Q4 2020 Zillow Group Inc Earnings Call
[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 and conference call.
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 would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if he 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 the 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.
And or future events, except as required by law. This call is being broadcast on the Internet and is the accessible to.
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 and they contain important information about.
Of 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.
And you're on mute rich.
Now and the in the dictionary, sorry about that thanks, Brad Good afternoon, and thank you all for joining our first call of the new year.
February marks of big milestone and Brazil.
15 year anniversary.
We were motivated at the beginning by the same dream that motivates US now reinventing of 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 the same call of <unk> 2019, a tumultuously remarkable year and hindsight I clearly had no idea of 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 and 2020 at levels, we would not previously of thought possible.
Zillow surfing has broken through to a whole new level of pop culture, given the Saturday night live did of funny and racy sketch about it and this past weekend with guest host Dan Levy and the lead.
Fantasizing about real estate is not new our survey results and traffic of always indicated the 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 and 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 produce the strongest results we've ever seen reporting of 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 and 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 and less than 12 months and the vast majority of our customers are now choosing to close with us when purchasing a home from Zillow offers.
The execution resulted in total revenue growth of 22%, which when combined with a disciplined approach to managing costs resulted in more than $300 million and incremental EBITDA profit generation across the company as compared to 2019.
Our team drove these business results and 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 as legendary Duke basketball coach Mike Ciszewski likes to say.
Having internalize it we are already of success successfully operating of 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 and our workforce.
We believe this will be a significant competitive advantage as we grow and it is already yielding exciting results.
Of course of our challenges to not being in the office together, but that is temporal and.
And of 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.
The cannot be of two class system those in the room being first class and those on the phone being second class.
We are 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 and 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.
And they are projecting a near record of $6 8 million home sales for 21% growth plus double digit home price appreciation of appreciation.
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 of entering prime home buying years.
And mortgage rates are historically low on.
And on top of those macro factors the past year has the members of all generations, rethinking where they live with the new lens of flexibility and possibility as the great reshuffling and continues to take hold.
Some of your of concerned about low inventory of 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 of full 25 fewer days and in December of 2019.
In addition to being a hot market agents and customers adopt the technology and tools for safety and convenience and simply to compete.
And higher prices pull more inventory on the the market of course.
So unlike the warehouse using lean operations to transition to just in time inventory management the <unk>.
As the market became more streamlined.
Current home inventory levels. Therefore, it can be addressed with something like the safety refrain from of flight attendant.
The oxygen will flow, even if the bag does not appear to be fully and flip.
And maybe what we believe will be a very healthy housing market backdrop, we expect 2021 will be a pivotal year for zillow.
Spent some breath here in the past two years talking about our transition from Zillow, one <unk> immediate focus business and Brazil to plan the transaction focused business.
Today, I believe that we of the pieces in place the vision the team the technology solutions and customer products and services to execute on Zillow two <unk> of now.
We will undoubtedly keep innovating and adding products and services on the long road to customer one click trade and Nirvana, but our entire company is now relentlessly focused on transactions and ready to scale from here.
To do that we are investing aggressively and 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 the facilitated over $50 million in person home tours and 2020 for $500 million.
Showing kind of 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 and we see this as similar to the work we did to build our connections platform of 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 growth.
We envision a future experienced the begins on our mobile app, where a customer can immerse herself in a home via our <unk> technology.
The book and in person tours through shown time with an agent.
Net prequalified through Zillow home loans.
With the 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 oriented around customer success and customer choice.
I know you all think of these businesses as distinct our customers arrive at Zillow simply trying to move it.
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 we 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 44 years and 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 user of Zillow suggested should call us.
The accepted of Zillow offer is the premier agent to help of shop, and financed and 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 the remind someone did you, let so and so now everybody knew.
We dropped the 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 Terry's 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 a premier agent partner completed a successful transaction and we participated and economics across our multiple services without spending incrementally to find Terry is the customer for the additional services.
