Q4 2024 Zillow Group Inc Earnings Call
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Speaker Change: Hello and welcome to Zillow Group's 4th Quarter 2024 Financial Results Call.
Speaker Change: We ask that you please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin.
Speaker Change: Thank you. Good afternoon and welcome to Zillow Group's fourth quarter and full year 2024 call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman and CFO, Jeremy Hofmann.
Speaker Change: During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risk and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information.
Speaker Change: 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.
Speaker Change: During the call, we will discuss GAP and non-GAP measures, including adjusted EBITDA, which we refer to as EBITDA.
Speaker Change: We encourage you to read our updated investor presentation, shareholder letter, and earnings release, all of which can be found on our Investor Relations website, as they contain important information about GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures.
Speaker Change: We will open the call with remarks, followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman. Thank you, Brad, and good afternoon, everyone. Thank you for joining us today. We're excited to share our fourth quarter and full year 2024 results with you.
Speaker Change: Zillow is delivering value to movers and real estate professionals with our products and services and that's translating to strong performance across our business.
Speaker Change: We have the leading brand in residential real estate with the largest and most engaged audience, a significant total adjustable market, and we are executing well on our differentiated housing super app strategy. We believe all of this positions us to deliver sustainable, profitable growth for our shareholders.
Speaker Change: As you'll hear more about in a moment, we met our stated goals for 2024 and expect to continue our momentum in 2025.
Speaker Change: This momentum includes being on track to meet our goal of 6% share of customer transactions by the end of this year.
Speaker Change: The results we're reporting today demonstrate how we are executing and seizing our opportunity to transform and digitize residential real estate.
Speaker Change: As with everything we do at Zillow, our approach begins with the movers we serve.
Speaker Change: Over the past 20 years, we've built our top-of-funnel advantage by releasing a steady drumbeat of products, services, and software tools designed to delight and empower customers throughout their moving journey.
Speaker Change: From the Zestimate and our vast two-sided marketplace of homes for sale or rent, to Zillow Showcase and improvements to both in-person and virtual touring, to natural language search and Zillow Home Loan's buyability, helping people find the right home for them and their budget.
Speaker Change: As a result, Zillow has the largest audience in both for sale and rentals, with four times the app engagement of the next company in our category, a lead we've widened this past year.
Speaker Change: About two-thirds of the real estate audience uses Zillow somewhere along their journey, more than twice any other company in the category. And 80% of that traffic is coming to us directly and organically.
Speaker Change: Increasingly, we are better able to identify high-intent movers within our large audience and connect them with high-performing real estate professionals, ultimately leading to more people transacting with us and our partners, resulting in greater revenue.
Speaker Change: And as we continue to leverage our cost structure, expanding EBITDA margins show up alongside our consistently strong revenue performance. And ultimately, we believe it will drive sustainable gap profitability.
Speaker Change: Now, on to our fourth quarter and full year 2024 results.
Speaker Change: We reported total Q4 revenue of $554 million, up 17% year-over-year, above our outlook range.
Speaker Change: And I'm proud to share that we met our target of double-digit revenue growth for full year 2024, up 15% year-over-year to $2.2 billion, despite a persistently challenged housing market that saw only 6% total transaction value growth for the year.
Speaker Change: We also met our target for expanded EBITDA margin for 2024.
Speaker Change: As we invested strategically over the course of the year, we maintained cost discipline, expanding our EBITDA margin by 200 basis points, all of which sets us up well for 2025.
Speaker Change: This quarter, we've also released a new investor presentation, available on our investor relations website.
Speaker Change: In that presentation and in the bulk of my remarks today, we'll provide an update on how we've been executing our strategy and why we are confident in our ability to achieve our goals in the future and transform U.S. residential real estate.
Speaker Change: Importantly, we believe we have a clear path to five billion in revenue and 45% EBITDA margin in a normalized housing market, which Jeremy Hofmann will dive into further during his remarks.
Speaker Change: As you'll see in the investor presentation, we are now articulating our revenue in two major categories, for sale and rentals.
Speaker Change: The For Sale category includes revenue from residential and mortgages, which we manage together to best serve the buyers and sellers who work with us.
Speaker Change: The vast majority need both a great real estate agent to represent them and a great mortgage. And we are building our products and managing our teams more closely together as a result and want to ensure that the way we're talking to you about our business reflects how we manage it.
Speaker Change: Our for sale revenue in Q4 was up 15% with 11% growth in residential revenue and 86% growth in mortgages revenue.
Speaker Change: For rentals, 2024 was a seminal year, and we finished strong in Q4 with revenue up 25% year-over-year. We increased the number of multifamily properties on Zillow to 50,000, up from 37,000 at the end of 2023.
Speaker Change: Across the business, we are pleased with our execution in Q4 and throughout 2024, and are excited about the foundation we've laid for future growth. Now, I'd like to dive a bit deeper on the progress we're making, starting with for sale.
Speaker Change: Our current opportunity and focus areas across for sale is to capture more of the potential revenue represented by buyers and sellers already engaging in our funnel.
Speaker Change: The majority of eventual transactors dream and shop on our apps and sites at some point in their moving journey. And one in four of those raises their hand to connect with an agent through Zillow.
Speaker Change: And yet, only a single-digit share of customer transactions are currently completed through Zillow and our partners.
Speaker Change: To capture this significant opportunity in our for sale category, we are focused on a few key areas.
Speaker Change: First and foremost, we are building the experience we know buyers, sellers, and industry professionals want. One that is easier, streamlined, tech-enabled, and integrated in Zillow's Housing Super App.
Speaker Change: On Zillow, movers can choose their agent, choose how they sell their current home, and book a tour as easily as they book a restaurant reservation. With Zillow Home Loans, buyers can shop based on what they can afford with the buyability feature and get digital pre-approval.
Speaker Change: And for real estate professionals, Zillow helps agents understand their clients' needs, manage tours, see how they're performing, win listings with Zillow Showcase, help clients learn about their financing options, and handle title and closing through Dotloop and increasingly Spruce.
