Good afternoon. My name is Elliot, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Zillow Group First Quarter 2024 Conference Call. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Brad Berning, Vice President, Strategic Affairs and Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Zillow Group's First Quarter 2024 Conference Call. Joining me today to discuss our results are Zillow Group's Co-Founder and CEO, Rich Barton; COO, Jeremy Wacksman; and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. This call is being broadcast on the Internet and is accessible on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we will refer to as EBITDA. We encourage you to read our shareholder letter and earnings release, which can be found on our Investor Relations website, as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will now open the call with remarks followed by live Q&A. And with that, I will turn the call over to Rich.

Thanks, Brad. Good afternoon and good evening for those on the East Coast. Thanks for dialing in to hear our first quarter 2024 results. We saw strong revenue numbers that flowed through to the bottom line, helping us outperform our outlook on revenue and EBITDA as we successfully execute on our growth strategy. We continue to upgrade and scale our housing super app, and we've seen further proof points in our Enhanced Markets that support a continued push on both breadth of market coverage and depth of penetration within those markets for our integrated digital moving solutions for consumers, their agents and their loan officers. Today, I'll remind us about what makes Zillow different, and what makes me so confident in our growth plan. Jeremy Wacksman will then give a progress report on our growth pillars with a deep dive into our burgeoning Rentals business. Next, Jeremy Hofmann will discuss the numbers in more detail, and then we'll open things up for Q&A. Beginning with our quarterly results, we reported better-than-expected revenue growth across the business. Q1 revenue of $529 million grew 13% year-over-year. Total revenue growth once again outperformed the residential real estate market. Rentals continued its strong growth, with $97 million in revenue in Q1, up 31% year-over-year. We continue to grow our multifamily property count, with 40,000 properties at the end of the quarter, up from 37,000 at the end of December. We are well positioned for future Rentals revenue growth as we detail in our new Investor Relations deck that is a deep dive on our Rentals business. We published this new deck along with earnings today, and we'll discuss it in more detail later in this call. In an ongoing tough rate environment, we also continued to make strong progress in Mortgages with Q1 revenue…

Thank you, Rich, and good afternoon, everyone. It's been an exciting few years at Zillow, and we're pleased with the progress we're making on our strategy to transform the way people buy, sell, rent and finance homes. Since 2022, we've been building the integrated transaction experience and testing it in our Enhanced Markets. Now, we are pressing on the accelerator to increase our breadth of coverage across more markets and our depth of penetration in those markets as we drive towards sustainable profitable growth. Zillow's housing super app is the container into which we're continually adding updates and improvements, guided by 5 for-sale growth pillars: touring, financing, seller solutions, enhancing our partner network and integrating our services. Our for-sale growth pillars marked the pathway to meeting our goals to grow customer transaction share from 3% to 6% by the end of 2025 and grow our revenue alongside that transaction share growth. I'll kick off our growth pillar update with touring and how we are integrating the anticipated rule changes coming from the NAR settlement into our customer experience. Touring is a critical focus area for us for two reasons. First, historically, the process of booking a home tour has been burdensome. Second, when a customer raises their hand to tour a home they've been looking at on Zillow, it's a strong signal of a serious intent to transact. Our touring products, powered by ShowingTime, are meaningfully improving our ability to connect high-intent customers to our Premier Agent partners. As you may recall, touring connections convert at 3x the rate of other actions on Zillow. We're pleased to share that Real Time Touring is rolling out to an additional 34 markets by the end of May, which will bring us to a total of 124 markets. As we outlined in February,…