Our low customer acquisition cost advantage is integral to our Zillow two point on strategy. For example of this year many customers and Zillow offers markets will 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 launch of Zillow of putting an actual price on every rooftop.
As 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 and a unique position to build an iconic company and brand the transforms and one of the country's largest most complex and most important industries.
Our large audience the breath.
Of our services across real estate transactions, our profit streams and profit potential and our strong balance sheet, our experienced leadership team and our long term orientation, all combined to put us in pole position.
The advantages we have 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 and support.
And to move to the next exciting chapter and the story of the Zillow.
I'll now turn it over to Alan.
Youre on mute Allen.
Alright.
Thank you rich.
As rich discussed Zillow group delivered another strong quarter, which drove record full year, 'twenty and 'twenty 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 and 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 marketplace.
Segment, EBITDA was $203 million and Q4 or 48% of IMT segment revenue.
Revenue growth combined with year over year declines and operating costs translated into 132% year over year EBIT growth and Q4.
Premier agent revenue grew 35% year over year, and 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% and Q3.
During Q4 Zillow offers benefited from operational improvements were on.
The than expected home price appreciation across the country, a strong customer value proposition and faster sales velocity.
Homes segment revenue of $304 million exceeded the high end of our outlook with home purchases returning to Q4 2019 level.
Our Q4 and 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 and 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, and unit 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, and 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.
And on sale margins stay and 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.
And our IMT segment, we are forecasting 27% year over year revenue growth and Q1 at the midpoint of our outlook range.
Within the <unk> segment, we expect Premier agent revenue to be between 314, and $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 towards later this year.
While we believe the remains prudent the continue to provide quarterly guidance I would like the repeat what I said last quarter.
We are focused on growing EBIT of $1 compared to the full year 2020 levels.
We do not expect to expand EBITDA margins from the high levels and the second half of 2020 with benefited from cost controls put in place during the uncertainty of the dependent.
However, we will continue to drive operational rigor across the business and 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 the ramp up purchase and resale activity levels that are being driven by strong demand and 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 and Q1.
And we plan to continue to capture of the strong refinance demand to investing and building the factory the scale our operations as the purchase business is built out over time and.
The result, we expect mortgage segment EBITDA to be between the loss of $3 million and of profit of $1 million.
We are also excited about the future of addition of selling kind of industry, leading technology to our suite of solutions to help innovate and simplify online flow scheduling for agents buyers and sellers.
The outlook. We provided today does not include any potential benefit from selling time, and we believe selling time will deliver significant benefits to the industry and our customers our partners and Zillow over time, we expect the impact on financial results, the relatively small and the near term.
We ended the quarter with $3 9 billion and cash and investments, which puts us and a strong position to fund our vision of Brazil, and make strategic long term investments both organically and Inorganically.
And we look forward and 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 of both.
Moving past the necessities of 2020. The following 2021 priorities are focused on innovating and executing on behalf of of our customers and partners.
We will grow our customer base and engagement through a compelling dream and shop experience.
We will invest and sustainable topline growth opportunities across the company.
We will 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.
I'll pause for just a moment the 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 of how you think about sustainability and terms of the growth and margin expansion the ear.
And of that Youre, saying here I mean 600 basis points, obviously puts you.
And the areas that you haven't really haven't really seen in a while.
And just really really kind of interested and how you and Alan and the team are thinking about the macro environment. The contribution to this and how important that's going to be going forward as well as the traction that youre getting with the with per barrier of jet and just how.
But you can continue that from here.
Hey.
Hey, I look forward to being on your Goldman Zoom stage Tomorrow.
And we looked hard data.
And it is.
No travel required the magic.
I know al and you just did a whole bunch of talking but maybe you want to start on this this answer.
And on an EBITDA growth and how we're thinking about it and IMT margins and then I'll, let you handle the more macro housing if that works.
Thanks for the question Silicon.
The Premier agent, we continue to focus on the customer and.
The input with yield of Great result for both the customer and our partner agents.
So we're optimizing the connect high intent customers with high performing agents and the output we're seen as higher six at <unk>.
