Zillow Group, Inc. Class C (Z) Q1 2025 Earnings Report, Transcript and Summary

Hello, and welcome to Zillow Group's First Quarter 2025 Financial Results Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin.

Thank you. Good afternoon, and welcome to Zillow Group's quarterly earnings call. Joining me today to discuss our results are Zillow Group's CEO, 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 and which we refer to as EBITDA. We encourage you to read our shareholder letter and earnings release, both of 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 open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman.

Thank you, Brad, and good afternoon, everyone. Thank you for joining us today. It's been another excellent quarter. I'm pleased to share that we exceeded our Q1 outlook, including delivering strong top line growth despite all the macro noise around us. We've kept our focus on executing our strategy, managing costs, and expanding EBITDA margins, which resulted in Zillow achieving GAAP profitability for the quarter. Our Q1 results position us well to achieve our full year 2025 goals of low to mid-teens revenue growth, continued EBITDA margin expansion and positive GAAP net income. We believe we are also well positioned to deliver sustainable, profitable growth. We have a strong and trusted brand and a disciplined cost structure, and we are executing well on our differentiated housing super app strategy. All of this sets us up to monetize more of the significant total addressable market opportunity in front of us. Zillow provides significant value to movers and the industry, which is why we continue to attract the largest audience in residential real estate. We have 4x the app engagement of the next company in our category. About 2/3 of the real estate audience uses Zillow somewhere along their journey, more than twice any other company in our category and 80% of that traffic is coming to us directly and organically. In Q1, we had 227 million average monthly unique users, a lead we continue to widen. Consumers trust and turn to Zillow because we consistently deliver products and services that make moving easier while also fostering a transparent marketplace. Zillow was founded on that very principle, giving people fair and equal access to information so they can make informed choices. As such, we recently rolled out listing standards that encourage the entire industry to formally implement what most already believed and were practicing. A listing marketed publicly to some buyers should be marketed online to all buyers. We have a long history of aligning our business model with the best interest of consumers, which in turn benefits real estate professionals and the industry as a whole. Now on to our Q1 results. As we expand our services and scale the housing super app across more markets, we are bringing more customers and industry service providers together, which helps us grow both our revenue and profitability. Q1 served as a strong example of that with results that surpassed our expectations. We reported total Q1 revenue of $598 million, up 13% year-over-year, continuing the trend of double-digit revenue growth. In our for sale category, we reported $458 million of revenue in Q1, up 8% year-over-year, with residential revenue up 6% and mortgages revenue up 32%. Rentals revenue was up 33% year-over-year, reaching an all-time high of $129 million in Q1. These strong results, combined with continued cost discipline, helped us deliver $153 million of adjusted EBITDA in Q1 and expand our EBITDA margin by 200 basis points year-over-year to 26%. Our for sale strategy is to monetize more of the massive audience that is already engaged in our funnel. We are expanding and improving our services to meet the needs of buyers and sellers, helping them at every step of their move each of which represents an additional potential driver of revenue per transaction for us as they choose to stay within the Zillow ecosystem. In Zillow's housing super app, we have been building the experience we know movers and industry professionals want: one that is easier, streamlined, tech-enabled and integrated. This experience is most fully realized in our enhanced markets, the go-to-market motion we have been successfully scaling for the past few years. We have been adding more enhanced markets and going deeper in existing ones as we work to increase connection and conversion rates. We launched more new markets in April and we expect to keep increasing the share of connections within enhanced markets to more than 35% by the end of this year. We are well on our way toward this goal with 24% of our overall connections in Q1, happening in enhanced markets, up from 21% in Q4. More than 90% of connections in enhanced markets are being managed through Follow Up Boss, which is helping agents identify high intent buyers and sellers so they can earn more business. And with AI-powered call summaries, follow-up messages and action items, agents using Follow Up Boss and loan officers with Zillow Home Loans are able to save hours of time, gain valuable insights and serve clients better. Developing products along the entire customer journey helps us connect more and more high-intent movers with great agents through Zillow. For example, we know most buyers need both an agent and a mortgage and they want their experience with both to feel seamless. So we are increasingly confident in our work to integrate Premier Agent with our Zillow Home Loans offering as we continue to see double-digit adoption of Zillow Home Loans across all enhanced markets. And now 70% of movers choosing financing through Zillow Home Loans are also working with a Premier Agent partner, up from 60% a year ago. We continue to add functionality to Zillow Home Loans' viability feature which helps buyers shop based on what they can afford, see an instant indication of whether a home their eyeing is within their viability and quickly adapt to changes in the market, interest rates and their personal financial situation. More than 1.5 million customers have enrolled in viability since it launched a year ago, including more than 360,000 in March alone. We continue to build out our touring services to remove the friction from booking a home tour online, which creates a better experience for consumers and helps us identify high-intent