Q4 2020 Zillow Group Inc Earnings Call
Within zone.
[music].
Good afternoon, My name is Chuck and I'll be your conference operator today.
At this time I would like to welcome everyone to the Zillow group fourth quarter 2020 conference call on.
All lines have been placed on them on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to Brad Berning, Vice President Investor Relations. Please go ahead Sir.
Thank you Chuck good afternoon, and welcome to Zillow group's fourth quarter 2020 conference call. Joining me today to discuss our Q4 results are Zillow group's co founder and CEO Rich Barton and CFO Allen Parker.
During the call, we'll make forward looking statements about our future performance and our operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties and we encourage you to consider the risk factors described in our SEC filings for additional information we undertake no obligation to update these statements as a result of new information.
<unk> or future events, except as required by law. This call is being broadcast on the Internet and is accessible.
On our Investor Relations website, a recording of 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 of historical non-GAAP financial measures. In addition, please note we will refer to our Internet media and technology segment as our IMT segment. We will now open the call with brief remarks, followed by live Q&A and with that I will turn the call over to rich.
You're on mute rich.
Now in the music generic sorry about that thanks, Brad Good afternoon, and thank you all for joining our first call of the new year.
February marks a big milestone in Brazil.
15 year anniversary.
We were motivated at the beginning by the same dream that motivates US now reinventing a disjointed and friction filled process to make it easier for people to move.
While we have made tremendous progress and our position is strong we are in many ways just getting started.
A year ago on this same call <unk> 2019, a tumultuously remarkable year in hindsight I clearly had no idea what tumultuous meant.
There'll be plenty of studies on Covid <unk> impact on society business politics, and real estate in the years ahead, but today I'll focus on Zillow is impressive results in 2020, and some of our key accomplishments.
First and foremost we saw engagement across our mobile apps and websites in 2020 at levels, we would not previously have thought possible.
Zillow surfing has broken through to a whole new level of pop culture, given that Saturday night live did a funny and racy sketch about it this past weekend with guest host Dan Levy in the lead.
Fantasizing about real estate is not mute our survey results in traffic have always indicated that people love looking at real estate and want to move what has changed is that more of those people now have the freedom to move.
Many Americans untethering from their commutes and offices have begun to reevaluate, how and where they want to live.
This cultural trend, which we have been calling the great reshuffling along with our continued technology improvements resulted in nine 6 billion visits to our mobile apps and websites over the course of 2020.
That is one 5 billion more visits than in 2019.
We took advantage of this rush of top of funnel engagement and executed well across the suite of products and services.
We accelerated the growth of our flagship buy side business Zillow Premier agent partnering with real estate agents across the country to produced the strongest results we've ever seen reporting a 35% revenue growth year over year in Q4.
Our burgeoning sell side business Zillow offers proved durable through some bad weather.
We paused home buying to manage risk during the early days of the pandemic, but exited 2020 with our quarterly acquisitions pace returning to Q4 2019 levels.
We augmented these buy and sell side businesses with excellent execution in our adjacent services.
Our financing arm Zillow home loans nearly tripled its originations revenue in 2020.
Compared to 2019.
We expanded Zillow closing services to 25 markets in less than 12 months and a vast majority of our customers are now choosing to close with us when purchasing a home from Zillow offers.
This execution resulted in total revenue growth of 22%, which when combined with a disciplined approach to managing costs resulted in more than $300 million in incremental EBITDA profit generation across the company as compared to 2019.
Our team drove these business results in 2020, while quickly adjusting to a new way of working with 90% of our workforce doing their jobs remotely.
While many companies across the country are evaluating their go forward policies about remote work Zillow was on to the next play his legendary Duke basketball coach Mike Ciszewski likes to say.
Having internalize that we are already success successfully operating at the cloud headquartered company.
Dislocation flexible work model has a myriad of benefits.
Our employees like so many others across the country, who are participating in the great reshuffling now have the flexibility to wrap their work around their lives rather than vice versa.
And it allows us to recruit from almost anywhere and increased diversity in our workforce.
We believe this will be a significant competitive advantage as we grow and it is already yielding exciting results.
Of course, there are challenges to not being in the office together, but that is temporal and.
In a post Covid world our workplace design goal is to maximize flexibility for our high demand talent.
We will have awesome offices for those who want or need to come in.
At the same time, we must ensure a level playing field for all team members regardless of their physical location.
There cannot be a two class system those in the room being first class and those on the phone being second class.
We're entering the most interesting and innovative period for workplace design in our lifetimes and our people and facilities teams at Zillow are out in front.
To wrap this year end review I must say, how proud I am of what our whole team has accomplished on the scariest of roller coaster rides that was 2020.
And I would like to thank them here for their commitment and resilience.
As we look ahead I'll start with the housing market.
Economists have made bold predictions for an even stronger housing market this year.
