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    Zillow Group Inc (ZG)

    Business Description

    Zillow Group, Inc. (ZG) operates as a leading real estate technology company, providing a comprehensive platform for real estate listings, information, and services. The company connects users with real estate professionals and offers tools for buying, selling, renting, and financing homes. Its offerings include advertising and marketing services, mortgage origination, and innovative technology solutions tailored to the real estate market.

    1. Internet, Media & Technology (IMT) - Provides a platform for real estate listings, rentals, and advertising services. Includes sub-products such as:

      • Premier Agent - Offers advertising opportunities for real estate agents to connect with potential buyers and sellers.
      • Rentals - Facilitates rental property listings and advertising for property managers and rental agents.
      • Other IMT - Includes new construction marketplaces, business technology solutions like ShowingTime+, and other advertising services.

    2. Mortgages - Operates Zillow Home Loans, offering mortgage origination services and reselling mortgages on the secondary market. Also includes advertising sold to mortgage lenders.

    3. Homes - Provides title and escrow services through Zillow Closing Services, supporting real estate transactions.

    Q3 2024 Summary

    Initial Price$45.03July 1, 2024
    Final Price$62.71October 1, 2024
    Price Change$17.68
    % Change+39.26%

    What went well

    • Zillow Group's revenue per total transaction value has doubled in their oldest enhanced markets since the beginning of 2023, demonstrating strong growth and a successful expansion strategy. They expanded from 9 enhanced markets at the end of last year to 43 as of October, with consistent positive trends across these markets.
    • Zillow Rentals boasts the largest audience of renters in the country, up 20% year-over-year, significantly outpacing the competition. Their multifamily revenue grew 38% year-over-year, driven by a multifamily advertising campaign and a partnership with realtor.com, which are attracting high-quality renters and increasing advertiser interest.
    • Zillow is gaining market share versus total transaction value, up 800 basis points year-over-year in Q3 and 2,000 basis points since the beginning of 2023. They anticipate continued growth due to enhanced market rollouts and the success of products like Zillow Showcase, rentals, Follow Up Boss, and ShowingTime+.

    What went wrong

    • Macroeconomic Challenges: Zillow expects the macroeconomic environment to remain choppy, with affordability remaining a challenge in the housing market, which could impact future growth. ,
    • Potential Decline in Premier Agent Revenue: When asked if the guidance implies a Premier Agent revenue decline year-over-year, the executive focused on seasonality and overall performance, suggesting possible weakness in this segment.
    • Adoption Challenges with Zillow Showcase: Scaling Zillow Showcase is challenging due to operational changes required by agents, and currently, it is only on nearly 1.5% of new for-sale listings, indicating slow adoption.

    Q&A Summary

    1. Revenue Guidance and Growth
      Q: Does guidance imply Premier Agent revenue decline?
      A: Jeremy Hofmann stated that Zillow expects 12% growth at the midpoint for Q4. Despite challenges in the housing market, they anticipate double-digit growth and margin expansion in both Q4 and full year '24, with revenue projected to grow 14% year-over-year in 2024. They also mentioned 22% EBITDA margins, implying 200 basis points of margin expansion. Premier Agent is gaining share, up 800 basis points year-over-year in Q3 and 2,000 basis points since early '23.

    2. Regulatory Changes Impact
      Q: How do regulatory changes affect conversion and market share?
      A: Jeremy Wacksman explained that mandated buyer agreements are a healthy evolution, improving buyer education and preparing them to meet agents. They haven't seen concrete data on structural changes to conversion but view it positively. Regarding the NAR settlement impact, Jeremy Hofmann noted that commission rates have stayed in a tight band, and Zillow and their partners are expected to benefit from industry changes due to having the most customers, best partners, and providing the most technology.

    3. Stock-Based Compensation Outlook
      Q: What's the plan for managing stock-based compensation?
      A: Jeremy Hofmann stated they plan to leverage stock-based compensation going forward. With a fixed cost base of about $1 billion annually, and 90% of SBC within that, as they grow revenue while controlling fixed costs, they'll get more leverage on the SBC line, driving greater GAAP profitability over time.

    4. Drivers of Revenue Outperformance
      Q: What's driving better overall outperformance?
      A: Jeremy Hofmann highlighted double-digit growth across residential, rentals, and mortgages, with total growth of 17% year-over-year. Residential growth is driven by continued conversion improvements, particularly in enhanced markets and contributions from Real Time Touring. Zillow Showcase, now nearly 1.5% of all new listings, along with strong performance from new construction marketplace, ShowingTime+, and Follow Up Boss also contributed.

