Zillow Group, Inc.

Good afternoon, my name is Tamia and I will be your conference operator today. At this time, I would like to welcome everyone to the Zillow Group fourth quarter and full year 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Please note, this event is being recorded. I would now like to turn the conference over to Brad Burning, Vice President, Strategic Affairs and Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Zillow Group's fourth quarter and full year 2022 conference call. Joining me today to discuss our results are Zillow Group's co-founder and CEO, Rich Barton, CFO, Alan Parker, and COO, Jeremy Waxman. During today's call, we'll make forward-looking statements about our future performance and operating plans and the housing market 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. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. This call is being broadcast on the internet and is accessible on our investor relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA. We encourage you to read our shareholder letter and our earnings release, which can be found on our investor relations website, as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. In addition, please note, we refer to our internet media and technology segment as our AMT segment. We'll now open the call with remarks followed by live Q&A. With that, I turn the call over to Rich.

Thank you, Brad. Good afternoon, everyone. We appreciate you dialing in to hear about our fourth quarter and full year results and our excitement about the progress we're making on our growth strategy. 2022 was an extraordinarily difficult and transformative year for Zillow, one that I believe the team navigated courageously. In late 2021, after living through unprecedented volatility in the housing market, we made the hard decision to make a rapid and orderly exit from our iBuying operation. Judging it too risky for Zillow, given the breadth and profitability of our hard earned core business and our category leadership. We began 2022 with 10,000 homes on our balance sheet and ended the year with zero. Unfortunately, this also necessitated a workforce reduction of approximately 2,000 valued employees. When we spoke to you this time last year, we unveiled a new growth strategy oriented around driving our customer transaction share from 3% to 6% by the end of 2025, with a focus on increasing engagement, increasing customer transactions, and increasing revenue per transaction. As we quickly shed our iBuying inventory and embarked on our new journey more nimbly, the unprecedented housing macro volatility continued. This time to the downside, the scenario we had feared could happen. Thirty-year mortgage interest rates nearly doubled over the course of the first six months of 2022, meaningfully slowing turnover and home price appreciation in the housing market. Despite these significant changes for our company and the housing market at large, our team remains focused on innovation with our eyes forward. We are working on building solutions and delivering products for our customers, our agent partners, and the industry that make it easier for people to transact in real estate and ultimately transact with Zillow. We're rapidly releasing products and improving both the customer and agent experience to ensure that when customers come to Zillow, they choose to stay and explore our other offerings. We released products at a rapid pace in service to our integrated transaction strategy, including the launch of natural language search, listing media services through Showing Time Plus, our partnership with Opendoor, and real-time touring among many other product releases. The result of these efforts have put the company on solid ground heading into 2023. Our traffic and brand are extremely strong, with average monthly unique users of 198 million during Q4 and roughly 65% of mobile app users for the real estate marketplaces category. Additionally, 2022 was a year where Zillow regained its spot as the number one most visited rentals platform, according to Comscore, putting us in a great position for future growth. Despite a challenging operating environment in 2022, when we attempt to normalize for COVID volatility, we have a go-forward business that has grown consolidated revenue by 12% on an annualized basis since 2019, while our IMT segment grew EBITDA by 30% on an annualized basis over that same timeframe. Equally important, we exited 2022 with a solid balance sheet of $3.4 billion in cash and investments up more than $200 million versus a year ago, even after executing $947 million worth of share repurchases at a weighted average price of $42.63 throughout the year. Most importantly, we exit 2022 with our employee base in a far more stable place than where we started the year. Just under three years ago, we took advantage of our position as a primarily digital business with a heavy mix of engineering and product talent, and committed to location flexibility permanently. That decision brought us more stability during the pandemic, and we continue to feel very good in our position as a cloud headquartered company, which we define as having the flexibility of choosing where to live with the understanding that many jobs require periodic onsite gatherings, inter and intra teams. We've been able to dramatically broaden our candidate pool and attract top talent from all over the country. Voluntary attrition declined steadily across the organization in 2022, down more than half in Q4 compared to Q1, and our workforce is more dispersed, more diverse, and more engaged, with 93% of our employees saying they clearly understand how their work is contributing to our mission. Further, our data shows that we're attracting talent at a much greater rate than before the pandemic, with four times more applicants per job posting versus 2019. Last and most important, we are seeing increases in productivity in critical areas