buyers. After becoming available nationwide late last year, Real Time Touring now accounts for 36% of all connections compared with just 12% a year ago. We are further expanding our addressable market by developing and scaling seller services since we know 2/3 of buyers are selling a home as well. We are excited by the success we're seeing with Zillow Showcase which features our homegrown AI-powered rich media technology that generates a seamless 3D model of the home with an interactive floor plan. Showcase helps the seller's listing stand out, provides an immersive shopping experience for buyers and elevates agent's brand presence on Zillow. As of the end of March, Showcase was featured on about 2% of all new for-sale listings, up from 1.7% at the end of last year. We are boosting Showcase's reach through a combination of continued sales to individual agents and agreements with brokerages to provide Showcase to their agents, including recently with HomeServices of America. We are on track to reach 5% to 10% of all U.S. listings in the intermediate term. Showcase is an appealing offering for real estate professionals. Agents who use it are winning 30% more listings than similar agents who don't. And Showcase listings sell faster and for more money, typically netting a 2% higher sales price than similar non-Showcase listings on Zillow, a bonus of more than $9,000 on a home sold at the average home sales price. We continue to develop Showcase in ways that add value for agents. In April, we launched a dashboard that helps agents better track how their Showcase listings are performing, including a comparison to similar non-Showcase listings. We're also excited about our work to integrate virtual staging AI technology into our suite of agent software and advertising solutions, further elevating the listings and shopping experience on Zillow. We are consistently looking for ways to create a more seamless experience for sellers, buyers and their agents and increase our revenue along the way. The progress we're making across for sale shows how well we're executing on this strategy. Now diving into Rentals. Building on our momentum from 2024, we are seeing impressive growth in property listings and renter traffic as we scale our 2-sided marketplace. As a result, Rentals revenue reached an all-time high in Q1. The opportunity in Rentals is significant with an estimated $25 billion total addressable market and more rental homes than for sale homes turning over each year. In fact, about 3x as many movers are looking to rent versus looking to buy. And almost every mover starts out as a renter. But there has historically been no single marketplace where they can see all available homes for rent. Zillow Rentals is rapidly becoming that comprehensive one-stop marketplace with more than 2 million active rental listings as of the end of Q1, spanning single-family homes, large multifamily buildings and everything in between. We ended Q1 with 55,000 multifamily properties on Zillow Rentals, up 38% from 40,000 at the same time last year and have seen even further acceleration to 60,000 as of early May. We are attracting more multifamily properties because more property managers are recognizing the value and lead quality we provide by connecting them with the largest consumer rental audience, including an increasing share of apartment seekers. Zillow Rentals had 37 million unique visitors in March and is renters' #1 preference. We've earned our success by applying the same product expertise and relentless consumer focus we've shown in the for-sale experience to building a more unified rental experience. Renters on Zillow can shop, tour, apply, sign a lease and pay rent securely on participating listings. And property managers can list, book tours, screen applicants, create leases and sign them electronically and collect rent payments, all on the Zillow platform. I encourage you to watch the partner testimonial video we've linked in our shareholder letter this quarter. It offers a clear window into why property managers are choosing to work with Zillow Rentals. We are #1 in partner satisfaction in our category for return on marketing investment as we deliver high-quality leads to the industry. And as we gain wallet share with property managers, multifamily rentals revenue growth of 47% in Q1 outpaced property count growth. That's because more property managers are upgrading their subscription packages with us to higher tiers of advertising to help attract renters, gain more views and impressions on their listings and quickly and easily fill their vacancies. Through this impressive growth, we remain focused on being attractively priced and delivering high ROI for our partners. We expect multifamily revenue to be the main driver of Rentals revenue growth in the near term. Our strategic partnerships are another important factor in Zillow Rentals' success. The multifamily listing partnership we announced with Redfin in February just went live last week, and alongside our successful partnership to distribute multifamily rental listings on Realtor.com, we expect it to expand our reach with renters, enhance our value proposition with advertisers and drive substantial growth in leads, leases and revenue. And just a few weeks ago, we announced a new partnership with AppFolio, a leading rental property management company to connect our rental audience with their powerful tools, making it easier for property managers to manage listings and fill vacancies efficiently while simplifying the process for renters. Building on the excellent year Zillow Rentals had in 2024, we drove increased year-over-year revenue growth in Q1 and expect quarterly growth to accelerate throughout 2025, with a clear path towards the $1 billion-plus revenue opportunity in front of us. As our strong results show, it's been another great quarter across the business. We are scaling as planned and executing well on our strategy in both for-sale and rentals. And importantly, this quarter, we achieved GAAP profitability. We are on track to meet our full year 2025 goals for low to mid-teens revenue growth, continued EBITDA margin expansion and positive GAAP net income. We're proud of how we've begun the year and look forward to sharing our continued progress with you all. With that, I'll turn the call over to our CFO, Jeremy Hofmann.

