Q1 2022 Zillow Group Inc Earnings Call
Certainties 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 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 referred 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 refer to our Internet media and technology segment as our IMT segment. We will now open the call with remarks, followed by live Q&A and with that I will turn the call over to rich.
Thank you, Brad and Hello to everyone joining today.
There is a lot going on out there financially politically emotionally.
In these volatile times, we are especially proud of our company and brand one that helps people find their home or place of comfort and safety.
Before we get into our results for the quarter I'd like to spend a little time talking about the housing market given it's on everyone's mind.
There is a dispersion of real estate forecasts among publishing economists that range from five five to $6 5 million existing home sales for 2022 compared to $6 1 million in 2021.
This results in a transaction growth rate range of negative 10% to positive 7%.
The common thread across these forecasts is uncertainty for the housing market.
We continue to see low levels of inventory down 23% year over year in March.
New for sale listings were less strained in March up 36% from February levels, but still down 9% year over year.
Average page views per listing were at a record high in Q1, which results from low inventory, yes, but also signals a strong intent to move.
These dynamics drove home values up an astonishing 21% year over year in March despite rising interest rates, which of course exacerbates affordability challenges.
So while we know people are still eager to move market conditions are making it increasingly difficult.
The net result of all of these factors is the total consumer transaction value growth trends are meaningfully softening and even the most respected prognosticators have different views of what will happen next.
Despite this turbulent housing market <unk> position as the leader at the top of the real estate funnel stands firm with $2 6 billion visits in Q1.
Including a 38% unique visitor growth year over year in rentals According to Comscore.
And as for our results in Q1, we delivered revenue and EBITDA within or above our outlook across our business.
Further with the rapid and successful wind down of homes inventory Zillow has become a company with a nimble balance sheet, a large cash position in our core business that produces strong positive cash flow.
We reduced our exposure to housing inventory risk on our balance sheet to approximately $500 million.
And reduced related asset backed debt by $2 6 billion in the quarter.
Of the approximately 20000 homes, we needed to sell when we first announced the wind down we are down to approximately 100 homes that are not under contract today.
We've also recognized better sales prices than anticipated as a result of the aforementioned high home price appreciation.
While home price volatility was to the upside during this wind down period, we are mindful of what might have resulted from unanticipated moves to the downside.
We felt confident in November and we feel more confident today that no longer being a principal in the buying business was the right decision Brazil.
Given our desire to serve the full breadth of our audience and the attractive margin profile of our core business.
We ended the first quarter with $3 6 billion in cash $500 million higher than the previous quarter, including the impact of a $348 million share repurchase throughout Q1.
We will exit Q2 with no asset backed debt related to our eye buying business and unexpected net cash position of approximately $2 billion before considering potential cash use towards a new $1 billion share buyback, which our board has just authorized.
We move forward with confidence knowing that zillow is well capitalized to navigate through this market cycle and return excess capital, which was originally built up for a capital consumptive I buying business, while simultaneously maintaining the flexibility to innovate on the attractive growth opportunities.
We see for the long term.
Before I dive further into our first quarter highlights I would like to take a moment to appreciate the magnitude of change that has occurred at zillow over the past six months and how well our team has operated through this transitional period.
We have nearly fully wound down the <unk> business, we had built up over the previous three years and we have reoriented the company around our broader housing Super App vision, all while generating strong cash flows from the core business.
We have also been innovating our products services and business models as we drive towards our 2025 targets of $5 billion in revenue and 45% EBITDA margin.
Those targets, we are executing on our product roadmap that is oriented around increasing engagement, increasing transactions and increasing revenue per transaction.
As we talked about last quarter, the path to achieve those targets and begin to build out the housing Super App vision involves product initiatives within five growth pillars.
Turing.
Financing.
Expanding seller services, enhancing our partner network and integrating our services.
We are working with a sense of urgency on innovating and integrating products within these pillars testing and driving our key input metrics.
And while we know the revenue and profit outputs won't manifest right away. We are seeing early traction in the initiatives we've launched this quarter.
First <unk>.
<unk> is central to both increasing engagement on Zillow and increasing the number of transactions that we drive.
We've made some key business and product improvements since you last heard us in February .
As a reminder, we believe Turing is the key point of sale moment in real estate and an action that converts at three times the level of any other action buyers take on Zillow.
And interestingly with Turing there are major innovations ahead in both the virtual home tours and the physical home tour.
Our goal is to marry these experiences over time on Zillow and throughout the real estate industry.
