how management and the sales teams on the ground think about upselling these customers into your broader distribution, which I imagine is a pretty strong pitch you can make today. But if that's in question, how does that change your day-to-day?

Yes. So I can't comment on active litigation. What I can say is we feel really good about the partnership. The partnership has worked really well. We obviously feel confident that we're going to grow from here and expect to grow 30% in 2026, bringing Redfin on as a source of demand has been great. They've done really well with us. And obviously, our partners really like it because we're perceived to be best-in-class ROI. So all of that is working quite well. With respect to the case, the we feel good about our defenses is maybe the best way I can say it. From a consumer perspective, it's pro-competitive because Redfin and its sites pre partnership had 20,000 or so buildings. They now have 72,000 buildings. We are actually competing for traffic with Redfin. Renters are seeing more inventory in more places. That's procompetitive. And then on the property management company side, the payers, they're seeing best-in-class ROI. So we've been able to do both of those things. We're happy to defend ourselves and explain that, but feel quite good about the defenses because it is so pro competitive on both sides of the market.

Yes. I appreciate there's not much you can say at this point. I guess the one other case that has come up to some degree recently has been around the RESPA case or the dynamic in the enhanced markets between the Premier Agents and the loan officers. So similar question there to the extent that you can talk about how you feel about your position in that? Just any changing views on how to operate and manage that relationship between those 2 sides of the business?

Yes. The case itself, we find is deeply mischaracterized the business. So we'll put the case to the side. But the -- how do you operate within the framework of RESPA is something that we think about every day and something we thought about since the moment we started in mortgage because Zillow is a big brand, and RESPA a gray area at law. And we knew Zillow being a big brand was going to have scrutiny around RESPA and we've designed programs with that in mind. When I think about what we're doing from a consumer perspective is we're giving folks choice, right? We think an integrated transaction is the right one because it makes it easier for a consumer to transact, but there's obviously a ton of choice that comes alongside that. And that's backed up by the fact that we're double digits adoption rate, which we're proud of. We're double-digit adoption rate in Zillow Home Loans, but that's a portion of Zillow customers, meaning anywhere between 85% and 90% of folks that of -- consumers that go and work with our Premier Agents aren't using Zillow Home Loans. So there's obviously a ton of choice there. And we expect that to be the case going forward. We're always getting, people need choices. We think we -- if we compete well on price on service and on technology, we hope to win that business, but we're doing it through those means rather than anything beyond that.

And in terms of the ability to improve attach rates on mortgage over time operationally, what do you anchor on? And what's the ambition there for that relationship growing?

It's going to come down to can we deliver a great consumer experience on Zillow. Can we help people better understand what they can afford, better understand the value that they can offer home, all those sorts of things. We should do that on Zillow through things like viability that we've built and others that will build in the future. Such that by the time you're ready to get off the couch, you're actually preapproved with us. Like that's a great outcome. That's a smarter buyer, that's a more high quality buyer and ultimately likely a more high converting buyer as well. So we've got to do that. We've got to be competitive on price. We are competitive on price, and we've got to deliver service such that we're closing on time and doing all the things necessary to make sure the transaction actually gets done. That's how we win here. And if you go back to like what is the mortgage opportunity that's the opportunity, right? It's brand, it's technology experience and then it's delivering great service. And because we are -- we are one of the key places that people start their home-buying journey. One of the key questions is understanding what you can afford. And that gives us a grade into -- to get people to use the Zillow Home Loans and then you pair them with a great real estate agent, and then it all comes together quite nicely and is the building blocks of what we've already been doing.

Switching gears a bit to margins. I think what we've seen from the business recently is that there's been more consistent margin expansion. This year, we talked about 200 basis points or alluded to the last couple of years as a framework, which pointed to about 200 basis points of margin expansion, and that includes some legal headway as well. And so it seems like the underlying margin expansion of the business is actually getting better even with the increased litigation costs. So can you talk about what's happening there? And what's helping that? Are we just at a point of scale now on the revenue front, coupled with just culturally how you're managing the cost base overall? Like what's allowing the margin expansion to get better on a core underlying basis?

So I'll take the legal one first and then go to margin expansion overall. The -- we are -- we have about 200 basis points of headwind we estimate in Q1 around legal expenses. The reason that is, is because the Redfin Matter, FTC matter, we just talked about is fast tracked. So we'll be in that trial sometime over the summer, is what we estimate. And as a result, we're compressing a lot of time to get ready for a trial in a short period of time. Usually, you have 3, 4 years for these things, and we have, whatever, 5, 6 months. So that's why it's heavier in the first half of the year. And then we expect it to tamp down in the second half of the year and be ultimately 100 basis points of drag to EBITDA throughout 2026. Underneath all of that is just really good cost discipline that we've had in views in the company for almost 3 years at this point. And that's -- yes, it's cultural at this moment. Like every year that we get into annual planning at this point, people know the fixed part of our company is going to be flat, like we're going to continue to push on getting more out of the same number of people. And we're able to do that by good prioritization and thoughtful things like that, but also AI helps us there, right? Like we are not by any means slowing down. If anything, we've gotten faster at product development, and you've probably seen that if you followed us the last few years. The product development is ramping, and we're able to do it with the same number of folks as a function of some of it being AI-related.