Speaker Change: And in select markets, both parties are now able to communicate and collaborate directly in the Zillow app, enabled by Follow-Up Boss, an industry-leading agent-customer relationship management system we acquired at the end of 2023.
Speaker Change: Second, we are laser-focused on connecting high-intent buyers on Zillow with our excellent partners, increasing the conversion of shoppers into transactors and increasing our share of transactions as a result.
Speaker Change: Continuously reducing friction for these high intent buyers has helped us meaningfully outperform the residential real estate market over the past three years.
Speaker Change: and we see future drivers of conversion across multiple areas of our business going forward. For example, today our real-time touring product is nationwide and one-third of our connections come through real-time touring.
Speaker Change: We're routing these connections to some of the top agents and teams across the country. 80% of the agents we work with are in the top 20% of producers in the U.S.
Speaker Change: And we're enabling real estate professionals to do their jobs even more efficiently and effectively with tools like Follow-Up Boss.
Speaker Change: We recently integrated more Zillow data into Follow-Up Boss, making it an even more powerful tool for agents to identify the highest intent buyers and sellers and serve their clients better.
Speaker Change: In our enhanced markets, the geographic areas where the integrated housing super app experience is most fully realized, more than 80% of our connections are being managed through follow-up boss.
Speaker Change: Third, we are focused on integrating Premier Agent with our Zillow Home Loans offering because again, most buyers need both an agent and a mortgage, and they want their experience with both to feel seamless.
Speaker Change: We are executing this integration well, with consistent customer adoption rates in the mid-teens across our most seasoned enhanced markets.
Speaker Change: And we're seeing Zillow Home Loans drive conversion, as buyers transact through Zillow at an 80% higher rate after connecting with both Zillow Home Loans and a Premier Agent partner, versus with a Premier Agent partner only, which further proves our integration thesis.
Speaker Change: Driving adoption of our Premier Agent and Zillow Home Loans offerings together has, in turn, increased our purchase loan origination volume by 2.6x over the past two years.
Speaker Change: And as purchase mortgage origination volume has begun to scale, growth in our mortgages revenue has accelerated, up 86% year-over-year to $41 million in Q4, as purchase loan origination volume increased by 90%.
Speaker Change: This success comes even amid ongoing challenges in the right environment.
Speaker Change: Fourth, we are expanding our addressable market by developing and scaling seller services because two-thirds of buyers are also sellers.
Speaker Change: We are excited by the success we're seeing with Zillow Showcase, which elevates agents' brand presence on Zillow and provides a better shopping experience through our homegrown, AI-powered, rich media and floor plan technologies.
Speaker Change: Showcase listings sell faster and for more money than similar non-showcase listings on Zillow, meeting sellers top two priorities.
Speaker Change: Showcase listings typically sell for 2% more than similar non-showcase listings on Zillow, a bonus of more than $9,000 on a home sold at the average home sales price.
Speaker Change: Showcase is also helping agents win 30% more listings, making it an attractive offering for real estate professionals.
Speaker Change: We made Zillow Showcase available nationwide in 2024, and by the end of the year, it was on 1.7% of new U.S. listings.
Speaker Change: We aim to reach 5 to 10 percent of all U.S. listings in the intermediate term, which we believe represents a revenue opportunity of $150 to $300 million.
Speaker Change: Fifth, we are consistently looking for ways to add new services to make Zillow experience more integrated and increase our revenue per transaction along the way.
Speaker Change: Each step of the move comes with corresponding Zillow Group products and services, meaning each step represents an additional driver of potential revenue per transaction for us through buyer and seller referral fees, as well as revenue from loan originations, showcase listings, and title and closing.
Speaker Change: We're pleased with the progress we're making as all of these efforts come together in our enhanced markets, our go-to-market motion that we have been methodically scaling for the past few years.
Speaker Change: Enhanced markets covered 21% of all connections in Q4 2024 and we expect to increase their share of connections to more than 35% by the end of 2025 as we continue our land and expand strategy going deeper in current markets and adding more markets.
Speaker Change: As we keep working across the business to increase connection and conversion rates, we expect to continue to drive share growth relative to the total industry transaction value in our for sale revenue.
Speaker Change: We've seen newer enhanced markets behave similarly to our earliest markets in terms of share gains, which gives us confidence our strategy is working and our success is repeatable.
Speaker Change: Looking beyond 2025, we expect 75% of all Zillow transactions to be in the enhanced market experience in the coming years.
Speaker Change: Now on to rentals, which had a remarkable year, gaining more property listings, more traffic, and more revenue than ever.
Speaker Change: In rentals, we are eyeing an estimated $25 billion total addressable market. To give you a sense of the scale of this opportunity, almost every mover starts out as a renter, and about three times as many movers are looking to rent versus looking to buy or sell.
Speaker Change: Yet, unlike with for sale homes, many more rentals turn over every year, and there is no single marketplace where a mover can see all available homes for rent.
Speaker Change: We've spent the past several years building a highly differentiated two-sided marketplace with a comprehensive suite of 1.9 million active rental listings as of the end of 2024.
Speaker Change: By assembling a sustainable long tail rental platform with small and single family properties, then building on that by accelerating our multifamily property listings, Zillow is rapidly becoming the one stop nationwide marketplace renters and landlords have sorely needed.
Speaker Change: That has earned us the largest consumer rentals audience, with an average of 29 million unique visitors every month, a widening lead over the next company in the category, and the number one preference among renters.
Speaker Change: and we are applying the same product expertise and relentless consumer focus we've shown in the for sale experience to fixing the fragmented rental experience.
Speaker Change: Renters on Zillow can shop, tour, apply, sign a lease, and pay rent securely on participating listings.
Speaker Change: And property managers can list, book tours, screen applicants, create leases, and sign them electronically, and collect rent payments, all on the Zillow platform.
Speaker Change: These efforts to create a more seamless and convenient experience on both sides of the rental process are paying off as we attract more renters and more multifamily and single-family property listings, yielding increased revenue.
