Q2 2020 Zillow Group Inc Earnings Call
Okay.
[music].
Yes, <unk> my name is Abigail and I won't be your conference operator for today at this time I would like to walk and maybe you want to the general group's second quarter 2020 conference call.
All lines have been placed on mute to prevent any background noise.
So to speak in the model that won't be a question and answer session. If you would like asked the question during this time.
That's a hard followed by the number one on your telephone keypad.
If you would like to enjoy your question basket bounty. Thank you. Please note. This event is being recorded. Thank you I would now like Atlanta conference over to Brad Berning, Vice President Investor Relations. Please go ahead.
Thank you Abigail good afternoon, and welcome to Zillow group's second quarter 2020 conference call. Joining me today to discuss our Q2 results are Zillow group's co founder and CEO Rich Barton and CFO Allen Parker during the call will make forward looking statements about our future performance and operating.
Plant based on our current expectations and assumptions. These statements are subject to risks and uncertainties. We encourage you to consider the risk factors described in our FCC filings for additional information we make undertake no obligation to update you statement. There was a result of new information where future events, except as required by law.
This call is being broadcast on the Internet and is this cross border Investor Relations website recording the call will be available later today.
During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA. We encourage you to read our shareholder letter and our earnings release, which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations historic.
Non-GAAP financial measures. In addition, please note we will refer to our Internet media and technology segment as our I.M.T. segment. We will now open the call with brief remarks, followed by lives today and with that I'll turn the call over to rich.
Thanks, Brad.
It's great to begin beyond the line with you all from Zillow cloud HQ to discuss our results.
I hope you're getting some downtime this summer and staying safe downtime matters now more than ever so taking care of yourselves thing gets up.
Okay. The second quarter was one for our history books, we face down fear and uncertainty into prudent action to control costs, stopping short of layoffs or furloughs and to extend a lifeline to our valued agent partners.
Refinance to convert and raised nearly <unk> billion dollars of capital for defense and for Us.
Since the Corseted Cobiz commenced for us here in the U.S., you've heard me speak several times on quarterly earnings and pop up conference calls striking what was perhaps see more optimistic tone than you thought was warranted.
This quarter's numbers or even better than we had hoped and frame up our belief that those businesses experiencing powerful tailwinds in both real estate and technology.
As I said before I believe we were at dawn of a great reshuffling.
I'm sure I don't need to start after you because we are all living it spending an average of nine hours more per day at home zoom zoom meetings or changing the way families think about space and privacy home offices are in high demand backyards and more desirable than parks and Jim work from home policies or eliminating the commute for me.
There's an endless list considerations millions of people are currently considering upsizing downsizing getting closer to family further from the office et cetera.
Zillow last week, we announced our intent to be a flexible employer operating most of our employees the option to work remotely at least part of the time indefinitely.
Something we never could have anticipated a year ago.
New habits enormous performing rapidly right now in many cases as with working from home, we have found better more efficient and more healthy ways to live and work.
We're not going to just go back to the way things work.
This is a tectonic shifts that we expect to play out for years to come.
Additionally, home turnover has been abnormally low since the global financial crisis, which means we entered the pandemic already carrying pent up demand.
These are the forces driving the real estate tail and supported by all signals, we see and into it.
You see this reflected in our outperformance in Q2, I, most every measure which sets us up well going into Q3 for which we have an outlook that now exceeds our pre cobot estimates on most metrics.
The Gregory shuffling is driving unusually high interest in home shopping as the category leader synonymous with real estate, we hit a record 218 million average monthly unique users. This quarter. During the month of June we grew users on Zillow group sites and apps by more than 32 million year over year.
Across every industry, where all studying we're seeing an acceleration in the pre existing OTA of customer migration navigating from offline to online.
In the absence of being able to do much in the physical world folks have turns to digital delivery system Amazon Netflix.
Cetera.
The forces powering tailwind number two the technology tailwind.
We believe we are the outsized beneficiary of this tailwind no company in our industry is better positioned than zillow to deliver on seismic shifts in technology adoption.
Although recreated what it meant to search and find real estate and we're now investing to retreat and digitize the transaction itself.
Three out of for US adults says they want to use video or virtual Threed tour technology to shop for a home right now.
Sellers are creating three times as many ziller threed home tours as they were in March.
Okay. These two tailwinds real estate and technology are rapidly converging with zillow at the Nexus.
The photo shift as it pertains to Zillow is in part when we've been talking about its real estate to point out and we're seeing years of adoption accelerate in months.
Real estate 2.0 will be an integrated transaction virtual shopping digital document routing in one day and treating buttons for your house.
Zillow has the tech and R&D capabilities to enable this shift.
And with the leading brand and real estate, we are best positioned to capture more transactions as more people change the places they call home.
These tailwinds pair with excellent execution, this past quarter and set us up well for the future.
To recap a few highlights.
In the Hayes of uncertainty at the crisis began we budgeted conservatively, but we planned aggressively to be ready to step on the gas when real estate bounced back.