Let's first talk about the virtual touring experience, we are creating with our <unk> home tours.
Sure. Most people here have experienced the frustration of swiping through a carousel of pictures on a for sale home and feeling lost trying to stitch everything together into a mental model of that home in your mind's eye.
With our new <unk> home tour floor plan technology customers can travel through an entire home as if they were touring the home in person.
This new tool turns on the lights for our customers and partners by Contextualized, all the disjointed information about a home.
Photos floor plans spatial perspective into one interactive and immersive digital touring experience.
Outside of how incredibly cool. This feature is it's also a powerful mechanism to help us identify high intent movers in our funnel.
It's great for buyers sellers and agents.
Agents using <unk> <unk> benefit from a cost effective way to showcase and share listings and generate more leads.
Internal data has shown that homes on Zillow with <unk> tour were saved by buyers, 53% more frequently than homes without.
And listings on Zillow with Zillow <unk> home towards Dot on average, 81% more views than listings without.
We believe this is the kind of content customers want and we are leading the way.
Transitioning to the physical world, our pursuit of making the home buying process easier touches the IRL in real life tour as well.
Like many other aspects of the process the experience of scheduling an in person tour historically been fragmented and cumbersome.
We bought showing time, the leading online scheduling platform for home showings last fall to improve this process, both Brazil and for the broader real estate industry with our goal to make scheduling of home tour as easy as making a restaurant reservation online.
This quarter in four markets, we enabled a new feature called real time availability.
Which lays the groundwork for exposing the availability for home tours for all agents using our showing time platform.
We have on surprisingly seeing strong support from the industry for this feature with nearly 100% of brokerages, enabling real time availability in the markets we've launched.
At first blush. This may feel like a simple feat, but up until now no. Other company has been able to tackle this nagging industry wide problem.
Of course now that we've enabled the feature we will need agents and homeowners to upload their schedules to make showing showing times real time availability complete.
And you can see how the feature becomes a key building block to make scheduling and taking a home to a far easier than today's manual coordination of four different calendars across seller.
Seller's agent the prospective buyer.
And the buyer's agent.
Beyond our product improvements and virtual and physical touring during the quarter, we made progress on moving more of our overall mix of connections on zillow towards touring driving an increase of approximately 400 basis points of tours.
As a percentage of overall connections.
As I said before we believe Turing is the key point of sale moment in real estate.
So this shift helps improve conversion rates by allowing us to see the higher intent buyers signal that comes when someone requests a tour.
This quarter, we announced that we are also upgrading streeteasy are leading real estate shopping and rental <unk> in New York City.
As with our work on tours one of the new features on Streeteasy will focus on marrying the virtual and physical physical experience in real estate shopping.
The catered to the way that new Yorkers New Yorkers.
Apartment hunt and their desire for on demand experiences in every aspect of their lives. We just announced that we will soon launch streetscape, a new feature that uses augmented reality to place streeteasy comprehensive hence of listing data into our home shoppers real physical space on the streets of the city.
Using the Streeteasy App, new Yorkers will be able to use the camera on their phone to scan a street to reveal floating icons in front of residential buildings, then click on the icons to quickly learn more about the building in amenities discover available units view photos floor plans take virtual tours of the buildings units.
Sort of like a QR code for a building.
It will no longer be a need to search out of buildings address where it's available listings answers will be right at home shoppers fingertips in real time with Street Easy's streetscape.
We are pleased with the progress we're seeing on our key growth pillars and are hard at work on our product roadmap across each pillar.
Turing financing expanding our seller services enhancing our partner network and integrating our services.
1 million of those actual buyers were on our sites and apps, which accounts for about two thirds of all buyers in the U S.
Of that we estimate that roughly $1 4 million actual homebuyers as to connect with a zillow premier agent last year that means about one quarter of all buyers in the U S last year click the button to connect with us.
Tells us it is the place for high intent movers to find their next home.
Of those one 4 million hindsight movers, we estimate that about 360000 customers ended up transacting with Zillow partners.
Overall, we estimate that our buy side 2021 market share was roughly 5% and our overall customer transaction share was roughly 3%.
This is a meaningful share, but not in the context of our audience engagement and brand.
As part of our targets laid out last year, we have set our sights on increasing our share of customer transactions from 3% to 6% by 2025 with lots of runway beyond that.
Helping this large subset of our audience move from one home to the next represents a significant opportunity for Zillow.