Higher connections volume, where we're linking and high intent customers with great partners strong retention and the business results that we see reflected and our Q4 results and our Q1 outlook.
On an apples to apples basis, we see and accelerating.
Rental growth of 20% and Q3 to 27% and 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 the long term growth.
And areas, such as technology and marketing.
But we feel really good about the current situation and the position we have.
With respect the PK.
With respect to the margins on discover that real quickly our outlook implies of 42% margin at the midpoint.
Down from the second half margins, we saw in the second half of 2020.
Our Q1 guide of that 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. So near term, we do not expect margin expansion of the higher second half 2020 levels and again those of benefited from some of the cost controls we put in place based on the uncertainty of the pandemic, but rather we expect EBIT dollar growth of the full year 2020 levels and again were.
Very pleased with how the team is executing and the like where we are rich I don't if you want to cover the more macro sure. Yeah. Thank you for covering the hard stuff that has real numbers and comments on it and moving the.
And we have discussed and me Alan.
Yes, I mean on the on the housing market and sustainability Heath I mean, there's certainly a lot of.
We could talk about and save and I guess the.
The first thing I'd say.
Is.
The Big thing that's happening that's driving our business and will do so and the long term is not the cyclicality.
In the housing market itself, alright, and it is the bigger trend, which is movement of all things offline to online and real estate, while many thought it might be and exception 20 years ago to the fundamental E Commerce rule clear.
Clearly is not and we our customers are moving online, which is fantastic and we as the leaders of the outsized beneficiary of that and we've been there the longest time the biggest brand and so that's the biggest thing facing us.
And one of the thing I guess is that we of all of this kind of potential energy and the top of funnel with all of the shopping traffic. We have that is not being monetized today and so we've got a lot of.
Of growth to happen, just and increasing conversion and engagement within our fund.
Okay now.
Moving down into the actual dynamics of the housing market right. Now we have certainly have a lots of say R.
Our econ team has published a pretty aggressive forecasts for 2021.
But we as I said, we don't have a crystal ball, obviously that doesn't stop and hasn't stopped me and the fast from Prognosticating, Let me pick up.
We look at and when you look at a few topics here one lets talk about the tailwind.
I guess, the second is inventory velocity.
And then of third is kind of pent up pent up listings demand.
On the tailwind of one there is the <unk>.
Technology tailwind that I've already talked about and this is the offline to online shift and that is the big one and that's just that's blowing and that's sped up during COVID-19, but it is not going to stop now and we've got a long way to go.
The.
On real estate tailwind, that's kind of and catalyze 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 kind of 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 that's the kind of great reshuffling.
Point, there are some really interesting demographic.
Things that are setting up to drive sustainable growth as well around millennials buying having babies and buying homes right now.
And bill and low mortgage rates for the foreseeable future. We don't have a crystal ball there, but it is setting up pretty well on.
All of those things make us our econ team, but also me believe that this is a pretty durable macro growth set up for the.
For the housing industry.
A quick note to talk about I mean, I did it and Mike.
On the prepared remarks, but this inventory.
Volume velocity point is a pretty important one.
And 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 Lee historically low inventory.
And they think it's over for the housing market and it's going to free that is going to stop when I kind of in the 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 and December 17 days total is fairly shocking that is the headline for this market right now is velocity.
And so.
I have no doubt the econ 101 comes into play with supply and demand and as as home prices appreciate as home prices rise and 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.
The 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. The list your house right now.
That as we get post vacs, we may see some of that loosen up as well, but those are those of 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 the all efficiency gains versus the benefit of the newer cohort and and give us a sense for how we should think about this going forward given just the magnitude of the of the improvement we saw.
And then secondly can.
Can you give us the update on some of your tests around partner leads on what Youre seeing there and how much you think you may be scaling that this year versus continuing to be and experimental mode and anything you could share there would be great.
Great. Thanks Lloyd.
Alright, and so when I start with unit economics.
And as we reported Q4 and unit economics were 607 of approximately 670 basis points of profit per home before interest.
