Zillow Group, Inc.

Ladies and gentlemen, please remain holding your conference call will begin momentarily. Again, please remain holding your conference call will begin momentarily. Good afternoon. My name is Sierra, and I will be your conference operator for today. At this time, I would like to welcome everyone to Zillow Group's fourth quarter and full year 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you'd 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, press the star two keys. Please note, this event is being recorded. I would like to turn the conference over to Brad Burning, Vice President of Strategic Affairs and Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Zillow Group's fourth quarter and full year 2023 conference call. Joining me today to discuss our results are Zillow Group's co-founder and CEO, Rich Barton, COO, Jeremy Waxman, and CFO, Jeremy Hoffman. 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 FCC 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 updated investor presentation, 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. We will now open the call with remarks, followed by live Q&A. With that, I will turn over the call to Rich.

Thank you, Sierra, and thanks, Brad. Good afternoon, everyone. Thanks for dialing in for our fourth quarter and full year 2023 results. We are posting great revenue numbers across the whole of our increasingly diversified and growing businesses. Our early cohort of enhanced markets are working, so we are pressing the accelerator on expansion in 2024. I'm also pleased to share that we've released an updated investor presentation available on our investor relations website to bring you all up to speed on the progress we've made on our growth pillars. We'll kick off the discussion today by walking you through our quarterly results. briefly addressing what's happening in the broader real estate industry, highlighting the opportunity in front of Zillow, and then taking you through the exciting progress we're making on our journey to innovate and transform the way people buy, sell, finance, and rent homes. Starting with our quarterly results, we reported better than expected and accelerated revenue growth, with Q4 total revenue of $474 million, up 9% year over year. Residential revenue of $349 million increased 3% year over year, returning to positive year over year growth. During the same timeframe, the broader real estate industry declined by 4%, meaning Zillow's residential revenue outperformed the industry by 700 basis points. As I said, Q4 now marks the sixth consecutive quarter of meaningful outperformance versus the industry. Our ongoing efforts to improve our customer funnel, capture more demand, connect more of that demand to our partner network, and focus on conversion continue to drive impressive results. Rentals also had a strong quarter with accelerating revenue growth up 37% year over year to $93 million. This performance was driven by accelerating multifamily property growth with over 37,000 properties listed across Zillow at the end of Q4 2023. We continue to be the number one most visited rentals platform with average monthly rentals unique users up double digits year over year in Q4. We are well positioned for future rentals revenue growth, which Jeremy Waxman will discuss in more detail later in the call. We're also making excellent progress in our mortgages push, growing our purchase mortgage origination volume by more than 100% year over year in Q4 and further integrating Zillow home loans with our Premier Agent partners. Before we dive deeper into all the progress we've made over the last two years, I'd like to give our view of the latest real estate industry goings on. We're monitoring the progress of numerous lawsuits facing several organizations within the industry. Zillow is not a named party in these suits, and we are confident in our ability to meaningfully grow our company in this evolving climate. In November, we laid out our marketplace principles that underlies Zillow's position. We continue to advocate for what we believe is best for consumers and the industry as a whole. First, We believe in a real estate marketplace that is transparent and fair in which consumers and agents have easy and equitable access to listings and information. Second, we believe buyers and sellers deserve independent representation. And finally, we believe consumers should be well informed on agent compensation and their right to negotiate. Recently, we elaborated on these views on a new web page, advocacy.zilogroup.com, that outlines consumers' real estate rights and how we are working to elevate industry standards on their behalf. This includes efforts to allow better integrated search experiences that can include all listing types in one view, be they for sale by agent, for sale by owner, new construction, or for rent. as well as to educate consumers on the potential pitfalls of double-siding with dual agency, among others. We recently supported legislation in our home state of Washington that requires buyer's agent agreements so that consumers are aware of the services they are buying and who pays. In New York, our StreetEasy and Zillow teams are working with lawmakers and advocates to create much needed transparency for consumers, ensure agents are fairly compensated, and open the door for more access and affordability in New York's rental market. Those are just a few examples, but the key takeaway is that we have found a louder and crisper voice championing what's good for mover consumers, agents, and the industry as a whole, given legacy practices are being actively debated and negotiated right now. Settlement and court-ordered equitable relief may provide some near-term direction for the industry and some industry practices will likely be improved. For example, it could become more common to use buyer-agent agreements to make fees more transparent and negotiable. But ultimately, we continue to expect industry change to play out over many years. Regardless of the industry debates, Zillow is well positioned for all weather due to our long history and future of technology innovation driving differentiated products and services, which has resulted in a large engaged audience, a beloved brand, and a growing diversified business. We believe all roads lead to Zillow. Zooming out from our quarterly results and the latest state of play in the real estate industry, two years ago, we introduced our new growth strategy and broke down the massive TAM opportunity for Zillow. This quarter, we've released a refined and better way to size that opportunity, resulting in a $30 billion accessible TAM of customers already in our funnel and raising their hands to connect. I'll do the math to arrive at this number in a moment and then pass it over to Jeremy Waxman to talk you through the progress we've made over the last two years, the proof