Speaker Change: Having built a unique rental platform with the largest rental audience, we're now focused on scaling revenue across the marketplace.
Speaker Change: We expect multifamily properties to be the main driver of growth here. Today, 50,000 multifamily properties are on our platform, up from 37,000 at the end of 2023, and there is room to expand with an estimated 140,000 total multifamily properties across the country.
Speaker Change: To that end, today we announced a partnership with Redfin to provide all of the multifamily listings on their sites, further expanding the reach of multifamily properties that advertise with us, and giving renters on Zillow access to more apartment listings over time.
Speaker Change: Zillow Rentals' growth has been buoyed this year by our successful partnership to distribute multifamily listings on Realtor.com, as well as by our multifamily advertising campaign, both exciting developments that we kicked off in 2024.
Speaker Change: While our marketing spend has been relatively modest, we strengthened our traffic advantage in the rentals category in 2024 according to Comscore data.
Speaker Change: As I said, 2024 was a seminal year for Zillow Rentals. The growth we saw last year, and expect this year, supports our belief that Zillow Rentals is well on its way toward the billion-dollar-plus revenue opportunity we see in front of us.
Speaker Change: To close, we are pleased with the progress we made in 2024, which has set us up well for strong execution in 2025 and beyond.
Speaker Change: We stand in a fortunate position because we have the leading brand in real estate, we have significant growth opportunities in both for sale and rentals, we are executing on a strategy that is working well, and we are doing all of this while maintaining cost discipline, which we expect to drive strong gap profitability over time.
Speaker Change: It's a unique and exciting time to be at Zillow, and I am proud of the team's efforts to get us here. With that, I'll turn the call over to our CFO, Jeremy Hofmann.
Speaker Change: Thanks, Jeremy, and good afternoon, everyone. As you just heard, we delivered another quarter of strong results in Q4, and we are well-positioned to continue doing so as we execute on our strategy in 2025 and beyond.
Speaker Change: Our Q4 2024 results exceeded expectations for revenue in EBITDA, with revenue up 17% year over year to $554 million, which was $21 million above the midpoint of our guidance range.
Speaker Change: The broader residential real estate industry grew 13% year-over-year in Q4, as reported by NAR, and grew 15% in Q4, according to industry data tracked by Zillow that is publicly available on our site.
Speaker Change: We are now presenting our revenue in two major categories, for sale and rentals.
Speaker Change: The For Sale category includes residential and mortgages revenue to better reflect how we manage the business.
Speaker Change: For sale revenue grew 15% year-over-year in Q4 to 428 million dollars and rentals revenue grew 25% year-over-year in Q4 to 116 million dollars.
Speaker Change: On a gap basis, Q4 net loss was $52 million, representing 9% of our revenue. EBITDA of $112 million for the quarter resulted in a 20% EBITDA margin.
Speaker Change: The combination of our revenue outperformance and effective cost management delivered better than expected EBITDA results in the quarter.
Speaker Change: Going further into our results, for sale revenue grew 15% in Q4 year-over-year.
Speaker Change: Within the for sale category, residential revenue grew 11% year over year to $387 million, outperforming our outlook range.
Speaker Change: Residential revenue benefited from continued conversion improvements as more buyers and sellers transacted with Zillow Premier Agent Partners.
Speaker Change: continued expansion of Zillow Showcase, which now represents 1.7% of all new for sale listings in the country, as well as contributions from Follow Up Boss, Showing Time Plus, and our new construction marketplace.
Speaker Change: Within the for sale category, mortgages revenue growth accelerated in Q4, up 86% year over year to $41 million, with purchase loan origination volume growing 90% year over year to $923 million.
Speaker Change: Our mortgages strategy is leading more buyers to choose financing through Zillow Home Loans, which is the main growth driver of our overall mortgages revenue.
Speaker Change: In rentals, our revenue grew 25% year-over-year in Q4 to $116 million.
driven primarily by our multifamily revenue which grew 41% year-over-year.
Speaker Change: We increased the number of multifamily properties on our apps and sites by 35% year-over-year, reaching an all-time high of 50,000 multifamily properties as of the end of Q4, up from 47,000 properties at the end of Q3.
Speaker Change: Our multifamily revenue is now nearly $300 million on an annual basis and comprises the majority of our rentals revenue.
Speaker Change: As a reminder, 80% of our multifamily revenue is generated in a paid inclusion subscription model.
Speaker Change: Total listings across our entire rentals marketplace were up 15% year over year to an industry-leading 1.9 million active listings in December.
Speaker Change: We continue to execute our Zillow rental strategy and see a clear path for growth to the billion-dollar-plus revenue target ahead of us.
Speaker Change: Our disciplined cost management resulted in Q4 EBITDA expenses of $442 million.
Speaker Change: excluding seven million dollars of expenses related to severance payments that were not contemplated in our Q4 outlook our EBITDA expenses would have been four hundred and thirty five million dollars in line with our outlook
Speaker Change: The severance costs were primarily related to actions we took to reposition skill sets within our residential sales force for a more integrated sales approach to agents going forward.
Speaker Change: We ended Q4 with $1.9 billion of cash and investments, down from $2.2 billion at the end of Q3, primarily driven by the settlement of our 2026 convertible debt in December.
Speaker Change: This was partially offset by net cash provided by operating activities of $122 million, which was up from $86 million in Q4 2023.
Speaker Change: We ended the quarter with $419 million of convertible debt outstanding that we expect to settle before the end of Q2.
Once this occurs, we will be convertible debt-free.
Speaker Change: We have a strong net cash position of 1.5 billion dollars at the end of Q4.
Speaker Change: Turning to full year 2024, our steady execution throughout the year translated into double-digit revenue growth of 15%.
Speaker Change: Of note, the existing housing market grew 5% in 2024, according to NAR, and 6% according to Zillow, which means our revenue outperformed by 1,000 basis points and 900 basis points, respectively.
Speaker Change: When we evaluate our performance, we focus on our ability to outperform the market and take share on annual and multi-year periods. And we were pleased with how we performed in 2024.
