Zillow Group, Inc. (ZG) Q3 2025 Earnings Call Transcript

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Overview

Zillow's earnings call indicates strong revenue growth projections, particularly in Rentals and Home Loans, with strategic investments fueling future expansion. Despite challenging market conditions, management remains optimistic, expecting EBITDA margin expansion and positive net income. The Q&A reveals confidence in overcoming FTC-related concerns and enhancing the transaction experience through AI integration. While some responses lacked specifics, the overall sentiment is positive, driven by strong growth metrics and strategic initiatives. The lack of market cap data suggests a cautious approach, but the positive outlook supports a 2%-8% stock price increase.

Key Financial Performance

Total Revenue $676 million in Q3, a 16% year-over-year increase. This growth exceeded the high end of the outlook range, driven by strong performance in For Sale and Rentals operations.

For Sale Revenue $488 million in Q3, a 10% year-over-year increase. Residential revenue grew 7% to $435 million, and mortgage revenue grew 36% to $53 million. Growth was attributed to strong execution, product innovation, and outperforming the broader housing and mortgage markets.

Rentals Revenue $174 million in Q3, a 41% year-over-year increase. Multifamily revenue grew 62%, driven by increased property count and adoption of comprehensive advertising packages by property managers.

EBITDA $165 million in Q3, with a margin of 24%, representing an expansion of more than 200 basis points year-over-year. Growth was due to effective cost management and revenue scaling.

Net Income $10 million in Q3, attributed to revenue growth and cost discipline.

Free Cash Flow $295 million for the first 9 months of 2025, a 28% year-over-year increase. This reflects strong cash generation from core operations.

Multifamily Properties 69,000 multifamily properties listed as of Q3, a 47% year-over-year increase. This growth contributed to the 62% increase in multifamily revenue.

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Operating Highlights

Virtual Staging: Introduced AI-powered virtual staging in Zillow Showcase, allowing instant room restyling to help buyers visualize potential.

Zillow App in ChatGPT: Launched integration with ChatGPT, enabling users to explore listings, maps, and pricing directly within the app.

BuyAbility Tool: Enhanced financing transparency with 2.9 million users enrolled, helping buyers shop based on affordability.

Zillow Pro: Announced Zillow Pro, an AI-powered suite for agents to scale their businesses, with features like real-time touring and premium profiles.

Rentals Revenue Growth: Achieved 41% year-over-year growth in rentals revenue, driven by a 62% increase in multifamily revenue.

Multifamily Properties: Increased multifamily property listings to 69,000, nearly double from two years ago, with room for further expansion.

Redfin and Realtor.com Partnerships: Expanded rental listing syndication agreements, increasing visibility and reach for rental properties.

Revenue Growth: Total revenue increased 16% year-over-year to $676 million in Q3, exceeding expectations.

EBITDA Margin Expansion: Achieved a 24% EBITDA margin, expanding by over 200 basis points year-over-year.

Cost Management: Maintained effective cost discipline, with fixed costs growing only 5% year-over-year compared to 16% revenue growth.

Integrated Transaction Strategy: Expanded enhanced markets to 34% of connections, aiming for 75% midterm, integrating services like Zillow Home Loans.

AI and Technology Leadership: Positioned as a leader in AI-driven consumer experiences, leveraging tools like ChatGPT and Follow Up Boss.

Zillow Preferred Program: Launched Zillow Preferred to recognize top-performing teams, enhancing customer experience and support.

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Risk or Challenges

Housing Market Conditions: The housing market is described as 'bouncing along the bottom,' indicating challenging conditions that could impact growth and revenue generation.

Macroeconomic Uncertainty: The company acknowledges ongoing macroeconomic uncertainty, which could affect consumer behavior and housing market dynamics.

Competitive Pressures: Zillow faces competition in the real estate technology space, particularly in leveraging AI and integrated transaction services to differentiate itself.

Regulatory and Compliance Risks: The company operates in a highly regulated industry, and changes in regulations or compliance requirements could pose challenges.

Dependence on Technology and Innovation: Zillow's strategy heavily relies on rapid innovation and technology adoption, including AI. Any delays or failures in these areas could hinder growth.

Supply Chain and Operational Risks: The company’s ability to scale its offerings, such as Zillow Pro and enhanced market experiences, depends on operational efficiency and partner adoption.

Economic Sensitivity of Rentals: The rentals segment, while growing, is sensitive to economic conditions and consumer affordability, which could impact revenue.

Integration Challenges: Expanding integrated transaction services and rolling out new products like Zillow Pro may face execution risks and adoption challenges.

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Guidance & Outlook

Revenue Growth: Zillow expects total revenue for Q4 2025 to be between $645 million and $655 million, implying a year-over-year increase of 16% to 18%. For the full year 2025, mid-teens revenue growth is anticipated.

For Sale Revenue: For Sale revenue is expected to grow in the high single digits year-over-year in Q4 2025. Residential revenue growth is expected to be similar to Q3, while mortgages revenue is projected to grow approximately 20% in Q4, with purchase origination volume growth of over 40%.

Rentals Revenue: Rentals revenue growth is expected to accelerate in Q4 2025, increasing more than 45% year-over-year, driven by multifamily revenue growth acceleration. For the full year 2025, Rentals revenue growth is projected to be approximately 40%.