We intend to grow engagement with the roughly $4 1 million homebuyers, who use <unk> by leveraging our tech and product innovation and investment to deliver personalized immersive content and curated experiences like our <unk> tours and floor plan experience and intuitive tools to understand affordability early in our customers' journey.
At the same time, we expect to continue to improve our core experience of search and fine.
We also plan to grow both the roughly $1 4 million homebuyers, who click the button to connect with us last year, and the roughly 360000, homebuyers and sellers, who transacted with us.
We expect to do this by continued focus on touring and.
And an increased focus on preparing these customers to be transaction ready through intuitive and digitize financing offerings.
And we're also developing seller solutions by leveraging learnings from our experience as an eye buyer to standup new asset light services.
We expect to increase the number of people who raise their hand to transact with Zillow and increased penetration on the $6 1 million sell side customer transactions that mirror, the $6 1 million buy side transactions that we've been focused on to date.
Our Zillow housing Super App vision is central to this strategy.
A place for all of these connected experiences to come together.
In the housing Super App ecosystem, we will empower customers with data a network of best in class partners and a suite of connected solutions. So the transacting with deal it will be an easy choice.
The solutions within it will be a combination of services and data that we build buy and partner with.
High quality solutions that integrate easily within the App.
Our solutions will target high intent movers, we're signaling they are ready to take the next step in their shopping journey transitioning from Dreamers two transactions.
But will also help bring these high intent customers to our partners to help them scale their businesses, all while service serving our mutual customers with the services they need.
As Alan will dive into Zillow is well positioned and we are on the balls of our feet with our knee has been playing through this uncertain macro environment.
We see a great deal of opportunity in front of us which asks for investment.
But we also recognize that we control the levers of our investment spend should adjustments become necessary in the future we.
We have meaningfully derisk the business and are moving forward with an ironclad balance sheet, a healthy cash flow generative core business and the industry, leading brand and audience. This gives us the confidence and flexibility to navigate whatever choppiness. The short term may bring with our eyes on the long term growth opportunity, which is large and <unk>.
Citing given how lately, we monetize our traffic brand and engagement today.
We love our mission to give people the power to unlock life's next chapter.
We are in the midst of unlocking our own exciting next chapter for Zillow.
We're really grateful to everyone who is on this journey with us employees partners customers and shareholders.
Thank you I will now pass the mic over to Allen, who is feeling a bit under the weather so give them a little space today.
Thanks Alan.
Thank you rich and Hello, everyone.
We continue to be excited about the prospects of our strategic direction.
We believe building innovative products and services to help a broader set of customers navigate buying and selling homes.
We'll deliver better customer experiences.
Help our partners work with higher intent customers to grow their businesses and drive sustainable long term shareholder value.
I am going to take a brief moment to provide an update on the progress in winding down our <unk> operations.
And then I will discuss our quarterly results and Q2 outlook.
We remain focused on executing on our plans to wind down our eye buying operations and despite some choppiness in the macro environment, we exceeded both our internal expectations and external outlook for the home segment.
We reported homes segment revenue of $3 7 billion for Q1 exceeding our outlook range of two six to $2 9 billion provided in early February .
The revenue outperformance benefited primarily from higher resale velocity.
Better than expected pricing drove Q1 homes segment EBITDA of $23 million.
Better than our outlook of a loss of $20 million at the high end of our range.
There were approximately 280 homes in inventory at the end of the quarter and approximately 100 homes that are currently not yet under contract to be sold.
We expect the sale of our remaining inventory to be substantially complete in Q2 with operations and a small amount of inventory extending into Q3.
We now believe that the total cash flow generated from the wind down process of our <unk> inventory and operations will be approximately $450 million.
After considering selling the inventory paying off the asset backed related debt, including financing costs losses on inventory gains realized our expected wind down costs and net operating EBITDA losses.
The faster than expected wind down resulted in us paying off our eye buying asset backed debt completely at the end of April and the noteholders will be repaid fully in mid may.
The better than expected cash from the wind down process compared to our initial expectations of breakeven.
Tribute to our excess capital to be able to return to shareholders and our $1 billion share buyback.
Now moving to our core business results.
Despite the ongoing turbulent housing market that rich discussed we again delivered results in line or above our outlook ranges on revenue and EBITDA as we focus on executing against our 2025 targets.
IMT segment revenue was 490 million growing 10% year over year.
Our IMT segment revenue was slightly above the $487 million midpoint of our outlook range.