points, the signal why we are confident in pressing the accelerator on expansion. We are pleased with what we've accomplished since laying out our growth pillars in early 2022. We see this strategy as a continuation of what we've been working on since we founded the company in 2006 with the charge of turning on the lights in real estate. Over the years, we've built engaging and practical products and services designed to empower consumers with data and information, transforming a previously opaque marketplace into the more transparent one we experience today. But turning on the lights only got Zillow and our large audience so far. To effect real change for consumers and open up a much larger opportunity, we needed to focus on digital transformation of the moving experience end to end and begin our work on the transaction itself. Everyone who has moved knows that the process is complicated, time consuming and expensive. The onus is primarily on the consumer to play the role of project manager slash systems integrator to research, shop, select, finance, appraise, and close, bringing all these disparate pieces together. It's a labyrinth, and it's clear that consumers want and need better, and they'll eventually get it. They always do. So we set out to build the Housing Super app. an integrated digital experience wherein all the disparate pieces of the gnarly moving process are brought together on one platform, Zillow. Rooted in our original commitment to turn on the lights, Zillow's Housing Super App empowers consumers by delivering real estate data and education, a suite of Zillow owned solutions, and a network of best in class partners at their fingertips. Well, the Housing Super App is here today It's called Zillow. Zillow is now the container into which we will continually place new features and services that work together seamlessly to solve real customer and partner pain points in their moves. We have tested and iterated the experience over the last two years, updating you all along the way. Our growth pillars, which Jeremy Waxman will talk more about in a moment, serve as a roadmap for the continual upgrades and improvements we're adding to the Zillow experience as we expand our breadth and depth of coverage across more markets. Our opportunity is to take our current small slice of a large total addressable market and grow it into a much bigger piece of the pie. U.S. for sale housing represents $2 trillion in total transaction value, or TTV. Of that $2 trillion of TTV, there were approximately $162 billion of service fees in 2023 across buy and sell side agent referral fees, mortgage fees, and closing fees. Based on survey data, we estimate that 70% of all consumers who transact visit and use Zillow, resulting in a $113 billion Zillow visitor TAM. Cutting that down to just shoppers who raise their hands on Zillow, meaning they proactively request to connect with one or more of our services, we estimate first a $16 billion opportunity made up of brokerage referral, mortgage, closing, and other home buyer related transaction fees associated with those high intent buyers. This is low hanging fruit by SideTam, not just people visiting our site, but actual buyers actively engaged in seeking to do business with us. Additionally, on the sell side, we have good line of sight on an estimated $14 billion of sell side TAM derived from our increasing opportunity to capture more sell side referral fees and listing marketing budgets from those agents already actively engaged in our funnel. This adds up to a current accessible $30 billion for sale revenue opportunity with high intent, hand-raising consumers already in Zillow's funnel. Today, we capture $1.5 billion of that $30 billion accessible TAM. That $1.5 billion is our reported 2023 residential and mortgages revenue. Measured as a fraction of TTV, we stood at a mere seven basis points in 2023. Oh my, so much blue ocean. Our position as one of the largest internet brands in the United States alongside iconic brands such as Facebook, Spotify, and Netflix gives us confidence that we have many years of growth into that $30 billion of revenue, Tam, accessible in our funnel today. Over the last 15 plus years, we've released a constant stream of novel, engaging, and practical product innovations, which is how great brands are created. Zillow Brand has over 60% unaided brand awareness amongst shoppers which is rare for a brand to achieve in any category okay that is of course internal survey data but you can see a good impartial proxy for this strength in our google search activity where Zillow has searched more on google than the category term quote real estate unquote and three times more than our nearest competitor's brand further evidence of our brand strength is seen in our traffic composition About 80% of Zillow's traffic is organic, as well as in our app usage, which is more than three times our nearest competitor. We pioneered mobile real estate shopping with our leading iPhone and Android apps. And when Apple first launched the iPad, the Zillow app was highlighted by Steve Jobs on stage at the launch event. Taking things full circle this month, we partnered with Apple once again for the launch of Zillow Immerse on the new Apple Vision Pro, to offer mover consumers an interactive and immersive way to explore listing showcase listings with spatial technology. Try it. It's early, but it's an extraordinary home touring experience. We have been and will continue to be the company that is on the leading edge of utilizing technology to create magical new consumer and agent experiences. So I've laid out a more refined view of the opportunity as we see it, quite large, quite complex, quite accessible for us. We monetize very little of it today, yet it's in our store. I've also outlined the reasons to believe that Zillow can and will tap this $30 billion accessible TAM. One, we have the leading audience brand and engagement. We have proven technology and product talent that is unrivaled in the real estate industry. Three, we have built an extensive, talented, and increasingly integrated partner network. And four, we have a strong balance sheet that gives us the flexibility to pursue current and future growth opportunities. For these reasons, we are uniquely well positioned to transform and replatform the largest industry in the country. We spent the last two years building the integrated transaction experience and testing it in enhanced markets. Now it's time to press down on the accelerator to increase our breadth of coverage across more markets and our depth of penetration in those markets. We made a great deal of progress in 2023. We will make more in 2024. Okay. I've talked about our opportunity and our vision for the future of real estate. Now, I will pass the microphone over to our COO, Jeremy Waxman, to give you a more detailed progress report and where we are headed.