Executive Summary / Key Takeaways

• Zillow Group is executing a strategic transformation into a "housing super app," integrating search, touring, financing, and agent services to capture a greater share of the residential real estate transaction value, moving beyond its traditional advertising model.
• The company demonstrated strong financial performance in Q1 2025, exceeding revenue outlook with 13% year-over-year growth and achieving GAAP profitability, signaling operational leverage and effective cost management despite a challenging housing market.
• Key growth drivers include the expansion of Enhanced Markets (targeting >35% of connections by end of 2025), rapid scaling of the Rentals business (expecting ~40% growth in 2025, fueled by multifamily property additions and strategic partnerships like Redfin (RDFN)), and accelerating Zillow Home Loans purchase originations.
• Zillow leverages differentiated technology, including AI-powered tools like Zillow Showcase (driving higher listing engagement and sale prices) and integrated platforms like Follow Up Boss, to create a competitive moat and enhance value for consumers and real estate professionals.
• Management forecasts continued low to mid-teens revenue growth and expanded EBITDA margins for the full year 2025, underpinned by strategic execution and disciplined fixed cost management, positioning the company for sustainable profitable growth towards its $5 billion mid-cycle revenue target.

The Foundation of a Digital Real Estate Ecosystem

Zillow Group, Inc. is fundamentally reimagining the real estate experience, striving to make the complex process of buying, selling, financing, and renting a home simpler and more accessible. At its core, Zillow operates the most visited real estate app and website in the United States, a position built on its founding principle of transparency and providing consumers with easy access to information. This has cultivated a massive and highly engaged audience, with Zillow boasting four times the app engagement of its nearest competitor and attracting approximately two-thirds of the total real estate audience, largely through direct and organic traffic.

The company's strategy centers on evolving from a leading online marketplace into a comprehensive "housing super app." This involves integrating various stages of the moving journey – from initial search and touring to financing and closing – into a seamless, tech-enabled experience. This strategic pivot is designed to monetize Zillow's vast audience more effectively by capturing a larger share of the transaction value, regardless of broader market conditions.

Central to Zillow's competitive positioning is its differentiated technology. The company has a long history of leveraging data and artificial intelligence, dating back to the introduction of the Zestimate in 2006. Today, this technological edge is evident in tools like Zillow Showcase, which utilizes AI-powered rich media and interactive floor plans to create immersive listing experiences. Showcase listings not only drive significantly higher buyer engagement but also sell faster and for approximately 2% more than comparable non-Showcase listings on the platform, representing a tangible benefit of over $9,000 on an average home sale. Furthermore, agents using Showcase are reportedly winning 30% more listings, highlighting its value as a business-building tool. Zillow is actively integrating new capabilities, such as Virtual Staging AI, to further enhance these offerings.

Beyond consumer-facing features, Zillow's technology powers efficiency for real estate professionals. The integration of the Follow Up Boss CRM into the Enhanced Markets experience allows agents to better manage leads and streamline communication, with over 90% of connections in these key markets now flowing through the platform. Real Time Touring technology, enabled by the acquisition of ShowingTime, has digitized the touring process, making it easier for buyers to book viewings and helping Zillow identify high-intent customers. This technology now accounts for 36% of all connections, a significant increase from 12% a year ago. These technological advancements collectively contribute to Zillow's competitive moat, enhancing user experience, improving conversion rates, and driving operational efficiency for partners.

The competitive landscape in digital real estate is dynamic, featuring rivals like Redfin, Realtor.com (operated by News Corp (NWSA)), Compass (COMP), and CoStar Group (CSGP) (Homes.com). While Zillow holds a dominant position in online search traffic and brand recognition, competitors offer varying strengths. Redfin emphasizes a brokerage model with in-house agents, aiming for cost efficiency per transaction. Realtor.com leverages strong MLS partnerships for comprehensive data access. Compass focuses on providing technology tools to agents, while CoStar Group is strong in data analytics. Zillow's strategy differentiates itself by building an integrated ecosystem that spans the entire transaction, aiming to provide a one-stop shop for consumers and professionals. This approach, supported by its technological lead and strong brand, positions Zillow to potentially gain market share, although it faces challenges related to profitability margins compared to some data-focused competitors and ongoing legal challenges, such as the recent lawsuit filed by Compass regarding listing standards. Zillow maintains that its listing standards promote transparency and benefit the broader market.

Operational Execution and Financial Momentum

Zillow's strategic focus on integrating services and enhancing its marketplace offerings is translating into solid financial performance, even against a backdrop of challenging macroeconomic conditions in the housing market characterized by low inventory and volatile interest rates. The first quarter of 2025 demonstrated this momentum, with total revenue reaching $598 million, a 13% increase year-over-year, exceeding the company's guidance.

This growth was broad-based across segments.

Residential revenue grew 6% to $417 million, driven by a combination of increased revenue per visit and higher overall visits. This reflects the impact of enhanced product offerings like ShowingTime and the continued growth of the Premier Agent program and new construction marketplace. Mortgages revenue saw a significant 32% jump to $41 million, primarily fueled by a 32% surge in Zillow Home Loans purchase loan origination volume to $796 million. The integration of Zillow Home Loans within the Enhanced Markets and features like BuyAbility are proving effective in driving this growth, with 70% of movers choosing ZHL also working with a Premier Agent partner.