They are projecting a near record of $6 8 million home sales for 21% growth plus double digit home price appreciation depreciation.
We of course do not have a crystal ball and our mission does not depend on the cyclical vagaries of the housing market due to the mega shift from offline to online.
But we believe that residential real estate will continue its brisk trajectory.
The millennial generation is entering prime home buying years.
On mortgage rates are historically low.
On top of those macro factors the past year has members of all generations, rethinking where they live with a new lens of flexibility on possibility is the great reshuffling continues to take hold.
Some of you are concerned about low inventory persisting.
Despite historically low inventory 2020 closed with $5 6 million existing home sales the highest level since 2006.
Low inventory and high volume of sales seem at odds since you consider how quickly homes are selling.
Average time on market was 17 days in December a full 25 fewer days than in December of 2019.
In addition to being a hot market agents and customers adopt technology tools for safety convenience and simply to compete.
In higher prices pull more inventory on to the market of course.
So like a warehouse using lean operations to transition to just in time inventory management.
As the market became more streamlined.
Current home inventory levels, therefore can be addressed with something like the safety refrain from a flight attendant.
The oxygen will flow, even if the bag does not appear to be fully in place.
On maybe what we believe will be a very healthy housing market backdrop, we expect 2021 will be a pivotal year for zillow on.
Spent some breath here in the past two years talking about our transition from Zillow, one point out immediate focus business into Zillow to plan a transaction focused business.
Today I believe that we have the pieces in place division the team the technology solutions and customer products and services to execute on Zillow two <unk> now.
We will undoubtedly keep innovating and adding products and services on the long road to customer one click trading Nirvana, but our entire company is now relentlessly focused on transactions and ready to scale from here.
To do that we are investing aggressively in technologies and services that make it easier for our customers to make that transition.
As part of our quest to make our customers experience is better today, we announced our intent to acquire showing time and industry, leading real estate showing software provider that facilitated over $50 million in person home tours in 2020 for $500 million.
Showing time technology already extends into the broader real estate industry, and we intend to grow its adoption across the industry moving forward to the benefit of all industry participants and customers.
The addition of showing time to our suite of real estate technology solutions allows us to accelerate a widely adopted solution for scheduling home tours, we see this as similar to the work we did to build our connections platform a few years ago and wider acceptance of this technology has the added benefit of improving the experience for the broader industry.
Well as for our Premier agent partners as our platform grows.
We envision a future experience that begins on our mobile app, where a customer can immerse herself in a home via our <unk> home technology bookings.
Book, an in person tour through showing time with an agent.
Net prequalified through Zillow home loans worked with a premier agent to buy the home and close the transaction with Zillow closing services.
We spent the last year, bringing out Zillow offers bringing our zillow offers and premier agent businesses closer together to Orient around customer success and customer choice while I.
I know you all think of these businesses as distinct our customers arrive at Zillow simply trying to move.
It is our job to deliver for them in any way that we can be it through our own services or with our best in class partners.
Our customers are hungry for the seamless experience that we can now provide and programs that have begun to run across the country. We see evidence that a suite of Zillow services appeals to people.
Take retired elementary school teacher, Terry Lee after.
After 44 years in her Atlanta home, she felt intimidated by the prospect of making repairs and selling especially with the health risks posed by COVID-19.
For Sun and avid users Zillow suggested should call us.
She accepted a zillow offer user premier agent to help her shop than financing closed using zillow services.
Now she has the townhouse and convenient walkable neighborhood, having integrated Zillow experience made the move convenient.
They were all part of the same team. She said I didn't have to remember to remind someone did you let someone so now everybody knew.
We dropped a link to a short video of Terry of Terry's firsthand story in the shareholder letter.
Nearly as alluring as the SNL debt, but it's really a fantastic encapsulation of where we are headed.
Testimonials like carriers are what get us so excited about the opportunity in front of us.
So long as we are able to deliver delightful customer experiences. It's a win for everyone involved.
<unk> sold their previous home is living in her new home our Premier agent partners completed a successful transaction and we participated in economics across our multiple services without spending incrementally to find carry as a customer for the additional services.
Our low customer acquisition cost advantage is integral to our Zillow two point on strategy. For example, this year many customers in Zillow offers markets Youll see that Theres estimate is alive initial offer from Zillow offers.
This will begin to realize the big hairy audacious goal, we set 15 years ago. When we launched Zillow are putting an actual price on every rooftop.
Is this estimate begins to move from fantasy to reality, we are one small but important step closer to delivering on that behavior.
Marketplaces are healthier and more liquid with transparency.
Lastly, as I zoom out and think about opportunity.
We are on a unique position to build an iconic company and brand that transforms one of the country's largest most complex and most important industries.
Our large audience.
<unk> of our services across real estate transactions, our profit streams and profit potential our strong balance sheet, our experienced leadership team and our long term orientation, all combined to put us in pole position.