Thanks, Jeremy, and hello, everyone. As you heard from Rick and Jeremy, we are pleased with how we are executing on our strategy, and our results once again demonstrate that our strategy is working well. I will start with our Q1 2024 results, which exceeded expectations across the business for revenue and EBITDA. Revenue growth accelerated in Q1, up 13% year-over-year to $529 million, which was $26 million above the midpoint of our outlook range. The broader residential real estate industry grew 4% in the quarter, according to data from NAR, meaning that we outperformed the category by 900 basis points. Each of our revenue categories across Residential, Mortgages and Rentals contributed to our outperformance. On a GAAP basis, Q1 net loss was $23 million, representing 4% of our revenue. EBITDA was $125 million for the quarter, resulting in a 24% EBITDA margin, a year-over-year margin expansion of 200 basis points. The combination of our revenue outperformance and effective cost management delivered the improved year-over-year EBITDA results despite a macro housing environment that remains constrained. Our Q1 Residential revenue of $393 million outperformed our outlook range, and revenue growth accelerated to 9% year-over-year. Premier Agent benefited from the ongoing investments in our top and mid-funnel experiences that drove improvements in our overall connection rates. Additionally, our growth was driven by accelerating growth in our new construction business, growth in ShowingTime+ as we began our nationwide rollout of Listing Showcase, with additional contributions from Follow Up Boss. Rentals revenue grew 31% year-over-year in Q1 to $97 million, primarily driven by our multifamily revenue, which grew 46% year-over-year. Our Rental strategy is working well, and our team is executing on growing the number of multifamily properties on our apps and sites, which reached an all-time high of 40,000 multifamily properties as of…

[Operator Instructions] Our first question comes from Our first question comes from Brad Erickson with RBC.

I guess two for me. One, obviously, it sounds like the Residential business has slowed down here. You mentioned the full year guide, though, hasn't really changed. So I guess, steeper second half ramp implied. Clearly, you guys are investing in Rentals, and that was baked in. But I think relative to last quarter, maybe just talk about your confidence in that second half ramp. And besides Rentals, what else is kind of instructing that confidence on maintaining the guidance?

Yes. Thanks, Brad. It's Jeremy Hofmann. I'll take that one. I think similar to what we've said in the past, we don't over focus on quarter-to-quarter fluctuations, just given how fluid macro has been and will continue to be. What gives us confidence is we're outperforming our internal plan. We expect to do so with what we guided for the second quarter and expect to do so for the first half of the year on both revenue and EBITDA. And when I look at our strategy and what we're executing across, we feel really confident that the second half is going to accelerate and will grow double digits against the flattish housing market. And that comes from a few factors. So I think first, more contributions from our Enhanced Markets will come in the second half as they come online, and that's all back half weighted. We're seeing continued share gains and positive signals in the 13 Enhanced Markets to date. Jeremy hit that earlier, but across revenue per total transaction value and customer adoption rate. So we feel good there. Mortgages, we expect to continue to accelerate. Showcase is rolling out nationwide and accelerating. And then obviously, Rentals is growing quite nicely, and we expect that to continue as well. So that's what gives us the confidence around the reacceleration that we expect to see in the second half.

Got it. That's helpful. And then just secondarily on the regulatory front, specifically around the buyers' agreement. You mentioned that arrangement and the product you announced, I guess it was yesterday, leading to maybe higher conversion rates. I think there's some investor concern out there where there's still going to be some friction, maybe higher up in the funnel. Can you kind of talk about how you manage that part of it and maybe why it's not a headwind relative to kind of how the old way used to work?

Yes. Brad, it's Jeremy Wacksman. Yes, as I said earlier, I mean, we see this as a great opportunity. What we're testing is post connection, right? So after a consumer has already requested, or in the Real Time Touring case, booked a tour, can we help educate them and provide them a really consumer-friendly digital education agreement? And we see that as better educating the customer and also expectation setting the customer for when they meet the agent as what to expect from the agent, both in that initial relationship but in what they might expect in a buyer-agency agreement generally. And any time we can help educate a customer, that typically leads to a higher quality customer for our agents. We've seen that as we've built things like touring and Real Time Touring. And I gave the example earlier, in states that have been using agreements earlier in the funnel, you typically see higher conversion rates. The Connecticut example is a good one. It's 90% of buyers are using buyer-agents and the conversion rates are higher. So I think important to frame it in the context of this is down in the funnel once the customer has already raised their hand, really declared their intent. We've worked with them to make sure we're getting them to the right place. They've had this magical book a tour experience, and they're getting ready to go. And this is an additional education opportunity. It's not friction.

