Q2 2025 Zillow Group Inc Earnings Call

Hello and welcome to Zillow. Group's second quarter Financial results. Call

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.

Thank you, good afternoon and welcome Zillow. Groups, quarterly earnings call joining me today to discuss our results are Zillow. Group, CEO, Jeremy Waxman, and CFO Jeremy Hoffman. 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 risks and uncertainties and we encourage you to consider the risk factors described in our SEC filings for additional information.

We undertake no obligation to update these statements as a result of new information 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, EBA, which we referred to as yvanna.

We encourage you to read our shareholder letter and earnings release. Both of 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, we will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Waxman.

Thank you, Brad and good afternoon everyone. Thank you for joining us.

I'm pleased to share our strong Q2 results today, including continued, double-digit Revenue, growth and positive net income.

For continued IBA. Margin expansion and gaap, net income.

As we work to streamline residential real estate transactions with our housing super app. Everything, we build is designed to offer a benefit for both consumers and the industry.

People want and deserve a better experience than the Antiquated and analog 1. They've become used to in real estate.

Consumers and professionals experienced, a digital streamlined, automated, and delightful process in almost every other part of their lives from rides and restaurant reservations to flights and lodging.

And it's reasonable. We'd expect the same in real estate.

That's where Zillow comes in.

We are building that truly integrated digitized end-to-end transaction experience.

That Relentless focus on creating great products and experiences is why we're growing share in both for sale and rentals and why Zillow is a beloved brand.

People instinctively turn to Zillow when they think about home, whether a mover is looking to buy sell or rent, their likely visiting us along the way.

Zillow maintains the number 1 position in both 4 sale and Rental traffic. In Q2, we had 243 million, average, monthly unique users across our apps and sites and about 4 times the app engagement of the next company in our category.

This deep connection with our audience has been part of our foundation from the start.

Just in the past month. Season 2 of Zillow gone wild premiered on HGTV and Zillow. Debuted a Marvel sized collaboration with an immersive custom listing of the Baxter building in New York from the new Fantastic 4 movie.

In addition to a steady drum beat of organic mentions across the cultural zeitgeist.

We've built that brand Equity because Zillow is part of how people imagine their future and how they're able to turn those dreams into reality.

Consumer affinity for Zillow continues to fuel our success.

We're demonstrating consistently strong growth and our position for more.

In Q2, total revenue was up 15% year-over-year. Exceeding, our expectations.

for sale Revenue, increased 9% year-over-year against a broader housing and mortgage Market that remained essentially flat

Residential Revenue was up 6%, and mortgages Revenue was up 41%.

Rental revenue growth accelerated in Q2 to 36% year-over-year.

Due the strong results combined with continued cost discipline helped us deliver, 155 million of IBA and Q2 at the high end of our Outlook range.

We have a strong position, a sound strategy, and we are executing. Well, all of which will help us keep driving growth across both for sale and rentals.

Looking ahead to the rest of 2025, we are on track toward the full year goals. We outlined earlier this year.

This includes now expecting mid teens Revenue growth for the full year at the higher end of our previous 2025 outlook for low to mid teens Revenue growth.

Jeremy Hofmann will take you through more detail later in the call.

We are successfully executing on our 4 sales strategy to deliver an easier streamlined tech-enabled and integrated transaction experience across Zillow with Innovative products and services that solve problems for everyone involved in the move.

We know our strategy is working because consumers and real estate professionals like what we have to offer and because our faurot Revenue growth continues to outpace Industry growth.

This effective strategy comes to life in our enhanced markets where we're connecting High intent, movers with high-performing professionals and delivering a more integrated transaction.

In Q2 27% of connections came through, the enhanced market experience on our way to a long-term goal of at least 75% of connections.

And now, 96% of enhanced Market connections are handled through follow-up boss. Our customer relationship management, platform, purpose, built for agents, and teams.

We're seeing strong Traction in existing enhanced markets. As buyers are engaging and agents who work with us are gaining share.

And in Q2 Zillow home loans, continue to have double-digit adoption rates across our enhanced markets. A clear sign of progress for our integrated approach.

As part of our enhanced Market Playbook, we can continue methodically expanding the experience to more customers and partners and to more places.

We're excited about the potential to unlock a billion-dollar incremental, Revenue opportunity, just without rollout even in a flat macro housing environment.

Some of the latest examples of what the team's been working on.

Firstly we're improving how we identify High intent buyers, whether they start by viewing a property connecting with an agent or exploring their financing options so we can match them with the right support at the right moment in their Journey.

That's where products like viability play a key role.

Viability is a powerful tool from Zillow home loans that helps buyers shop based on what they can afford instantly estimating the loan amount. They may qualify for and suggesting a price cap, based on their budget.

It quickly adapts to Market changes, interest rates, and the buyer's own financial situation, helping them stay focused, confident and well-informed, as they shop on the Zillow app.

More than 2 million. People have enrolled in viability since it launched and recent enhancements. Now, let buyer shop by both their target monthly payment and their overall maximum buying power.

These buyers are then even more knowledgeable and ready to act when they connect with an agent through Zillow.

We're building these tools to empower decision-making throughout the journey for consumers and the professionals who serve them.

As another example for sale listings, on Zillow Now, display offer insights showing buyers and their agents, how different offer prices are likely to perform based on real-time Market data.

And setting the stage for a productive. Informed conversation about how to approach an offer.

This is a huge benefit for agents, the call to action on offer. Insights is to connect with an agent and the buyers its services are likely higher intent and move ready as they are exploring viable paths to making an offer with an agent.

