Growth In Residential, Rental And Mortgage Segments Lift Zillow In Q1

QAR Template neutralZillow 1024x454

QAR Template neutralZillow 1024x454

At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.

Zillow Group started the year on the right foot, as strong growth in its residential, rental and mortgage segments pushed its total first-quarter revenue up 13 percent year over year to $529 million — a performance that put the Seattle-based company five percent above the midpoint of its outlook range.

Once again, Zillow’s rental segment was the star of the show in terms of percentage growth, with a jump in multifamily revenue (+46 percent) pushing the vertical’s overall revenue up 31 percent year over year to $97 million. The mortgage segment also saw strong growth, with revenues growing 19 percent annually to $31 million, primarily driven by 130 percent growth in Zillow Home Loans purchase loan origination volume.

The company’s residential revenue improved compared to Q1 2023; however, it failed to match the double-digit annual growth of the rental and mortgage segments at 9 percent. Still, residential revenue, which includes Premier Agent, ShowingTime+ and Follow Up Boss, reached $393 million — accounting for the lion’s share of Zillow’s success.

Zillow’s losses increased marginally during the quarter, rising 4.5 percent from $22 million in Q1 2023 to $23 million in Q1 2024. However, Q1 2024 marks a notable improvement compared to Q4 2023, when the company tallied a net loss of $73 million.

Zillow co-founder and CEO Rich Barton said he was pleased with the company’s first-quarter performance, citing the residential segment’s growth outpaced the residential real estate industry’s total transaction value growth (4 percent) based on the National Association of Realtors data.

“Zillow’s strong revenue numbers across the business helped us once again meaningfully outperform the residential real estate industry as we continue to execute on our growth strategy and expand the breadth and depth of market coverage for the housing super app experience in 2024,” Barton said in a statement. “We’ve organically amassed and maintained a large, engaged audience and strong brand, and we’ve been investing heavily in software to digitize and integrate the end-to-end moving transaction for consumers, their agents, and their loan officers.”

Barton and COO Jeremy Wacksman provided additional insight in the company’s shareholder letter.

The letter focused on Zillow’s ability to cut through a “noisy industry environment” and maintain the biggest base of “high-intent customers,” as evidenced by 2.3 billion visits to Zillow Group’s mobile apps and sites during Q1. The company had 217 million average monthly unique users during the same period, representing flat annual growth.

“This is a hard-earned position that we have built over the past 18 years,” the letter read. “Zillow is searched more on Google than the category term ‘real estate’ and three times more than the next brand in the category. Eighty percent of our traffic is organic, and our app usage is more than three times that of anyone else in the category.”

“We’ve built and maintained such a strong brand position because of our relentless focus on delivering exceptional tech innovations and customer experiences — which we believe are our most important investments,” it continued.

The letter goes on to indirectly address the increasing criticisms Zillow has faced this quarter, as CoStar founder and CEO Andy Florance became increasingly bullish in his pursuit of making the number one residential real estate portal in the U.S.

Florance’s strategy includes a $1 billion star-studded advertising campaign, the $1.6 billion acquisition of 3D scanning company Matterport, and the presumed power of’s “Your Listing, Your Lead” model compared to Premier Agent in the face of impending buyer-broker commission model changes.

“With respect to the current state of the residential real estate industry, we are pleased that we are moving towards more certainty,” the letter read. “The long-running class-action suit against NAR and select brokerages arrived at a proposed settlement in mid-March, and the judge just granted preliminary approval of the settlement last week.”

“The substance of the settlement is what we’ve characterized as a very reasonable ‘middle path’ forward for the industry, where commissions are negotiated and communicated between buyers and sellers, and both parties are better educated,” it added. “As the industry evolves, we believe that our brand and audience will thrive for three reasons.”

Those reasons include many of the talking points Zillow leaders have focused on over the past year, including messaging surrounding the long-awaited “super app” concept (Hint: it already exists as the Zillow app), the launch of an AI-powered listing platform through subsidiary ShowingTime+, and continuing to forge strategic partnerships with brokerages and other portals.

“Zillow is the leading product innovator in residential real estate, with features such as Real Time Touring, Listing Showcase, and Zillow Home Loans pre-qualified buyers,” Barton and Wacksman said while highlighting Zillow’s 3D home technology, Aryeo photography software and Dotloop integrations. “We believe that agents who work with our high-intent customers and use our industry software tools are best positioned to accelerate their share in any version of an industry evolution from here.”