We now turn to John Campbell with Stephens.

Just back to the new Zillow touring agreement, that's a pretty clever development. Congrats on getting that to market. I want to touch on two items related to that. So first, if there are agents that are unwilling to adopt that new touring agreement, will those agents simply lose the ability to get tour requests through ShowingTime? And then secondly, just more broadly, how important do you feel the role of touring is for your journey of moving from 3% of transactions to 6%?

Yes, this is Jeremy. I'll hit both. It's optional, right? So it's not something that Zillow is required to do. That's why I said we see it as opportunity. It's an educational step. At some point in the experience, the agent is going to have a conversation with the customer about services and start an agreement in our relationship. We're trying to help facilitate that. So we don't expect any fall-off or friction because it is an optional experience. And that said, we're prototyping and testing. We'll learn a lot as we work with our first couple of hundred agent partners and customers, and we'll iterate from there. So -- and then to your second question, we see touring as, again, as we've talked about for a while, it's the #1 thing customers want to do. That's why we're so excited about it. That's why it's one of our growth pillars and one of the drivers of the performance gains we've seen in our Enhanced Markets to date and the overall share gains we expect to see as we roll out to more markets. That is both physical touring, which we've talked about here, and virtual touring, right? So getting customers a deeper sense of home, helping them figure out what they want to go see in person helps higher-quality customers be more educated, informed when they raise their hands, that helps our agents win more of those customers when they meet them and drive transaction share. So we're excited about the opportunity the changes the evolution Rich talked about provide. This is one of the first ways in which we're trying to leverage and help make those marriages between consumers and agents happen.

Okay. That's helpful. And then one more to tack on here on Matterport. I mean, obviously, it looks like it's heading to one of your competitors. I know you're not going to probably comment on pending transaction or maybe what that ripple effect, call it, for the market. But maybe if you could just talk to your own 3D tour capabilities and how you feel that stacks up?

Yes. We are really excited about our own homegrown 3D tech. We're excited about virtual touring generally. We support Matterport today. It's a small percentage of listings today, and our 3D technology is on a small percentage of listings today. And that virtual touring capability is going to continue to grow as consumers discover, love it and as we all improve our own technologies. So we're really happy with our homegrown effort. And as you know, that is what powers Listing Showcase and all of the really unique interactive floor plan, AI-generated listings I talked about earlier that drive a ton more buyer engagement and are helping listings go pending and sell faster and sell for more money. So we love the investment that we're making here, and we really see this as where the consumer experience is going. But it's early, and all of us are small. And retraining the consumer to allow more touring in the virtual world, we think, complements the physical touring investments we're making. Again, back to the earlier conversation, helping consumers find what they want to buy, helping them dream and shop more online and their app and getting them into the hands of our great agent partners.

We now turn to Ron Josey with Citigroup.

Rich, I wanted to ask on the Rentals business, only because clearly it's a big strategic priority and the deck was very helpful, and on a $400 million run rate currently, and I think the view is to get to that $1 billion, if I read the deck correctly, in revenue. So I wanted to maybe focus more on multifamily growth, and we talked about, I think, 35% penetration of the, call it, those that are available properties to 40,000 properties today. Just talk to us about the life cycle for getting these multifamily properties onto the platform, the importance to Rentals for first-time buyers? And then maybe as a quick follow-up to that, how Rentals -- it's been a big business for Zillow for a while, creates a deeper relationship with Zillow over, call it, the entire housing process of a person. And I have a quick follow-up.