    5. Zillow Showcase Demand
      Q: What is the demand and pricing outlook for Zillow Showcase?
      A: Jeremy Wacksman stated that Zillow Showcase has reached nearly 1.5% share of new listings, with pricing variable by home price and geography landing well with agents and teams. They aim for a medium-term target of 5% to 10% of total active listings, translating to a $150 million to $300 million annual business. The product is engaging buyers and sellers, and agents are winning more business, fueling confidence in reaching and potentially surpassing their goals.

    6. Follow Up Boss Growth
      Q: How has Follow Up Boss adoption progressed?
      A: Jeremy Wacksman noted great success, with 80% of connections in Enhanced Markets now flowing through Follow Up Boss. The strategy includes growing efforts to attract more agent teams and integrating Zillow customers with Enhanced Market partners. Feedback from agent partners is positive, and the integration is helping power their business.

    7. Clear Cooperation Risks
      Q: Are there risks from changes in clear cooperation policies?
      A: Jeremy Wacksman emphasized that changes pulling listings off MLSs would not be good for buyers, sellers, or agents. Zillow supports strengthening policies that promote transparency and access, as restrictive changes could harm the consumer experience and the industry's overall transparency.

    8. Rentals Growth Opportunities
      Q: Can you expand the rentals marketing campaign?
      A: Jeremy Wacksman expressed satisfaction with demand efforts, noting that Zillow has the largest audience of renters in the country, up 20% year-over-year. Multifamily revenue grew 38% year-over-year. They see continued growth potential, aiming beyond the $1 billion revenue milestone, with marketing being part of the mix to accelerate growth.

    9. Expense Growth Outlook
      Q: Will expense growth trends continue if the market remains slow?
      A: Jeremy Hofmann indicated they plan to continue their strategy, expanding enhanced markets and driving revenue across segments. They'll remain disciplined on costs, expecting the macro environment to stay choppy, and will plan the cost structure accordingly. They feel comfortable with the fixed cost level to achieve their 2025 share targets.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Residential3803623491,452393409405-
    - ShowingTime+--------
    Rentals91999335797117123-
    - Multifamily Rentals--------
    Homes--------
    - Zillow Offers--------
    - Other--------
    IMT--------
    - Premier Agent--------
    - Rentals--------
    Real Estate--------
    Mortgages24242296313439-
    Other111114081214-
    Market Leader--------
    Display Revenue--------
    Total Revenue5064964741,945529572581-
    Revenue by Geography - in Millions of USDQ1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Residential--------
    Rentals--------
    Mortgages--------
    Other--------
    Total Revenue5064964741,945529572581-
    KPIs - Metric [Unit]Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024
    Residential Revenue per Visit ($)0.1430.138--0.1700.1640.166-
    Revenue per Avg Monthly Rentals Visitor ($)2.943.30--3.593.663.42-
    Gain on Sale Margin (%)-4022-172321-

    Executive Team

    NamePositionStart DateShort Bio
    Richard N. BartonCo-Founder, Co-Executive ChairmanAugust 2024Co-founded Zillow in 2004. Served as CEO from 2004–2010 and 2019–2024. Transitioned to Co-Executive Chairman in August 2024.
    Lloyd D. FrinkCo-Founder, Co-Executive ChairmanAugust 2024Co-founded Zillow in 2004. Held various leadership roles, including President since 2005 and Executive Chairman since 2019. Transitioned to Co-Executive Chairman in August 2024.
    Jeremy WacksmanChief Executive OfficerAugust 2024Joined Zillow in 2009. Held roles such as COO (2021–2024) and President (2019–2021). Became CEO in August 2024.
    Jun ChooChief Operating OfficerNovember 2024Joined Zillow in 2015 via Trulia acquisition. Held leadership roles, including SVP of Real Estate Software (2022–2024). Became COO in November 2024.
    Jeremy HofmannChief Financial OfficerMay 2023Joined Zillow in 2018. Previously SVP of Corporate Development and Strategy (2022–2023). Became CFO in May 2023.
    Susan DaimlerPresident of ZillowFebruary 2021Joined Zillow in 2012 after Buyfolio acquisition. Held roles such as SVP, Premier Agent (2018–2021). Became President in February 2021.
    David A. BeitelChief Technology OfficerFebruary 2005Joined Zillow in 2005. Previously CTO at Expedia (2003–2005) and part of the original Expedia team at Microsoft.
    Bradley D. OwensSVP, General Counsel, Corporate SecretarySeptember 2014Joined Zillow in 2012 as corporate counsel. Became General Counsel in 2014 and Corporate Secretary in 2018.
    Jennifer RockChief Accounting OfficerOctober 2018Joined Zillow in 2015. Held roles such as Interim CFO (2018). Became Chief Accounting Officer in October 2018.
    Errol G. SamuelsonChief Industry Development OfficerMarch 2014Joined Zillow in 2014. Previously held leadership roles at Move, Inc., including President of Realtor.com (2007–2014).
    Dan SpauldingChief People OfficerApril 2016Joined Zillow in 2016. Previously held HR leadership roles at Starbucks and Life Technologies.