Helping movers understand what they can afford and what kind of offer they can make is especially important in a housing market like this. To that same end, we continue to expand the Zillow Home Loans product suite.

As of last week, we've broadened our down payment, assistance program, and enhanced our FHA loan offerings in select geographies. In an effort to responsibly serve more qualified buyers

These updates are part of our ongoing work to improve, access to financing and scale our mortgage operations over time.

Complimenting zillow's consumer oriented features is an increasingly powerful set of tools that boost agent productivity because we cannot deliver a truly integrated transaction without equipping the professionals, who movers rely on with the software and support, they need to make it possible.

Follow-up. Boss is a prime example of how we're innovating and delivering real value to agents.

We're making follow-up boss, even more indispensable by layering on a growing set of AI features that help agents work smarter respond faster and ultimately close more deals.

For example, AI powered smart messages, provide ready to send texts and email suggestions personalized to a client's recent activity in conversation, history.

Since smart messages launched for follow-up boss customers in early, June agents, using it have collectively exchanged about 2 million smart messages with our clients.

Team leads can now use follow-up, boss reporting tools to help optimize workflows and Coach their agents based on lead performance, follow-up speed and conversion rates

Agents using Follow-up Boss can access and organize client insights on buyers they connect with through Zillow, such as which homes they are most interested in.

By easily seeing what matters most to their clients. Agents can serve them better and engage more effectively as they move deals forward.

They can chat directly with movers and zhl loan officers inside the Zillow ecosystem and even get AI powered, call summaries and action items after a conversation.

It is all designed to help them Focus, their time and energy where it matters. Most

Zillow, in-app messaging are proprietary feature. That's closely integrated with follow-up boss. Builds on that workflow.

Buyers and select geographies can now use it to communicate directly and securely with agents, nzhl loan officers to share listings, scheduled tours and ask questions all within the Zillow app.

For agents and loan officers, we expect centralizing communication with this feature will help streamline customer engagement, improve response, times deliver better service and ultimately boost conversion rates.

Our most recent product, launches continue the momentum for sale by enhancing the shopping experience itself.

Zillow's new tour itineraries lead buyers and their agents to coordinate within the Zillow app, creating custom shared tour plans with homes, dates, and times.

And virtual touring on Zillow also just got a big upgrade a few weeks ago we launched Sky tour a dynamic interactive video experience as the newest feature on Zillow showcase listings.

Istic. 3D model of a home's exterior.

This enables buyers to zoom around and explore from different heights and angles, giving them a better sense of the place before they ever step foot on the property.

It's a powerful way for Sellers and agents to highlight a home's curb appeal, and outdoor features. Make their showcase listing stand out, and get serious buyers in the door.

Showcases now account for about 2.5% of new listings, up from 2% at the end of last quarter and just over 1% a year ago.

We are continually evolving and improving showcase, and our go to market motion to support scale, adoption, and that is helping us gain share.

I encourage you to watch the video Linked In Our shareholder letter. That highlights the great feedback we're hearing from Agents about how Zillow Suite of product offerings is supercharging their businesses.

All of these tools and features across for sale, work together to deliver a better experience for movers and better performance for professionals. That's what zillow's housing super app is built to do.

Now diving into rentals.

As a reminder, our strategy here is twofold first to build the most comprehensive 2-sided, Marketplace of homes for rent, and second to modernize the transaction experience for renters and property managers alike.

The opportunity in rentals is significant with a large total, addressable Market more homes, turn over each year in the rental market than in the for sale Market.

In fact, about 3 times, as many movers are looking to rent versus looking to buy.

And almost every buyer starts out as a renter.

Yet historically, there hasn't been a single platform where they can see all available homes for rent.

Zillow rentals is changing that.

We are executing well on our strategy and scaling rapidly.

Zillow rentals is seeing strong property, count growth and accelerating Revenue built on the back of a sound strategy and a compelling product.

Our Marketplace includes the full spectrum of rental inventory from single family, homes to large multi-family buildings because we know renters aren't looking for just 1 type of property. They want to see everything in 1 place.

In Q2, Zillow Rentals had 2.4 million active rental listings, the most in the category.

Multi family properties are leading. Our rentals growth with multi, family, Revenue up 56%, year-over-year and property. Count up 45% year-over-year to 64,000 at the end of Q2.

We're also gaining wallet. Share with large property, managers who are choosing to upgrade their advertising subscription. Spend with us as they recognize the value of connecting with the largest consumer rentals audience, including an increasing share of Apartment Seekers.

Zillow rentals is number 1 in partner satisfaction in our category for return on marketing investment as we deliver High intent qualified renters and add real value for our multifamily partners.

Importantly, our reach now, extends far beyond Zillow owned channels.

Zillow rentals Partnerships to distribute multifamily rental listings with the red fin Rental Network and with realtor.com are helping us provide a more comprehensive rental Marketplace for consumers.

multifamily property managers who advertise with us can now reach renters, not only across Zillow Trulia and hot pads and Street Easy in New York,

But also through realtor.com Redfin rent.com and apartment guide.

This is a major value add for renters and property managers and it's helping to drive more traffic, more inventory and more revenue for Zillow rentals.

But having the most active rental listings is just the start.

We're applying the same product, expertise and Relentless consumer Focus. We've shown in the for sale experience to building a more unified rental experience.

Today on Zillow, renters can shop Compare costs tour, apply. And in many cases, sign a lease pay rent securely and even build or improve their credit history by having their on-time, rent payments reported to major credit bureaus.