Ron, guys, maybe I'll start out with a little bit of a strategy answer and then Jeremy Wacksman, maybe talk about -- or Jeremy Hofmann will talk about the multifamily question that Ron asked. Yes, we -- I really love the Rentals play as you know, Ron. It is a textbook example of a two-sided digital marketplace opportunity. It's the kind of opportunity that our Board Director, Bill Gurley, who many of you know, who's really a thought leader on digital marketplaces, would really love. It turns out that I've been roughly involved in -- intimately involved in building several kind of successful digital marketplaces since the dawn of the Internet as well, and it makes me excited. So let me just tick through why. One, it's hyper-fragmented and locally distributed inventory on the supply side of the marketplace. Likewise, it's really fragmented on the renter or the demand side of the marketplace, okay? Also, there is volatile pricing and volatile availability, which promotes market monitoring, so high engagement from both sides of the marketplace. Additionally, there is heavy shopper interest in content as both practical and for entertainment as part of the shopping process, which lends itself well to a digital marketplace. Very high gross margin, which we all, as investors love. And finally, marketplaces have a positive network effect, which is more supply begets more demand, which begets more supply. So we're seeing all of those things in action here in our rental marketplace. We knew from the beginning that acquiring demand at a really reasonable price, basically near 0 marginal expense, is key to making these kinds of marketplaces work, and that keeping the supply side inventory acquisition costs very low is going to be key as well, and we feel very good on both of those.…

Yes. I mean I think the answer is similar to the framework you gave around it being a two-sided marketplace. We have been building the overall organic traffic and listings for the renter experience, and that's driven the demand side broadly. Now we're focusing in on increasing demand, more specifically in multifamily, and you're seeing that both in our partnership with Realtor.com and in our advertising campaign following a really successful test last year. And that's on the demand side of Rich's two-sided marketplace. And then the supply side is bringing those high-intent renters to the professionals Rich talked about and increasing our sales efforts to go help those folks connect with our renters and get what they need from their advertising dollars. So it is really about the flywheel Rich talked about, and it's just the focus in on multifamily on both the demand side and the supply side that we're now turning more focus and energy to.

We now turn to Mark Mahaney with Evercore ISI.

Okay. Let me try a few, please. The Q2 guide, you don't have this kind of outpacing of real estate industry total transaction value that you've had pretty consistently for a while. Maybe you covered this before, but if not, could you please go through that? Why wouldn't you outpace? And then on the Showcase new listings, can you just talk about what kind of traction you're seeing with that? I know you covered a little bit in the shareholder letter, but reactions you've had to the pricing models that you rolled out at the beginning of the year?

Yes. Thanks, Mark. It's Jeremy Hofmann. I'll take the first one on the guide. Yes, we called out a few factors that are headwinds right now. One is first-time homebuyers are just struggling in this market. And we lean that way, so we're feeling that a bit. And then additionally, just when rates spike like this as quickly as they did over the past few weeks, our Premier Agent partners just tend to be in a more of a wait-and-see environment. So we're feeling both of those at the moment. This is not dissimilar from what we felt this time 2 years ago, where PA partners took a bit of a wait-and-see approach when rates spiked and then ultimately, we worked through it. So like I said earlier, not necessarily too focused on the quarter-to-quarter fluctuations, and just reiterating that we think revenue reaccelerates in the back half of the year to get us to that double digits revenue growth against the flattish housing market. We continue to feel good there for a variety of reasons, just the way that we're executing across Residential, Mortgages, Showcase and Rentals as well. And then, Jeremy, maybe I'll pass to you.

Yes. I can hit Listing Showcase. Yes, I mean, as I said earlier, we're really excited that the increased engagement from the buyers continues, right? So more page views, saves and shares as we get showcased out there more and more. We're also now seeing seller benefit, which I talked about. So homes are selling faster, 20% more likely to accept an offer in 14 days, and they're selling for more money, 2% more money. And most importantly, agents who are using with Listing Showcases are winning more listings. So all that says to us that as we've been rolling this out and scaling this up and offering in more locations, we're seeing a really good product market fit, both with -- we knew with buyers, we're now seeing with sellers and with sellers' agents. And that's why we're so excited about the intermediate-term goal we've talked to you all about and getting ourselves to 5% to 10% total active listings because then we think there's potentially more to do once this gets to that state.

