Zillow Group, Inc. Class A (ZG) Earnings

Management highlights

- Consumer Engagement and Brand Positioning * Zillow has more than 2x the daily active app users of its closest competitor, with 80% of traffic coming directly to Zillow's apps and sites. It is the only large residential real estate company to expand audience reach consistently over the past 7 quarters, outperforming a declining overall category amid high mortgage rates. * Average transacting buyers using preferred agents visit Zillow nearly 100 times for 15 total hours of engagement before connecting to an agent, creating deep proprietary user data that is difficult to replicate. - AI Product Development * AI Mode, Zillow's native AI search tool, is now live to ~20% of signed-in users. Early results show AI Mode users spend 3x more time on the platform, view 2x more homes, run nearly 3x more searches, and contact agents at a nearly 3x higher rate than non-users. For renters, AI Mode users request tours at 3x the rate and submit applications at 2x the rate of non-users. * A new personalized moving hub launched in early summer 2026, organizing all buyer milestones in a single location to identify high-intent buyers and surface relevant products. - Product Expansion for Buyers, Sellers and Agents * Zillow Home Loans, integrated directly into the home search experience with real-time budget verification, is now a top-25 purchase lender in the U.S. Average loan officers originate ~2x the industry average monthly purchase volume, with customer acquisition costs a fraction of traditional lenders, a structural advantage expected to grow with scale. * Zillow Preview, a new pre-listing marketing product for sellers, has over 100 brokerage partnerships, with syndication to realtor.com scheduled for later summer 2026. Zillow Showcase is now on 5% of all new listings, with agents who use Showcase on most listings winning 35% more listings than non-users. * Rich media (3D Home tours, interactive floor plans) is on 11% of all new for-sale listings (30% in top 10 markets). Instant floor plans, allowing 3D floor plan capture via smartphone, will launch later this year to lower adoption friction. * Follow-up Boss (Zillow's CRM tool) had 138,000 monthly active users in Q2, up 21% year-over-year. Zillow Pro, a new premium agent membership launched nationwide in June 2026, connects agent CRM data to the Zillow platform, delivering higher transaction volumes for member agents. - Leadership and Restructuring * Zillow eliminated ~7% of roles in a restructuring announced before the call to create a more efficient, sustainable cost structure and enable faster decision-making. Growth investments remain unaffected by the restructuring. * Jeremy Hofmann was appointed to the expanded role of COO and CFO, following former COO Jun Choo stepping down to focus on his health. Sandy Knight joined as new Chief Legal and Policy Officer from Google.

Guidance

- Full Year 2026 Guidance: * Maintains mid-teens total revenue growth, with a total revenue range of $2.92 billion to $2.96 billion. * Maintains ~30% year-over-year revenue growth for the Rentals segment. * Revises purchase mortgage origination market expectations to a low to mid-single digit year-over-year decline, from the prior expectation of flat growth, due to ongoing affordability pressure from higher interest rates. * Expects full year adjusted EBITDA of $730 million to $760 million, with continued EBITDA margin expansion. Full year share-based compensation is expected to decline more than 15% year-over-year. * Expects more than 75% of all consumer connections to transition to the Zillow Preferred model by end of 2026, with a 400 to 600-basis-point headwind to for-sale revenue in Q4 2026 from seasonality and revenue recognition timing shifts. A 700 to 800-basis-point revenue shift from residential to mortgages within the for-sale segment is expected for full year 2026. - Q3 2026 Guidance: * Expects total revenue of $745 million to $760 million, implying ~11% year-over-year growth at the midpoint. * Expects for-sale revenue growth of 5% to 7% year-over-year, with flat year-over-year residential revenue (including a 600 to 700-basis-point headwind from the residential-to-mortgage revenue shift). Mortgages revenue is expected to grow more than 50% year-over-year. * Expects Rentals segment revenue growth in the high 20% range year-over-year. * Expects adjusted EBITDA of $180 million to $200 million, with a 25% EBITDA margin at the midpoint, and EBITDA expenses of $560 million to $565 million. - Long-term Transition Expectations: * Revenue recognition headwinds from the Preferred transition are expected to moderate starting in the second half of 2027, after accelerating through the second half of 2026 and first half of 2027. Seasonal headwinds in Q4 2026 are expected to reverse in Q1 2027. Zillow expects 35% higher revenue per connection for the Preferred model by end of 2026, up from 23% in 2025.