For property managers Zillow. Rentals provides 1 Easy Digital platform to list book. Tours screen, applicants create and sign, leases and collect rent payments.

New tools, like the AI assist feature. We announced in June powered by an exclusive integration with Elise AI simplify communication between renters and property managers speeding up Leasing.

Additionally rental listings on Zillow. Now support display of a full breakdown of upfront and monthly costs as well as optional add-ons and a custom calculator that lets renters toggle fees on and off and see a personalized total.

This tackles a top frustration for renters, hidden fees and surprise charges, especially important for cost burden, renters trying to plan accurately.

Building a better experience for renters. And property managers has earned us the number 1 position in rentals traffic with 36 million. Average monthly rental unique visitors in Q2 and our lead continues to widen.

We expect quarterly year-over-year, rentals Revenue growth to keep accelerating throughout 2025 with a clear path. Toward the billion-dollar plus Revenue opportunity in front of us.

We're well positioned to keep capitalizing on the momentum, we've built scaling, our Marketplace, and growing our share.

This call marks one year since I stepped into the CEO role.

It's an honor to be leading this company. I am incredibly proud of how our teams are delivering to get more people home while also helping our partners grow their businesses. So they too can serve our shared customers.

We are moving fast. We're staying focused. And we're building real momentum, our Q2 performance, reflects the strength of our positions, strategy and execution,

We're delivering growth managing costs and leading industry Innovation to provide a seamless tech-enabled experience that helps movers and real estate professionals with nearly every step of their Journey.

We are on track toward the full year 2025 targets. We've laid out and we're confident in our ability to keep executing in Q3 and Beyond.

With that, I'll turn the call over to our CFO, Jeremy Hoffman.

Thanks, Jeremy, and good afternoon everyone.

as you just heard, we delivered strong results in Q2 and are, well, positioned to continue doing so as we execute on our strategy,

Q2 2025 Revenue, exceeded our expectations up 15% year-over-year to 6505 million which was above our Outlook range.

Our better than expected Revenue performance combined with effective cost management delivered. Evita of 155 million at the high end of our Outlook Ranch.

Q2 IBA margin was 24% with our trailing 12-month. EBA growing 26% year-over-year. As we continue to scale, revenue, and control costs,

As a result of these efforts in Q2, we reported our second consecutive quarter of positive, gaap net income.

For sale Revenue, grew 9% year-over-year in Q2 to 482 million. 700 to 800 basis points above residential real estate industry growth of 2% according to data tracked by Zillow and growth of 1% reported by Nar.

Of note, we estimate purchase, mortgage origination volume grew 1% in Q2 as well.

As a reminder, mortgage industry growth is relevant because a majority of Zillow buyers purchased their home with a mortgage.

Additionally, the relative headwinds. We saw in q1 from the luxury market normalized during Q2.

Within the 4 Sale category, revenue grew 6% year-over-year to $434 million in Q2, in line with our outlook.

We saw a contribution to this growth broadly across our agent and software offerings and within our other marketplaces.

Agent offerings include Premier agent and Zillow showcase software offerings. Primarily include showing time dot Loop and follow-up boss which has continued to grow from both our enhanced Market expansion and from broader industry adoption of the software.

Our new construction Marketplace also contributed to the growth in residential Revenue.

Within the 4 sale category mortgages Revenue was up 41% year-over-year in Q2 to 48 million ahead of our Outlook.

Our mortgage is strategy is leading more buyers to choose financing through Zillow home loans which is the main growth driver of our overall mortgages Revenue.

Purchase loan origination volume grew 48% year-over-year to $1.1 billion in the quarter.

Rentals Revenue in Q2 was 159 million with growth accelerating to 36% year-over-year.

Growth was driven primarily by our multifamily Revenue, which grew 56% in Q2 up from 47% year-over-year growth in q1.

we increase the number of multifamily properties on our apps, and sites, by 45% year-over-year, reaching an all-time high of 64,000 multifamily properties, as of the end of Q2,

as a reminder, we measure our multifamily property count as 25 plus unit buildings.

When you include our industry-leading, longtail properties Zillow, rentals had 2.4 million active rentals listings. The most in the category,

according to comscore,

The ROI and Lead quality on that Zillow. Rentals provides continues to resonate in the market.

Additionally, our Redfin partnership went live in April, which expanded our distribution to Redfin rent.com and apartment guide.

This expansion is resulting in more and more multifamily property, managers choosing to partner with Zillow rentals.

Our offering is providing value to customers and multifamily operators of all sizes at evidence, by the growth of both our property count, and our share of wallet, which gives us confidence in the billion-dollar plus Revenue opportunity ahead of us.

Q2 ebita expenses, totaled, $500 million slightly above our Outlook of 495 million driven by slightly higher than expected benefits costs and payroll taxes.

The lead generation costs from our Redfin rentals partnership which are included in cost of Revenue where within our expectations.

As a reminder, these leads put us in a position to further. Grow our rentals Revenue.

Excluding the leads costs associated with our Redfin rentals. Partnership total, EBA expenses grew 10% year-over-year in line with our q1 year-over-year growth.

total operating expenses and cost of Revenue combined grew 9% year-over-year as compared with total revenue growth of 15% in Q2

We drove leverage on total fixed costs, which grew 3%.

This includes share-based compensation expense, which was down more than 12% year-over-year in Q2.

We ended Q2 with 1.2 billion of cash and Investments down from 1.6 billion dollars at the end of q1.

This was primarily driven by our May 2025 settlement of the 419 million of convertible notes.