We avoided layoffs another deep permanent cuts from our cost structure and we've set ourselves up to press advantages ending Q2 with 3.5 billion catch.
This positions us well now that the real estate market is snapping back more quickly than many expected.
Our premier agent business delivered its best sales and retention month on record in June.
We expect this momentum to continue under forecasting 15% year over year revenue growth in Q3.
Regardless of the monetization model, we believe goodness flows from partnering with high performing agents and teams to deliver high customer satisfaction and maximization of revenue and profit per customer.
Q twos higher than expected revenue in our I M segment, coupled with Covance driven expense prudence drove year over year margin expansion of 584 basis points that far exceeded our expectations.
We continue to see topline momentum in this segment, which informs the Q3 EBITDA margin outlook of close to 40%.
Should we achieved this outlook it will serve as a preview of the profit leverage we can achieve in this business.
However, we continue to see attractive growth opportunities than I am T. and we'll invest appropriately.
Yes.
And though offers we used to enhance selling strategies and differentiated data signals to manage our inventory.
With that we were able to make it gracefully through the uncertainty of the past five months continuing to sell industry inventory is a testament to the teams agility, our combination of machine that him and just getting smarter and more experienced.
We have since reopening all 24 markets after our March pause offering a certain convenient and safe way to sell and the digital shopping experience of the future for buyers. This includes Zillow zillow apps Threed home tours from anywhere virtual hone tours, but they still a premier agent by appointment and in person self tours.
Where buyers can unlock zillow owned homes with their mobile phones.
A recent study by researchers of Sanford Northwestern in Colombia showed has still offers should increase liquidity and mobility by making it easier for people to move, especially people who are downsizing.
Zillow offers is likely helping grease, the skids of degrade reshuffling.
Our Zillow home loans business is doing well with June loan volume up 2.6 times versus a year ago, our best month ever.
Look closing services is now up and running it all digital offers markets after less than 12 months. It's still early but these adjacent businesses are gaining some traction offering our customers value and convenience along the way.
Let's say 2.0 is picking up steam and we're leading the way going forward, we remain focused on driving more transactions across all business segments. During this remarkable moment in time, we're all living through.
People in all sorts of situations are rethinking their living space and they are coming to below for help to rent by so finance and to close.
We are continuing to invest heavily in technology and services that will allow more people to do more of their transactions facilities, whether that's through our zillow branded transaction services or our best in class partners.
The video we included in the shareholder letter of Seattle landlord, Raul Telo and his new tenants demonstrates the technology tailwind in action.
Role is a local Dr and at Columbia immigrant, whose fledgeling real estate investment businesses, a piece of his American dream.
When public health orders made its difficult to show this town has to potential renters. This summer he turned to Zillow and discovered a suite of virtual tools that made it possible for renters to take a threed to our online go on a personalized purchase go on a personalized virtual tour sign new lease and pay their rent all without ever meeting telo in person.
He went from nervous to relieved in surprised he said theres no or the way I would have been able to do this without the zillow platform.
Before I pass the Mike over to Alan I want to take a moment to acknowledge.
But we had zillow recognize the tailwinds, we are experiencing aren't advantage of being in the shelter business, which is as the base of mass lows hierarchy of needs a good and lucky place to be in a pandemic.
Our country is grappling with fear loss protest and anger through a health crisis and a social reckoning.
I'm proud of how right. Our team is Zillow has responded.
Our employees helped raise over $1 million for coated 19 relief efforts in our communities and Additionally, our company has since pledged at least $1 million to support equity and race racial justice.
Further we have made a public comment that we can and will do more starting our own company and helping to lead progress in the real estate industry, which has a troubled legacy of discrimination that has impacted generations.
Recently deceased US representative John Lewis wrote that quote nothing can stop the power of committed and determine people to make a difference in our society and club.
We are committed and determine to help shape in more equitable world.
We appreciate your partnership in this journey.
Okay Alan.
Thank you rich.
Lets summarize a few key financial results from Q2, followed by a discussion of our outlook for Q3.
As we just discussed Zillow group delivered a strong second quarter, we reported consolidated revenue of 768 million up 28% year over year. Our revenue outperformance was primarily due to a better than expected sales results in our home segment with AMC in mortgages also both outperforming our outlook.
While our Zillow offers home buying with pause temporarily at beginning of Q2, our actions improved housing market conditions and low mortgage rates helped drive better revenue than expected for all three of our segment's.
Stronger revenue combined with continued focus on managing costs delivered consolidated EBITDA of $16 million significantly outperforming our expectations of a lot of 61 million at the midpoint of our outlook range.
I am T. segment revenue of 280 million and the underlying Premier agent revenue of 192 million was impacted by the better together discounts provided to our partners during Q2.
These discounts were effective in retaining our partners and put us in a strong position to benefit from the faster than expected housing market recovery.