And as compared to Q3 results that were on.
Loss of 90 basis points, so thats, an improvement of 760 basis points quarter over quarter.
A swing was not unexpected as Q3 and reflected the impact of of selling off the tail of the pre pandemic pre pandemic inventory as opposed to Q4, reflecting the benefit of early sales of post pause.
Purchase cohorts.
But there are two other factors and I'd like to call out.
And rich has touched on some of those some of the HPA trends and sales velocity.
Performed on a lot stronger than our underwriting assumptions.
And contributed to.
A pretty significant portion of the 500 basis points of improvement that you see and our acquisition costs on our acquisition costs as the 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, all part of the other three cost lines of renovations holding costs and selling costs, which include 250 basis points over Q3.
Included in these improvements from real operational improvements that are durable.
We're constantly learning and improving over time.
Which results and continual improvements and our customer.
The value proposition value.
Of our offers so that that's the.
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.
We do expect some of the pricing spread to.
And to be temporal overtime.
We will continue we still see continue to see opportunities for improvement across all four of the cost components.
And I expect this metric is kind of continue to be able of bumpy as we continue to come out of the air gap and the post buys.
The.
The direction and I'll get as we're still maintaining the plus or minus 200 basis point guardrails.
And we're going to continue to have those in product sales as we grow and 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 offers.
And I hope that helps and then the second question I guess I'll move through it on.
Some of the bundled services.
We are in early stages.
And one building out of 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.
And we've expanded Zillow closing services, the 25 markets during 2020 and as we called out the vast majority of our customers and now choosing.
Two unions are holding services when they buy a home to Zillow offers.
But we're not just thinking about Zillow closing services.
And then some programs that we began the right across the country still early stages and when customers and 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 two <unk> is correct and our quality and to say no.
As we see it as increased evidence that providing a seamless integrated real estate experience to our customers is welcome.
And can use that we can use our low cost of customer acquisition and to compete against an industry that still largely single point solution providers that have higher cash.
And it got it okay. Thank you and again there.
And there is in and 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 that that Terry Lee testimonial.
And 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 clothing services. Just can you talk about this.
What we might expect for offers going to more geographies are more and more locations same thing for closing services do you expect that all 50 states as of 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.
And do so well thank you.
Hey, Ron players on mute.
Yes.
A lot of the Lloyd's got it and the question and Alan and got it and the answer on a on.
On a lot of the kind of the.
The energy and evidence we're seeing around the beginnings around bundled seamless transaction being what customers want the and of course, it is our strong and tuition and makes a ton of sense.
And on the World is going into one click why not real estate, that's where we're.
And 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 cancer will struggle with is like a you know this is a big strategic that we're making.
And has the added benefit.
Of having terrific kind of ecosystem economics from the 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 at the beginning to look big but it's still really really small were way less than 1% of the market right now with this but in Zillow offers is the fees of the future of the 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 for your question.
Okay.
And we really love the way flex has lined up to be a win win win.
And by focusing our compensation.
On the.
Customer success, which is.
Getting into and your home.
And so so we've seen really good traction there and that's brought a whole new kind of.
On.
Quality.
The quality assurance.
Transaction responsibility of responsibility for the customer itself, it's brought that mindset.
To that business and you can see it and 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 and just depreciation continues to go up on homes and thanks again.
Alan you on them.
Alan is on mute.
Alright.
Thanks, Ron.
I guess, what I'd say is that we continue the came out of the buys.
And 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 and so.
And we're excited about the acquisition pace that we have been able to achieve and Q4.
And the momentum that we're bringing into 2021 buy box of just one of those ways, but we continue to look at where we can provide value of our customers.
Thanks Al and thank you rich.
Yes.
The next question comes from the line of Ryan Mcevilly with Zelman and Associates. Please go ahead.
Hi, Rich and Allen congratulations on the the great results and rich I really.
Enjoyed the commentary you gave her on the inventory versus velocity and new listings and very much of an agreement with you there and that'll tie in to the second part of my My question. So two part of coming up.