The advantages we've worked hard to build over the last 15 years will help drive us forward for the next 15.
Our talented team here is making it happen, but I also want to thank you our investors who have given us the space.
To move to the next exciting chapter in the story of Zillow.
I'll now turn it over to Allen.
You are on mute Allen.
Alright.
Thank you rich.
As rich discussed Zillow group delivered another strong quarter, which drove record full year 2020 revenue and EBITDA on a consolidated basis.
We reported Q4 consolidated revenue of 789 million and EBITDA of 170 million both exceeding the high end of our outlook range. Our Q4 results contributed to the strong 2020 annual results with consolidated revenue growing 22% and EBITDA of 340.
3 million expanding from $39 million in 2019.
Q4, IMT segment revenue of $424 million grew 33% year over year as we continue to see accelerated growth across most of our IMT marketplaces.
<unk> segment, EBITDA was $203 million in Q4 or 48% of IMT segment revenue.
Revenue growth combined with year over year declines in operating costs translated into 132% year over year EBIT growth in Q4.
Premier agent revenue grew 35% year over year in Q4, driven by record Q4 customer satisfaction rates and record Q4 connections of higher intent customers to a growing number of high performing partners with continued strong agent retention rates.
Excluding the impact of revenue timing changes we discussed in prior earnings calls the Premier agent revenue growth rate would have been 27% year over year in Q4 accelerating from 20% in Q3.
During Q4 Zillow offers benefited from operational improvements were on.
On <unk> than expected home price depreciation across the country, a strong customer value proposition and faster sales velocity.
Allen segment revenue of $304 million exceeded the high end of our outlook with home purchases returning to Q4 2019 level.
Our Q4 Zillow offers unit economics of 668 basis points before interest was above the plus or minus 200 basis point guardrails, we set for ourselves while working to scale the business.
The outsized unit economic results were impacted by the stronger and faster housing market recovery than we initially assumed in addition to the expected benefit of a predominantly high mix of recently acquired homes. Following the first half are GAAP.
Q4, net economics also showed meaningful operational progress and improving our cost per home sold.
Combined we saw all three operational cost line items improved nearly 250 basis points compared to Q3.
We are continuing to target our underwriting goal of plus or minus 200 basis points going forward.
Our mortgages segment revenue increased 190% year over year in Q4 to $61 million.
And mortgages segment, EBITDA was $14 million compared to the midpoint of our prior outlook of $2 million.
The revenue and EBIT outperformance was primarily volume driven with mortgage origination revenue growing nearly seven times year over year and gain on sale margin.
Gain on sale margins being stronger for longer than we assumed.
Turning to our outlook for the first quarter at a consolidated level, we expect revenue to be $1 1 billion at the midpoint of our outlook and EBITDA to be between $114 million and $138 million.
In our IMT segment, we are forecasting 27% year over year revenue growth in Q1 at the midpoint of our outlook range.
Within the Iot segment, we expect Premier agent revenue to be between 314 from $322 million up 31% year over year at the midpoint of our outlook driven by strong top of funnel traffic and connections and we enter Q1.
We expect Q1, IMT EBITDA margin to be 42% at the midpoint of our outlook.
Q1 is also expected to benefit from the timing of certain seasonal advertising and marketing programs that are targeted to launch later this year.
While we believe it remains prudent to continue to provide quarterly guidance I would like to repeat what I said last quarter.
We are focused on growing EBIT dollars compared to the full year of 2020 levels.
We do not expect to expand EBITDA margins from the high levels in the second half of 2020 with benefited from cost controls put in place during the uncertainty of dependent.
However, we will continue to drive operational rigor across the business to deliver operating leverage over time, while focusing while also focusing on investing to drive sustainable growth.
In Q1, we expect our home segment revenue to increase sequentially to $608 million at the midpoint of our outlook as we ramp up purchase and resale activity levels that are being driven by strong demand in our customer value proposition.
We remain focused on applying learnings and operational rigor to drive growth.
We expect our mortgage segment revenue to be between 59 million to $64 million in Q1.
We plan to continue to capture the strong refinance demand to invest in building the factory the scale of our operations as the purchase business is built out over time as a result, we expect mortgage segment EBITDA to be between a loss of $3 million and a profit of $1 million.
We are also excited about the future addition of selling kind of industry, leading technology to our suite of solutions to help innovate and simplify online tour scheduling for agents buyers and sellers.
The outlook, we provided today does not include any potential benefit from selling time.
We believe selling time will deliver significant benefits to the industry our customers our partners and Zillow over time, we expect the impact on financial results will be relatively small in the near term.
We ended the quarter with $3 9 billion in cash and investments, which puts us in a strong position to fund our vision to Zillow and make strategic long term investments both organically and inorganically.
As we look forward in the new year, our priorities are focused on execution of our vision to help our customers unlock life's next chapter now that we have the core pieces in both.
