Zillow Group, Inc. (Z) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects strong growth in Rentals and For Sale revenue, a promising partnership with Redfin, and positive guidance for future revenue and EBITDA margins. While management was vague on some financial details, the overall sentiment is positive, supported by strategic investments and partnerships, and expected continued growth. The Q&A session did not reveal significant negative concerns, and the market strategy appears robust. Given the positive financial performance and strategic outlook, a stock price increase is likely.

Key Financial Performance

Total Revenue $655 million, up 15% year-over-year. The increase was attributed to strong performance across For Sale and Rentals categories.

EBITDA $155 million, representing a 24% margin, up 26% year-over-year on a trailing 12-month basis. This was driven by effective cost management and revenue scaling.

For Sale Revenue $482 million, up 9% year-over-year. Growth was attributed to contributions from agent and software offerings, as well as new construction marketplaces.

Residential Revenue $434 million, up 6% year-over-year. Growth was driven by agent offerings like Premier Agent and Zillow Showcase, as well as software adoption.

Mortgages Revenue $48 million, up 41% year-over-year. Growth was driven by increased adoption of Zillow Home Loans, with purchase loan origination volume growing 48% year-over-year to $1.1 billion.

Rentals Revenue $159 million, up 36% year-over-year. Multifamily revenue grew 56%, driven by a 45% increase in multifamily property count and expanded distribution partnerships.

Multifamily Property Count 64,000 properties, up 45% year-over-year. Growth was driven by expanded partnerships and increased advertising subscription spend by property managers.

Cash and Investments $1.2 billion, down from $1.6 billion in Q1 2025. The decrease was due to convertible note settlements and share repurchases, partially offset by operating cash flow.

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Operating Highlights

Housing Super App: Zillow is building an integrated, digitized end-to-end transaction experience for real estate, focusing on streamlining residential real estate transactions.

BuyAbility Tool: A tool from Zillow Home Loans that helps buyers shop based on affordability, with over 2 million enrollments and enhancements for better decision-making.

Offer Insights: Provides real-time market data to help buyers and agents make informed offers, improving the home-buying process.

SkyTour: A new virtual touring feature using drone footage and machine learning to create 3D models of homes, enhancing the shopping experience.

Follow Up Boss: A CRM platform for agents with AI-powered features like Smart Messages and call summaries to improve productivity and deal closures.

Rentals Marketplace: Zillow Rentals had 2.4 million active rental listings, the most in the category, with multifamily revenue up 56% year-over-year.

Partnerships: Expanded distribution through partnerships with Redfin, Realtor.com, and others, increasing reach and revenue opportunities.

Revenue Growth: Total revenue grew 15% year-over-year in Q2 2025, with For Sale revenue up 9% and Rentals revenue up 36%.

Cost Management: Maintained cost discipline, achieving $155 million in EBITDA for Q2 with a 24% margin.

Enhanced Markets: 27% of connections now come through enhanced market experiences, with a long-term goal of 75%.

Zillow Home Loans: Broadened down payment assistance and FHA loan offerings to improve access to financing.

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Risk or Challenges

Market Conditions: Challenging housing market conditions and macroeconomic uncertainty are expected to continue, which could impact revenue growth and overall market performance.

Competitive Pressures: Zillow faces competition in the rentals and for-sale markets, requiring continuous innovation and investment to maintain its leading position.

Regulatory Hurdles: No explicit mention of regulatory hurdles in the transcript.

Supply Chain Disruptions: No explicit mention of supply chain disruptions in the transcript.

Economic Uncertainties: Macroeconomic uncertainties, including fluctuating interest rates and housing market conditions, could affect consumer behavior and financial performance.

Strategic Execution Risks: The success of new product launches, partnerships, and market expansions depends on effective execution and adoption by consumers and partners.

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Guidance & Outlook

Revenue Growth: Zillow expects mid-teens revenue growth for the full year 2025, at the higher end of its previous outlook of low to mid-teens growth. Q3 revenue is projected to be between $663 million and $673 million, representing a 14% to 16% year-over-year increase.

Rentals Revenue: Rentals revenue growth is expected to accelerate to over 40% year-over-year in Q3 2025, with full-year growth projected at approximately 40%. Multifamily revenue is a key driver, with property count and wallet share increasing.

For Sale Revenue: For Sale revenue growth in Q3 2025 is expected to be similar to Q2, with residential revenue growing in the mid-single-digit range and mortgages category revenue growing in the high 20% range. Zillow Home Loans origination volume is projected to grow 40%+ in Q3.

EBITDA and Margins: Q3 2025 EBITDA is expected to be between $150 million and $160 million, with a margin of 23% to 24%. For the full year, Zillow anticipates expanded EBITDA margins and positive net income.

Strategic Investments: Zillow plans to invest in variable costs ahead of revenue to drive future growth, particularly in Rentals and Zillow Home Loans. Fixed cost investments are expected to grow modestly with inflation.