While our I. EMC segment revenue declined 13% year over year, the decline was better than the 25% decrease at the midpoint of our Q2 outlook.
As rich mentioned in June we experienced record new Premier agent monthly recurring revenue and at the end of June experienced our highest level of total EMR and retention since inception of our Premier agent NBP program.
Given where the quarter started this is a strong testament to our team's ability to manage through market volatility.
I empty segment EBITDA margin was 25.6% approximately 1500 basis points above the midpoint of our Q2 outlook.
This performance allowed us to grow EBITDA dollars, 12% year over year, even with the declining revenue.
While home segment revenue decreased sequentially due to the pause at home buying during the first after the quarter.
We did we did sell 1400 37 homes or 80% of the inventory we had at the beginning of Q2.
Exceeding our expectations housing transaction proved resilient as meaning our partners in the broader industry participants down creative solutions to enable real estate transactions and customers to move forward safely.
We restarted courtesy homes midway through the second quarter and we're pleased with the initial inputs. We are seeing solid demand, while driving continued operational improvements and safety measures.
Our Q2 mortgages segment revenue of $34 million increased 25% year over year exceeding the high end of our outlook range increase loan officer productivity enable us to participate in the refinancing wave driven by low mortgage rates. The mortgages segment also delivered EBITDA of $5 million.
As we stated on previous earnings calls my focus is CFO continues to be establishing process either mechanisms in support of three key priorities.
Those priorities are scaling our new businesses executing within our high empty segment in order to fund investments in our new segments, along with additional growth opportunities in implementing focused cost discipline and operational rigor across the company as we scale.
Last quarter I also discuss it during this uncertain time, the theme and I have been focused on liquidity preservation to protect the enterprise and ensure we are well positioned to execute on opportunities to lead the industry to real estate 2.0.
We ended the quarter with 3.5 billion cash and investments the highest balance in our history. In May we completed nearly 1 billion in capital raises with a combined convertible debt and equity offerings effectively refinancing a portion of our convertible debt due next year.
Turning to our outlook, we are providing a one quarter outlook for all segments. While we are pleased with the execution of our team coming out of Q2 and the strong current input trends have informed our Q3 outlook. We do note that given the pandemic there remains a more they remains more of a macro uncertainty in our current environment the normal.
Let me start with a few Q3 highlights in Q3, we expect consolidated EBITDA at the midpoint of the guidance range to be $70.5 million, which is well above what we internally expected even pre covance.
Accelerated revenue growth in our I empty and mortgages segments are the primary factors driving topline contribution.
EBITDA margins are expected to improve meaningfully meaningfully as we leverage this revenue growth with continued focus on operating expense discipline.
We will begin to increase marketing and advertising investments in Q3 as compared to Q2 as we track our leadership position and drive growth. However, we do expect to see continued year over year operating leverage in Q3 for marketing and appetite.
We also expect operating leverage in our people costs technology and development and other operating expenses people costs are expected to be relatively flat year over year as we plan to cautiously manage headcount given the continued uncertain economic environment.
Moving to each of our segments.
Within the I.M.T. segment, we expect Premier agent revenue to be 277 million up 15% year over year at the midpoint of our outlook range. The sequential improvement from Q2 is driven by expected continued strong sales and partner retention in Q3.
Coupled with discontinuing our better together partner discount.
Other Idmc segment revenue growth is also expected to improve in Q3 with further acceleration in rental revenue growth and discontinued better discount better together discounts.
Prior hit marketplaces, like New York City, and display are expected to improve in Q3 from year over year declines in Q2, but still remain somewhat down year over year in Q3.
In light of these factors respect I empty EBITDA margin to take a significant step upwards to 39% in Q3 at the midpoint of our outlook range up nearly 1200 basis points year over year from 27.2% in Q3 2019.
In Q3, we expect our home segment revenue to be between 140 million and $160 million and EBITDA loss to be between 80 million to 70 million.
Revenue is expected to decline both sequentially and year over year due to the pause in purchasing homes that impacted Q2, and the resulting lower inventory balance coming into Q3.
With regard to our mortgages segment, our management team has successfully operationalize our move to conforming mortgages from epic day, and the loans improved loan officer efficiency and has successfully navigated the dynamic rate environment.
We are continuing to innovate our mortgage is technology platform to provide our customers and partners in more streamlined experience. We expect Q3 mortgages revenue to be between 34, and 37 million in EBITDA to be between a slight loss of 3 million and breakeven based upon capacity current market conditions in additional investments in.
Operations.
As our results demonstrate zillow have a strong foundation, despite the ongoing complex and rapidly changing environment around us our actions in Q2 to accelerate our virtual tools provide partner discounts to support and retain partners in our reduce spending enabled us to extend our leader physician leadership position and deliver.
Second quarter results above expectations.
Our balance sheet strong demand indicators have reached record highs and our platform and partners are well positioned and ready to help our customers moved safely into the next chapter their lines and with that operator, we'll open the lines for questions.