Share repurchases of 150 million in Q2 at a weighted average price of 65.

and partially offset by $87 million in net cash provided by operating activities.

We are now convertible debt, free and have 981 million remaining on our share repurchase authorization as of the end of Q2.

our year-to-date share repurchases of 400 million are expected to offset stock-based, compensation expenses for 2025

when looking at our share repurchase program since Inception, we have repurchased 2.4 billion dollars of shares at an average price of 48, buying back, 49 million shares as a result.

For the rest of 2025, we expect to be more selective in our share repurchases.

Turning to our outlook for Q3 we expect total revenue to be between 663 million and 673 million implying a year-over-year increase of 14 to 16% for our Outlook range.

We expect 4% year-over-year revenue growth in Q3 to be similar to the revenue growth we reported in Q2, driven by residential revenue growth in the mid-single-digit range and mortgages category revenue growth in the high 20% range.

Of note, we expect Zillow home loans, origination volume to grow 40% plus in the quarter.

Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue.

We expect our rentals Revenue growth to accelerate in Q3, increasing more than 40% year-over-year driven by further acceleration in multi, family Revenue.

For Q3, we expect Evita to be between $150 million and $160 million.

Representing a 23 to 24% margin for our Outlook range.

This implies ebit, dog expenses will increase from 500 million dollars in Q2 to an estimated 513 million in Q3.

The majority of this increase is driven by strong traffic and Lead Trends from the red fin rentals partnership, which results in incremental costs and our costs of Revenue.

We expect the strength of red fins performance to translate into additional multifamily properties and packages upgrades for us.

We continue to expect the red fin partnership to be a creative to I dollars and the second half of 2025.

For the full year 2025. We now expect to deliver mid- teens Revenue growth

at the higher end of our previous Outlook of low to mid teens Revenue growth this year.

For the full year. We continue to expect rentals Revenue growth to be approximately 40%.

Growth primarily in rentals and Zillow home loans.

We are on track to deliver. Expanded ibaa margins and positive. Net. Income for the full year. 2025

To close. We are successfully executing on our strategy and our on-track toward our full year goals with mid teens Revenue growth and continued margin expansion. We have the right investments in place to support our strategy and are delivering strong growth. Despite a housing market that continues to bounce along the bottom of the cycle.

We are growing Revenue nicely while staying disciplined on costs.

And the combination of Revenue growth and cost to discipline is driving expanding margins and positive. Gaap, net income.

As we look forward, we are very excited about the opportunities ahead of us. And with that, operator, we'll open the line for questions.

Thank you.

this time, if you would like to ask a,

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'll wait a moment to allow the queue to form.

Our first question will come from Ron Josie with City. Your line is open, please ask your question. Great. Thanks for taking the question. And, hey, guys, I wanted to ask a little bit more and drill in on the rentals business, just giving, you know, the, the goal or, or the guidance for accelerating growth in the back half, but then also just the strength and multi-family properties, and the metadata.

So help us understand just on the insights. What? You're seeing, what you're hearing with your conversations from large? Property managers. Um, maybe your go to market strategy from a pricing perspective, how that's helping, and just your overall, uh, call it confidence level, which I presume to be pretty high. Given the comments and the prepared remarks, but just going forward as, as a rentals, becomes a larger part of the overall business. Thank you.

Yeah, thanks Ron.

Um, I'll start maybe and you can jump in with anything I missed. I think at the high level, you're seeing the results both in Q2 and our confidence for the for Q3 and second half of the year. Just come from the strategy, working the team, executing and great partner satisfaction. We are as I said and prepared to Mark's, really building this comprehensive 2-sided Marketplace. That is what solves the renter's number 1. Problem having as much of the inventory as possible because there is no 1-stop shop for all the inventory Zillow. Rentals now has the most right at 2.4 million active rental listings and then on top of that content building a modern transaction experience for the renter and the property manager, right? So for the renter, it's not just about getting a Content. It's about being able to apply sign a lease pay rent report, your rent to the credit bureau, to build credit for the property manager. It's having a transaction focused experience for them to find these high-quality renters. So, all of that strategy,

Yields the audience. That's why we have the largest audience, 36 million unique visitors per comscore. A lead that continues to grow, uh, and not just volume the number 1 brand preference among renters. So you solve the renter problem, you get the renter's preferring you and using you. And I say all that because all that setup is what then leads advertisers to see such great Roi. That's why you're seeing now 64,000 properties up from 50,000 at the end of the year, wanting to advertise on the Zillow Network, wanting to get in front of that audience. So that is the strategy coming to life and the execution and then to your question on sales. Well, now we've expanded that offering to not just our partnership with realtor.com, but our partnership with Redfin and so advertisers are getting access to their renters, not just on Zillow, group sites, but on Redfin sites and on realtor.com as well. So it's more content for all those renters. It helps all of those sites grow Their audience as well, which

then flips back around to be even better Roi for The Advertiser. So that's part of what drove, not just q1 into Q2. It's part of what's driving our confidence in the full year and the acceleration in the second half. And it's also why we're really excited about the billion-dollar Target out in front of us, you know, there's 140,000 buildings out there. We're not even halfway there and we have a ton of great Roi conversations to go have with these Partners to help them bring more of their portfolios online with us to help them, try higher.

Packages with us. So, you know, there's a long great road ahead for us.

Sales efforts as well.

That's great. Thanks guys.

For our next question, will come from Brad Erickson with RBC. Your line is open. Please ask your question.