Premier agent revenue grew 9% year over year and outperformed industry growth of 4% in Q1, as we continued our focus on making better connections between high intent customers and high performing agents.
While we are clearly not immune from the macro and the near term our work on discovering higher intent customers and working with an increasing mix of higher performing agents has led to higher lead conversion rates.
This gives us confidence that we can offset some of the housing market headwinds as they develop.
As rich discussed earlier in Q1, we made progress on moving towards a higher mix of touring.
Which helps improve conversion rates by allowing us to see the higher intent buyers signal.
We expect the planned integration with showing time to further improve the touring customer experience and meet more customers touring requests.
We are also investing to improve the showing time experience for the entire industry.
As we mentioned in our Q1 outlook, we saw a wider range of potential outcomes for premier agent revenue from the slower housing activity late in Q4.
This trend largely played through in Q1 with new for sale inventory listings down double digits on a year over year basis.
Despite that our customer and agent activity levels continue to indicate there remains strong underlying customer demand that drove continued strong home price appreciation.
Rental revenue was down 5% year over year and flat sequentially, which was in line with our expectations.
We continue to see pressure from high occupancy rates, which dampen demand for rentals advertising.
IMT segment, EBITDA was 209 million for Q1 or 43% of revenue exceeding our outlook of $201 million and 40% 41% of revenue at the midpoint.
The outperformance was driven by a combination of better than expected operating efficiency as well as lower than anticipated advertising and marketing spend.
Mortgages segment revenue of $46 million was near the midpoint of our Q1 outlook range as refinancing loan origination slowed following the rapid increase in interest rates during the quarter.
Gain on sale margins compress more than expectations as the drop in demand for refinance loans resulted in excess industry capacity.
Mortgages segment adjusted EBITDA was a loss of $12 million at the upper end of our outlook as we managed operating expenses as purchase origination volumes dropped sequentially in connection with the wind down of our <unk> operations.
Before I turn to our outlook for Q2, I would like to reiterate that the resale of inventory from our capital intensive I buying business is nearly complete.
And we believe that Zillow is in a strong position to pursue our 2025 initiatives.
We feel confident that our traffic brand balance sheet and positive cash flow generating core business will provide us the flexibility to navigate the challenging housing market.
We ended Q1 with $3 $6 billion in cash and investments an increase of 500 million from $3. One at the end of Q4 <unk>.
Inclusive of the impact of $348 million in share repurchases during Q1.
We have approximately $100 million remaining under the current $750 million share repurchase authorization.
And our board of Directors has approved an additional $1 billion share repurchase authorization.
This reflects our belief that under various ranges of housing market scenarios, we expect to remain profitable and positive cash flow with.
With positive cash flow.
Turning to our outlook for the second quarter.
In our IMT segment, we expect flat year over year revenue growth in Q2 at the midpoint of our outlook range.
Within the IMT segment, we expect Premier agent revenue to be between 335 and 350 million.
Down 2% year over year at the midpoint of the outlook range.
While we continue to focus on connecting high intent customers to all of our partners are Q2 Premier agent revenue outlook is largely informed by the macro trends that we're seeing with lower year over year growth in new for sale listings.
Home appreciation that is increasing average transaction prices, but also contributing to our affordability challenges along with higher mortgage rates.
We realize these macro issues are making it harder for customers to transact and they also affect our partner network.
Within the overall IMT revenue outlook, we note that in rentals, while we are not guiding to specific revenue figures. We are expecting sequential revenue growth in Q2 due to the seasonality.
<unk>. We are also seeing early signs that low rental vacancies may be subsiding.
We expect Q2, IMT segment EBITDA margin to be 38% at the midpoint of our outlook.
While we have taken some costs out of our initial Q2 plan.
We are making a strategic decision to continue to invest in our key initiatives in Q2 as planned despite this deceleration and real estate industry growth trends.
We are continuing to monitor the macro environment.
And we control the levers on our core business and pace of investments to enable us to prudently manage costs.
We expect our mortgages segment revenue to be between 31% and $39 million in Q2, which is down sequentially from Q1.
Our Q2 outlook reflects slower refinance activity due to higher mortgage mortgage rates and lower gain on sales spreads due to the competitive industry environment.
Partially offset by sequential growth in purchase mortgages as we redirect the focus of our operations.
As we are now past the impact of the <unk> wind down on purchase mortgage leads we have started to rebuild our pipeline and expect modest purchase mortgage growth in Q2.