Segment performance

1. For Sale Segment: - Total Q2 2026 revenue: $549 million, growing 14% year-over-year. This segment contributes 71.1% of total company revenue. - Residential revenue: $465 million, up 7% year-over-year. Growth is driven by Zillow Preferred, Showcase, new construction, and agent software tools, partially offset by a decline in legacy market-based pricing revenue. - Mortgages revenue: $84 million, growing 75% year-over-year, driven by 95% year-over-year growth in purchase loan origination volume from expanded preferred program connections and higher-than-expected conversion rates. 2. Rentals Segment: - Total Q2 2026 revenue: $209 million, growing 31% year-over-year. This segment contributes 27.1% of total company revenue. - Multifamily revenue grew 42% year-over-year, driven by a 23% year-over-year increase in total multifamily properties (reaching an all-time high of 79,000) and growing wallet share from existing property managers upgrading subscription packages, as Zillow delivers the highest marketing ROI in the category.

Risks & headwinds

- Macroeconomic risk: Persistently high mortgage rates have increased affordability challenges, leading to larger-than-expected declines in purchase mortgage origination volumes compared to prior expectations, which negatively impacts Zillow's revenue growth and conversion rates for Zillow Home Loans. - Transition-related risks: The accelerated shift to the Zillow Preferred model creates temporary headwinds from cross-segment revenue shifts, delayed revenue recognition, and altered seasonality, which create volatility in year-over-year comparable results through 2026 and the first half of 2027. - Competitive risk: New market entries from large technology players (including Google's expansion into local real estate services) create potential competitive pressure, though Zillow notes limited current impact due to its high direct traffic share and differentiated end-to-end offering. - Legal and regulatory risk: Ongoing legal and regulatory proceedings (including FTC litigation and industry litigation) create potential operational and financial uncertainty, though management notes no current material impact on core business results.

Analyst Q&A

• Q: Does the leadership change (Jeremy Hofmann adding COO to his CFO role) signal a broader strategy shift, and why was this change made now?

  A: Management confirmed there is no change to Zillow's existing strategy. The change is designed to align strategy and operational execution under one leader to enable faster, more coordinated decision-making as Zillow scales its integrated housing super app strategy. Jeremy Hofmann has been a core architect of Zillow's current strategy over 9 years, and the move follows former COO Jun Choo stepping down to focus on his health, with a seamless transition expected.

• Q: Why did Zillow implement layoffs now, and will the cuts impact its core growth investments?

  A: Management stated the restructuring was not driven by weak performance, but to create a leaner, more efficient cost structure that enables faster decision-making. No core growth investments (including AI product development, Preferred expansion, and Rentals growth) will be impacted by the cuts. The restructuring is expected to deliver $75 million in annualized EBITDA cost savings, with an incremental $140 million in savings when including reduced planned headcount growth.

• Q: What is driving sustained high Rentals growth even after lapping the Redfin acquisition, and how does Zillow's competitive position support this?

  A: Sustained growth is driven by Zillow's differentiated offering: it has the largest, most diverse inventory (2.8 million average monthly active listings in Q2, 79,000 multifamily properties) and an integrated end-to-end renter experience including portable applications and custom leases. Zillow delivers higher marketing ROI for multifamily property managers than both competing rental platforms and general digital channels like search and social media, driving increasing wallet share even after the boost from the Redfin partnership.

• Q: How does the shift from legacy advertising to the integrated Preferred model impact profit margins, particularly with the shift from third-party co-marketing revenue to in-house Zillow Home Loans revenue?

  A: While early investment in Zillow Home Loans created margin pressure, ZHL's unit economics are now profitable across both fixed and variable costs. Management expects ZHL profit per loan will reach parity with preferred agent referral fees as the business scales. The overall revenue per connection for the Preferred model is already 23% higher than the legacy model (expected to reach 35% by end of 2026), and Zillow's mid-cycle targets of 45% EBITDA margins already fully account for the current shift to the integrated model.