The letter also combated conjecture about the company’s downfall in a post-settlement world, where agents would gravitate toward portals with more affordable options than Zillow, which charges a 40 percent referral fee per transaction.

Zillow’s stock fell after NAR’s March 15 announcement about the settlement, which includes $418 million in damages and removing cooperative compensation details from multiple listing services. The settlement also requires MLS participants to have signed buyer representation agreements before touring homes.

A month before NAR’s announcement, Zillow acknowledged what a change in commissions could do to its residential segment, saying in a 10-K filing that a “[reduction] in the marketing budgets of real estate partners or reduce the number of real estate partners participating in the industry, which could adversely affect our financial condition and results of operations.”

That initial fear has seemed to dissipate, with Zillow noting that its Premier Agent base has shrunk by 60 percent since 2015. The remaining agents, they said, are high performers who still see the value in Zillow’s lead generation product.

“Premier Agent revenue has grown by more than 2.5 times [since 2015],” the letter read. “Orienting our business around the best agent teams — those who provide superior customer experiences, have a proven ability to scale, and make the most money to invest alongside us — positions us well for potential shifts within the profession.”

Barton and Wacksman said Zillow will continue to lean into the commission discourse, as evidenced by the short-term non-exclusive touring contract the portal released on Tuesday.

The contract aims to help buyers and buyers’ agents navigate uncertainty around NAR’s settlement terms that require a buyer representation agreement to be signed before touring a home. The touring contract expires after seven days and doesn’t require exclusivity or compensation terms, acting as a stop-gap for homebuyers who might sign an exclusive, binding contract before they’re ready.

NAR offered clarification about the buyer representation agreements on Wednesday, saying buyer agreements don’t necessarily mandate an agency agreement. NAR also said agents have the freedom to determine the terms of the agreement (e.g., one day, one month, one house, one ZIP code).

Zillow said they believe touring conversion rates on the platform will continue to be robust, as evidenced by double-digit differences in conversion rates in states that already abide by the buyer agreement requirements in NAR’s settlement versus ones that don’t.

“In Connecticut, where buyer agreements are required before taking a buyer on a tour, we’ve observed 20 percent higher conversion rates compared with our national average,” the letter said.

Wacksman said this gives Zillow the confidence to push forward on its growth plans for the Premier Agent Real-Time Touring feature and the ShowingTime+ Listing Showcase.

The Real-Time Touring feature will launch in 34 new markets by the end of May, bringing the platform’s total reach to 120 markets. Meanwhile, they’re pushing to improve adoption rates for Listing Showcase, with the goal of 5 percent to 10 percent listing coverage.

“We are testing buyer agreement product flows now within Zillow, and just this week we launched a pilot of a consumer-friendly buyer agreement in our touring experience with a few hundred Premier Agent partners,” he said.

In the company’s Wednesday afternoon earnings call, Barton ended his statements by arguably taking a shot at CoStar while calling out industry members who are counting on chaos to get ahead.

This is a positive evolutionary step for the industry,” he said. “It is not a revolution, as some of those who believe they might profit from chaos and disruption are proclaiming. Clear and negotiable compensation fits quite well with our published consumer advocacy marketplace.”

Zillow’s stock (NASDAQ: Z) has been on a downward path for the past month, with the price per share dropping from $48.22 on April 1 to $41.89 on May 1. Despite their bullishness, the company’s stock didn’t experience a post-earnings pop, instead falling to $38.50 per share in after-hours trading due to expectations that housing sales will remain flat during the second quarter.

Email Marian McPherson.

Zillow Group achieved strong revenue growth in the first quarter of 2024, with significant increases in its rental and mortgage segments. The company’s residential revenue also improved, although it fell short of the double-digit growth seen in other segments. Despite a marginal increase in losses, Zillow’s overall performance was positive, outperforming the residential real estate industry. The company’s leadership emphasized its focus on delivering exceptional tech innovations and customer experiences to maintain its strong brand position.

Zillow faced increasing competition and criticism, particularly from CoStar, but remained confident in its strategy and ability to adapt to changes in the industry. The company addressed concerns about potential impacts from changes in buyer-broker commission models and highlighted its efforts to maintain strong partnerships with brokerages and other portals.

Despite a decline in its stock price and challenges in the market, Zillow expressed optimism about its growth plans and ability to navigate industry changes. The company also launched initiatives to address uncertainties related to the settlement terms from the National Association of Realtors (NAR). Overall, Zillow remains focused on innovation, customer experience, and strategic partnerships to drive its success in the real estate industry.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

scroll to top