We expect mortgages segment adjusted EBITDA to be between a loss of $18 million and a loss of $13 million based upon current capacity expected market conditions, and additional investments and operations to integrate mortgages with our other products and services.
In Q2, we expect our homes segment revenue to be $450 million and adjusted EBITDA to be a loss of $15 million at the midpoint of our outlook range.
We also expect to complete the wind down of our eye buying operations during the second half of this year.
So as we look forward our priorities remain focused on innovating and executing on behalf of our customers and partners.
We plan to.
Grow our customer engagement through a compelling dream in shop experience.
Deliver a more integrated customer transactional experience to drive customers to choose to transact with us and our partners.
Invest in sustainable topline growth opportunities across the company, including new integrated services that are more scalable less subject to earnings volatility and more capital efficient.
And lastly, manage our cost structure to improve productivity to drive a profitable scalable and positive cash flow company and with that operator, we'll open the line for questions.
Thank you.
To begin the Q&A session at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll pause here for just a moment to compile the Q&A roster.
Job Allen.
Our first question is from.
John coal into owner of Jefferies John .
John Your line is open.
Thanks for taking my questions.
So just wanted to start with the second half our second quarter guidance for Premier agent.
The underlying assumption is that there are some headwinds from a low four sell inventory and affordability challenges because of rising mortgage rates.
Which all makes sense of course, but given both of those are likely to remain challenges for at least the remainder of 2022 should we assume that premier agent revenue growth should be more muted for the remainder of the year or are there. Some transitory headwinds that you would point to in the second quarter.
Let me start with Iron and you can jump in.
So what I'd say is you're right that when you look to our guide which is.
At the midpoint down about 2% year over year, and it's about at the midpoint, 6% down sequentially from Q1.
It reflects.
What we're seeing in the macro and how that is affecting our customers.
And in.
And how we would work with our partner agents. So this is really a macro story there is a lot of uncertainty out there.
We're not guiding past Q2.
<unk>.
There is a lot.
Our goal as we think through the 2025 is to obviously do things to continue to attract high intent customers and get them with high performing agents and we're continuing to make progress on those things, but they are likely to arrive new new features are likely to arrive over time. So I would just say based on our.
Visibility, which is Q2 these macro headwinds are affecting our revenue.
<unk> given the guidance range. They are all factored into the guidance range that we're giving which is the negative.
2% growth midpoint.
I'm not sure I know you got anything.
Okay.
Hello, John .
Sure.
Okay.
Also just wanted to hit on second quarter, IMT EBITDA margin guidance it looks like.
Coming down around 500 basis points sequentially from the first quarter.
Just wanted to ask whether thats a function of some upfront spending.
Build the infrastructure and tech behind the Super App experience that.
It should moderate over time.
And maybe you could kind of just talk about directionally, how we should think about the spending that youll be doing behind that initiative over time. Thanks.
Yeah, I'll start with that.
No.
What I would say is that if you look at the guide and and the margin rates that comes down to about 38%.
<unk>.
This is in line the expenses are in line with our plan in fact, we've taken them down slightly from our initial plan. So there's there's not anything in it thats an increase or a surprise from our initial guidance, we've actually brought it down slightly but it does incorporate us continuing with the investments that we think we need to.
To make progress on the initiatives to build for the 2025 targets.
We don't see a significant increase in those rates or those expense.
Trends as we as we look to the full year there is going to be some vacillation is as we fill the team but.
We believe that the the expenses incorporated in the guide are consistent with what we need to drive for our 2025 targets. We continue to monitor the macro and we control the levers but for now.
There's a lot of near term chop that is causing.
Our guide on the revenue.
To be down, but we still have high conviction on the thesis that's driving our 2025 targets and for now we expect.
Our spend incorporate in that Q2 guide to be consistent with us achieving those targets.
I appreciate the color.
Thank you John .
Our next question is from Eagle Iranian of Wedbush. Your line is open.
Hey, good afternoon guys.
Okay.
Beginning with <unk>.
With Premier agent I wanted maybe we could just talk fundamentally about how agents think about ROI.
In.
Times.
A more tougher times.
And.
With the guidance.
Yes.
Tying that together the comments last quarter about the.
The goal is to take incremental share it feels like that's not happening.
In <unk>, we think about the overall market which is.
Challenge or maybe when you take transactions plus HPA that quarter.
Rich.
Just how to think about.
And then I have one more follow up on Ta.
