Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zillow Group Inc (Z, Financial) reported better-than-expected revenue growth across the business, with Q2 revenue at $572 million, up 13% year over year.
- Rentals revenue grew 29% year over year to $117 million, with multifamily revenue up 44%, driven by strong growth in multifamily property count.
- Zillow Home Loans purchase mortgage origination volume grew 125% year over year, contributing to a 42% increase in mortgage revenue.
- The company has successfully integrated its Zillow-branded housing super app, enhancing the consumer and partner experience across multiple markets.
- Zillow Group Inc (Z) maintained strong cost discipline, resulting in a 23% EBITDA margin for Q2, a year-over-year margin expansion of more than 100 basis points.
Negative Points
- Despite the positive revenue growth, Zillow Group Inc (Z) reported a GAAP net loss of $17 million for Q2.
- The broader residential real estate industry remains challenging, with the total purchase loan origination volume estimated to be down mid-single digits year over year in Q2.
- The company faces ongoing challenges in the mortgage rate environment, which continues to impact the overall market.
- Zillow Group Inc (Z) has a significant amount of outstanding convertible debt, with $1.5 billion due in the coming years.
- The company’s Q3 outlook for residential revenue indicates a potential decline due to normal seasonality and continued strong contributions from other product offerings.
Q & A Highlights
Q: Why is now the right time for the leadership transition at Zillow, and what are the benefits of enhanced markets?
A: Rich Barton, Co-Founder and Co-Executive Chairman: The company is executing well despite the challenging real estate macro environment. Strategically, we have de-risked our housing super app, rentals, and mortgages strategies. Jeremy Wacksman has been instrumental in this success, making now the right time for him to take over as CEO. Enhanced markets improve revenue per transaction and market share by offering Real-Time Touring, Zillow Home Loans, and an enhanced partner network. We are expanding to 36 markets by the end of August and 40 by the end of the year.
Q: Can you elaborate on the key drivers behind the 44% growth in multifamily rentals and the benefits of app engagement?
A: Jeremy Wacksman, CEO: Our rentals strategy focuses on assembling a comprehensive inventory of multifamily and long-tail properties, which attracts the largest audience of renters. This two-sided marketplace drives engagement and revenue growth. Our app usage is three times higher than competitors, indicating deep engagement and brand loyalty. This engagement is crucial for converting users into transactions, supporting our goal of achieving 6% transaction share.
Q: What are your views on the upcoming regulatory changes in real estate commissions, and how might they impact Zillow?
A: Jeremy Hofmann, CFO: We believe we and our Premier Agent partners will benefit from these changes. Our partners are top producers who provide excellent service, and we offer the best technology. While commission rates have stayed within a tight band, we expect our partners to continue delivering value and gaining market share.
Q: Are there any markets where Zillow is close to achieving the 6% transaction share target?
A: Jeremy Wacksman, CEO: In our oldest enhanced markets, we have seen revenue per total transaction value grow by 80% year over year. This trend is consistent across newer markets, giving us confidence that we are on track to achieve our transaction share goals as we expand our enhanced market strategy.
Q: How did the first-time homebuyer market impact your Q2 results, and what are your expectations for Q3?
A: Jeremy Hofmann, CFO: The mortgage market was challenging in Q2, but we outperformed due to strong conversion rates and product experiences. We expect similar trends in Q3, with continued outperformance driven by our enhanced markets and diversified revenue streams.
Q: What are your top goals for Zillow over the medium term, and how do enhanced markets impact your margin profile?
A: Jeremy Wacksman, CEO: My focus is on accelerating our enhanced markets strategy, growing our rentals and mortgage businesses, and continuing to innovate with our software solutions. Jeremy Hofmann, CFO: Our fixed costs are well-managed, and we expect revenue to grow faster than costs, leading to margin expansion. Stock-based compensation is also being controlled, which will help us achieve GAAP profitability.
Q: Can you provide more details on the Touring Agreement and its impact on conversion rates?
A: Jeremy Wacksman, CEO: Touring actions already convert at higher rates, and the Touring Agreement is expected to further improve conversion by educating and qualifying consumers. Early pilot data showed positive results, leading us to roll it out to 80% of connections, with plans for full implementation.
Q: How are you managing capacity and staffing for Zillow Home Loans, especially if there is a mini refi wave?
A: Jeremy Wacksman, CEO: Our focus remains on purchase loans, which align with our integrated transaction strategy. We are scaling methodically to meet demand and are well-positioned to handle any future increases in refinancing activity.
Q: What is your outlook for the residential housing market in Q3, and how does it impact your Premier Agent business?
A: Jeremy Hofmann, CFO: We expect mid-single-digit growth in residential transactions, despite recent fluctuations. Our Premier Agent business may see some underperformance due to the challenging mortgage market, but we remain confident in our overall strategy and continued outperformance.
Q: How does the enhanced markets strategy contribute to GAAP profitability?
A: Jeremy Hofmann, CFO: Enhanced markets improve revenue per transaction and market share, contributing to overall revenue growth. Our fixed costs are well-managed, and we are controlling stock-based compensation, which will help us achieve GAAP profitability over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