Sure and as a reminder to ask a question you only get that firewall on your telephone can withdraw your question back to back cash.
Our first question comes from the line of Jason Kreyer with Craig Hallum. Your line is now open.
Thank you gentlemen, congrats on the execution this quarter.
Rich there's been a lot of moving parts in the real estate industry and getting it sounds like it's been stronger recently, but now with a lot of macro uncertainty lingering just wanted to see if you could give us some perspective on how you're thinking about real estate going forward.
Yes, I mean, it's it's not as hard to forecast as it was four months ago, but it's still pretty body, there's a ton of uncertainty, but here's here's what we're seeing.
And I'm sure you're seeing it to demand is high.
Supply is relatively low okay and mortgage rates are low so all of that is supporting prices and increasing prices should or good prices should lead to increased inventory, but thats been a stubborn one there are a couple of early leading indicators on.
Inventory that are that are flushing.
Yellow to Green right now those so maybe that's maybe that changing right now rents are stable to up and shopping is active.
So I guess the question is why why are we seeing this right now I mean, it really is those two plus two big Tailwinds I talked about that we are we're benefiting from here at Zillow, we're lucky to be benefiting from nine to more debatable tailwind as this great. We shuffling that you've heard me no way too myopic on my arms about.
But literally it's almost math, if we want that a lot of people want to new living space, whether they want to remodel it or move.
And that is driving real estate demand are all everywhere not just in the suburbs everywhere.
The tailwind that has more powerful and advantages Zillow Morris This technology, driven OTO tailwind this retail the digital.
That's happening in every category of course.
But it's beginning to happen, it's really happening in real estate, now and where the digital leader.
All the way from the top of funnel search and find right through Threed floor plans deep down the shopping funnel.
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So I guess, we're benefiting from this this title shift you know up and down the funnel and we're positioned really well going forward given our roots really our roots are as a tech company.
Our yesterday I spoke to 106, Zillow interns and at cloud I want to zoom based cloud meeting.
It's pretty phenomenal large majority are these interns, our engineering and data science in terms.
And I'd say few other few other companies are into in our industry, even having intern program much less such a diverse set of young bright people from top schools and we're running at all remotely. This is really quite an amazing and it's a great advantage for us if it weren't for a pandemic and potential economic calamity, we could really get excited.
It's sort of exciting nonetheless.
I hope that I hope that helps clarify thanks.
But signals are looking pretty good.
That does a lot of good color in there. Thank you.
And our next question comes from the line. This bad Ericsson. Thank you Ma'am. Your line is now open.
Hi, Thanks.
The I am T in Premier agent business in particular the outlook you gave there for Q3 as I think ahead of what most of US worst thinking that got some of the factors that are driving that maybe rich just talking about sustainability of those trends as we look out maybe a bit beyond Q3, how should we think about that.
I mean to feel good Brad I mean, if gill.
It's up and down the funnel I mean is a top of funnel.
And it was driven by this OTO shift I guess and people wanting to find a new place, but but just for instance, I think that the stat. I am excited was that we increased usage in June and by 32 million unique users, but the more interesting thing to sustain at the end, we can't expect that kind of thing to continue so we have to move down funnel.
And the levers to drive the business in a sustainable way right and we have these levers all the way down the funnel. These kind of styles that we have all the way down the funnel that we are not yet maximizing our monetizing we began to turn them over we're beginning to see action.
So our focus.
We began a year or a little over a year ago. A focus this focus on transactions and that focus on driving transactions is helping us drive more and better connections out of the same traffic flow, we got increased tropical it, but it's helping us drive more and better connections out of a similar traffic flow or getting them to better partner.
Chris who are delivering better customer satisfaction and more transactions. So all of that results in more revenues and profit per customer for Zillow. So you're seeing added show up in our Q2 results, which are surprisingly good and you're seeing that in our in our Q3 in our outlook, it's hard to know beyond that.
We sense plenty of road ahead for improvement in these styles and optimization of them given the amounts just the sheer amount of Blue Ocean. That's that's off our Bob.
That's great. Thanks.
And our next question comes from the line of from Joe TV of JMP Securities. Your line is now open.
Great. Thanks for taking the question and yes, really great to see everything coming back here in rich I wanted to stick with the Premier agent business to two questions within here.
You mentioned a comment around regardless of the revenue model. The focuses on revenue maximization I'm curious if the pandemic accelerated flex or how you're thinking about that assuming no change, but interesting comment and then maybe Alan but EBITDA margin the guiding to around 39, 40% or so in the Idmc business advertising is coming back which.
You talked about the straight despite strong user growth. So that's one thing, but just wondering how sustainable that margin is for the RMT businesses and what's driving that thank you.
Yes, the only.
Thanks for the questions with that can take the second and then we can talk about WEX.
I think.
So the run on our with respect to our Q3 guide on AMC margins.
Our our margin outlook in Q3 is reflective of how our marketplace business models can perform when topline growth is combined with cost discipline.