First question on the high buying I guess there is there's some debate around whether just the 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 and the quarter of 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 and the demographic.
Around those who are actually choosing the <unk> offer today versus kind of pre pandemic and the second piece of the question to the extent that sellers are preferring to list traditionally rather than take that out of 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.
And last point, sorry, maybe it's the three pointer.
And I'm curious if you can just give an update on how youre doing around monetizing the seller leads or the partner leads and that might be coming from the us there excuse me of declining the the.
The initial <unk>. Thank you.
Okay, that's testing minor taking ability of 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. Appreciate it does analogy of and I know you guys write a lot about this so still steal away.
Yeah.
So maybe I'll start Alan with the.
And the.
The first question, which I'll basically restate.
And is still attractive and such a hot market.
Well, it's working.
Look our acquisitions were up year over year and Q4 for the first time since Covid started.
So I mean, the answer to your question is unknowable I am 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 and the old way.
That I don't think.
On the interest and the product is going to change a whole lot based on the hot or cold markets I really don't but it's unknowable and then and there may be some COVID-19 related hesitancy.
And that makes zero more attractive right now, but honestly, we don't really know.
But 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 of that Alan ticked through showing some leverage so that we can offer even better pricing the sellers and thus the 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, the sort of one and the same.
Is the engagement I mean.
Or is the sparkler I threw out there nine 6 billion visits we have and 2020 up $1 5 billion of its like 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 homes searching and dreaming and be pretty comfortable that.
And we've got a ways to we've got some pent up demand.
On your third question I, just read point to Alan's answer from one or two questions ago.
And <unk>.
And say, we're really excited by the early signals that we're seeing and and 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 bet that we're making here on.
Integrated.
Yes.
Thanks very helpful. Thanks, so much.
The next question comes from the line of idle Iranian of Wedbush Securities. Please go ahead.
Yes.
Hey, guys.
Thanks for taking the questions I guess I have a couple of follow up follow ups.
Questions that have been at the first on on the last one and.
Hot market and how I buyers of the 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 the have you lowered it at all of that drove up some of the demand or has it been there kind of naturally with the.
And that kind of average fee that you've been.
You're asking for historically there.
And then on the kind of at the edge.
And.
Bundled <unk>.
Service.
And just listening to some of the.
Executives from the traditional brokerages and players in the space at the conference a few weeks ago and.
So maybe I'll ask it from from.
On the opposite point of view and they.
Ill kind of continue to view the world as.
Being a platform and giving options versus <unk>.
Having everything in house and.
On mortgage broker and sell.
And on your own products, but actually giving of the consumer choice and believing that the consumer wants choice across the way.
Obviously, that's not your stance and.
Would love to hear why you think that that's not the right stance.
Giving people choice.
Okay.
Okay. Alan you maybe want to take the first fit on the fee and I'll I'll try to address the the no choice question.
Sure sure. Thanks for the question and this is Allen.
Yeah, I think I, just would point out and and responding to the asset.
He is just one of the components.
Of the offer that we make.
Two of customer who's interested in and possibly selling through zillow offers and selling to us and.
And if he is dynamic and so and when I talk about our unit economics, and the pricing spread being a little more temporal and our guard rails being plus or minus 200, we're constantly adjusting dynamically all of the elements of the offer and we're testing and how we communicate those elements of the offer.
And two and a customer who are to any potential seller. So it's transparent and clear on what it costs and which even called out the the.
Dynamic.
As a as an offer of 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.
And 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 we are on 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.
The velocity.
The HPA and so on and so forth.
If that helps and the 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.
Customers want cut.
Customers want convenience, it's pretty.
It's a pretty bad debt to bet against the convenience speed price integration and any business okay.
And.
And especially customers launch simplicity and one click when it's something they don't carry a ton of about that needs to get done.