Does the AI aspect -- as a CFO, the world is changing very quickly as you kind of look at the capability of these tools and how you think about managing resources. I mean how is your world view around this changing? And do you envision being able to do a lot more with less at a quicker and quicker rate? Do you envision running even leaner? Like how do you think about just what all of this means for the productivity of the Zillow workforce?

We think the opportunity for us is far bigger than we are today. So we start with, let's invest in all the places we think we can grow, right? So underneath that flat construct, there's a lot of ups and downs associated with product development. At the moment, that has worked really well for us. Now if tools change and we can do better, great. But I think the ability to take savings, reinvest into product development and run after these really, really big opportunities. That's been the goal the last few years, that's what we've executed on. We've been able to drive really nice leverage in the business. We've expanded margins 200 basis points in 2024, expanding margin just 200 basis points at 2025 and expecting a similar framework for 2026. And we've been able to do that with growing the mortgage business the way that we have, the rental business, the way that we have, introducing listing showcase, introducing Zillow Pro, like these are really impressive things to do, adding all these features and follow-ups, like all of that speed, agility and new product development is happening with the same number of people. And it's allowing us to grow revenue in the mid-teens despite a housing market that has been really, really challenged. So that feels like the right formula. To the extent things change over time, and we can do more, we'll obviously look at that. But the formula of like, let's do more with the same. I think one is a great imply message. And two is a really important message for long-term growth of the business.

And in terms of those core product development or investment areas for you in 2026, does it look the same? Are there other ones you would highlight in terms of focus areas?

I think it's executing on the same strategy that we have talked about for a while now. We need to grow our residential business. We need to grow our mortgage business. We need to grow our rentals business. And then the exciting one that's not included in our mid-single targets in any real way is Zillow Pro. So I'd say that's the most interesting new product development that we're out in market really in beta right now. That's one other. It's not a contributor to 2026 revenue in any meaningful way, but we think it meaningfully expands the serviceable addressable market that we have because what we're doing is taking all the goodness from these enhanced markets and follow-up loss and extending it to a real estate agent's sphere of influence, so that they start to get those tools to work their customers that they don't meet on Zillow. And maybe just like breaking down the funnel, you have 100 people better around Zillow today -- or sorry, 100 people that transact today, 70 of those folks are on Zillow, 6% transact with us. 25% of these -- of the people actually reach out to us. So our opportunity on Zillow is make that 6.25%, but then there's the 25 to 70 that may not ever transact with us, Zillow Pro, but they're on Zillow, they're shopping, they're buyers. Zillow Pro helps us access that addressable market. So again, not a big contributor this year, but the expansion of addressable market is really exciting as well.

The explanation on why it's not a big contributor to this year, is that simply because of the timing of the beta test to broader rollout? Or is it something else?

It is just we are a testing and price for adoption and planning to learn it on. Like one thing that we've learned time and again over the years is real estate agents are really busy, small business entrepreneurs. Introducing new technology takes time, takes training and you learn along the way what works and what doesn't work. We've done that consistently, and we've figured out ways to grow quite nicely, but Zillow Pro, we're going to learn a ton through the course of '26 and then we expect it to be more meaningful in the out years, but '26 is really about learning and adoption.

The longer-term margin target is about 45% today sits at roughly half of that, give or take. How do you come up with the 45%? Why is that the right number longer term? And help us work towards that?

Yes. The framework of -- like fixed staying flat, there's going to be some inflation there, but fixed staying flat with inflation is a big driver. So as you grow revenue, you see margins expand. Variable will grow where we see opportunities, marketing will grow where we see opportunities. But fixed cost leverage is an important one. And then macro recovery helps. So we did an estimate if we had the 6 million homes sold in the country in 2025, what do we think our margin profile would have been, and it would have been mid- to high 30%. So there's not that macro is going to matter as well. And it's -- we want to be very clear about that in the mid-cycle targets. There's a lot of margin expansion to go without macro, but macro also helps. And when we build all that out, we're not that far away in a normalized housing cycle.

But we're at the point now where we should think about pretty healthy incremental margins from this business?

Yes, I mean, you've seen it in the last few years, and we expect to continue to do so.

Closing question for me is just what do you want to leave investors with? What should investors continue to expect of Zillow from here as you look out over the next few years? We'll leave it to you to and set the stage.

Yes, it's an interesting time to ask that question. I think strategy feels very sound. Execution has been very good. We expect it to be very good. And we see AI as a meaningful accelerator because of the complexity of the real estate industry, all that we've built all the proprietary tools that we have, all the proprietary data that we have and the brand that we are. So we're really excited about the future and excited to chat with you.

Great. With that, we will leave it there. Jeremy, thank you so much for your time. Thanks, everyone, for listening in as well.