Speaker Change: Our for sale revenue grew 12% in 2024, with the residential revenue growing 10% and mortgages revenue growing 51%.
Speaker Change: Rentals revenue grew 27% in 2024, as we grew our multifamily properties by 13,000 over the course of the year, which drove 42% multifamily revenue growth for the full year.
Our strong revenue growth was combined with disciplined cost management.
Speaker Change: We held our fixed costs to approximately 1 billion dollars, which meant that our fixed costs as a percentage of revenue declined from 48% to 44%.
Speaker Change: We were able to control our costs while continuing to invest for future growth.
Speaker Change: In particular, we grew our rentals and Zillow showcase sales forces and added loan officers and Zillow home loans throughout the year, giving the attractive growth profiles of those opportunities.
We also accelerated our advertising efforts in rentals.
Speaker Change: Turning to our outlook for Q1, we expect total revenue to be between $575 million and $590 million, implying a year-over-year increase of 10% at the midpoint of our outlook range.
Speaker Change: We expect for-sale revenue growth to be in the mid-single digits year over year, driven by residential growth of low to mid-single digits and mortgages revenue growth of approximately 30%.
Speaker Change: Of note, we pulled forward a number of closed loans in late December that impacted January, resulting in outperformance in Q4 versus our expectations.
Speaker Change: Mortgages revenue is expected to grow 50% plus in aggregate when looking at both Q4 2024 and Q1 2025 together.
Speaker Change: Our guidance reflects our expectation of a more challenged housing market in Q1, which we expect to be relatively flat.
Speaker Change: Pending existing home sales trends in December and January were muted, which we expect will result in lower year-over-year growth of closed transactions for the industry in Q1 compared to Q4 2024.
Speaker Change: We expect our rentals revenue to grow approximately 30% year-over-year in Q1 as we benefit from our execution on building our two-sided marketplace.
Speaker Change: Our multifamily rentals revenue is expected to grow faster than our overall rentals revenue as we see the benefits of continued property growth.
Speaker Change: For Q1, we expect EBITDA to be between $125 million and $140 million, equating to a 23% margin at the midpoint of our outlook range.
Speaker Change: This implies EBITDA expenses will increase sequentially from $442 million in Q4 to an estimated $450 million in Q1, with the increase entirely related to seasonal payroll taxes.
Turning now to full year 2025.
Speaker Change: We expect to expand our enhanced market experience from 21% of connections today to 35% plus of connections by year end.
Speaker Change: We also expect to make progress towards our Zillow showcase intermediate term goal of five to ten percent share of listings.
Speaker Change: and to increase the number of multifamily rental properties on Zillow.
Speaker Change: We expect this will translate to low to mid-teens revenue growth for the company for the full year 2025.
Speaker Change: We expect the housing market to continue to be subdued in 2025 and expect the industry to grow in the low to mid single digits.
Speaker Change: As part of the agreement, we will make a $100 million upfront payment to Redfin.
Speaker Change: We expect the partnership will roll out throughout the course of 2025 and have a larger financial impact in 2026 and beyond.
Speaker Change: In 2024, we held our fixed cost base flat, leading to 400 basis points of operational leverage and resulting in EBITDA margin expansion of 200 basis points year over year.
Speaker Change: We expect our fixed cost base of approximately $1 billion to grow with inflation, and we believe it is the right investment level as we execute on our growth strategy.
Speaker Change: For variable costs, we will continue to invest for growth, primarily in rentals, as well as additional loan officers and Zillow home loans as we expand our enhanced markets footprint.
Speaker Change: We expect our variable cost base to grow ahead of revenue in 2025 with these initiatives, but grow more in line with revenue over time as various initiatives scale and mature.
Speaker Change: We will continue to be opportunistic with our advertising spend, dialing it up or down depending on where we see opportunities across the business.
Speaker Change: When we combine our expected revenue growth and cost discipline, we expect EBITDA margins to expand again for the full year 2025.
Speaker Change: Controlling our fixed costs also drives leverage on share-based compensation expense, given 90% of this expense relates to fixed headcount employees.
Speaker Change: In 2025 we expect that we will reduce share-based compensation expense by at least 10% year-over-year, down from $448 million in 2024.
Jeremy Hofmann: and Jeremy Hofmann. Thanks for joining us. We'll see you next week.
Speaker Change: As a result of strong revenue growth and continued cost discipline, we expect to have positive gap net income for the full year 2025, an important milestone for the company.
Speaker Change: Looking beyond 2025, we see a large multi-year growth opportunity ahead of us.
Speaker Change: As we think about our financial profile in a mid-cycle housing environment, in which existing homes sold returns to $6 million per year, we see a clear path to $5 billion in annual revenue.
Speaker Change: To go from the $2.2 billion in revenue that we generated in 2024 to $5 billion in a mid-cycle housing environment, there are three key drivers.
Speaker Change: First, within For Sale, we believe there is a $1 billion incremental organic revenue opportunity as we expand our current offerings nationally.
even if the housing market stays flat from here.
Speaker Change: We estimate the combination of our enhanced market experience growing to 75% of all Zillow transactions.
Speaker Change: coupled with reaching the midpoint of our intermediate term showcase revenue target of 150 million to 300 million dollars would translate into 16 basis points of total transaction value share in our for sale revenue.
or roughly 50% growth from today's levels.
Speaker Change: Second, in rentals, our execution on multifamily revenue has put us on a clear path to a $1 billion plus annual rentals business.
Speaker Change: more than an incremental $500 million from the current run rate revenue base.
Thank you.
Speaker Change: Last, we expect that when the housing market returns to mid-cycle levels with normalized housing turnover of 6 million annual existing home sales, it could represent 1.3 billion dollars of incremental revenue across our for sale category.
Speaker Change: Under our current cost structure, we expect that $5 billion in revenue would translate to a 45% EBITDA margin and strong gap profitability.
Speaker Change: To complete the full financial picture, beyond revenue and costs, we are pleased with our capital management strategy.