Moving past the necessities of 2020. The following 2021 priorities are focused on innovating and executing on behalf of our customers and partners.
We will grow our customer base and engagement through a compelling dream and shop experience, who will invest in sustainable topline growth opportunities across the company.
We'll reduce cost structure and improved productivity and transaction services, and we will drive profit growth through operational discipline and.
And with that operator, we'll open the line for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the lineup.
Terry with Goldman Sachs. Please go ahead.
Great. Thank you so much.
Rich, obviously, just really kind of curious in terms of how you think about sustainability in terms of the growth and margin expansion that you are.
But you are saying here I mean 600 basis points, obviously puts you.
In areas that you haven't really haven't really seen in a while.
Just really really kind of interested in how you and Allen and the team are thinking about the macro environment is contribution to this and how important that is going to be going forward as well as the traction that youre getting with with per barrel jet.
But you can continue that from here.
Hey.
Hey, I look forward to being on your Goldman Zoom stage Tomorrow.
We look forward to having on.
It's debt no travel required.
Magic.
I know Allen you just did a whole bunch of talking but maybe you want to start on this this answer.
And then on Android.
EBITDA growth and how we're thinking about it and IMT margins and then I'll, let you handle the more macro housing that works.
Thanks for the question Silicon.
In Premier agent, we continue to focus on the customer and.
The input with yield a great result from both the customer and our partner agents.
We're optimizing to connect high intent customers with high performing agents.
And the output, we're seen as higher fees at <unk>.
Higher connection volume, where we're linking high intent customers with great partners strong retention and the business results that we see reflected in our Q4 results and our Q1 outlook.
On an apples to apples basis, we've seen accelerating.
Rental growth of 20% in Q3 to 27% in Q4 and now 31% at the midpoint of Q1 outlook.
We like where we are we feel it's still early days and we're not going to hesitate to invest for long term growth.
In areas, such as technology and marketing.
But we feel really good about the current situation and the position we have.
With respect to.
With respect to the margins on discover that real quickly our outlook implies a 42% margin at the midpoint ex <unk>.
Down from the second half margins, we saw in the second half of 2020.
Our Q1 guide as I discuss include the benefit.
From the timing of certain investments that are going to occur later in 2021 as compared to prior years.
But our focus is on profitable growth.
Low near term, we do not expect margin expansion off the higher second half 2020 levels and again those have benefited from some of the cost controls we put in place based on the uncertainty of the pandemic.
But rather we expect EBITDA dollar growth off the full year 2020 levels and again, we're very pleased with how the team is executing and we like where we are.
I don't if you want to cover more macro sure yeah. Thank you for covering the hard stuff that has real numbers and comments on it and leaving me.
And maybe discuss the mean Allen.
Yes, I mean on the on the housing market and sustainability.
Theres certainly a lot.
We could talk about on say, but I guess the.
First thing I'd say.
Is.
The Big thing that's happening that's driving our business and we'll do so in the long term is not the cyclicality.
In the housing market itself alright. It is the bigger trend, which is movement of all things offline to online and real estate, while many thought it might be an exception 20 years ago to the fundamental E Commerce rule clears.
Clearly is not and we our customers are moving online, which is fantastic and we are the leaders of the outsized beneficiary of that and we've been there the longest time it the biggest brand and so that's the biggest thing facing us.
And one other thing I guess is that we have all of this kind of potential energy in the top of funnel with all this shopping traffic we have that is not being monetized today and so we've got a lot of.
Of growth to happen just in increasing conversion and engagement within our flow.
Okay now.
Moving down into the actual dynamics of the housing market right. Now we have certainly have a lot to say R.
Our econ team has published a pretty aggressive forecast for 2021.
But we as I said, we don't have a crystal ball, obviously that doesn't stop hasnt stopped moving fast from Prognosticating, let me pick up.
We look at when you look at a few topics here one lets talk about the tailwind.
I guess, the second is inventory velocity.
And then a third is kind of pent up pent up listings demand.
On the tailwind is one there is the <unk>.
Technology tailwind that I've already talked about this is the offline to online shift from that is a big one.
And that's just that's blowing and that's sped up during COVID-19, but it's not going to stop low and we've got a long way to go.
The.
Real estate tailwind, that's kind of been catalyzed mainly by the pandemic freeing people from their commutes and freeing them to move and rethink their homes.
That's a real one and.
And I believe that that's going to play out over a long period of time to it takes a long time for people to decide to move and it takes a long time for companies, though they are catching up it's going to take a long time for companies to grapple with the fact that in order to compete for the best talent. They have to give that talent flexibility. So this is going to happen I think this is going to play out over a long period of time to kind of great reshuffling.
Point, there are some really interesting demographic things.
Things that are setting up to drive sustainable growth as well around millennials buying on having babies and buying homes right now.
Anvil and low low mortgage rates for the foreseeable future, we don't have a crystal ball there, but it is setting up pretty well.