Hey guys uh 2 for me. So 1 um you know last quarter resi, rev growth was a little bit below the market and this quarter it was noticeably ahead. Uh, thanks for all the appreciate all the drivers within Marketplace and kind of software Services you gave in the prepared remarks but I guess quarter over quarter. What specifically would you say the change? Was that drove the faster than market growth? Uh, and and I'm talking, of course, excluding the mortgage piece of it and then I have a follow-up.

Thanks, Brad for the question. I'll take you to Jeremy Hoffman. Uh, we were quite pleased with Q2, uh, Revenue growth, and the outperformance there. And that was in both residential. And, and for sale more broadly. Um, and I think you've heard this from us many times before but we'll say it again. We tend to look at this metric over uh, a time period of kind of full year, multi-year View and if you look back there's those periods in time are pretty smooth. So look at the last 2 years. For example, in a 2 year stack basis for sale outperform the the market uh by 15%. And that outperformance is what really gives us confidence for the longer term mid-cycle targets, right? We're trying to go from 27% of Connections in these in

Enhanced markets uh now to 35% by the end of this year and then 75% for those mid-cycle targets. It's that formula plus everything else within uh residential and and and the for sale segment that we're that we're doing and it's some combination of continuing to execute on enhanced markets showcase continuing to expand Zillow. Home loans growing uh alongside that enhanced markets expansion, you know, follow-up boss, getting in the hands of more people across the premier agent base and the broader agent population, uh, real-time touring continues to expand. Its a, it's a bigger portion of connections, uh, this quarter than it was obviously a year ago and drives conversion. And then, you know, last but not least, the new construction business continues to perform well too. So when we look at the formula, we are appreciative of the outperformance over time uh and love the opportunity ahead of us as well.

Got it. And then just to follow up on Reynolds, kind of along the lines of Ron's question. You know, we get asked a lot about the contribution from Redfin, uh, on this back half acceleration. We're we're, you're calling for. Can you help us just maybe unpack that at all? Or maybe if you could just walk us through how we should think about the red fin contribution that's layering on top of the Reynolds growth? Thanks.

Yeah, I'll take that 1 as well. Uh, we are really pleased with the partnership. It launched, uh late, April late, April, early May, uh, and has has started great, uh, our sales force executed. Well, in Q2, we added 9,000 properties, I would expect that to, to normalize to pre Q2 levels going forward. Um, but when we look at the value Redfin and realtor.com bring to us, it's the ability to take the expanded distribution and leads to all 64,000 existing properties, and sell into their rest of the roughly 76,000 buildings. We don't yet have on Zillow. So and then the 64,000 properties, we are adding more value. We are bringing more customers and we're hopeful that we'll upgrade their packages accordingly, and then it gives us the opportunity to go sell into a much larger addressable Market than we are today. So that's the way I would think about it. It's a component of a, an important component of a larger rentals business. We are building, not a separate piece and the positives. These folks bring to us impact the entire business.

Got it. That's great. Thanks.

Our next question will come from Ryan McKeen with zelman and Associates. Your line is open. Please ask your question. Hey, thanks, guys. Miss job on the quarter. Um, wanted to drill in a bit on on Zillow showcase, uh, you called out. It's now on about 2 and a half percent of listings up from 2% last quarter, 1%, a year ago. So, obviously some nice momentum there. Um, as we think about the translation from market share of listings to the

Thank you.

Hey Ryan. Thanks for the question. The short answer to your question is it's all considered part of the Showcase opportunity. I think the the longer answer is kind of maybe why that is so, you're right 2 and a half percent of all new listings. We put out a goal of kind of 5 to 10% of all listings, intermediate term and we don't think that's the end State. Um we think showcase is something that becomes the default expectation for buyers and sellers you want to get to that. 10% number to then really start to have it become an expectation to have a flywheel and the question you're asking, you know, does a seller ask for it or does an agent pitch? It to a seller that starts to become both things? Start to contribute to, to seller growth, we do that now. I mean, if you use the Zillow website and you don't have a a listing agent and you ask for a listing agent um you you are asking about showcase and we will connect you with a great agent that is trained to use showcase and that's a new opportunity for them. So we do think about both sides

Of that both agent driven and seller driven, but we don't think about them as kind of separate Revenue opportunities. It's more about bringing showcase and changing the customer expectation experience for the buyer and seller. Um, and then of course, the incremental benefit for the agent is Agents, win more listings with showcase, right? And when an agent walks into a listing presentation, and they say, well, I'm a line with Zillow and I have these great Zillow. Digital tools is why you should list with me, they're winning more listings. That is the real.

Bill Roi that agents are feeling and why they're prescribing and renewing. Um so we think about the opportunity for seller more broadly as both the seller and the agent and I think it will take a while but the expect chasing change in the industry to just expect this rich media on more types of listings is what we're really power that flywheel. Yeah, that's, that's very helpful. Thank you for that. That, that detail. Um, second question. So in the, in the press release it, it called out the part of the contribution to the the residential growth was, uh, through the new construction Marketplace. And I feel like the new construction Marketplace tends, not to be kind of a big part of the, uh, the quarterly updates. So, maybe you can just talk to us about, you know, what's driving that is that some of the macro trends that we see on the the Home Building side of things is that, you know, is that share gains within the space, expanding the number of Home Building Partners, uh, maybe you could just unpack, the, the new construction Marketplace out of things a bit.

Yeah, Ryan, I'll take that one. I would think of our new construction business as one that feels like table stakes for builders. So, similar to the rest of the residential business and what you're familiar with on the agent front, that business just tends to do quite well because we're a really good advertising channel. We've been able to grow nicely through the various swings in macro as a result.

