Business Overview

Zillow Group, Inc. (ZG) is a leading real estate technology company that has been revolutionizing the way people approach the home buying, selling, and renting process. Founded in 2006 by Rich Barton and Lloyd Frink, the company has grown to become the most visited real estate website in the United States, with a vast database of homes and a comprehensive suite of tools and services designed to empower both consumers and real estate professionals.

The company's history is marked by a relentless pursuit of innovation and a customer-centric approach. Zillow Group was founded by Rich Barton and Lloyd Frink, who were also the co-founders of Expedia. The company's flagship product, the Zestimate, was introduced at launch in 2006. This automated home valuation model provided consumers with real-time home value estimates, bringing unprecedented transparency to the residential real estate market.

In the years following its launch, Zillow Group expanded its portfolio of real estate-focused brands and services. A significant milestone was the acquisition of Trulia in 2015, which further solidified the company's position in the online real estate marketplace. Zillow Group's brands, including Zillow, Trulia, and StreetEasy, became synonymous with residential real estate search, offering consumers a wide range of tools and information to search for homes, connect with real estate professionals, and access home financing.

The company's growth trajectory wasn't without challenges. In 2021, Zillow Group made the decision to wind down its Zillow Offers iBuying business due to operational issues and an unpredictable housing market, resulting in significant financial losses. However, the company remained focused on its core real estate marketplace business and continued to innovate. Strategic acquisitions such as ShowingTime and Follow Up Boss enhanced Zillow's suite of products and services for real estate professionals.

Through ongoing investments in technology, data, and strategic partnerships, Zillow Group has solidified its position as the most visited real estate platform in the United States. The company's living database now encompasses over 165 million homes, and its proprietary data models and insights have made it an indispensable resource for both consumers and real estate industry participants.

Financials

Financially, Zillow has demonstrated strong growth and profitability. In the fiscal year 2024, the company reported total revenue of $2.24 billion, representing a 15% year-over-year increase. This impressive performance was driven by a 12% growth in the company's For Sale revenue category, which includes residential and mortgage-related offerings, as well as a 27% surge in Rentals revenue. Zillow's Adjusted EBITDA margin expanded by 200 basis points to 22% during the same period, showcasing the company's ability to effectively manage its costs while investing in strategic initiatives.

Despite the challenges posed by the COVID-19 pandemic and macroeconomic headwinds, Zillow has continued to navigate the market with agility. The company's focus on enhancing the customer experience through digital solutions and integrated services has enabled it to outperform the broader residential real estate industry. In 2024, Zillow's revenue growth outpaced the industry by 900 basis points, demonstrating the strength of its business model and the value it provides to its customers.

For the fiscal year 2024, Zillow reported a net loss of $112 million. However, the company generated strong cash flows, with operating cash flow of $428 million and free cash flow of $257 million. In the most recent quarter (Q4 2024), Zillow reported revenue of $554 million, representing a 17% year-over-year increase, with a net loss of $52 million.

Strategic Initiatives

One of Zillow's key strategic priorities has been the expansion of its Enhanced Markets initiative, which aims to create a more streamlined and seamless home buying and selling experience. By integrating its Premier Agent program, Zillow Home Loans, and other complementary services, the company has been able to increase customer conversion rates and capture a larger share of transactions. As of the end of 2024, Enhanced Markets accounted for 21% of Zillow's total connections, and the company expects to grow this figure to 35% by the end of 2025.

Additionally, Zillow has made significant strides in its Rentals business, which represents a substantial growth opportunity. The company has built a comprehensive rental marketplace, with 1.9 million active listings as of the end of 2024, up 15% year-over-year. Zillow's focus on improving the rental experience for both tenants and landlords has driven strong growth in this segment, with Rentals revenue increasing by 27% in 2024.

Product Portfolio

Zillow Group operates a diverse portfolio of real estate and home-related brands, offering a wide range of products and services to consumers, real estate professionals, lenders, and property owners. The company's key product segments include:

Residential: This segment generates revenue primarily through the Premier Agent program, which provides marketing and technology products to real estate agents and brokerages. The segment also includes revenue from new construction marketing solutions for home builders. Revenue is generated through a share of voice market-based pricing model and a pay-for-performance Flex model.

Mortgages: This segment includes revenue from Zillow Home Loans, the company's affiliated mortgage lender. Revenue is generated through mortgage origination fees and the sale of loans on the secondary market. The segment also includes advertising revenue from mortgage professionals through Zillow's Custom Quote and Connect services.

Rentals: The Rentals segment generates revenue from advertising and tools sold to property managers, landlords, and rental professionals. Revenue is primarily driven by cost-per-lead, lease, listing, or impression advertising, as well as Zillow's rental applications product.

Other: This segment primarily includes revenue from display advertising products sold on a cost-per-impression or cost-per-click basis.

Key Performance Metrics

Zillow's strong performance in 2024 was reflected in several key metrics:

• Visits to Zillow's mobile applications and websites increased by 4% to 9.31 billion.

• Average monthly unique users grew by 4% to 221 million.
• For Sale revenue per total transaction value improved by 5% to 10.1 basis points.
• Zillow Home Loans experienced a 101% increase in total loan origination volume, reaching $3.12 billion.

Industry Trends

According to Zillow's data, the US residential real estate industry grew by 6% in 2024. The company expects the industry to continue growing in the low to mid-single digits in 2025. Zillow's diversified business model and strategic initiatives have positioned it to capitalize on these industry trends and continue outperforming the broader market.

Liquidity

Zillow Group maintains a strong liquidity position to support its operations and future growth plans. As of December 31, 2024, the company reported:

• $1.9 billion in cash, cash equivalents, and short-term investments

• A debt-to-equity ratio of 0.14
• A current ratio and quick ratio of 2.81

Additionally, Zillow has master repurchase agreements with a maximum borrowing capacity of $300 million to provide capital for its mortgage origination business.

Outlook and Guidance

Looking ahead, Zillow remains well-positioned to capitalize on the evolving real estate landscape. For Q1 2025, the company expects:

• Total revenue between $575 million and $590 million, implying a 10% year-over-year increase at the midpoint.

• For Sale revenue growth in the mid-single-digits, with residential growth in the low to mid-single-digits and mortgages revenue growth of approximately 30%.
• Rentals revenue growth of approximately 30% year-over-year.
• EBITDA between $125 million and $140 million, equating to a 23% margin at the midpoint.

For the full year 2025, Zillow anticipates:

• Low to mid-teens revenue growth for the company.

• Continued EBITDA margin expansion.
• Positive GAAP net income for the full year, marking an important milestone.

Beyond 2025, Zillow sees a clear path to $5 billion in annual revenue and a 45% EBITDA margin in a normalized housing market.

In conclusion, Zillow Group's history of innovation, strong financial performance, and strategic focus on enhancing the customer experience make it a compelling investment opportunity in the dynamic real estate technology sector. As the company continues to execute on its long-term vision, investors can look forward to Zillow's ongoing transformation of the way we buy, sell, and rent homes.