All of those things make us our econ team, but also on me believe that this is a pretty durable.
Macro growth set up for the.
For the housing industry.
Not to talk about I mean, I did it in my <unk>.
Prepared remarks, but this inventory <unk>.
Volume velocity point is a pretty important one.
I think a lot I find myself explaining to a lot of people at the company and outside the company, who read shocking headlines about galactic <unk> historically low inventory.
And they think it's over for the housing market, it's going to freeze thats going to stop we're not gonna have any inventory.
That of course, only make sense. If you don't look at how quickly things are selling right. So.
Having having homes sit on the market for 25 fewer days than they did a year ago on December 17 days total is fairly shocking that is the headline for this market right now is velocity.
And so you know.
I have no doubt that E com one on one comes into play with supply and demand and as as home prices. Appreciate as home prices rise of course more supply is going to come into the market. That's just that's just the way markets. The way markets work I'm highly confident in that one I also think.
From a.
Pent up listings perspective, I think that we've seen 15 years of people wanting to move and not moving since the global financial crisis for various reasons. I also believe there may be a little kind of COVID-19 related anxiety to list your house right now.
On that as we get post vacs, we may see some of that loosen up as well, but those are those are more minor I'm really sorry for taking up so much airtime everybody.
But it's important stuff.
Thanks for that rich thanks, Alan really appreciate it.
The next question comes from the line of Lloyd Wamsley with Deutsche Bank. Please go ahead.
Thanks, guys I have two.
First just can you talk about some of the drivers for the unit economics improvements on the home segment, how much of that is the home price depreciation versus efficiency gains versus the benefit of the newer cohort and give us a sense for how we should think about this going forward given just the magnitude of the improvement we saw.
Then secondly.
Can you give us the update on some of your Capex around partner leads on what.
Youre seeing there and how much you think you may be scaling that.
This year versus continuing to be an experimental mode any anything you could share there would be great.
Great. Thanks Lloyd.
Alright, so I start with unit economics.
As we reported Q4 unit economics were 607, approximately 670 basis points of profit per home before interest.
As compared to Q3 results that we are.
Loss of 90 basis points. So that's an improvement of 760 basis points quarter over quarter.
A swing was not unexpected as Q3 reflected the impact of us selling off the tail of the pre pandemic pre pandemic inventory as opposed to Q4, reflecting the benefit of early sales of post pause.
Cohorts.
But there are two other factors that I would like to call out.
And Richard touched on from those so the HPA trends and sales velocity.
Performed on a lot stronger than our underwriting assumptions.
And contributed to.
Pretty significant portion of the 500 basis points improvement that you see in our acquisition costs on our acquisition costs as a percentage of the average sale price went from 91, 1% to 85, 9%.
So that's mix, but a lot of that is the macro trends.
The other day I'll call. It the other three cost lines on renovations holding costs and selling cost we.
Which improved 250 basis points over Q3.
Include in these improvements from real operational improvements that are durable.
We're constantly learning and improving over time.
Which resulted in continued improvements in our customer.
<unk> value proposition value.
Our offer so that's.
Thats.
We're glad to be back up and running and as we learn we're able to provide more value proposition to our customers.
We do expect some of the pricing spread to.
To be temporal overtime.
We will continue we still see continue to see opportunities for improvement across all four of the cost components.
I expect this metric is going to continue to be a little bumpy as we continue to come out of the air GAAP in the post buys.
But.
The direction I will get it we're still maintaining the plus or minus 200 basis point guardrails.
And we're going to continue to have those in prior rails as we grow in scale and as we continue to learn and we'll be able to provide.
Real cost improvements that will benefit our ability to provide value and our customer office I.
I hope that helps and then the second question I guess I'll move through it on.
Some of the bundled services.
We're in early stages.
One building out a suite of services.
But we like the initial results we're seeing.
We feel like we've built out the core pieces and are moving deeper into the transaction.
We've expanded Zillow closing services to 25 markets during 2020 and as we called out the vast majority of our customers are now choosing.
To use our clothing services when they buy a home for Zillow offers.
But we're not just thinking about Zillow closing services.
There are some programs that we began to run across the country still early stages and when customers are exposed to our suite of services. There is a meaningful uptick in demand and there is increased value per transaction.
This is not a surprise us still.
Still early stages, but we feel strongly that our thesis of Zillow to point out is correct and I'll close with just saying.
As we see it as increased evidence that providing a seamless integrated real estate experience to our customers is welcome.
We can use that we can use our low cost of customer acquisition to compete against an industry that still largely single point solution providers that have higher cash.
Got it okay. Thank.
Thank you and again.
There is an end of one on your on that on that question that I think the video is two minutes I do encourage you to click on that from the shareholder letter of debt that Terry Lee testimonial.
Anyway, that's just kind of range of delay.
We'll check it out.
The next question comes from the line of Ron Josey with JMP Securities. Please go ahead.