    Questions to Ask Management

    1. Given the ongoing regulatory changes and recent NAR settlements, how do you anticipate these industry evolutions will impact Zillow's Premier Agent business, particularly concerning commission rates and your relationships with top agents?

    2. You mentioned that stock-based compensation expenses are down year-over-year and that you plan to leverage them going forward; can you provide specific targets for stock-based compensation over the next two years and elaborate on how this will contribute to achieving sustained GAAP profitability?

    3. With Zillow Showcase now representing nearly 1.5% of new listings, what challenges are you encountering in scaling this product to your medium-term goal of 5–10% of total active listings, and how are you addressing operational hurdles and agent adoption to accelerate this growth?

    4. Despite maintaining your annual fixed cost run rate at approximately $1 billion, how do you plan to manage variable costs, especially in marketing and advertising, to ensure EBITDA margin expansion in a potentially prolonged choppy macro environment with high mortgage rates?

    5. As you settle your convertible senior notes and repurchase shares, reducing your cash and investments, how do you balance returning capital to shareholders with the need to invest in growth opportunities, and what impact might this have on your financial flexibility amid potential macroeconomic headwinds?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateN/A
    End Date/DurationN/A
    Total Additional Amount$2.5 billion
    Remaining Authorization$381 million
    DetailsIncludes repurchase of Class A common stock, Class C capital stock, and outstanding Notes.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Total Company Revenue: $525 million to $540 million, 12% year-over-year increase at midpoint.
      2. Residential Revenue: $364 million to $374 million.
      3. Rentals Revenue: Mid-20% range year-over-year growth.
      4. Mortgages Revenue: Mid-60% range year-over-year growth.
      5. EBITDA: $90 million to $105 million, 18% margin at midpoint.
      6. EBITDA Expenses: Decrease from $454 million in Q3 to $435 million in Q4.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      1. Residential Revenue: $375 million to $385 million.
      2. Rentals Revenue Growth: Mid-20% range year-over-year.
      3. Multifamily Revenue Growth: Faster than overall rentals revenue.
      4. Mortgages Revenue Growth: Similar to Q2 2024, which was 42% year-over-year.
      5. Total Revenue: $545 million to $560 million, 11% year-over-year increase at midpoint.
      6. EBITDA: $95 million to $110 million, 19% margin at midpoint.
      7. EBITDA Expenses: Increase to $450 million from $438 million in Q2.
      8. Q4 2024 EBITDA Costs: Decline sequentially from Q3.
      9. Full-Year 2024 Revenue Growth: Double-digit growth.
      10. Full-Year 2024 EBITDA Margin Expansion: Modest expansion.
      11. Annual Fixed Cost Run Rate: Approximately $1 billion.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      1. Q2 2024 Revenue: $525 million to $540 million, 5% year-over-year increase at midpoint.
      2. Q2 2024 Residential Revenue: $372 million to $382 million.
      3. Q2 2024 EBITDA: $85 million to $100 million, 17% margin at midpoint.
      4. Q2 2024 EBITDA Expenses: Increase from $404 million in Q1 to $440 million in Q2.
      5. Full-Year 2024 Revenue Growth: Double-digit percentages.
      6. Full-Year 2024 EBITDA Margin Expansion: Modest expansion.
      7. Rentals Revenue Growth: Mid-20% range year-over-year.
      8. Mortgages Revenue Growth: High 20% range year-over-year.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024
    • Guidance:
      1. Total Company Revenue: $495 million to $510 million, 7% year-over-year increase at midpoint.
      2. Residential Revenue: $365 million to $375 million, 2% year-over-year increase at midpoint.
      3. Rentals Revenue: More than 30% year-over-year growth.
      4. Mortgages Revenue: Positive growth year-over-year.
      5. EBITDA: $95 million to $105 million, 20% margin at midpoint.
      6. EBITDA Expenses: Increase from $391 million in Q4 2023.
      7. Full-Year 2024 Guidance:
        • Housing Market Assumption: Relatively flat.
        • Total Revenue Growth: Double-digit growth.
        • Residential Revenue: Market outperformance.
        • Rentals Revenue: Continued strong growth.
        • Mortgages Revenue: Meaningful growth.
        • Fixed Costs: Modest growth with inflation.
        • Variable Costs: Grow with or slightly ahead of revenue.
        • EBITDA Margin: Modest expansion.
        • Share-Based Compensation: Lower than 2023.