of our business. Our primary agent sales team is more productive today than it was before the pandemic, and our software development and product teams are creating services faster today as well. So that was a little look back and reflection on 2022. What about 2023? We are focused on our vision of building a housing super app, a single digital experience to help customers across all their real estate needs. Our goal is to increase engagement, increase customer transactions, and increase revenue per transaction by investing across five growth pillars, touring, financing, seller solutions, enhancing our partner network, and integrating our services. The expected output of this strategy is to grow our share of consumer transactions from 3% to 6% by the end of 2025. Critical to achieving our aspirations is building an integrated experience for customers and partners. We spent much of last year creating products and services across our five growth pillars and introducing them into our test markets as they became available. In 2023, we are ready to take the best of our learnings and roll them out market by market together across Raleigh, Denver, Atlanta, and Phoenix in service of an integrated experience. With that as the backdrop, our first product roadmap update is touring. You've heard from us many times now that touring is a critical piece of the moving experience. It's the point of sale where shoppers turn into transactors. And we know from all the data we see on a daily basis across our entire business that movers who request a tour convert to transactors at three times the rate of other actions on Zillow. Further, we believe improving the touring process is integral to building the seamless connected experience we envision. In late 2022, we rolled out real-time touring in Atlanta. Real-time touring is designed to make booking a home tour as easy as making a restaurant reservation online. a convenience that modern on demand consumers certainly expect. We're excited about the early signs coming out of Atlanta, which show real time touring enables higher connection rates and higher customer propensity to work with our premier agent partners, which we expect to drive benefits up and down the funnel, delivering high intent customers to our partners. As a result of the early data we are seeing, we expanded this offering across Atlanta and are rolling out the product to our other three test markets. Of course, we have our eye on integration as well. Alongside the product improvements we are making every day to real-time touring, we've made it much easier for agents to transfer customers who are interested in financing to Zillow Home Loans loan officers as part of the touring experience. In harmony with state of the art digital products and services, Enhancing our partner network is critical to bringing our Hasi super app vision to life, which will be the focus of my second update. For years, we have driven increased lead volumes to our high-performing partner agents. We have done this in a variety of ways with an eye towards those who treat our customers best, who convert leads into transactions best, and those that are excited about growing their businesses alongside us. We have taken our most aggressive steps in enhancing the network by meaningfully consolidating our partner network across all four test markets. We increasingly believe that a tighter set of partners allows us to deliver a better customer experience and allows us to test new products and services rapidly along the way in service of integration. One early success we've seen has come in Raleigh, North Carolina. Last quarter, we told you that in Raleigh, we were seeing approximately 15% customer adoption of Zillow home loans. We are happy to report that we are now seeing closer to 20% adoption just three months later. Based on our early successes in Raleigh, we have expanded our Zillow home loans adoption playbook to the rest of our test markets. Speaking of Zillow home loans, our next product roadmap update is on financing. We've said many times before that we believe financing is crucial to the buyer's experience, and merging financing at strategic points in the buyer's journey is critical to the end-to-end customer experience we envision. So, in 2022, we turned our efforts towards building the foundation for a substantial direct-to-consumer purchase mortgage origination business. Last quarter, we spoke about the critical work streams we've deployed to bolster our mortgage business. In 2023, we have four key areas of focus. First, we are simplifying the entry points into our funnel and are building overall awareness of Zillow home loans. Second, we are building a better digital mortgage experience on Zillow to meet customers where they are in their buying journey. As a reminder, even with relatively low awareness for Zillow home loans, millions of customers on Zillow raised their hands for financing help last year. a testament to our brand and audience scale. Our focus is on improving our processes to better identify high intent customers and creating easy to use digital tools on our apps and sites to help our customers be ready to buy well before they tour homes. Third, we are bolstering our loan officer tools and capabilities so they can effectively handle our volume while providing a best in class customer experience. And finally, we're working closely with our premier agent partner base to build integrated processes with Zillow Home Loans, which I touched on a moment ago. As a reminder, we are building out two primary ways for customers to connect with Zillow Home Loans. The first way is financing first. It is when a customer starts their moving journey with financing to get pre-qualified before they are connected to an agent. We're investing here because we know approximately 40% of all home buyers start their journey this way, and roughly 80% of our prospective mortgage customers don't have a real estate