Thanks, Jeremy, and good afternoon, everyone. We delivered another strong quarter in Q1, and we are well positioned to continue doing so as we execute on our strategy in 2025 and beyond. Our Q1 2025 results exceeded expectations for revenue and EBITDA with revenue up 13% year-over-year to $598 million, which was $15 million above the midpoint of our outlook range. Our better-than-expected revenue performance, combined with effective cost management also delivered better-than-expected EBITDA in the quarter. Q1 EBITDA was $153 million with an EBITDA margin of 26%, a 200 basis point year-over-year improvement. Our trailing 12-month EBITDA as of the end of Q1 grew 28%. In Q1, we also achieved an important milestone for the company, delivering positive GAAP net income of $8 million, representing 1% of our revenue. Our Q1 results put us on a solid path to achieve positive GAAP net income for the full year 2025. For sale revenue grew 8% year-over-year in Q1 to $458 million, above industry growth of 3% as reported by NAR, and 6% according to Zillow. We are pleased with our relative performance across our for sale revenue category, particularly when comparing against a purchase mortgage origination market that was roughly flat for the quarter. As a reminder, the vast majority of Zillow buyers get mortgages and we under-index to the high end of the market. In Q1, we saw that the high end of the market contributed over 500 basis points of growth in total industry transaction value this quarter, implying the rest of the market was largely flat year-over-year. Within the for sale category, residential revenue grew 6% year-over-year to $417 million, outperforming our outlook. Residential revenue primarily benefited from continued growth in Premier Agent, expansion of Zillow Showcase as well as contributions from our new construction marketplace and Follow Up Boss. Also within the for sale category, mortgages revenue in Q1 was up 32% year-over-year to $41 million ahead of our outlook. Our mortgage strategy is leading more buyers to choose financing through Zillow Home Loans, which is the main growth driver of our overall mortgages revenue. Purchased loan origination volume grew 32% year-over-year to $791 million. Rentals revenue growth accelerated in Q1, increasing 33% year-over-year to $129 million driven primarily by our multifamily revenue, which grew 47% in the quarter, up from 41% in Q4. We increased the number of multifamily properties on our apps and sites by 38% year-over-year, reaching an all-time high of 55,000 multifamily properties as of the end of Q1, up from 50,000 properties at the end of Q4. As a reminder, we define our multifamily properties as 25-plus unit buildings and this count does not include our industry-leading long tail properties, which is a significantly larger number. Our leading audience and lead quality is resonating in the market as more and more multifamily property managers seek to improve their ROI by partnering with Zillow, the most comprehensive rentals marketplace. Our offering is providing value to customers and multifamily operators of all sizes as evidenced by the growth of both our property count and our share of wallet. Q1 EBITDA expenses totaled $445 million, below our implied outlook of $450 million. We continue to leverage our fixed costs, which grew only 3% year-over-year compared to total revenue growth of 13% in Q1. Controlling our fixed head count growth also helps drive leverage on share-based compensation expense, which was down more than 10% year-over-year in Q1. We ended Q1 with $1.6 billion of cash and investments, down from $1.9 billion at the end of Q4, primarily driven by share repurchases of $250 million in Q1 and a $100 million payment to Redfin in connection with the Rentals partnership we entered into in February. These decreases were partially offset by net cash provided by operating activities of $104 million which was up from $80 million in Q1 2024. We ended the quarter with $419 million of convertible debt outstanding that we expect to settle before the end of Q2. In April, we repurchased over 600,000 shares for $36 million. When accounting for the share repurchases we made in April, we have $95 million remaining on our current authorization. Given our strong financial position and the success of our share buyback program to date, our Board recently approved an additional $1 billion share repurchase authorization. To date, we have repurchased approximately $2.3 billion of shares at a weighted average price of $47. We expect to continue to be opportunistic with share repurchases while prudently investing to grow the business. Turning to our outlook for Q2. We expect total revenue to be between $635 million and $650 million, implying a year-over-year increase of 11% to 14%. We expect for sale revenue growth in Q2 to be in the mid-single digits range, driven by residential revenue growth in the mid-single-digit range and mortgage revenue growth of approximately 30%. Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue. We expect our Rentals revenue growth to accelerate in Q2, increasing more than 35% year-over-year. We are seeing stronger-than-expected benefits from our Redfin rentals partnership, which went live at the end of April. In Q2, we will begin paying Redfin for rentals leads and expect the partnership to be accretive to EBITDA in the second half of 2025. Further showing the strength of our Rentals business, we have added another 5,000 multifamily properties since the end of the quarter, taking our total properties on Zillow from 55,000 at the end of March to 60,000 as of early May. Given the momentum we are seeing, we are expecting rentals to accelerate throughout the year and expect Rentals revenue growth to be approximately 40% for full year 2025. For Q2, we expect EBITDA to be between $140 million and $155 million, equating to a 22% to 24% margin range. This implies EBITDA expenses will increase from $445 million in Q1 to an estimated $495 million in Q2. More than half of this increase will be driven by normal seasonal marketing. The remainder will be driven by incremental lead costs associated with our Redfin rentals partnership, which will be reflected in our cost of revenue. For the full year 2025, we continue to expect to deliver low to mid-teens revenue growth, which includes approximately 40% Rentals revenue growth while we continue to prudently manage our cost structure. As we have been saying for some time, we believe we are at the right fixed investment level to achieve our mid-cycle financial targets. We expect fixed investment costs to grow modestly with inflation while investing in variable costs for future growth, primarily in Rentals and Zillow Home Loans. We are on track to deliver expanded EBITDA margins and positive net income for the full year 2025. To close, we are successfully executing on our strategy and are excited about the opportunity ahead of us. We are growing across our business with investments in place to drive sustainable, profitable growth well into the future. And with that, we'll open the line for questions.