Our focus is providing a great customer experience by improving connections customer satisfaction and conversion for our customers through technology and partnering with high performing agent partners.
This focus is working as evidenced by the strong trends were experiencing exiting Q2.
It has informed the accelerating revenue growth incorporated into our Q3 outlook.
So we can pull the cost levers and we'll continue to focus on cost discipline.
I would call Alco that will also invest strategically and opportunistically depress our leadership position where warranted.
So given the uncertainty.
And lack of clarity were not provide any guidance or target updates outside of the Q3 outlook, but we feel really good about where we are in the business models that were operating with that.
Okay. So your first off Ron.
Thanks for jumping in there Helen I started talking and I was a did the classic assume mute air sorry about that I was talking at my computer screen for myself.
So on the.
On the Flex question certainly early in the pandemic you heard us comment that we were certainly happy that we had the flex arrow in our quiver, we had the flex.
And now entre on our dinner menu of stuff that we can that we can offer our partners as we as we move to get these better partners, who are better at converting and are focused on customer satisfaction and transactions and we're willing to delayed gratification from revenue.
Order to do that so it's been night it would certainly nice to have especially that uncertain time.
It's still uncertain, but a decent amount of the fog has cleared in the way we're thinking about this really Ron is is as kind of this menu that I described we have these these different.
Business models these different ways, we interact with different partners in different geographies.
And not just in PA, but also on the.
On the businesses that surround Zillow offers and what we're finding is that having a flexible menu of things that we can figure out how to make.
Now to make him work divest with different partners has offered us a really interesting optimization.
Opportunity and that's that's really what's going on now we continue to to test and roll out.
This and other models, but we we think about this just in a much broader context of continuing to get more dollars to drop out of bottom of this customer funnel.
And so you you're you're going to probably hear less specific stuff about flex I think deload going forward and that's not to say, we don't love It and we do its but it's just become part of the way, we do business and because of the we don't.
I should let Alan speak about it but the only reason we started talking about it as a separate thing initially was because of this revenue recognition thing and I think we've kind of.
Thats, just not as necessary anymore to focus on.
I hope that helps from.
It does thank you rich appreciate it thank you Alan.
Yes, it allied address.
No doubt that one question that now that we are also.
Offering and monetizing flex alongside MVP and in the same markets. It just becomes more of an optimization, how do we manage our business versus our flex verses NBP by market assessment and so thats why I think we're in an optimization model looking to maximize revenue per lead and Thats how.
We'll be looking at the business.
Our next question comes from the line if not that continued signs that your line is now open.
Hi, This is Robert seller for Nevada. Thank you for taking the question.
So following the pause and subsequent resumption of.
Purchasing homes, how aggressive do you expect to be with Bill offers going forward.
In Q3 in the rest of the year end.
Just curious how firms consumer interest.
In this offering has evolved throughout the pandemic and then separately in the shareholder letter I think you said that.
You have agreed to repurchase homes.
[music].
But sometimes the closing can take weeks or months to close which is why.
Some won't be added to inventory until Q3 or later I'm just wondering.
Just want to clarify whether or not that these homes are reflected in the 86 homes sold in the quarter and then separately how long do you expect it to take for these homes to close in and how much volatility do expect in closing times. Thank you.
So maybe.
Maybe I'll start Alan.
With the first after the question and then you can feistier anything off on trying to answer the second part of the question you can.
You can hop in and health.
Well, so starting with your question Robert about.
How aggressive we want to be with Zillow offers.
Well, we've now as of today actually opened up all 24, the markets that we had open the floor.
Covert hit.
And.
We so you can tell by the way, we've opened markets and how aggressively we reopened markets you can tell we feel good about it on this let's be the supposition is that this price certainty.
This time certainty and convenience and that kind of safety associated with if you're a seller not having to have a bunch people go through your house.
And if you're a buyer letting yourself into a home with the Zillow lab.
With nobody there.
Those are those those both feel like.
Good things in the midst of a hell of a health crisis.
And we're seeing we're seeing that we're seeing that play out.
So we feel we feel that.
In a way the pandemic highlights some of the benefits of working with Zillow offers.
[music].
It is or the reopening is early days so we're watching.
And.
Carefully, but we're feeling we're feeling good about.
Kind of post post Covis Zillow offers on me.
On the repurchase.
Question Mike.
Im not maybe you are the letter in front of the I think I think what you're asking is what maybe a little confusion is just basically us.
Hi, highlighting that.
Of course.
Pausing the factory for eight weeks or so.
Is going to cause an air gap of product coming out the other side of the factory and that it just takes.
The cycle time in the factory of getting our home.
All the way through the factory out the other side in Seoul take some time, so we're going to see what you are basically seeing is in our guidance for homes next quarter have maybe on young funding you.
You're just going to see that air gap in the factory reflected in that outlook. Yeah. I think is exactly right risks and I'll just try to add a little color could that.
So.
We purchased 86 homes in Q2.