Speaker Change: Since we started our share buyback program in 2021, we have repurchased nearly $2 billion of shares at an average price of $45 per share.
Speaker Change: In 2024, we also made significant progress reducing our convertible debt levels, settling both our 2024 and 2026 senior convertible notes, which reduced our debt by $1.2 billion.
Speaker Change: We have also made acquisitions to accelerate our growth over the last several years.
Speaker Change: We also acquired Follow-Up Boss, an industry-leading CRM for our partners in the industry, which now represents more than 80% of our connections in our enhanced markets.
Speaker Change: Additionally, we acquired VRX, VSAI, and Aereo to scale Zillow Showcase with both first-party and third-party photographers and enhance our listings experience.
Speaker Change: Finally, we acquired Spruce, a tech-enabled title and closing business that will be the next service we introduce into our enhanced markets over time.
Speaker Change: Each of these acquisitions has supported our strategy, and we will continue to pursue opportunities when we find ways to accelerate organic growth.
Speaker Change: To close, we are successfully executing on our strategy and are excited about the opportunity ahead of us.
Speaker Change: We are growing across our business with investments in place to drive future growth.
Speaker Change: Our revenue is accelerating while we are disciplined on costs, and we expect to expand margins again in 2025 while generating positive gap net income.
And with that, Operator, we'll open the line for questions.
Speaker Change: Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen.
Speaker Change: When it is your turn, you will receive a message on your screen from the host, allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. As a reminder, please limit today's Q&A to one question and one follow-up.
Speaker Change: Our first question will come from Ron Josie with Citi. Please unmute your audio and ask your question.
Ron Josie: Great, thanks for taking the question. You know, I guess questions for both Jeremy. So the first one's it's on enhanced markets
Ron Josie: and I think Jeremy, you talked about 35% of connections by the end of the year with enhanced markets on the way to 75. Talk to us how you get there, the path to getting that 75 and any early benefits and not so early, but any, what are the benefits that you're seeing thus far with the transition to enhanced markets? And then with the Redfin deal, very clear on the opportunity of rental that you laid out on the call. And what I wanted to hear a little bit more is just on the strategic rationale with the partnership, what, you know, the benefits to it.
Ron Josie: and the distribution, what it means for the balance sheet, I guess. Thank you very much.
Ron Josie: Yeah, thanks Ron. Jeremy, why don't I start and you can you can chime in with some of the deal specifics.
Ron Josie: You're right, we talked about ending last year at 21% and then our goal is to get to 35% of customers by the end of this year. The big drivers of that for us is methodically scaling.
Ron Josie: to additional partners, right, agent partners and teams and capacity of those partners, as well as scaling our loan officer
capability and integration with those partners.
Ron Josie: And you can see how we've done it over the last couple of years and the results we gave out a bit in the Refresh Investor Deck.
Ron Josie: You know, we're seeing mid-teens, Zillow homeless adoption rates in those enhanced markets that are older than six months. That's continuing as we've gotten more of those markets to to bigger maturity. And then you're also seeing inflections in revenue per TTV after that 12 months of rolling out, you know, it takes
time to
Ron Josie: land and expand. And most importantly, it's really important, we've talked about this for a while, that each agent partner and team, as they train their their agent group,
Ron Josie: They get introduced to the new way of working, to real-time touring, to Zillow Loan Officers and Zillow Home Loans, so we can collectively serve the customer.
Ron Josie: learned a lot and we've gone and found lighter weight ways to scale and still see great performance and that's why we're so excited to go from 21% of connections to 35% by the end of 2025. That's also why we gave you all a bit of a mile marker on where are we trying to get to and we said we'd like to get to 75% of customer connections. We don't know what the upper limit is yet but we felt like that was a really good guidepost just to help signal to you all our goal is to get the majority of our customers into this experience. It's a better experience for buyers and sellers.
Ron Josie: It's better for our agents. It's higher quality customers. They, you know, they look to grow their business with those higher quality customers as well So that's on enhanced markets And then Jeremy, do you want to take the deal?
Jeremy: Yeah, I can start on the deal terms and then he asks around.
Jeremy: strategic rationale as well. So maybe I'll hand it back to you on that one. Sure. Yeah. So Ron, the deal terms, we're making $100 million payment up front. It's a five-year term with two two-year extensions as well. So that's what we've announced publicly. You know,
Jeremy: mechanics for it we will pay Redfin for leads generated from their network they'll be supportive on the sales front through the transition of new properties on to Zillow
Jeremy: Jeremy will hit more of this, but we're really excited about the opportunity to work more closely with them to deliver value to consumers and deliver great ROI to multifamily partners.
Jeremy: So that's where we are at the moment. With respect to financial impact, we expect the partnership to ramp over the course of 2025 and we'll see the full financial benefits in 26 and beyond.
Speaker Change: And then if I step back before I hand it to Jeremy, you know, we think we have an opportunity for a great partnership here. And any great partnership has to be a win for both companies. And we think we're well set up here for that dynamic.
Speaker Change: Yeah, I mean, I would echo a lot of what Jeremy said. We're very excited about the partnership with Redfin. We're very similar mission companies. We're trying to digitize the industry and turn on the lights. You know, this agreement is really a great win-win. It strengthens the value of partnering with Zillow for property managers on the network, right? It expands the reach of the network. And we expect...
the marketplace overall to benefit as those advertisers can now.
Speaker Change: get access to Zillow, to Redfin's network, and, of course, to Realtor.com, our existing partner. And it's just a great next step in our strategy. We've talked for a long time, and Jeremy talked about it in his remarks, and so did I. You know, this unique rental strategy we have to organize as much of the supply as we can, because there's no national database of all
rentals, and that is the biggest problem renters face.
Speaker Change: right, every renter has a compressed time frame, a high stress.
Speaker Change: time to find a rental, and they are endlessly scouring the planet for available inventory. And so we know that strategy works. It's why you see the audience lead we have today and the widening audience lead in brand preference. It's why you've seen such rapid organic scale in property growth into our network.