EBITDA and Margins: For Q4 2025, EBITDA is expected to be between $145 million and $155 million, representing a 23% margin at the midpoint. For the full year 2025, expanded EBITDA margins and positive net income are anticipated.

2026 Outlook: Zillow expects similar growth and EBITDA margin expansion in 2026 as in the last two years, with the macro housing environment expected to remain challenging. The company is confident in its mid-cycle targets of $5 billion in revenue and 45% EBITDA margins in a normalized housing market.

Zillow Pro Launch: Zillow plans to beta test Zillow Pro in the first half of 2026 and expand nationwide in the second half. A modest incremental contribution to revenue is expected in 2026, with a focus on demonstrating value and incorporating learnings.

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Shareholder Return Plan

Dividends: No mention of dividends or a dividend program was made in the transcript.

Share Repurchase: The company has executed share repurchases totaling $2.4 billion at a weighted average price of $48. The CFO mentioned that the company is pleased with the program and plans to be opportunistic in share repurchases going forward.

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Key Q&A

Q:What are the risks and opportunities of integrating Zillow apps with ChatGPT, and how does Zillow balance current traffic with newer doorways?

A:Jeremy Wacksman explained that the integration with ChatGPT is seen as a pure opportunity, similar to previous platform shifts like mobile. He emphasized that 80% of Zillow's traffic comes directly from its brand, and the integration strengthens their platform and software differentiators. He also highlighted the potential to build AI into Zillow to enhance the transaction experience and create a one-stop shop for buyers, sellers, and agents.

Q:What is Zillow's perspective on the FTC suit and the Compass proposed acquisition of Anywhere?

A:Jeremy Wacksman stated that the syndication of multifamily property listings to Redfin has been beneficial for both consumers and property managers, increasing ROI and access to listings. Regarding the Compass acquisition, he mentioned no concerns for Zillow's business but noted potential noise around hidden listings. Zillow continues to advocate for open, fair, and transparent access to listings.

Q:What market forces influenced Zillow's residential business in Q3, and what is embedded in the Q4 guide?

A:Jeremy Hofmann noted that Zillow's For Sale segment grew 10% in Q3, outperforming the housing market by 5%. Revenue accelerated from Q2 to Q3 despite tougher comps. Enhanced markets, Zillow Home Loans, Showcase, and new construction contributed to the growth. For Q4, he expects continued outperformance and consistent growth.

Q:What is the value proposition of Zillow Pro, and how does it get monetized?

A:Jeremy Wacksman described Zillow Pro as an evolution of their software platform for agents, bundling tools like Follow Up Boss, premium branding, and My Agent features. It helps agents run their businesses better and serves as a pathway to Zillow Preferred. Monetization is expected to grow as adoption increases, but significant revenue contribution is not expected until after 2026.

Q:What is the long-term opportunity with the Zillow Preferred program, and how does it impact market share?

A:Jeremy Hofmann explained that the expansion of Zillow Preferred aligns with the growth of enhanced markets. The program is expected to drive strong outperformance in both residential and For Sale categories, contributing to the mid-cycle target of $1 billion in incremental revenue.

Q:How does Zillow plan to handle the Rentals business in light of the FTC case?

A:Jeremy Hofmann stated that it is business as usual for the Rentals segment. He highlighted strong property growth and revenue acceleration, with multifamily properties benefiting from syndication agreements. The strategy focuses on building a two-sided marketplace and enhancing the transaction experience for renters.

Q:What are the components of residential revenue, and what drove the revenue acceleration in Q3?

A:Jeremy Hofmann attributed the revenue acceleration to enhanced markets, Zillow Home Loans, Showcase, Follow Up Boss, and new construction. He emphasized the consistent outperformance of the For Sale segment and the integration of various tools and services to drive growth.

Q:What is the back-and-forth funnel dynamic between agents and Zillow Home Loans?

A:Jeremy Wacksman explained that the funnel works both ways, with agents introducing customers to Zillow Home Loans and vice versa. Tools like the viability calculator help customers understand affordability, leading to higher intent and better integration between agents and loan officers.

Q:What are the expectations for user engagement and monetization with ChatGPT integration?

A:Jeremy Wacksman stated that while it is early to predict outcomes, the integration is expected to increase exposure and enhance the vertical experience. He emphasized the importance of building GenAI into Zillow's platform to create a seamless one-stop shop for transactions.

Q:How does Zillow Pro and Zillow Preferred impact monetization and profitability?

A:Jeremy Hofmann noted that Zillow Pro is not expected to contribute significantly to revenue in 2026 as it focuses on adoption and learning. Zillow Preferred is a key driver of the $1 billion mid-cycle target, with monetization strategies remaining consistent.

Q:What is the impact of AI-powered virtual staging on Showcase adoption?

A:Jeremy Wacksman highlighted that AI-powered virtual staging is part of the broader Showcase offering, which aims to create a more interactive listing experience. While it is currently focused on Showcase, it could be expanded to other listings over time.

Q:What is the significance of loan pre-approvals within Follow Up Boss?

A:Jeremy Hofmann explained that the integration of loan pre-approvals within Follow Up Boss enhances the experience for shoppers, agents, and loan officers by creating a more coordinated and efficient process.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the monetization potential of ChatGPT integration and the long-term revenue impact of Zillow Pro. Responses were broad and lacked clarity on measurable outcomes or timelines.

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Earnings Word Cloud

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ZILLOW GROUP, INC. 10-K

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