You know I'll use the Amazon to buy most everything but there are few things that I really care about that I know I need to go to of specialty E. Commerce retailer to go find because of their 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 and that same kind of idea certainly holds true we think the and 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 the spot things thats not what we want to do we want to bring price down is 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 of the years that we'd 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 and and certain kinds of professionals that have.
Specific expertise that people seek out Theres no question, and that's going to happen and our bet is that for the middle of the Bell curve of the market integration is really important.
If I could just.
Just one quick follow up on I guess, both of those points tied together.
Bringing the.
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.
Tons.
You know.
With no of officers and now the brokerage that's associated with Zillow offers we're finally actually and the end user customer satisfaction and customer service business, we used to be and the kind of media and customer traffic business and not in the customer service business and so that I.
And I talked about it a little more on previously on the call the spillover effect from having and owned and operated operation, where we're actually buying and selling homes and we're actually closing these transactions the spillover goodness to the core business is.
<unk>.
The cult to quantify how important it is and we see it it will drive a ton of opportunity and the core business on a go forward basis and as I said on the call these businesses <unk> and PGA.
Getting a lot closer together, because that's happening because of all of this learning and because we are seeing common solutions that we're building for zero 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 can.
Come closer together they are actually opening up even larger swaths of kind of from.
And on grass, just like bigger chunks of opportunity that we see.
Given all of this traffic and engagement we have so we're excited.
Thanks, guys.
Our last question comes from the line of Tom Champion with Piper. Please go ahead.
Thanks, guys.
Good afternoon, and 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 the balance of the year would be curious your thoughts on that and then.
35%.
Growth.
And really strong.
Is that the pain points and that is.
Today, what are what are kind of the product opportunities for <unk> going forward and.
Thank you said this alan but maybe and 8% boost from flex and that business is if you could just confirm that thanks guys.
The risk cumulative kick through the real quick and then you can talk about.
Yes.
And we are.
And are providing quarterly.
Thanks, Tom.
Yes, so with respect of flex when you think about the 35% Q4.
And if you exclude the impact of 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 and Q4, and then the remaining amount that get you to the 27% growth apples to apples.
Came from the fact that we had of.
The comp against 2019, where we did a split up to the entire flex legions of Phoenix and.
And landfill. So so that is the 800 basis point that you were calling out.
With respect the pain points and so on.
I believe the team has been operating really well on the inputs.
The <unk>.
Our goal is to obviously leverage our traffic.
And to bring high intent customers.
<unk> with agents and some of those pain points is how we get them connected I think our connection of the investment that we've made and the last two years, well, a little and happy to start.
Has yielded a lot of benefits I believe.
Things like the showing kind of investment and schedule of tour is another example of of areas, where theres still friction of getting customers high intent customers and agents together.
So.
I believe some of this.
Online and 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 the excitement we have on on helping the customer and benefiting not just the customer of the partner agents as well as zillow as the link these get a.
And of the house they want.
The rich I don't know if you want to talk anything about seasonality on the.
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.
And obviously 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 the critical of or agree with or not.
<unk>.
And I would say, though that my kind of cheap seats farm share economist perspective is that these.
These these are tied all of these are tectonic shifts that are driving the market and as I said and 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 of lot of the tail off for other forecast is due at the kind of Missouri.
Some of the Missouri stuff, Brad stop me, if you want of Muslim me, but.
I would say that it's a sad thing to say, but even Missouri drives reshuffling and moving as well and so.
So I think we're just we're setting up pretty well.
And 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 the graph.
Okay.
All right Rob.
<unk>.
Okay.
Yes. Thank you.
Thanks, everybody today.
That will be it for this quarter of 2020.
And we want to forget it.
But it was the rollercoaster.
And.
But it was a year of immense progress for our organization, both culturally, but really as we kind of.
Fitch together on behalf of consumers and new and better way.
Two.
Buy and sell them the move.
And I talk to everybody soon.
This concludes today's conference call.
You may now disconnect and have a great day.
And we can have a great day now.
And we share we're not caught Mike.
Chuck are you there.
Yes, Sir.
Mike off now.
And it's Chuck.
And.
Okay.