Great. Thanks for taking the call and I guess, we answered a lot about 2.0, but maybe just a little bit more rich just talking about all the different services that are offers that are out there between offers premier agent home loans closing services just can you talk about what.
What we might expect for offers going to more geographies are more and more location same thing for closing services do you expect that all 50 states as two point it becomes a reality and then.
I'd also love to understand a little bit more around just the progress and flex as the Premier agent business continues to just.
Do so well thank you.
Hey, Ron players on mute.
Wow.
A lot of the Lloyd's got question on Alan got any answer on.
On a lot of the kind of.
Net energy and evidence we're seeing around the beginnings around bundled seamless transaction being what customers want but again of course, it's our strong intuition. It makes a ton of sense.
And on the World is going into one click why not real estate, that's where we're.
That's where we're headed and so.
The fact that we have invested big in every one of these.
Ancillary services and now can begin to stitch them together.
In a way that a lot of the folks that just provide point solutions can who will struggle with is like a this is a big strategic debt we're making.
It has the added benefit.
Having terrific kind of ecosystem economics from a customer acquisition cost perspective.
As well so we're really we're really running running hard at that.
On the Zillow offers stuff, it's still really really small.
It's just it's beginning to look big but it's still really really small were way less than one percentage of the market right now with this but in Zillow offers is the fees of the future of our streamline transaction, which is why youre seeing us do so much innovating and integrating and testing on that on that product right now and that is spilling over.
Into.
Bringing a much more accountable transaction partner quality integrated mindset to our.
Premier agent and IMT businesses as well that is what led to flex to your question.
Okay.
And we really love the way flex has lined up to be a win win win.
By focusing our compensation.
On <unk>.
Customer success, which is.
Getting into a new home.
So so we've seen really good traction there and that's brought a whole new kind of.
On.
Quality.
Quality assurance true.
Vacuum responsibility responsibility for the customer itself, it's brought that mindset.
To that business and you can see it in the numbers look what's happening.
And look at our look at our guidance for next quarter, it's really coming together nicely.
That's great and maybe just one follow up on on offers any thoughts on buybacks is it depreciation continues to go up on homes. Thanks Ian.
Okay.
Allen you want them.
Allen is on mute.
Alright.
Thanks, Ron.
I guess, what I'd say is we continue as we came out of the buys.
We had a relatively conservative buybacks as we brought our processes back we continue to assess.
Where we can add value to customers and at what ranges. So I think it's going to vary by market and we'll continue to as I said iterate learn and adjust as appropriate so.
We're excited about the acquisition pace that we have been able to achieve in Q4.
And the momentum that we're bringing into 2021 buy box is just one of those ways, but we continue to look at where we can provide value for our customers.
Thanks Allen Thank you rich.
Yes.
The next question comes from the line of Ryan Mckenna.
Zelman <unk> associates. Please go ahead.
Hi, Rich and Allen congratulations on the great results and rich I really.
Enjoyed the commentary you gave her on the inventory versus velocity and new listings and very much in agreement with you there and that will tie in to the second part of my my question. So two parter coming up.
First question on <unk> I guess, there is there's some debate around whether just the overall strength and competitiveness of the housing market today is a headwind against the concept of eye buying just given kind of how quickly homes are able to be sold traditionally.
And I think your results speak for themselves in terms of the purchase activity in the quarter. The resin inventories. So clearly there is still plenty of interest from sellers, but im curious if youre seeing any any different consumer behavior any different than the demographic.
Around those who are actually choosing <unk> offered today versus kind of pre pandemic.
Second piece of the question to the extent that sellers are preferring to list traditionally rather than take that on a dire offer.
Are you able to kind of back to the comment around just the lifting side of things pent up listings are you able to look at that as a gauge of just overall pent up listing demand and kind of prospective sellers coming to the market.
And last point, sorry, maybe it's a three pointer.
Curious if you can just give an update on how youre doing around monetizing the seller leads or partner leads on that might be coming from those there excuse me declining.
The initial <unk>. Thank you.
Okay, that's testing minor taking ability on.
Thanks.
The team has been working on analogies to get people to focus on on this time on market and velocity concept. So.
They're going to love to hear that you appreciated those analogies and I know you guys write a lot about this so steal steal away.
So maybe I'll start on with the.
The first question, which I'll basically restate.
<unk> is still attractive on such a hot market.
Well, it's working.
Look our acquisitions were up year over year in Q4.
For the first time since Covid started.
So I mean, the answer to your question is unknowable I'm sure. There are a bunch of puts and takes.
Clearly this is such a head slapping the obvious.
Better easier more convenient way to do things on the old way.
That I don't think.
The <unk>.
Interest in the product is going to change a whole lot based on hot or cold markets I really don't.
It's unknowable and then there may be some COVID-19 related hesitancy debt.
That makes zero more attractive right now, but honestly, we don't really know.