We disclose any shareholder letter.
And we Unpoliced.
Our research we started up again double offers up again, we were only in 15 markets from the out in Q2. We're now in all 24 was exactly what rich mentioned, our guide our revenue guidance of $140 million to $160 million.
Down 61% year over year, and 67% sequentially at the midpoint.
It really due to this air pocket.
We have not seen any substantial increases in the cycle time from when we agreed to an offer with one of our customers who selling their home to when we close but it does take time and so what we've got here is because of the pause in and we were actually buys.
Up to 21 weeks before we were opening all 24 markets. It's just going to take a little time as we restart the factory is air gap at risk mentioned.
To to run that through ill give you a historical reference we entered this quarter into Q3 with 440 homes.
You'd have to go back to when we entered Q1 of 2019, we had a little over 500 homes. So that's the closest reference point, we did about $130 million in revenue.
In that quarter.
We are planning in our guidance implies a slight acceleration versus backwater with our 140, though to 160, but thats. The reason the revenue is declining sequentially I'm, sorry, I was pace distracted by fluffy Kitten. This is lance in my room.
[laughter] led to working from home.
Our plan.
Brad I would add one thing just to clarify the question, specifically, which is 86 homes are homes, we closed on per purchase perspective.
It does not include commitments that we did to purchase homes. So just just to clarify that as well.
Okay. That's very helpful. Thank you appreciate it.
And our next question comes from the line, Brian could Morgan Stanley. Your line is now open.
Hi, environmentalists driven margin fairly your line is now open.
Again, I know that could Morgan Stanley. Your line is now open.
Because then we go to the next to an Avenue.
Our next question comes from the line of Miami from Canaccord. Your line is open.
Great. Thanks for taking my questions I, just wanted to follow up on homes.
So now the key reviewing your home buying across all of your markets can you comment on what she was seen in terms of pricing and homes availability and are you finding good undervalued homes goodbye and any updated thinking on target for every to reach on homes sold now that could data models, I getting better and better.
[music].
Maybe I'll take the first half on these big second Yep great.
All right. So just as the thanks for your customer so just as a reminder, what we're doing in our Zillow offers homes businesses not looking for.
Distressed situation deep discounting take advantage of a seller situation and make a big profit were really we're really going for a high volume scaled service that offers anybody within our buybacks a fair price and the ability for them to choose a can.
Lenient.
Dates to affect the transaction so that doesn't just mark with their lives. So I'm, just saying that because the embedded in your question was a little bit that we have a you know it's just.
Flipper.
In a type of business.
But what we are finding.
It's early in the reopening and we're feeling good about we're feeling good about the product refining.
You know I want to see inventories built and inventories are beginning to build now and that's good.
When it was scary and we couldn't see the future I wanted to see inventories go go down and they did and now inventories are rising and service reinforcing that lots of sellers in our 24 markets are seeing the value of.
You know the convenience and certainty on safety.
Of the Zale offer service.
Non-GAAP and so with the second part of your question on the average return.
Again, we're still very early stages in vivo and 24 markets and so we're not adjusting our guard rails and the plus or minus 200 basis points. We still believe that we've got a lot of testing and integration to do across a lot of areas. We are very excited as we start up operator.
And again when opportunities to improve our cost structure.
But for right now that plus or minus 200 basis points are still the guardrails. We have in places we cast in iterate I will call out, but given our pause and our restart we do expect some increased volatility near term in these metrics as we feel our factory across all 24 markets and this is yet to be driven by.
I would have been a normal operating cycle curves in a normal distribution of aged inventory. When we were in normal operations is going to be skewed a little bit two older inventory at the pause works its way through our factory.
And then the newer inventory comes in and we expect into 2020 to early 2021 to be back on a normal operating cycle. So there will be able to volatility there, but we're really excited to get going in the buying from our customers again in providing service.
Great. Thank you for the color.
And our next question comes from the line, it's Brian knowledge with Morgan Stanley. Your line is now open.
Can you guys hear me now.
He was there the mute pattern that and I'm embarrassed technology. Thanks for the mall again.
I've two questions. The first one on the agent discount. So appreciate the color about better together you get to be curious to hear about it thinking about the order of magnitude how big was that in the second quarter and then as you look into your third quarter Guide what are you assuming for discounting or you sort of assuming that those those go away given the strength of underlying.
Demand than the second one curious here about just how your your discussion with agents has evolved through route shelter in place the center and now the reopening there's a lot of other real estate platforms that are trying to compete for your agents. How is that discussion change around their asks if you really provide value for them. Thanks.
Alan you want to take the first the first bit at least yes ill take the first bit.
So Brian I think that.
We spoke about the better Dakota guest counts as one of many I action items that we took late in Q1 demands our business and we're really excited we did we think those along with other actions helped retain our partners and respond. So we were able to respond when the industry came back faster than expected the right thing to do.
We're seeing the benefit in record sales high retention.
Higher connections improved guys customer satisfaction.
