Zillow Group, Inc.

Good afternoon. My name is Elliot. I'll be your conference operator today. At this time, I would like to welcome everyone to the Zillow Group first quarter 2024 conference call. All lines will be 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 the star two key. Please note this event is being recorded. And 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 first quarter 2024 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 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 EBITDA, which we refer to as EBITDA. We encourage you to read our shareholder letter and 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 the call over to Rich. Thanks, Brad.

Good afternoon and good evening for those on the East Coast. Thanks for dialing in to hear our first quarter 2024 results. We saw strong revenue numbers that flowed through to the bottom line, helping us outperform our outlook on revenue and EBITDA as we successfully execute on our growth strategy. We continue to upgrade and scale our housing super app, and we've seen further proof points in our enhanced markets that support a continued push on both breadth of market coverage, and depth of penetration within those markets for our integrated digital moving solutions for consumers, their agents, and their loan officers. Today, I'll remind us about what makes Zillow different and what makes me so confident in our growth plan. Jeremy Waxman will then give a progress report on our growth pillars with a deep dive into our burgeoning rentals business. Next, Jeremy Hoffman will discuss the numbers in more detail. And then we'll open things up for Q&A. Beginning with our quarterly results, we reported better than expected revenue growth across the business. Q1 revenue of $529 million grew 13% year over year. Total revenue growth once again outperformed the residential real estate market. Rentals continued its strong growth with $97 million in revenue in Q1, up 31% year over year. We continue to grow our multifamily property count with 40,000 properties at the end of the quarter, up from 37,000 at the end of December. We are well positioned for future rentals revenue growth as we detail in our new investor relations deck that is a deep dive on our rentals business. We publish this new deck along with earnings today and we'll discuss it in more detail later in this call. In an ongoing tough rate environment, we also continued to make strong progress in mortgages with Q1 revenue of $31 million, up 19% year over year, and purchase mortgage origination volume growing more than 130% year over year. So, in a hostile housing market and a noisy industry environment, why is Zillow outperforming? The simple answer is that Zillow is wholly focused on solving real consumer problems with software in a giant industry that has historically had very little R&D investment. Digitally replatforming and integrating a huge disparate local industry where transactions are relatively infrequent is an audacious undertaking. No other company is really even attempting it. We are advantaged primarily because we are a product and technology company first and are able to attract and retain the especially talented people who know how to build, market, and support great software products. This enables us to focus completely on delighting our consumers and their valued partners in pursuit of the dream of using technology to make moving simple and joyful. Our product prowess over the years has put Zillow in the enviable position of having a large, engaged audience who come to us organically, an audience who love, trust, and rely on our brand. This product-led organic marketing growth story is rare, but it is common for the great ones. Those are the products and brands we admire the most. Attracting a large organic audience has also given Zillow the space to experiment with business models. Those who followed us for a long time know how aggressive and innovative we have been methodically converting our sticky audience into revenue. We have built a substantial, growing, diverse, and EBITDA profitable business, yet we still monetize only a small share of our audience. Our massive, unconverted audience will drive years of growth ahead for Zillow as we grow into our rightful transaction share, continue to adjust our business models, and add and integrate new business lines. We have been pro-consumer, practical, and nimble, and we will continue to be so. The first era of Zillow involved amassing a large organic engaged consumer audience for whom we were providing valuable information via great sites and apps. Several years ago, we realized that our dream of digitizing the move and accessing the really big TAM in the category would involve getting much more directly involved in the transaction itself. applying software to every step of the workflow, refreshing our partner network to those who are higher performing and interested in automation and scale, and building out or acquiring key components of the move process ourselves all the way from listings photography and creation through tour booking, agent workflow, pre-approval, mortgage origination, document routing, and closing, end to end. To serve as an aspirational and consumer-focused North Star, we created a product strategy that we called the Zillow Housing Super App, the experience that would integrate the whole of the complex, scary, expensive moving process. The Zillow Super App is working well. Jeremy Waxman will soon walk you through a detailed report of our growth pillars, but we see very good progress across the board on each pillar. Touring, financing, seller