You were breaking up a little bit, but I think your question is how do we think about ROI.
Yes.
Talk about.
Roy in these times and this cognizant.
Yeah.
And I guess.
We we did outperform the market in terms of revenue in Q.
One and.
As we've talked about the macro that as we've described has an impact not only on our customers, but on our agents.
But we're we're very aware of this impact and we continually monitor to ensure we're optimizing and managing to the best outcome for our customers our partner agents and for ourselves we have experienced in managing through this volatility.
We still have extremely strong.
Traffic and brand and we are as we've mentioned continuing to make progress on driving higher intent customers.
And connecting them with high performing partners. So.
What I would just say is that the Q2 guide reflects.
The macro impacts on our business and incorporate the way, we think about managing that business and optimizing it to support our agent partners and to continue to drive those customers, who want to transact to high performing agents.
Okay. That's helpful and sorry, if I missed this on the prepared comments, but.
During the quarter you guys made a move in.
Those Denver and Charlotte right.
Go fully flex.
Anything you could share on <unk>.
Why you made that decision why those markets and then how you think about it.
Doing that is that something you would do in other markets in all markets.
The kind of plans around that thanks.
Should I start. Thank you for the question why don't I start rich and he can jump in.
Okay.
Raise your hand, if you want to breakdown and I am happy to okay.
So the markets that we made adjustments in that came out of Raleigh, and Denver. So I just wanted to correct that but.
We are extremely and firmly focused on this vision to build the Super App.
For a mass market of movers.
And we've talked about the five pillars that we consider.
Driving.
And how we get there so launching <unk>.
<unk> in Denver as Chi dedicated test markets allows us to have this clean slate for research and development to test and iterate.
This is a targeted approach to help us get a read on what works and what doesn't.
And to figure out what effectively scale, while minimizing disruptions across our entire partner network.
These were flipped to a flex model because there's postpaid model works better for this testing environment, because we have more visibility into our partners' processes and minimizes their financial risks as we introduce and test and refine our new experiences. So.
What we learned from these markets, we're going to we expect to use across all of our markets across a broad set of customers across both monetization model. So this is really just our ability to test iterate and learn.
We expect and intend to have kind of a hybrid mix of monetization models going forward.
This wasn't any kind of indication about flex.
<unk> versus MPP. So our focus is delivering high intent louvers to drive more value to our partners regardless of the monetization model. This just set us up to have two great test environments, along with the other markets.
So let me, let me jump in <unk> and editorialize a little bit.
Yes, it's ironic I was kind of chuckling.
And Denver is RMB.
That is what's going on here.
No.
What youre seeing unfortunately, a broke into the public and.
Created some questions.
Youre asking normally this wouldn't have broken into the public.
But of course, if it involves partners so things do get out this I. Thank you and our investors should take as a sign of us making progress against the five pillars. We are really working hard to enhance our partner network and to try out all kinds of new stuff in order to get to the Super App and.
This transaction and having a post pay model.
In this in this in these test markets.
Enable and lowers the barrier to participation on the part of partners. It makes it a lot easier to participate and lets us lets us iterate rapidly.
So really.
Don't get too hung up on this being flex or MVP or whatever this is this is us basically working hard against the.
<unk> growth pillars.
To enhance the partner network integrate finance.
Come up with interesting seller solutions.
And to integrate all of these services that is what's going on here and it will.
We will continue to run as we push towards the Super App and experiment with these models, we will continue to run into.
Interesting experiments in different cities.
So you will you will see more of this.
And you know.
Anyway, so take it as a good sign of progress.
Okay. Thanks for the color.
Thank you Hugo.
The next question is from Tom Champion of Piper Sandler Tom Your line is open.
Yeah.
Thank you.
Good afternoon, guys just wanted to.
Pick up on the last question how are these markets different from Phoenix, and Atlanta, I thought those markets were 100%.
Okay.
Flex and.
Just because of the sensitivity.
Or are you managing the legacy.
MVP relate.
Our relationships in.
And those those markets.
Denver and Raleigh.
And then maybe just one more.
Rich if you could talk a little bit about.
Integrating showing time and.
Increasing the amount of touring activity.
Going forward.
Whats youre doing to facilitate that given that the.
The benefit to us.
Two transactions throughput any comments on that would be really helpful. Thank you.
Yeah, Hey, Tom you guys want me to start on this one yes, nothing to do with Phoenix and Atlanta.
And only.
Incidentally has anything to do with flex as I described last time.