Got it. Okay. Thanks guys. Appreciate it.

Our next question will come from John colantuoni with Jeffrey. Your line is open. Please unmute your line and ask your question.

Hi, great. Um, thanks for the questions. Uh, wanted to ask too, uh, starting with variable expenses, they've been outpacing revenue growth in the past couple of years. Can you talk about the key areas of investment you've been making and what milestones you're looking to achieve before you'll start turning down the dial so variable expenses start tracking more closely with revenue?

And second turning to the red fin partnership, specifically, and a possible. Can you discuss, uh, sort of incrementality from the leads? You're now receiving from Redfin versus the opportunity to find new property. Managers using redfin's existing relationships. Thanks.

Yeah, John I'll take the first 1 and and I'll start on the second and Jeremy chime in. Uh so the first 1, we expect our variable cost base to grow ahead of Revenue in 2025 with our initiatives but grow more in line over time as initiative scale and mature. Uh, we have to make sure and we will make sure that we're right sizing our investments to meet the expected growth curves. We see and we're primarily investing in rentals in Zillow home loans, both of which are obviously growing faster than our overall Revenue base. Um, on the rentals front, we're investing in multifamily sales heads.

Lead acquisition costs and advertising to support that, you know, 45% property growth uh and 56% multi, family Revenue growth. We saw in Q2

And then for ZHL, we're really hiring loan officers as we expand our enhanced market footprint and bring EHL to more customers. So, that's where that is on the variable front. There are other parts of the variable cost structure that we've obviously gotten leverage on over time. The primary places that we're investing are the places where we're seeing the most growth. Um, I think I just remind you.

You're seeing us continue to uh expand margins is we're controlling fixed costs and scaling Revenue. That's the way that we grow profits faster than revenue and fixed costs. Uh, this quarter, you know across the cost base, we're up to 3%. We expect to continue to do that uh for the rest of 2025 and deliver positive. Net income in 2025 as well. So I think that's the first 1 and then the second 1 uh on the red fin leads versus opportunity. I think the way to think about it is

Similar. What to what we said a little bit earlier which is the opportunity now is to take the expanded distribution that we have with Zillow hot pads. Truly a Street Easy in New York.

Redfin realtor.com, that's now the expanded distribution. We take that to the 64,000, uh, property, uh, proper 64,000 properties that we have on sites and apps now. And we look to upsell them into higher packages, that will be 1 opportunity that will be coupled with bringing, uh,

Bring bringing that distribution channel to uh the 76,000 or so properties that we don't yet have so it's it's less it's less uh segmented out and more just think about it as the offering is just incrementally compelling and we're going to go look to bring that to the entire space.

Yeah, maybe only thing I'd add there. Is you the incremental which Jeremy commented on these are incremental customers, right? Because there is no 1-stop shop. Yet for all rental listings, you're finding renters on multiple sites, right? And so Zillow rentals is the most but Redmond has great rental sites and realtor.com has a rental site and you find renters on there that are not on Zillow or vice versa. And so that becomes more value for The Advertiser and The Advertiser wants to advertise to that Network. It's it's more customers to go attract for the advertising dollars, so that's great Roi for them. And then that flywheel spins because when those advertisers bring more content on that provides more content to the entire network which drives the traffic for all those sites. So um, the incremental benefit to us, and to our partners is really positive here. And the cool thing about that is it's a huge benefit for the renter too. So a renter finds 1 of these sites largely from top of funnel sources and all of a sudden, they're finding more content.

Right. So for free, they have more choice and more content available to them than they would have without the partnership. So that's why we get so excited about it. It's a great consumer experience and it's a great Advertiser experience.

All right, thanks so much.

Our next question will come from Trevor Young with Barklay. Please unmute your line and ask your question.

Great thanks. Just back to the the comment around Redfin and uh being you know, dollar creative in 2 H just to clarify is that for 2 H in aggregate, or should we expect it to start being a creative here in 3Q?

Yeah, I'll take it Jeremy. I think about it as both. Yeah.

Um, both 3Q and and second half of the year. And then obviously, we expected to be more accretive uh, beyond that.

Great. Thank you.

Our next question will come from Benjamin black with Deutsche Bank research. Please unmute your line and ask your question.

Hi, this is Jeff on for Ben. Thanks for taking my question. Um,

can we just talk about some, the assumptions that you're making about the broader real estate market as we look into Q3 in the back, half of the year? And, and what kind of levers can can you, uh, pull to further increase, monetization on a, on a per connection basis. Um, even in a slower housing market, thank you.

Uh, have maybe I'll start.

I think the short answer is, we're not assuming a lot of help from the macro.

And we're just focused on driving growth in spite of that, right? We grew total company Revenue, 15% in 24, we expect mid teens growth in 25 to 14 to 16% in Q3 and that's with the housing market largely flat, right? It was flat in Q2 and we don't expect a lot of relief uh into the latter part of the year. The story on the housing market is it's going to take a while to normalize, right? Because the affordability challenge we have is really an availability problem. So mortgage rates easing helps on the margin but we're still dealing with the fact that we're nearly 5 million homes under built from not building enough new construction inventory coming out of the, the global financial crisis. And so that plus a bunch of sellers being locked into high high mortgage or low. Mortgage rates, is not wanting to trade up creates a supply demand imbalance. That's why you've seen prices run up so much from the pandemic and it's why even with prices starting to ease in so many markets. You're still seeing volume low. So all that doesn't paint a story of a housing market that untapped

Um, so we aren't factoring a lot of goodness in. Um, I think we hope that you actually see some home prices start to come down. More, there are many markets where home prices have already rolled over and are down a few percentage points a year on year and are continuing to go down because there's enough listing inventory out there. But

again, we don't expect that to provide overall total transaction value relief at any time soon. And so we are just planning to grow through that. We're gaining share and for sale. Uh we're gaining share in rentals and we're doing that because the strategy we're putting together allows us to build great products and services for the consumer and for the professional and they choose to use us and our stuff more often and that drives transaction share for us and for our agent Partners. So, at some point, the housing market will become a growth Tailwind, um, but we plan to go regardless,

Okay, great. And maybe just a follow-up.