Speaker Change: and that has in turn reinforced the marketplace and driven revenue growth. So now when you add in Redfin later this spring, we just see that as the next step of growth and we're really excited about it.
Super helpful. Thank you.
Speaker Change: Our next question comes from Ryan McEvaney with Zellman. You may now unmute your line and ask your question.
Hey, thanks guys. I appreciate you taking the questions.
Speaker Change: Wanted to start on the 2025 outlook for positive gap net income for the full year and revisit some of that breakdown.
between Fixed Variable Advertising and SBC.
Speaker Change: So the fixed cost, you know, sounds very straightforward. I guess on the variable side of things, in the investor deck, you've got the slide showing that was 25% of revenue in 24, up from 24% in 23. I guess, is that 100 bps growth that we saw in 24?
Speaker Change: The step up this year, I think, was largely attributed to the efforts on the rental side. I guess I'm just curious where you sit today, how you're thinking about the advertising piece into 25 relative to that expense category in 2024. Thank you.
Speaker Change: in line, and, you know, obviously it becomes less and less a percent of revenue as we're growing revenue. With respect to variable and marketing, no further guidance at the moment, but we feel like we have a real opportunity to expand margins while we continue to invest for growth in rentals and Zillow home loans. And, you know, as we expand margins, we think gap profitability is achievable in 2025.
Speaker Change: Got it, that's helpful. And I guess a follow-up, you know, maybe somewhat related to cost structure over time, but maybe just the ways AI can benefit the business, whether it's the search experience or elsewhere. I guess maybe just curious if you can share some thoughts on how you're generally thinking about the influence of AI on the business over time.
Speaker Change: Yeah, happy to. We're really bullish on the potential of AI for our customers, for our partners, our agents, and for our employees.
We have long been
in
Speaker Change: innovators around AI really since our founding. Many folks forget that the very first product Zillow launched back in 2006, the Zestimate of 2006 era AI, machine learning automated valuation model, and we've been investing in AI experiences
Speaker Change: all the way up through our search experience and, you know, our rich media, our computer vision work on Zillow Showcase, these super listings and this homegrown tech we've built. So when generative AI really came to the forefront, we've been running at it trying to figure out how it's going to
opportunity to make the workforce more efficient.
Speaker Change: is a big one over time. And that applies, of course, to all of us as employees in terms of learning how we do our work and doing our work better and getting to more customers more efficiently internally, but it really applies to the professional service providers in our industry, right? The number one thing a buyer and a seller need is great advice, great guidance, great support. And the number one thing our professionals do is spend time in the back office doing busy work and not providing that service because that's how they have to try and win their next.
Client
Speaker Change: And so if we can take away and automate and provide guidance and support and proactive tools to help them become super agents.
Speaker Change: and super loan officers, that's going to help them do their best job, showcase what they do well.
Speaker Change: win more business for themselves, for sure, but just make the marketplace more efficient.
Speaker Change: So those are the things we're investing in the short term. You've seen us.
and others.
Speaker Change: to market some innovations in Follow-Up Boss, trying to help agents automate their conversations and their follow-ups with their customers. We're doing that for loan officers as well. And we're innovating and experimenting on how do we do that with customers.
Speaker Change: So, I mean, it's still very, very early days, you know, we'll be talking about this for years to come, but we get really excited to think about how AI can really be this huge phase shift for the software and the technology in the category.
That's very helpful. Thanks so much.
Speaker Change: Our next question will come from Brad Erickson with RBC. Please unmute your line and ask your question.
Thank you. Can you guys hear me?
Speaker Change: Yeah, we got you Brad. Yeah, we got you. Great, great.
Speaker Change: Yeah, cool. Yeah, so a couple questions. First, can you just hit, for Q4, the resi growth was a little bit below the market that you reported. Just kind of why that was, and then in the guide for Q1, why does that apparently revert to share gains?
That's question number one. Question number two.
Speaker Change: You're starting out this year with a lot more enhanced market, call it horsepower, than you did have last year at this time.
Speaker Change: And I guess, you know, market share gain-wise, it seems like you're kind of roughly baking in maybe a similar amount year-over-year. So I guess, you know...
Speaker Change: There's kind of decent logic there as to why that market share delta should expand. Is that the right expectation? Or maybe if you could guide us a little bit more on that, that'd be great. Thanks.
Speaker Change: Yeah, Brad, it's Jeremy Hofmann, I can take those. So just on the first question, you know, you've heard this from us many times, regardless of quarter, but we just don't over-focus on the quarterly fluctuations.
Speaker Change: The housing market definitely got softer at the end of last year into starting this year. And I think that's reflected in the guide, particularly given the weaker pending sales activity in December and January. So I think with that said, we're expecting revenue to grow at 10% at the midpoint across the company versus flattish for the housing market, which implies roughly a thousand basis points about performance.
Speaker Change: and we expect to grow as a company low to mid-teens and 25 against the housing market that we think grows low to mid single digits for 25. So I think overarchingly feel like it's another year of you know we're set up for another year of good outperformance. We did it in 2024 we expect to do it again in 25 and we'll do it while expanding margins and generating positive gap net income. So we're definitely excited about where we where we are and how the year is setting up.
I think on the enhanced market side, I'd say...
Speaker Change: You know, we continue to see strong growth in the oldest enhanced markets, right? The first four enhanced markets are up greater than a hundred percent relative to the housing market since
the beginning of 23.
Speaker Change: We're seeing consistent mid-teens adoption in Zillow Home Loans as we've scaled, and the growth inflection typically occurs more than 12 months after a market launch. So last year's expansion
Speaker Change: really helps contribute to this year's growth and so on. It takes time for us to land and expand. It takes time for us to ensure the ZHL integration is going well. I think all of that sets us up for sustainable growth.
Speaker Change: you know, not just in 2025, but well beyond. We think this really is the consumer experience of the future. And, you know, Jeremy put out, you know, we think that 75% of the customer experience over time is a good mile marker for you all to think about what mature looks like.
Speaker Change: And that gives us, you know, what we think is a billion dollar of incremental revenue even against a flat housing market. So, all in, I think, on the enhanced market side, it's...