With respect to.
How I would look at the business there I think the best way for you guys to think about the business is I would guide you towards our Q3 outlook for PA.
With the guide range on revenue of 272 to 282 that year over year growth of about 15% at the midpoint.
That is the best barometer of where we kind of feel the business is going into the quarter. The discounts were very heavily weighted to early in the quarter and so a number over the quarters does it really healthy too much side look to our Q3 guide.
There are no discount implied in that range as kind of where we are trending coming out of Q2 into Q3 and onward.
And I guess.
Brian for the for that the second part.
How is the agent discussion changed.
From a shelter implants in the ancillary shuffling.
I guess, how do we characterize is that well I guess number one we we feel like we are the outsized beneficiary of agent retention right now as they hunt for new business, new customers simply because people have fewer places to go to shop.
And.
Agents have fewer places to get visibility where customers are.
And so we are finding more inbound interest or more general interest.
We've been working our way towards finding better more productive more transaction, a customer satisfaction focused agents and I I don't think I'd be going too far to say that we made we've accelerated those trends.
During kind of it.
As Allen was saying, we bought a lot of goodwill with better together discount and we are seeing that play out in some numbers, but feeling it play out and just general partnership sentiment which is.
Which is really good and then finally I'd say we've seen.
Attitudes towards technology adoption amongst the aging compete community to be quite different during cobot, then pre code, but at that right now and Thats not really a nasty comment it's more when everything is going fine doing things. The all the way. Our is just don't don't bother me with the new way stuff don't bother me with the.
The.
Threed tours don't bother me with the virtual stuff, but let's just we can just do a deal what.
And now of course.
You think it.
They don't.
This is the way to do it to do it safely and so we're getting all kinds of.
Adoption and usage of the tools that we've had in place for awhile. During this period I hope that.
With that gives you gives us and texture.
But that's really helpful. Thank you both thanks.
I would add what I'd add one more just for fun.
And it's something you all are seeing too because most all of you I'm sure are mainly working remotely and trying to carry ons business or reinvent the when you do business in the way we convened in the way unique.
Course, communicating with our our many thousands of Premier agent partners is really important for us.
And it historically, we've been able to physically convened in Las Vegas or wherever to do unlock unlock and now we've begun to to do that virtually and are having really tremendous early knock on wood success at using these fantastic new tools to run events to educate.
To field questions.
Train.
It's really it feels good to me and it feels like something that we're not going to go back up we can serve more partners virtually than we could in Las Vegas, and if we can do adjust as well or better than Thats really amazing.
Okay, great. Thanks.
And our next question comes from the line of some small with Stephens Inc. Your line is now open.
Hey, guys. Good afternoon phenomenal results and guidance good work.
On the on the closing revenue you guys kind of tuck said in that kind of new revenue line item in under the cover of night last quarter, but just doing the math on the homes that you sold thus far this year I mean, it's small potatoes. This 30 cents or so per home sold but I'm guessing that you guys. The closing services you have in there with title and escrow and.
Some other settlement services that could probably get you go somewhere up to I don't know five or six maybe 7000 per transaction is that the right way to think about it.
Alan year on year, and I'm waiting for you to request [laughter].
Yes. So this is title and escrow.
And yes, we reported 436 million in Q2.
761 million, it's still not just everyone knows in other revenue within our home segment and you look this really is more of a plan to integrate transaction I believe.
It's about a 100 basis points is what we're talking about it saves us on costs, when we use vcs services our own internal services.
And a transaction that we're closing with video.
And then there are there other times, where we're able to use that for for non vo transaction could more like a 100 basis points or maybe a little high on your number for the escrow services that were providing now.
But we believe we can scale that we're opening all 24 markets.
We were not open throughout the entire year at all 24 markets, but we're really excited how quickly as team has kind of built up in supporting our customers, but again, what we really like is in partnering with our actual go offers business. These two services can make the transaction.
Painless fast and actually a cost structure reduction for us than we do ourselves versus pay a third party that answer. Your question, Yes that makes sense and then second question for me.
On the on the reduction and sales and market are getting a little bit <unk> leverage and sales and marketing.
I'm imagining you guys are probably I see a little bit of lift there over the next couple of quarters, but.
How much of that is driven by kind of deemphasizing trulia ours or other pieces. There that are helping offset some that marketing spent.
Yeah. So again, we talked about our plaza marketing for Q2.
We announced that even prior to our Q2 guidance over incorporating our Q2 guidance.
We are starting to at least sequentially in Q3.
Look for opportunities, where it makes sense to support our brands.
To increase spending.
We continue to support both Trulia and Zillow, but our priority is on the Zillow brand.
And where I'd say is that.
We will continue to look.
SaaS monitor measure and adjust the spend as appropriate to support our brand and to continue to support growth.
The guide of Q3 incorporates a sequential increase but still providing year over year leverage and thats coming both on the Trulia brand and Missoula brand.
Okay very helpful. Thank you.