Can you talk to me? If, if you're seeing any regulatory or listening assess changes? Um, influencing your your platform or, uh, agent ecosystem and or any, you know, kind of early Trends Trends in agent Behavior.

Thank you.

Sure.

We're quite pleased to see that the vast majority of the industry agrees with our listing standards, which were crafted to work alongside the listing cooperation rules that many MLSs and brokers already practice. So, um, we love to see that, you know, the entire industry really.

Has been encouraged to formally Implement what they most already believe that. If you're going to Market a listing publicly, to some consumers, you should Market it to all consumers, it's a huge consumer benefit. The buyers can see all available inventory that sellers can maximize their exposure and it's a huge industry benefit because if you're an agent, whether you're at a big brokerage or a small brokerage to do your job effectively, you got to see all the content and be able to count on the MLS to have it all. So we are really pleased that early on. We've seen the majority of the industry largely adopt these standards

Our next question will come from Tom Champion with Piper Sandler. Please unmute your line and ask your question.

Hi, good afternoon guys. Uh, 1 of the questions we get a lot is around uh, enhanced markets. And um perhaps you could just talk about what you're seeing in the the uh, intermediate.

Enhanced markets that are maybe part of the 2024 cohort, uh, curious if those are, uh, kind of coming up the maturity curve like you expect. And then, uh, maybe for...

Jeremy Hoffman. I'm wondering if you could just talk to

The outperformance of of Mortgage in uh Q2 look like the growth stepped up quite a little bit, but um, maybe is going to, you know, expected to settle back down to high 20s in, in 3Q, just curious. If you could walk us through the trend in mortgage and linearity that that you've seen through the year, thank you. Sure. Um, Jeremy, why don't I take the enhanced markets question? Then you can hit mortgage.

We're pretty pleased with the overall progress, we're seeing in enhanced markets. Um you know, we're going to start to sound like a broken record when we say methodical roll out but that is really the name of the game here. Um, in every Market it's about finding the next agent team or helping the agent team, we have grow to take on more customers and then it's about going into the next market and starting that process, while measuring the conversion, the Zillow home loans adoption, and most importantly, the customer's satisfaction of that experience with the buyers and sellers that we introduce these people to uh, and we're seeing those metrics within our expectations across all cohorts, both new and old. Um, you know, we are on track to getting to 35% of our customers by the end of the year, that was the goal. We put out the at the beginning of the year with you all and you know we're a 27 in Q2 and we feel good about getting to 35% and what gets us excited about that is that's still barely a third of Zillow customers, right? That is still

Means the 2/3 of Zillow customers are not getting this enhanced Market experienced yet, and that opportunity we want to um, mow down as fast as we can on our way to 75% uh at least 75% of our customers, you know, sometime in the future. So we feel great about that progress.

It is 1 part digital and 1 part analog and the software goes faster. As I talked about earlier getting to 96% of our connections going through, follow-up boss is great, it's a great job by the team to get most of our agents, nearly all of them on follow-up boss. We roll out real-time touring faster because we can train on that software faster.

Important to get that right 1 at a time and so that those are the things that govern our progress and why we get to 27%. Now 35% end of the year 75% in the future. Um all that adds up to the billion dollars of incremental Revenue that we see coming just from rolling out, an expanding, this set of services, let alone, the upside from improving these Services which of course, we will do over time.

Yep. And then to your second 1 on mortgage, we expect mortgages Revenue, growth in the high, 20% range for T3, uh which includes 40% plus purchase loan, origination volume growth at the key component. So I think that's an important 1 to call out. As you've heard us say time and again across the for sale business, we don't over function on the quarterly fluctuations and for mortgages things like loan value, gain on sale, that'll fluctuate quarter to quarter. The Market's been bouncing along the bottom for a while now, and we've consistently grown quite nicely, despite that and expect to continue to do so. Um, and then when we zoom out where we're really pleased, and Jeremy hit this as well, is the consistent double digits adoption rates across the enhanced markets, while the number of markets have meaningfully increased, its a crew zhl is a critical portion of this overall strategy and we're really excited about the progress.

Makes sense. Thanks guys.

Our next question will come from daily with JP Morgan. Your line is open, please ask your question.

All right, thanks for taking my questions. I have 2 and those are follow-ups. Um, first 1 on the rental opportunity. Um, you did talk about growing, the wall, the share with your advertisers as 1 of the opportunities. So here's like where you are in terms of unlocking, some of that opportunity and um is the billion dollar uh medium-term Target more driven by the supply growth, or is the growing World, a share part of that.

Yeah, I I can start and I'll jump in.