Tom.
And you described MVP as legacy it's just we run multiple business models and with an eye towards optimization and getting to the customer solutions that we want and the solutions that are.
Are great for our partners too so.
I wanted to try to walk back a perception that that.
MVP is legacy.
Et cetera, and so as I said before the Raleigh and Denver.
Testing.
It has to do with building out the Super App and integrating the services okay.
Okay, and having a clean slate from which we can clean slate from which we can do that.
Of course, you know running.
Running into markets with revenues and profits in mind as well.
So they really aren't connected to each other.
Although as I said before you will see us do more things in more markets than it may look different.
At the same it may look different depending on the outcome of the experiments we're running right.
In terms of showing time and touring like we're working hard I cited one sparkler in my script around a movement a mix shift of I think 400 basis points I said towards touring as the handle there is activity of the call to action.
For amongst our connections, which is a real positive because we know those those customers converted at a much higher rate into transactions and revenues for us and so.
What we're doing is lots of little things on the site with call to action and design and functionality with Turing functionality.
That is encouraging people to reach out by a tour on Zillow App and our other consumer customer surfaces.
Okay. Thanks, very much and we hope with <unk>.
Yeah, I talked I talked a bit about real time availability, which is early days, but that's a really exciting one that one could be something long term that is sort of a game changer for <unk>.
Physical home physical home touring that is really good and it's linked I didn't really say it in my script, but the virtual tour with the with the new floor plans and the <unk> homes that technology that we have that is super cool is not only awesome for customers.
Because it acts as a good filter.
People can visualize what a home is much more richly and accurately in the virtual space on our on their smartphone or or at their computer, which means we get a higher signal to noise on the tour itself because people are self filtering because of better virtual attack any way. These things are in.
<unk> related and we love that we're pushing hard on both of these fronts.
Thank you Tom.
The next question is from <unk> Khan of Truest.
Ed Your line is open.
Yeah, Hi, Thanks, a lot.
Knuckle harp on this topic, but just tell me.
The move.
And then sort of a 100% flex in.
And rather.
And then in Denver.
Thank you guys did this back ended.
Two and half years ago.
It looks like the impact to revenue in the next quarter.
On the accounting I guess this time around there is probably no impact because you change. The accounting is then is that is that fair assumption.
Yeah. So the impact on Q2 revenue related to Raleigh, and Denver is immaterial.
We recognize revenue as leads are delivered.
In Raleigh and Denver.
And so there's not the same impact as when we flipped it.
<unk>.
Phoenix and Atlanta.
Great.
The other question I had is just on the on the 225 target.
Just sort of give us your thoughts on how much of the targeted rely on market performance.
So let me just sort of executing better in <unk>.
Increasing it shows.
Overall.
I'll go first.
Yeah.
Within.
Current anticipated market headwinds it shouldnt affect us David.
Of course, if there is a you know.
A terrible storm that blows and the market grinds to a halt and goes on for a long time, and we could change or we could change our views, but the fundamentals behind kind of the fundamentals behind our 2025 target to $5 billion in revenue and 45% EBITDA margins really revolve.
All around.
Converting more connections into transaction.
And increasing our basket size or dollars per transactions.
By integrating more and more services into that transaction.
And the biggest lever is moving from 3% and transaction penetration today to about 6% by 2025 that is the that is the really big mover.
The denominator matters.
Of course.
But.
In most scenarios. It is really the penetration that is the big lever not the not the denominator.
Understood.
Thank you.
Thank you Nova.
The next question is from John Campbell with Stephens John Your line is open.
Hey, guys. Good afternoon, just had a quick question here.
Don't know if you guys are willing to share this quite yet, but roughly just how much of premiere agent is tied to flex now and then based on the 2025 targets I'm thinking fracs likely grows as a percent of the mix. So maybe if you can talk about.
Maybe broadly what you're expecting that makes it look like over time.
Yeah. This is Alan I'll answer that John .
We're not providing as it said.
These are two monetization models that both result in us.
Thus, allowing high intent customers to get to high performing agents.
And we participate in doing that either in.
Adjusting the prices over time.
MVP.
Through the auction process or in a success fee was with the flex model.
We have grown flex.
Over the last year.
As we've expanded that across.
More zip codes.
And we do believe that flex is an alignment tool not necessarily a step function improvement in profitability or conversion across our best performers, but it's an alignment tool. So it is likely our flex partners.