Do you have markets where that coverage is materially higher, like a lead market where it's materially higher than 5% to 10%?

Not yet. I mean, we've talked to you all about it for a while now, but it's important to remember it's only been live for a couple of quarters, and it's only been live nationally since February. So team has grown, as Jeremy talked about. We have staffed up sales folks to start to hit more coverage and talk to agents in more places. But as much as we're excited about it, as much as we see a really exciting product here, it is still really early in our journey.

We now turn to Ryan McKeveny with Zelman & Associates.

On Follow Up Boss, you mentioned in the letter being even more excited about the opportunity for conversion gains. I guess if you could provide kind of two sides of an update. One would just be initial receptiveness and maybe retention of legacy Follow Up Boss customers post the acquisition. And then secondarily, I know it's only been a handful of months, but where does integration stand with the PA business? And anything to call out about any benefits to conversion rates thus far? Or is that more opportunity as we move forward?

Yes. Thanks, Ryan. I think on initial reception, we've been really pleased with the retention of the core customers of Follow Up Boss as we've gotten through closing and integration and starting to work together now for a couple of quarters. And we're really pleased to just see the continued positive agent feedback on the Follow Up Boss product. I still get anecdotes all the time, talking to agents, about how much they love it and how much they're excited about our ability to help the Follow Up Boss team grow and invest more in this team-focused CRM that they've built their business on. So we continue to be pleased with the post-close post-acquisition performance of the Follow Up Boss agent base. And then on your second question, I would say it's still a lot of opportunity. I mean I think you heard both me and Jeremy talk about in the prepared remarks, they're starting to ship things for all advertising partners. Or sorry, all agent partners, and we're also starting to think about ways to help Premier Agent partners use Follow Up Boss to better convert their business, both -- they're Zillow customers, but they're entire customers. So not too much more to share in terms of road map, but a whole lot of excited folks internally in both the Follow Up Boss team and our Zillow consumer and Zillow agent teams ideating and working together on how can we help our agents use technology to convert more customers and deliver better service. And we see a long road ahead for that initiative.

Got it. That's very helpful. And then just a follow-up on the 2Q revenue guide in Residential and the comment about some partners taking a wait-and-see approach. I guess if I step back, there's the industry noise related to all the litigation and everything that's going on. There's noise on the competitive side of things, neither of which seemed to be kind of the called out headwinds. So maybe just help us think through that disaggregation of the headwinds in a bit more detail. Like is there any change on the margin coming from competitive/industry types of dynamics? Or at this point in time, is the best estimation that it's largely kind of macro-related factors at this point in time?

Yes. Thanks, Ryan. It's Jeremy Hofmann. I think we monitor our sales funnel really, really closely, and we have software that sits over top of it, monitoring agent calls and agent sentiment and just telling us what they're hearing. And the situation right now is just -- it's a temporary rate shock. We've been through that before. It happened in the spring of 2022, and we know how to navigate through it. We want to be there for our partners during this time and not necessarily going to push too hard as a result of that. And then with respect to NAR and competitive, we're just not seeing that in any data that we see. We just don't see impact from either of those. So it really has been much more macro related and macro in a way that we think is navigable. And again, coming back to the full year, we just continue to feel quite good about the ability to accelerate revenue over the course of the year and let us get through the quarter-to-quarter fluctuations just given how fluid macro is.

We now turn to Chris Kuntarich with UBS.

Two-parter on the Rental business. Just as we think about this $1 billion-plus opportunity for Rentals, last quarter, you'd frame Listing Showcases kind of a medium-term $150 million to $300 million opportunity. Should we be thinking about this also as a medium term? Or is this more of a kind of a longer-term opportunity? And the second part of the question would be just as we think about the pace of Rentals growth in '24, how should we be thinking about pricing as a lever you could potentially pull?