agent. For many customers, financing is the most opaque and intimidating part of the home buying journey, and we want to help make it easier and more transparent on Zillow. We also know how valuable it is for our premier agent partners to be connected with a customer who already knows what they can afford. After many, many product changes last year, we are beginning to test connecting pre-qualified customers with Premier Agent partners in multiple markets, including all four test markets. The second way is property first. This is when our Zillow Home Loans lead comes back to us from a Premier Agent partner who was working with a home shopping customer we had previously sent them. Beyond the integration point with real-time touring we discussed earlier, we have integrated Zillow home loans into all existing connection processes across our four test markets. Encouragingly, we are already seeing nearly one in five premier agent partners sending connections to Zillow home loans in these markets, and some agents outside of those markets are also proactively choosing to connect customers with us. From our perspective, the inherent value in integrated services has made our partners supportive of these efforts and we are pleased with the early results. In addition to the investments we're making improving the buying experience, we're also delivering solutions for sellers and their listing agents, and we have some exciting product roadmap updates this quarter. Enabled by the small acquisition of VRX Media earlier this month, we launched listing media services through Showing Time Plus. a photography service and comprehensive media package that enables listing agents to seamlessly deliver beautiful, immersive media for the homes they are selling. This service is a critical precursor to our upcoming listing showcase product, which we previewed last quarter. As a reminder, this product will differentiate a listing agent on Zillow through branding and a higher quality listing that looks unlike anything else that exists on real estate sites today. Our aim with both of these products is to serve more sellers and allow listing agents to win more business. We'll be rolling out listings showcase over the summer. We continue to be excited about the work that is happening here. We're also pleased to announce that our partnership with Opendoor is live in Atlanta and Raleigh. Customers who start their selling journey with Zillow can now request a cash offer from Opendoor and simultaneously receive an estimate of their open market home sale price with a local premier agent partner. All customers will work with one of Zillow's licensed advisors to determine the best path based on their needs so they can confidently sell their home and get into their next one, whether that's potentially maximizing sale price on the open market with a real estate agent or being assured of a speedy sale with Opendoor. Regardless of the path the customer chooses, they will be able to use the service as a standalone offering or package it with other Zillow services, such as financing through Zillow home loans, working with a primary agent partner to buy their next home, or when it's available, closing with Zillow Closing Services. This new product experience will launch in additional markets nationwide over the course of 2023. Clearly, we have a lot of work ahead on our product roadmap, and of course, we are very conscious of the housing market environment while we invest for the future. Housing affordability challenges were the story of 2022 and remain front and center as we begin 2023. Affordability doesn't just impact demand, it also impacts supply. For homeowners, it's simply more expensive to move than to stay put right now, leaving more would-be movers on the sidelines. It's going to take time for these market dynamics to normalize, but as we head into 2023, we are seeing some early signs of stabilization, albeit at a meaningfully subdued level. Mortgage rates have come off their highs, home prices have continued to decelerate from their peak last June, and there is a looming backlog of homes under construction, both for sale homes and rentals, which is likely to give some help on affordability. However, we are not out of the woods yet, given high uncertainty in the path of the macro economy and how it may affect the real estate industry. Things continue to be foggy and we can't control what the housing market does. What we can control is how we operate our business. Similar to many times in our history, including 2022, we are closely monitoring the situation and will be prudent in how we invest through this period. As we look back on the last 12 months, it is clear we were simultaneously navigating the past and organizing for the future. Now, however, we are fully eyes forward and focused. 2023 is a consequential year for us, and it is all about making progress on our initiatives through product launches and market rollouts so that we can further expand and scale into 2024. We see the same headlines you all see about tech companies cutting back their workforces to make up for staffing to unsustainable pandemic level growth that is now normalizing. Our story is different. After a year of significant people related and other expense reductions in 2022, we are now investing during a very difficult housing market while others retrench as we see real opportunity for growth. We expect that 60 million homes will trade hands over the next 10 years which reflects a much more natural and healthy mover rate. And given all the product and service innovation opportunities we have discussed, our aim is to be an increasing and meaningful share of those customer transactions. This will drive value for our customers, partners, employees, and shareholders. We will continue to share our progress and learnings along the way, and we appreciate your partnership with us on this journey. I will now hand the line over to Alan. Alan?