Speaker Change: Going well, it's gonna continue to roll out and we're gonna be methodical, but we think we take share along the way.
Got it. Thank you.
Speaker Change: Our next question comes from Mark Mahaney with Evercore ISI. Please unmute your line and ask your question.
Mark Mahaney: Okay, thanks. I just want to ask about the cost structure going forward. I know you made a couple of comments, just maybe long-term, in the next two or three years, when you think about your headcount levels and your overall, I guess, fixed expenses, like your confidence in being able to keep headcount growth relatively modest and your confidence in a two- to three-year outlook and being able to keep these costs relatively close to the current fixed cost base. Just talk about that, please. Thank you.
Speaker Change: Yeah, Marcus, Jeremy Hofmann, thanks for the question. You know, we like the setup of the cost structure at the moment. We think we're well invested for our growth strategy. You know, if we continue to get leverage on the fixed cost base, you can obviously see it expand margins. So I think we feel good there. You know, nothing too specific over the next two to three years, but I think the 2025 guide should help inform you in terms of how we're thinking about cost structure for 2025. And then the mid-cycle targets.
Speaker Change: you know, imply a $5 billion revenue path and 45% EBITDA margins. And we feel quite comfortable with both of those and feel like we're on a really nice slope to go get there.
Okay, thank you very much
Speaker Change: Our next question comes from Nicholas Jones with JMP Securities. Please unmute your line and ask your question.
Nicholas Jones: Great. Thanks. I think I'm unmuted now. Thanks for taking the questions.
to one on kind of 2025
Thank you.
Nicholas Jones: more opportunistic in taking on new solutions, or is it the opposite? I guess just what have you learned kind of talking to agents?
Nicholas Jones: the loan business and hiring folks kind of a gating factor as we think about it longer term. Thanks.
Yeah, great questions.
We are hearing
I would say great.
support and partnership from our Asian partners. As a reminder,
Nicholas Jones: In the Enhanced Market Experience, we really focus in on the top
Nicholas Jones: producers and top professionals in the industry. 80% of the agents we work with are in the top 20% of all, right? So these are the folks that have built systems, scale, staff.
Nicholas Jones: discipline around you know digital enabled real estate experiences with us and so
Nicholas Jones: When we bring them new things, of course it's a change in their workflow, but it's an opportunity for growth.
Nicholas Jones: and a lot of them lean in. And you've seen that with everything from real-time touring where we brought them an entirely new lead type and they had to change how they engaged with customers from Zillow to Zillow Home Loans. And they started to learn a new motion with us on how to talk to their customers about financing differently than maybe they were doing before to follow up boss.
and now, as Jeremy said, 80%.
of our customers in these markets.
Nicholas Jones: are talking to agents through Follow Boss and starting to build this great three-way experience between Zillow, the customer, and the agent.
Nicholas Jones: you know, all powered by our software. So we find that agents typically lean in when it yields higher intent customers, more customers, more efficiency. And I think to your question where you're trying to figure out where does it go when we get back to mid cycle.
Nicholas Jones: We hope and expect that these are the agents that are best positioned to gain share.
Nicholas Jones: I think you can kind of look at the uncertainty around all the regulatory changes last year with the lawsuits and settlements as an example of that. There was a lot of fear and uncertainty about how things were going to go, and we talked about how having the best agents, they're the ones that lean in, they're the ones that retrain their staff, they're the ones that take advantage of these changes and better educate buyers on why they should sign a great buyer's agreement, why they're worth their money, and they use that to hold price or gain share, right?
Nicholas Jones: And so we love the strategy because we think it doesn't just benefit the customer, right? These are better digital experiences for the buyer and seller.
Nicholas Jones: it also, that in turn benefits the agent, right? That helps land more of those customers with the best professionals, and those are the folks that stand to gain the most share, whether the market stays at lower levels or if and when the market gets back to higher levels, so.
I think that's how we feel about agent sentiment.
Speaker Change: On rollout, I know you all spend a lot of time trying to think about how to model this. You've heard Jeremy say it. You've heard me say it. We're going to be very methodical here. Things like the Zillow Home Loans integration, things like the software training and tools.
Speaker Change: It's really important to get these things right because if you put yourself in an individual agent's shoes on one of our teams, they're doing maybe a handful of deals a year, and it has to go really well for them. And when we're asking them to do something differently, they have to get comfortable with it and learn to love it. We have to earn their business and their trust. And once we do, we've earned the right to then continue to compete for more business and be a great business partner for them. But that's just very methodical, right? That's very agent by agent, team by team.
Speaker Change: strategy, and it's why we're continuing to just methodically march from what was 21% of connections last year to we initially expect 35% of connections by the end of this year on our way to 75% or more.
Thanks, Jeremy.
Speaker Change: Our next question comes from John Colantoni with Jeffreys. Please unmute your line and ask your question.
Great. Thanks for taking my questions. Can you hear me?
Speaker Change: Yep, we got you. Okay, great. So just starting with the full-year outlook Just just want it looks like you're expecting faster growth relative to the first quarter So just maybe walk through the the drivers of that improving out performance relative to your expectations of the housing market as the year progresses
Speaker Change: And second, in the rental segment, it looks like your first quarter outlook implies an acceleration relative to the fourth quarter. I imagine Redmond has something to do with it, but maybe walk through the key drivers of the acceleration in the rental segment. Thanks.
Speaker Change: Yeah, Jon, so I can take both of those. I think on the full year comment, you're right that it implies some acceleration, and that's just through a function of more enhanced markets being opened.
deeper expansion into existing enhanced markets.
Speaker Change: Ramp and Zillow Showcase, Ramp and Zillow Home Loans and then continued execution on the rental side. So we just think that continues to build over the course of the year. And then on the rentals one, it actually does not include the Redfin partnership. We expect that to really launch throughout the course of the spring and then steadily through
Speaker Change: some of the fruits of our labor that we put in place in 23 and 24. The combination of property growth, so we were 37,000 properties.