solutions, enhancing our partner network, integration, and rentals. Amidst all of the fear, speculation, and noise, a steady focus on execution is what's working for us, delivering for our customers and partners. In terms of the noise, though, let me give some color commentary on what has transpired since our last quarterly call. The long-running class action suit against NAR and select brokerages thankfully arrived at a proposed settlement in mid-March. And the judge, just last week, granted preliminary approval of that settlement. The substance of the settlement is what we characterized as a very reasonable middle path forward for the industry, where commissions are negotiated and communicated between sellers and buyers, and both parties are better educated. This is a positive evolutionary step for the industry. It is not a revolution, as some who believe they might profit from chaos and disruption are proclaiming. Clear and negotiable compensation fits quite well with our published consumer advocacy marketplace principles of free access to listings, independent representation, and negotiable compensation as outlined at advocacy.zilogroup.com. There will continue to be sensational-seeming news surrounding this settlement, no doubt. given there remain several steps in having NAR and the industry put the settlement requirements into practice. And real estate is generally a hot topic for hot takes given it is a $2 to $3 trillion industry employing millions of people in all 50 states and is most Americans most valuable and most cherished asset. However, Zillow is well positioned to assist with and benefit from this evolution. So why do we expect to benefit from this evolution? for three reasons. First, we have the most and highest intent customers in residential real estate. Zillow is the most trusted brand with the largest, most engaged audience. This is a hard-earned position that we built over the past 18 years. And our top of funnel advantage today has never been stronger. Zillow has searched more on Google than the category term real estate and three times more than the next brand in the category. 80% of our traffic is organic. and our app usage is more than three times anyone else in the category. We have more than 217 million average monthly unique users across the Zillow ecosystem of apps and sites and 109 million total unique visitors according to Comscore, a third party data tracker that allows for comparison across sites. We've built and maintained such a strong brand position because of our relentless focus on delivering exceptional tech innovations and customer experiences. which we believe are our most important investments. Regardless of how the industry evolves, our brand and audience will thrive. The second reason we expect to benefit from the industry evolution, we work with the most productive agents in real estate. Of the approximately 1.5 million real estate license holders, many handle only one or two transactions a year. These are not our premier agent partners. 80% of all real estate transactions across the U.S. are done by the top 20% of agents or teams. And today, nearly four in five Zillow Premier Agent partners fall into that top tier. Since 2015, we have shrunk our active partner base by roughly 60%, while at the same time, our Premier Agent revenue has grown by more than 2.5 times. Orienting our business around the best agent teams, those who provide superior customer experiences, have proven ability to scale, and make the most money to invest alongside us, positions us well for potential shifts within the profession. If and as more hobbyist agents drop out of the industry, the outsized beneficiaries of this shift to professionalism will be our premier agent partners. Third reason we benefit. Zillow provides exceptional technology to make agents more efficient at their jobs and do more transactions. Zillow is the leading product innovator with features like real-time touring, listing showcase, and a digital pre-approval pilot launching within the next couple of weeks that will further delight customers and create high intent, real buyer connections for our premier agent partners. Additionally, we have invested heavily in broad adoption foundational industry software solutions like our follow-up boss CRM, showing time touring software, our showcase 3D home technology, Aereo real estate photographer SaaS, and Dotloop document signing and routing. Over the past 10 years, between our own tech and dev budget and the acquisition capital we've deployed for industry software, we've spent $4.3 billion cumulatively investing in technology for the real estate industry. Agents who work with our high intent customers and use our industry software tools are the best positioned to accelerate their share in every version of an industry evolution from here. So the short answer for why Zillow benefits from the evolutionary changes we see coming from the NAR settlement. We have the most and highest intent customers in real estate. We work with the most productive agents. and we provide them exceptional technology to make their lives more efficient. Before handing it to Jeremy Waxman, let me repeat for the whole of the great Zillow team in front of our investors, I'm impressed with the results you are achieving in your focused and relentless innovation for customers and partners in pursuit of a seamless, digital, and joyful moving experience for all. We are all in a really tough housing market and a distracting industry environment. Yet our hands are steady on the wheel as we drive Zillow's business and the industry forward.