We're looking at the trends, we're looking at how we've reopened these markets.
We are excited by those line items on the cost side that Allen ticked through showing some leverage so that we can offer even better pricing the sellers and thus does increase the size of the market.
So we like we like what we're what we're seeing there.
On your second question.
I guess the thing I'd point to.
As the best gauge the pent up demand to sell or a pent up demand to move I guess sort of one on the same.
His engagement I mean.
Whereas the sparkler I threw out there nine 6 billion visits we have in 2020 up $1 $5 billion in Covid, 19% up year over year.
That to me I don't have a lot of more anecdotal or survey based stuff.
Give you color, but I don't think we really need it we can look at the ferocity with which people are attacking their own searching and dreaming and be pretty comfortable that.
We've got a ways to.
We've got some pent up demand.
On your third question I, just three point to Alan's answer from one or two questions ago.
<unk>.
And say, we're really excited by the early signals that we're seeing in an integrated bundled offering its just makes so much sense.
And we're seeing seeing all kinds of early evidence to that's kind of confirmatory to our.
Somewhat audacious.
Strategic debt that we're making here on.
On integrated.
Thank you very helpful. Thanks, so much.
The next question comes from the line of idle Iranian of Wedbush Securities. Please go ahead.
Hey, guys.
Thanks for taking the questions I guess I have a couple of follow up follow ups from that.
Questions that have been at the first on on the last one on.
Hot market and how I buying until offers fits into that it sounds like you haven't.
Necessarily done anything with with the fee that you ask on that.
No.
How do you think about moving to see have you lowered it at all to drive up some of the demand or has it been there naturally with that.
Is that kind of average fee that you've been.
You're asking for historically there.
And then on the kind of on the.
And.
Bundled <unk>.
Service.
Listening to some of the.
Executives from the traditional.
Brokerages players in this space on a conference a few weeks ago.
So maybe I'll ask it from from the opposite point of view in that day.
Ill kind of continue to view the world as.
Being a platform, giving options versus <unk>.
Having everything in House then yes.
On mortgage broker.
On your own products, but actually giving the consumer choice and believing that the consumer wants choice across the way.
Obviously, that's not your stance on.
Would love to hear why you think that that's not the right stance.
Giving people choice.
Okay.
Okay. Allen you may even want to take the first fit on the P&L I'll try to address the no choice question.
Sure sure. Thanks for the question this is Allen.
Yeah, I think I, just would point out and responding to that debt.
He is just one of the components.
Of the offer that we make.
To a customer who's interested in possibly selling through zillow offers selling to us.
On a fee is dynamic and so when I talk about our unit economics, and the pricing spread being a little more temporal and our guardrails being plus or minus 200, we're constantly adjusting dynamically all of the elements of the offer and were testing how we communicate those elements of the offer.
To any customer who are to any potential seller. So it's transparent and clear on what it cost in which even called out the <unk>.
Dynamic as estimate as a as an offer eventually are starting but.
So what I would say is that on.
Our business model and the way our model works with respect to the seller is extremely dynamic and takes into account.
These macro conditions.
What did occur in Q4 somewhat was that the market out ran some of our initial assumptions and we're catching up so we're constantly learning that we have a feedback loop as we have each one of these data points and so I would expect that offer to be competitive but constantly informed by all of the factors that are out there with respect to.
Velocity.
HPA and so on and so forth.
If that helps and then rich did you want to talk on.
As delivering the customer choice.
I mean, it's a fun one.
But I've been sitting here trying to think how I would answer look cash.
Customers want custom.
Customers want convenience, it's pretty.
It's a pretty bad debt to bet against convenience speed price integration in any business okay.
And.
Especially customers launch simplicity and one click when it's something they don't care a ton about that needs to get done.
I'll use Amazon to bind most everything but there are few things that I really care about that I know I need to go to a specialty E commerce retailer to go find because they're my particular areas of interest from deciding not to say what those are because I don't want to be judged.
But by and large having it all behind one click and with prime delivery on Amazon works really well in that same kind of idea certainly holds true we think in real estate, where people want to do is get into their new house everything else as an obstacle.
Okay everything else as an obstacle.
And I'm not I'm, not saying, we need to bundle. So that we can somehow take advantage of them on pricing of these spot things thats not what we want to do we want to bring price down as much as we possibly can but the price thing we want to do is integrate this make it super easy and convenient and may be joyful at some point so that people can just.
Get to their better place anyway.
That's true.
All the years that we've spent with building consumer products. This feels intuitively correct. There will absolutely be the specialty point solutions for all kinds of stuff that people care about and want to shop for them and certain kinds of professionals that have.
Specific expertise that people seek out Theres no question Thats going to happen on our bet is that for the middle of the Bell curve of the market integration is really important.
Thanks, if I could just add.
Just one quick follow up on I guess, both of those points tied together.
Bringing.