Speaker Change: At the end of 23, we were at 50,000 properties at 12, 31, 24. So that's obviously been really helpful organically. The marketing campaign is working quite well. The partnership with Realtor.com we're pleased with. If we just look across the business, we're executing quite well. And again, you know, the key here is deliver more value to renters and really be a great ROI partner to the multifamily community as well.
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Speaker Change: Our next question comes from Tom Champion with Piper Sandler. Please unmute your line and ask your question.
Tom Champion: Hi, guys. Good afternoon. Hopefully, you can hear me. I guess the mortgage revenue, 86%, accelerating again, it really stands out.
Tom Champion: Can you talk about what you've learned here? What are the innovations you've figured out? How connected is that outperformance to enhanced markets? Just any details on mortgage would be really helpful. And then I'd just be curious...
Tom Champion: your view of the market we've been kind of at this four million home sale level for a long long time that would seem to be well below the long-term base rate
Tom Champion: So, do you think pent-up demand is building, is the market at some point headed for a kind of step function change and a catch-up?
Thank you.
Yeah, no, Tom, I'll hit both.
Tom Champion: on mortgage. Yeah, we continue to be pleased with the mortgage growth.
Tom Champion: Jeremy talked about business prepared marks. There's gonna be ins and outs and fluctuations in seasonal quarter to quarter, but it's really strong growth against a really challenged market. And our enhanced market strategy is really driving the bulk of that as we introduce customers.
Tom Champion: to Zillow Home Loans if they want to start with financing or we work with agents and agent teams
to introduce loan officers to them.
Tom Champion: motion really work well in our enhanced markets we put out in the investor deck you know we're seeing mid-teens adoption rates
Tom Champion: across all of our mature markets now. And so that continues to give us confidence.
Speaker Change: that this is a great experience for the buyer. This is, of course, a great experience for Zillow, and it's a great experience for our agent partner as well. So we continue to be very bullish on mortgage growing right alongside our enhanced market strategy. It's part of what Jeremy talked about when you take the 21 to 35 percent
Speaker Change: connections and you get to 75% of connections and transactions down the road you see this incremental billion dollars of for sale revenue again with still today's housing market right and then to that leads to your second question
Speaker Change: I can't prognosticate when we get back to mid-cycle. I would say the biggest challenge we have in the housing market, this affordability crisis, is really an availability challenge. We are not just having a bunch of sellers stuck on the sidelines, locked into their mortgage and delaying listing. We also are chronically underbuilt. We're four and a half million homes underbuilt, and that's a big accumulated deficit dating back to the global financial crisis.
Speaker Change: lack of supply, both existing homes and new homes, with strong demand yields this imbalance and yields this low transaction volume level. We are starting to see that ease a bit. You see new listings up a bit from year to year. We're still down from the pandemic, but folks will get more comfortable with high rates over time, moves have to happen. So at some point, the macro will turn around and be a tailwind for us. What we're excited about at Zillow is we're able to grow our share
Speaker Change: As Jeremy talked about, 2024 was a fantastic year for us. We hit our targets of double-digit revenue growth and adjusted EBITDA margin expansion despite this challenged housing market.
Speaker Change: and we expected that again in 2025 with low to mid-teens revenue growth, more margin expansion and positive gap in income for the first time, despite the fact that we're seeing flattish housing market in Q1 and very small housing market growth through the year and, you know, we don't expect macro to save us.
Thank you.
Speaker Change: Our last question comes from Jay McCandless with Wedbush. Please unmute your line and ask your question.
Thanks for taking my questions.
Jay McCandless: The first one I had is on, you talked about the rentals, and you're up to 50,000 properties now.
I guess.
Jay McCandless: What is the level that you need to have to where this becomes more durable than maybe some of the benefit you receive from multifamily starts and construction probably being the highest level we've seen in 40 years, I guess. What's the number of properties or listings that you'd have to make this a durable long return model?
Speaker Change: Yeah, Jay, I'll take that. I wouldn't necessarily equate the success we've had in rentals around starts. It's really been an organic growth story for us. And that's been a, you know, a function of a long, a long standing strategy and a lot of investment over the years to really build out the most comprehensive set of listings on the internet. So I would think about the growth and the opportunity from here, you know, the more listings we can get both single family and multifamily, the more we can attract renters, the more
Speaker Change: Yeah, maybe I'd add there, I mean, if you zoom out to the rental strategy, as Jeremy was alluding to, it is
Speaker Change: organize as much of the supply in the rentals marketplace as possible because that solves the primary problem all renters have and that of course builds this great business for us but it also
Speaker Change: everyone started out as a renter and becomes a buyer and a seller someday so it also helps introduce them to the Zillow brand and get them excited about us for the long-term relationship we have with them and so you see that in our audience you can look at the inputs to that multifamily specific revenue growth as the audience growth we have with the leading brand and audience and it's a lead that's widening and the brand preference and the fantastic ROI we drive yes for our multifamily partners but also the engagement we
Speaker Change: who more and more are just turning to the Zillow Rental Network to be their rental network. And they are providing listings to us and we are getting them out in front of this growing audience of renters. So the flywheel that we've built we really love as a strategy, because it is really durable, and it is really unique. And now what you are seeing is just regardless of macro, a lot of advertisers wanting to get great ROI from our audience network. And that's even before we add Redfin as a partner later this year
Speaker Change: on top of what Zillow Group does and what our partner Realtor.com does. So the future is really bright for our rentals business. We talk about a billion dollar target in the medium term or in the future with a $25 billion TAM out there to go attack. So yeah, we're very excited about rentals.
Speaker Change: This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks.
Jeremy Wacksman: Great, thank you. Thank you all for being on this journey with us. We are proud of all we accomplished in 2024, and we look forward to speaking with you throughout 2025 as we continue to execute on our strategy. Thanks again for joining us and following our progress over the years. We are excited for what's ahead.
Jeremy Wacksman: Thank you for joining Zillow Group's fourth quarter and full year 2024 financial results call. This concludes today's conference call. You may now disconnect.