Yes. I'll take it. It's is Jeremy Hofmann. I think on the $1 billion-plus opportunity, I think the keyword there is sustainable. We think it's a sustainable $1 billion plus opportunity. And we've built the business that way. Rich walked through a bunch of why we like the strategy so much. But we also like it as a multi-decade type opportunity. So with respect to timing, we're not going to commit to anything there. We just believe there's a lot more for us to do. And we think what we're building is differentiated versus anybody else. And we have an opportunity to be the place where all renters come and all property managers come as well. Whether that's in the single-family or multifamily category, that's where we think the opportunity is. And done under one brand, Zillow, right? That's already known for housing. So that's what we're focused on. I just want to give you a sense for what we see over time. And then secondly, on 2024 for Rentals, the goal is really keep adding more and more properties and bringing more demand alongside. So we think of it as more of an effort that way than pushing on price. It's really -- we just see a pretty substantial opportunity in front of us, and we want to make sure we continue to add properties at the way that we have been and then also bringing the consumer demand to satisfy those properties. So the organic efforts that we have, the Realtor.com partnership, which went live today, and then this national marketing campaign we're quite excited about as well, all in the vein of how do we make sure we build something really sustainable over time? And we think we're on that path.

Our final question today comes from Dae Lee with JPMorgan.

So back to the NAR settlement, I mean, is this something that you or your partners are anticipating having a meaningful disruption around the time of implementation? Or could this be more of a change that takes a while for you guys to see?

This is Jeremy. I can hit that. I mean, I think no. I think as Rich outlined earlier, we don't see a ton of revolutionary change here. We see more evolutionary change that results in more educated and more transparent consumers, which we see as leading to higher quality, higher intent leads and connections for our partners. And I think we're seeing -- that's already started to play out in the early innings after all the news is cleared of how partners are processing connections and how they're learning to work with those consumers. And as I talked about, just take our touring pilot here as an example of leaning in on consumer education in a consumer-friendly way to help them understand what they're going to be dealing with. And in the states that have been doing that, seeing still fairly ubiquitous independent representation and higher conversion rates. So as folks like us and others roll out more buy [indiscernible] agreements, again, back to our principles, we think a more educated consumer who can understand what they're getting from their representation that they choose and understand that the compensation is fair and negotiable and can be negotiated, that leads to a better conversation with professionals. And we think that leads to our professionals, which as Rich talked about, are a small subset of the most productive agents winning more business. And so we see that anecdotally today, and we see that in some of the states that we're further ahead on this today, and we expect to see that, that continue as more folks roll out changes to deal with the evolution.

Got it. And as a follow-up, I don't know if you'll address this, though, but like what's driving the first-time homebuyer activity underperformance? I mean is it just related to the mortgage rates hike? Or is there something else happening? And -- [ 2Q volumes ] [indiscernible] activities stays at these levels?

Yes, it's Jeremy Hofmann, just to make sure I heard it. Yes, I mean, really, it is the rate shock that we felt. It's less about the absolute interest rate level, it's more the shock. And when rates spiked by 50 basis points over a couple of week period, first-time homebuyers are the folks that feel that the most, and they're underperforming pretty significantly. We don't expect that to be forever, but it is a temporal thing. And as a result, it's a bit of a headwind for us, but one that we think we can navigate through pretty seamlessly.

This completes the allotted time for questions. I'll now turn the call back over to Rich Barton for any closing remarks.

All right. Thanks, everybody. Look, it's noisy out there, and there is a lot of confusion and there's a lot of distraction. And I'll tell you, we're calm. We're driving forward. We're putting up numbers. The product is getting better and better, and we have a long road ahead of us because of all of this incredible kind of pent-up potential transaction energy that lives inside of our wonderful marketplace. So it's noisy, but we're feeling really good. Thanks for being on the road with us. We'll talk to you soon.

This concludes today's conference call. You may now disconnect.