The Rentals segment continued its impressive trajectory, with revenue climbing 33% to $129 million, reaching an all-time high. This growth is powered by increasing multifamily property listings, which reached 55,000 by the end of Q1 2025 and accelerated to 60,000 by early May, representing a 38% year-over-year increase. The increase in revenue per average monthly rentals unique visitor (up 20%) indicates that property managers are finding value and increasing their spend on the platform, recognizing Zillow Rentals' leading audience and high-quality leads. Strategic partnerships, including the recently launched Redfin collaboration and the existing Realtor.com agreement, are expected to further boost this segment.

Operationally, Zillow is demonstrating cost discipline, particularly on its fixed cost base. While sales and marketing expenses increased (driven by headcount and rentals advertising), general and administrative costs decreased due to active cost management. This operational efficiency contributed to a stable gross margin of 77% and, notably, resulted in Zillow achieving positive GAAP net income of $8 million in Q1 2025.

The company maintains a strong liquidity position, ending Q1 2025 with $1.6 billion in cash and investments. Net cash provided by operating activities was $104 million, up from $80 million in the prior year period. Zillow is also actively managing its capital structure, repurchasing $250 million in shares during the quarter and planning to settle its outstanding 2025 convertible notes in cash and stock premium upon maturity in May 2025, aiming to be convertible debt-free by Q2 2025. A recent authorization for an additional $1 billion in share repurchases underscores confidence in future cash flow generation and commitment to returning capital to shareholders.

Outlook and Strategic Acceleration

Looking ahead, Zillow's management is confident in its ability to sustain growth and expand profitability despite the prevailing uncertainty in the housing market. The company's guidance for Q2 2025 anticipates total revenue between $635 million and $650 million, implying an 11% to 14% year-over-year increase. This outlook assumes continued mid-single-digit growth in For Sale revenue (Residential and Mortgages) and an acceleration in Rentals revenue growth to over 35% year-over-year.

The full year 2025 outlook calls for low to mid-teens revenue growth, with Rentals expected to grow approximately 40%. This projected outperformance relative to an anticipated low to mid-single-digit growth in the overall housing market is directly tied to the expected acceleration of Zillow's strategic initiatives. The methodical expansion of Enhanced Markets, aiming to cover over 35% of connections by year-end, is expected to drive increased conversion and revenue per transaction. The continued scaling of Zillow Showcase towards its 5% to 10% listing coverage target represents a significant incremental revenue opportunity. Furthermore, the Rentals business is expected to benefit substantially from increased multifamily property adoption and the Redfin partnership, which is anticipated to become accretive to EBITDA in the second half of 2025.

Management emphasizes that their cost structure is positioned for leverage. They believe the current fixed investment level (around $1 billion annualized) is sufficient to achieve their near-term strategic targets, with fixed costs expected to grow only modestly with inflation. While variable costs will see investment, particularly in Rentals and Zillow Home Loans sales teams, the overall strategy is designed to deliver continued EBITDA margin expansion and positive GAAP net income for the full year 2025. This focus on profitable growth underscores the maturity of Zillow's business model and its ability to generate value for shareholders even in a subdued market.

However, the path forward is not without risks. The persistent macroeconomic uncertainty, including potential shifts in interest rates and inflationary pressures, could impact housing transaction volumes and consumer demand. The evolving regulatory landscape and ongoing litigation, such as the Compass lawsuit challenging Zillow's listing standards, could introduce operational complexities or affect market dynamics. Reliance on third-party data and services, as well as the ability to protect intellectual property in a rapidly advancing technological environment (including AI), also remain key considerations. Despite these challenges, Zillow's management believes its strong brand, technological leadership, diversified business lines, and disciplined cost management position the company to navigate the current environment and capitalize on the long-term opportunity in the digital real estate market.

Conclusion

Zillow Group is executing a deliberate and increasingly successful strategy to transform the residential real estate experience through its housing super app vision. By leveraging its dominant brand and audience, investing in differentiated technology like Zillow Showcase and integrated platforms, and methodically expanding its Enhanced Markets, the company is driving tangible improvements in conversion and revenue per transaction. The robust growth in the Rentals segment, fueled by increasing multifamily adoption and strategic partnerships, provides a significant and accelerating revenue stream that diversifies the business beyond the cyclical For Sale market.

The strong financial results in Q1 2025, including double-digit revenue growth and the achievement of GAAP profitability, demonstrate the operational effectiveness of this strategy and the benefits of disciplined cost management. While macroeconomic headwinds and competitive pressures persist, Zillow's clear outlook for continued low to mid-teens revenue growth, expanding EBITDA margins, and full-year GAAP profitability in 2025 signals confidence in its ability to grow through the current market cycle and capture greater share. For investors, the narrative centers on Zillow's potential to convert its vast top-of-funnel advantage into sustainable, profitable growth by digitizing and integrating the transaction journey, ultimately working towards its ambitious mid-cycle financial targets.