Market Conditions: Zillow anticipates challenging housing market conditions and macroeconomic uncertainty to persist throughout 2025.

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Shareholder Return Plan

Share Repurchase Program: Zillow repurchased $150 million in shares during Q2 2025 at a weighted average price of $65. Year-to-date share repurchases total $400 million, expected to offset stock-based compensation expenses for 2025. Since inception, Zillow has repurchased $2.4 billion worth of shares at an average price of $48, buying back 49 million shares. The company has $981 million remaining on its share repurchase authorization as of the end of Q2 2025. For the rest of 2025, Zillow plans to be more selective in its share repurchases.

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Key Q&A

Q:Can you elaborate on the Rentals business and the strategy for accelerating growth in the back half of the year?

A:The strategy involves building a comprehensive 2-sided marketplace to solve renters' problems by providing as much inventory as possible. Zillow Rentals now has 2.4 million active rental listings and offers a modern transaction experience for renters and property managers. This includes features like applying, signing leases, paying rent, and reporting rent to credit bureaus. The platform has the largest audience with 36 million unique visitors and 64,000 properties advertising, up from 50,000 at the end of the year. Partnerships with Realtor.com and Redfin expand distribution and lead to better ROI for advertisers. Rentals grew 33% in Q1, 36% in Q2, and is expected to grow 40%+ in Q3 and for the full year.

Q:What drove the faster-than-market growth in residential revenue this quarter?

A:The growth was driven by a combination of factors, including the execution of Enhanced Markets, expansion of Showcase, growth in Zillow Home Loans, adoption of Follow Up Boss, expansion of Real Time Touring, and strong performance in the new construction business. Over a two-year period, For Sale outperformed the market by 15%, supporting confidence in mid-cycle targets.

Q:What is the contribution of the Redfin partnership to the Rentals business?

A:The Redfin partnership launched in late April/early May and has started well, adding 9,000 properties in Q2. It provides expanded distribution and leads to the 64,000 existing properties and helps sell into the remaining 76,000 buildings not yet on Zillow. The partnership is an important component of the larger Rentals business, bringing incremental customers and improving ROI for advertisers.

Q:Can you provide details on the progress and revenue opportunity of Zillow Showcase?

A:Zillow Showcase is now on 2.5% of listings, up from 2% last quarter and 1% a year ago. The goal is to reach 5%-10% of listings in the intermediate term. Showcase helps agents win more listings and provides a better experience for buyers and sellers. It is considered part of the overall residential revenue opportunity, with agents benefiting from increased ROI and sellers benefiting from enhanced listing presentations.

Q:What is driving growth in the new construction marketplace?

A:The new construction marketplace is considered table stakes for builders and performs well as a strong advertising channel. Growth is driven by macro trends in homebuilding, share gains within the space, and expansion of homebuilding partners.

Q:What are the key areas of investment in variable expenses, and when will they align more closely with revenue growth?

A:Investments are focused on Rentals and Zillow Home Loans, including hiring multifamily sales heads, lead acquisition costs, advertising, and loan officers. Variable expenses are expected to grow ahead of revenue in 2025 but align more closely over time as initiatives scale and mature. Fixed costs are being controlled to expand margins and deliver positive net income in 2025.

Q:What assumptions are being made about the broader real estate market for Q3 and the back half of the year?

A:The company assumes a largely flat housing market with no significant macroeconomic relief. Growth is expected to come from gaining share in for-sale and rentals, driven by strategy execution and product improvements. The housing market is expected to take time to normalize due to affordability challenges and supply-demand imbalances.

Q:Are there any regulatory or listing access changes influencing the platform or agent ecosystem?

A:The majority of the industry agrees with Zillow's listing standards, which align with existing listing cooperation rules. These standards ensure buyers see all available inventory and sellers maximize exposure, benefiting agents and the industry as a whole.

Q:What progress has been made in Enhanced Markets, and how long does it take for new markets to show results?

A:Enhanced Markets reached 27% of connections in Q2, with a goal of 35% by year-end. It takes about a year for new markets to show accretive benefits, as the process involves training agents, loan officers, and staff. The focus is on improving customer satisfaction and agent ROI.

Q:How is AI being used to improve automation and efficiency on the platform?

A:AI is being used to enhance customer experiences and support professionals by automating follow-ups, suggesting messages, and improving relationship management. Examples include SkyTour, virtual staging, and personalization. AI aims to create a more efficient and delightful transaction experience for buyers, sellers, and professionals.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the exact financial contribution of the Redfin partnership to the Rentals business, instead describing it as an important component of the larger strategy. Similarly, they did not provide precise metrics on the monetization of Zillow Showcase or the timeline for achieving the $1 billion Rentals revenue target, focusing instead on qualitative descriptions of progress and strategy.

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Earnings Word Cloud

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