The kind of in house brokerage on on Zillow offers.
Anything you're learning there, that's helping drive the flywheel versus just saving costs.
And thanks for the time.
Tom.
You know.
Where with Zillow offers and now the brokerage that's associated with Zillow offers we're finally actually in the end user customer satisfaction customer service business, we used to be in the kind of media customer traffic business and not in the customer service business and so that.
I talked about it a little more on previously on the call the spillover effects from having an owned and operated operation, where we're actually buying and selling homes and we're actually closing these transactions is spillover goodness to the core business is.
On.
The cult to quantify how important it is and we feel it will drive a ton of opportunity in the core business on a go forward basis and as I said on the call these businesses <unk> and PCA.
Getting a lot closer together, because that's happening because of all this learning and because we are seeing common solutions that we're building for <unk> to be applicable to the whole and the industry as a whole just like with the showing time acquisition today, that's one of those things that we see.
And as they as they.
Come closer together they are actually opening up even larger swaths of kind of from.
On grass, just like bigger chunks of opportunity that we see.
Given all this traffic and engagement we have so we're excited.
Thanks Scott.
Our last question comes from the line of Tom Champion with Piper. Please go ahead.
Thanks, guys.
Good afternoon, Thanks for squeezing me in.
Okay. So your economists are saying, 20% transactions growth.
This year.
Curious your sense of whether we will return to kind of more normal seasonality with peak selling being in the summer months and whether that line of thinking should be incorporated into our estimates.
You gave us the one Q guide, but as we think through the balance of the year would be.
Just your thoughts on that and then.
35%.
Gross assets.
Really strong what do you see as the debt.
Pinpoint from that.
Today, what are what are kind of the product opportunities for <unk> going forward and I think.
Thank you said this allen, but maybe an 8% boost from flex in that business. If you could just confirm that thanks guys.
So it's still weighted kick.
Kick through the real quick and then you can talk about.
Yes.
Other vaccines.
Our providing quarterly.
Thanks, Tom.
Yes, so with respect to flex when you think about the 35% Q4.
If you exclude the impact on some of the revenue timing changes that we've discussed in prior quarters.
And they come on both sides about 200 basis points of growth in Q4 came from leads that we delivered prior to Q3.
So that drove 200 basis points of growth in Q4, and then the remaining amount that get you to the 27% growth apples to apples.
Came from the fact that we had.
Comp against 2019, where we did a flip to the entire flex region for Phoenix and.
And landfill. So so that is the 800 basis point that you were calling out.
With respect to pain points and so on.
I believe the team has been operating really well on the inputs.
On.
Our goal is to obviously leverage on traffic.
And to bring high intent customers.
Gather with agents and some of those pain points is how do you get them connected I think our connection to the investment that we've made in the last two years, well a little mucky to start.
Has yielded a lot of benefits I believe.
Things like this showing kind of investment and schedule. A tour is another example of areas where there is still a friction of getting customers high intent customers and agents together.
So.
I believe some of it.
Online offline to online and leveraging tools that we have and can build is going to reduce a lot of those friction points. So again, that's part of the excitement we have on on helping the customer and benefiting not just the customer, but the partner agents as well as Zillow as we link these get a.
We're into the house they want.
So rich I don't know if you want to talk anything about seasonality on that.
I mean.
Look I'm not going to be able to give you a better view, Tom then Dr. <unk>, who runs our econ team.
Obviously, we looked at the forecast and looked at the drivers and it's all right. There on the E Com website for you to dig into.
As well and be critical on or agree with or not.
<unk>.
I would say, though that my kind of cheap seats farm chair economist perspective is that these.
These these are tied all of these are tectonic shifts that are driving the market and as I said in my long winded answer I think theyre going to play out of her over quite some time and I think they'll probably swamp what.
What we would consider normal seasonality in the industry. This year, that's our that's our best guess a lot of detail off for other forecasts has to do with kind of Missouri.
Some of the Missouri stuff, Brad stop me, if you want a Muslim me, but.
I would say that it's a sad thing to say, but even Missouri drives reshuffling and moving as well.
So I think we're just we're setting up pretty well.
In a pretty kind of volume bullish way across the whole of the of the industry for at least this year is my best guess.
Thanks, Scott, Okay, Brian Yes.
Already graph.
Okay.
Alright rock.
<unk>.
Okay.
Yes. Thank you.
Thanks, everybody today.
That'll be it for this quarter 2020.
We won't soon forget it.
But it was a rollercoaster.
And.
But it was a year of immense progress for our organization, both culturally, but really as we kind of.
Ditch together on behalf of consumers in new and better way.
Two.
Buy and sell homes to move.
Way to talk to everybody soon.
This concludes today's conference call.
You may now disconnect and have a great day.
We can have a great day now.
We sure hope not hot Mic.
Chuck are you there.
Yes, Sir.
Mike off now.
Thanks Chuck.