And our next question comes from the line of test carry with Goldman Sachs. Your line is now open.
Great Thanks for that.
Rich you've mentioned a few times the.
The increase pace of adoption that you're seeing from.
Brokers on of.
New technology.
Never would've been one to shy away from sort of leaning into the development of that have that technology seeing this.
What are you doing for how are you using this this opportunity to sort of push.
Zelos investment and that technology, how much more do you want to want to spend need to spend.
And to the obviously I'm sure you want to tip your hand to binney.
Public or private competitors, but to the extent that there are.
That there is a roadmap priorities of.
Were the biggest opportunities for you for you.
In that technology investment would appreciate.
Sort of insights.
Yes, he's I guess.
I think it by broaden out if I if at least choose to hear your question.
In a broad framework I'd say there is no greater priority. We we are.
It's it's weird, but real estate has been a laggard.
In adoption to monitor technology, even before cobot.
And for a lot of legacy a regulatory complexity fragmentation distribution reasons, it's been pretty stubborn in its resistance to technology adoption. So I really I believe we are at the beginning of a cycle of complete replatform.
Gaming and new good being being scored it out and you.
You Foundation for the industry being built and so unlike you know this is this is Ed we're really excited about this and where we're excited that we're in a position to be able to just have the talent and higher the talent that is able to dream up what that looks like make it all work together.
And to do so in a way with the ultimate customer in mind not necessarily the the.
Legacy industry user in mine facility the industry user matters, a lot, but it's really the customer experience than we need to fix it's really quite broken and we're at were whereas the early stages of that so broadly speaking I would say it's like it's it's the top development platform that we have specific.
Actually I think you were asking more about kind of the the virtual touring stuff in the stuff that we've been talking about.
And yes, we're leaning into that too it's pretty clear that.
People want to shop this way, even as they as we ask them about shopping post pandemic.
Would you still want to take virtual tours, yes would you still want to let yourself into a home to that you can turn yourself, yes, which et cetera, and so we do think because these are rapidly becoming industry norms and so we're we're leaning into that we do have.
You know there is some there is some competition there no doubt that is investing in this but I think our.
Collective or our R&D expenditure and capabilities in this area really give us an advantage.
Great. Thanks, a lot.
And our next question comes from the line of slowly belong team is Deutsche Bank. Your line is now open.
Great. Thanks to if I can.
First just wouldn't the latest update on seller leads in kind of converting sale inquiries from zero offers.
You don't make make an offer into seller leads for Premier agent and then second.
Can you talk about whether you're seeing any signs of just increased moving activity in the sense of people looking to move out of cities are tolerating longer commutes is there any real signal in search activity that this this notion of potentially unlocking like a multiyear trend of elevated moves that could be.
Really anything that share there will be great. Thanks.
You want to start Allen and I'll definitely so one.
We caught partner leads.
Well Im partner lead what I'd say is that.
Still offers buying pause was an opportunity for us to look at and refine our partner lead generation channel.
We'll continue to enhance our processes to better support our customers.
We are providing them with multiple options now early in the pipeline, whether they want to sell the xeo our cell traditionally through with our PPA partner. So we're we're very excited.
Still very early.
We're seeing some positive trends, but we're still iterating.
And we're excited about the opportunity here.
Hey, Lloyd.
Thanks for question.
Yes, it's a tricky one it's a really popular story to tell this deal amortization store everybody seems to want to target.
No. The real story is the chopping up everywhere and Thats, what our data says.
And.
You know.
We're speculating beyond beyond what we're seeing as is everybody.
We are we do have.
Covered has accelerated many preexisting trends pick your trends social political and in business and curve. It has accelerated these trends and there was a pre existing trend.
That was kind of an affordability crisis and some coastal.
Coastal urban.
Hi density urban areas, and we were already seeing a deceleration.
Of migration.
And we actually expect logically just to have covert be an accelerant of that.
And the longer we go on with companies. So I think I think I said as longer we go long working having many companies not all but the lucky companies being able to have people work from work from home.
The more the concrete kind of sets and the more habit to get set and the less likely companies artico back the way. It wasnt. So we are pretty confident that this is going to be a lasting multi year meaningful trend, we can't call exactly how it's going to play out from the data yet.
But.
From a from an intuition supported by some bit of data it it seems like a like something real.
Alright, thank you.
Yes.
And that's completely allotted time for questions I'll now turn the call back over to match funding for any closing remarks.
Thanks, Abigail thanks, everybody this quarter.
It's just further evidence that zillow isn't as strong position to lead the industry through the tech transformation ahead that I've been talking about.
In the short term and the long term, we're committed to bringing our customers a safe convenient seamless way to move forward and we feel like the when does that are back. Some work. We're in a great position I really appreciate your partnership in this journey stay safe and carry on and again make sure you take a break and enjoy the summer it's more important now.
And ever been talkative.
Ladies and gentlemen, that's concludes today's conference call. Thank you for participating you may now disconnect.
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