I I think part of why we don't talk about it is because we see just such a green field opportunity in front of us, in terms of of volume and at the ROI regarding for our partners. So Jeremy talked about it a bit, um, we have plenty of room as we win new advertisers, they bring a portion of their portfolio and they try 1 of our packages and then they experience these great Roi benefits of being on the Zillow Rental Network and they bring more of their portfolio and they upgrade their packages. So, um, we see that sales go to market as really durable growth for us and you're seeing that in the results, right? You're seeing 56% multi family, Revenue growth coming from that, um, that's from 45% property account period. So that shows both bringing new advertisers on and having them use the Zillow.

Rental Network more. Um, so what as long as we continue to deliver increasing value and increasing Roi to them, we'll have the opportunity to win more and more of their business. And the percentage of advertisers we have reached is still as Jeremy. Hoffman said, not even 50%. So that's why we feel so great about the Billion Dollar Plus opportunity. And why we see a lot of ways to go grow and get to it.

Got it and that's a follow up. Um on ananse markets I think in May you guys um put out a releasing your targeting 60 additional markets at the end of July. So I was curious if that 27% number you have in the letter includes that and if not um how are you progressing on um getting those additional markets live um when you get this markets up and running, how long does it take for them to show up in your results?

Yeah, good question. So, uh, the 27% N2 does not include that, um, but I will encourage you to think about percent of connections rather than Market count. We we started moving all of that as a better source of, um, modeling because each market has a different mix and share and capacity of agent teams loan, officer capacity, and all that. So think about it more as we are at 27% as of the end of Q2 and our goal is to get to 35% by year end and then it's, you know,

How about a year to start to see the creative benefits of the new experience across the cohort of customers and agents for that share of connections? So, um, it is.

Uh, it is quite an involved process to get all the folks up and running and all the staff and training up and running. But once you do, you really see agents not just gain share but are able to grow their businesses with our software and tools. And you start to see them try and use a little Home Loans to drive adoption. So that's the formula and the playbook we're focused on, and I think percent of connections is probably the right way to try and think about it.

Thank you.

Our next question will come from Steen Sheldon with William. Blair your line is open, please ask your question.

Hey thanks. Just wanted to follow up on Zillow showcase. I'm curious how monetization of that solution has been trending and whether it's becoming a more material contributor. Uh, Revenue contributor to the residential segment.

And then, as we think about the housing backdrop,

Has that actually become more favorable for showcase, given that home sellers and their agents could be a little more concerned about the home selling altogether, and the price received in this environment? I guess, yeah. So what are you seeing on the demand side there?

Sure. So, um, Showcase now at 2.5% of new listings, you know, up from 2% at the end of Q1.

I, I think trying to tease it out, uh, as a part of the overall residential component is going to be tough. Just actually because of the earlier question, it's all part of the agent's Roi. Um, so we feel great about that progress. And the thing I think we're most excited about is Agents. See the value in winning more listings with it and sellers and buyers both, see the value in having it, right? So it's this really rare kind of win-win um, where everyone has a great experience with it. Um, the macro questions is a good 1, I think the reality is, it's too small, uh, showcases to be a Mac or a driver yet. Um, but I will point out we're growing showcase.

This nicely in a, in what has historically been mostly a seller's market? And if the market were to shift to more balanced, you'd think the seller and the seller's agent would benefit even more from showcasing their listing. But if you go talk to our agent partners, you see what they sing the benefits of is their ability to win more listings with it, right? And so in an environment where they have to work harder to win a listing, presentation showcases an even more powerful tool. Um, and we're not exactly just sitting still with Showcase, right? Showcase launched a little more than a year ago and we've been improving it ever since. So we added the listing dashboard last quarter, we just added Sky Tour which we haven't... If you haven't checked it out, you should really go check out a Sky Tour listing. It's an immersive experience outside the home. It stitches drone photography together to get you to be able to fly around the exterior and really get a sense of what the home is like. Those are just a couple examples of how we'll continue creating this incredibly immersive experience that the buyer, of course, loves.

Therefore, the seller will want. Therefore, the agent will have to offer if they want to win listings.

Right. Thank you.

Our last question will come from Andrew Bun with Citizens Bank. Please unmute your line and ask your question.

Thanks so much for taking the question. Um, I wanted to ask about Ai and the Improvement of just automation across the platform. You guys mentioned in the letter that 2 million people, excuse me, the 2 million smart messages that have been exchanged since June can you guys just talk about what AI allows for Automation in terms of?

Connecting buyers and sellers more efficiently and what's kind of the overall Vision. If we think kind of 1 to 2 years, out of what you guys can do with follow-up boss is just more capabilities are enabled. Thanks so much.

For sure. Thanks, Andrew. We are tremendously excited about ai's potential to rewire the industry, um, just as it rewires all of us as workers, and if you think about the real estate industry as such a highly considered regulated purchase where you need great professionals, that is just tailor made for supercharging the services that humans are doing and allowing humans to be great at what they do and you're already seeing that today, right? I mean, just look at some of the examples. We called out, uh, this quarter for the consumer. It's a better customer experience, right? It's things. Like I just talked about, with Sky tours, virtual staging AI, um, better personalization while you're shopping for the professional. The hardworking professional, that has so much work to do to help Delight clients. It's AI powered relationship management software to supercharge them to let them do what they do best which is client.

Have the software and the tools do more of the work for them.

Great. Thank you.

Time for question.

I'll turn the call back.

To Jeremy Wacksman for any closing remarks.

Thank you all for joining us today. Uh, we really appreciate your continued support. We are excited for what's ahead and look forward to speaking with you all next quarter.

Thank you for joining Zillow Group. This concludes today's conference call for the second quarter financial results. You may now disconnect.