We'll be participating more in other products and services. That's a lot of what we're going to learn we believe that to the extent, we innovate and on behalf of our customers and make a delightful experience even some of our MVP partners will find it useful to leverage our loans and our closing services and other services.
Yes.
But we're not at this time, there's no fixed number there is theres not anything out there that says this is where we need to be in flex in order to hit our targets.
We believe both monetization models work both include great performing agents most of what we're focusing on is building the integrated.
Super App platform that allows these services work well together and we expect that both partners and flex and MEP will want to utilize those services is that value prop to their customers and their ability to close improves.
Okay. That's good color thanks, a lot.
Thank you John .
We have time for one final question and it comes from the line of Deepak <unk> of Wolfe Research your.
Your line is open.
Okay.
Feedback. Please proceed with your question.
Sorry about that I was on.
Yeah, Frank Robert here for Deepak.
So first I wanted to ask was whether the recent headwinds to growth are making you rethink product development.
Kind of what the investment plans are necessary to reach your long term targets.
And then beyond that I was just curious on the feedback you're hearing from brokerage partners and agents currently on the summer season, and any expectations for a kind of a broader market over the back half of the year. Thank you.
And maybe I'll start with the growth one.
Yeah.
And together right.
We look at the Q2 guide the growth in our Premier agent revenue is really about.
This low inventory listing this imbalance in supply and demand and how that is impacting affordability.
For some of our customers. We do believe that that is temporary this is not about.
Our traffic or are customers that are on our sites intent to try to buy a home. There's just not that much out there and thats affecting that macro factors affecting our ability to help customers transact. So.
When you look at the macro.
And how it affects our revenue.
And forms.
Our decision also to say that.
We're not slowing down on some of our investments were tracking this closely and we're going to continue to monitor it we're well positioned as a profitable company that delivers strong free cash flow.
And we.
It's important to us, but it doesn't change the thesis or our conviction for the thesis on how we can drive more transactions.
Through technology and innovation across a broader set of services generating higher revenue a transaction. So so we view this as temporal it's uncertain how long will it will exist it's affecting our revenue.
No.
But we still see the demand.
And it doesn't change our growth trajectory or how we think about the 2025 targets.
We will continue to monitor and track it but right now we believe touring financing seller services enhancing our partner network and <unk>.
Integrating across the <unk> platform are the right five pillars that are going to drive the 2025 success.
Yes.
We're excited us ball and excited but but but but we're prudent as well you've seen us lean in and out.
Of things you know.
Aggressively and aggressively prudently in the past and we continue to have that that.
You know that attitude, but.
But we do we do see a lot of upside I'm, just an indicator for you I'll just hit it but we did you know.
Just our board did just authorized one.
$1 billion share repurchase.
You know which is.
A nod to how much cash we're generating how much cash we raised in order to fund that.
What kind of capital hungry I buying business and how we want to return that capital now, but it's also expresses our confidence.
In the kind of nimbleness and inherent profitability.
In our in our current business. So that should give you an indicator in terms of the summer season selling <unk>.
Summer season signals I'd say, they're mixed I actually just came from a <unk>.
Industry conference in San Antonio with a bunch of big brokers and industry players.
And I would say, it's just it's mixed.
People are and kind of wait and see mode everybody's kind of.
You know commenting on just what a weird marketed it is with such a high supply demand or demand supply imbalance.
That hasnt actually righted itself for quite some time the industry is expecting it to do so.
But you know the underlying dynamics the demographic supporting more and more demand coming online are strong.
And so it's a.
It continues to be a weird market I would say people don't exactly know what to what do you expect.
It isn't all Doom and gloom, but it's foggy I guess is what I would say.
Understood. Thanks, a ton.
Thank you for that question, Brian completes the allotted time for questions I will now turn the call back over to rich Barton for any closing remarks.
Okay. Thank you. Thank you I know, it's a really super busy day on a kind of a crazy day.
It is times like this when.
I know you all and we all turn from looking at revenues income statements. When we look at balance sheets.
And you know what boats seaworthy if.
We're sailing into some into some choppy waters overall, I know youre doing that across your portfolios and we're really happy here at <unk> that we have a strong balance sheet, we're quite seaworthy, we're looking down that down through the storm.
And we feel good about our opportunity in the vehicle that's going to get US there. So anyway. Thank you for taking the time and.
And we will talk to you all again real soon have a good day.
That concludes the Zillow group first quarter earnings call. Thank you all for your participation you may now disconnect your lines.
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