[Operator Instructions] Our first question will come from Ron Josey with Citi.

And I've got a ton, but I wanted to focus, Jeremy, on the Rentals business specifically. And the commentary about accelerating revenue growth to 40% for the full year. And I wanted to understand a little bit more about what's driving that. I mean clearly, multifamily units reaching 60,000 as of early May, talks about an acceleration at least growing units there at a faster cadence than we've seen normally. And so when you think about the accelerating growth or accelerating growth in Rentals, multifamily units growing as fast as they are, just talk to us a little bit more about where these gains are coming from. Is it more of these multifamily units are willing to work with Zillow and therefore, you're winning greater market share or wallet share for that matter? And then once Redfin starts kicking in, how should we think about that?

Yes. Ron, maybe I'll start, and Jeremy Hofmann can give you some details on the forecast and the guide. I mean I'll start with strategy on Rentals, because what you're really seeing is the execution and the outputs of the business come from the strategy really working, right? The strategy is build this comprehensive marketplace. This national database have as much of the inventory as possible, right? There is no national database of all Rentals. We now have more than 2 million listings, that mix of single-family as well as multifamily. We think that's the most listings that are out there in one place, and that really starts to satisfy the renters needs, right? The renter is on a very tight time frame, wants to find as much inventory as possible. And so if we can deliver them as much inventory, we're going to become their preferred brand of choice. You're seeing that play out, right? So now that we have the supply, you're seeing our audience lead widen, right? 37 million uniques in Comscore in March. That lead continues to grow. And the brand preference we have among renters is #1 as well. We have -- because we're satisfying their need. And so I start with that strategy because that strategy is now yielding the revenue growth and the revenue acceleration that Jeremy talked about. That property growth is a larger and larger share of advertisers wanting to advertise to that audience. And if you check out the video we put in our shareholder letter, you'll see really good testimonials from some of our partners about not just the audience size, but the quality that they're receiving and the ROI they're getting from the Zillow Rental network. So that's really what's been driving the growth story to date. And that's what's driving the growth rate, the record revenue we had in Q1 and the acceleration we're expecting to see for the rest of the year.

Yes. And then, Ron, I'll just pile on. From a numbers perspective, we grew revenue in Rentals 27% last year. We grew Q1 33%. We're expecting 35% growth in Q2 and then 40% for the full year. And I think that's just the dynamics that Jeremy highlighted playing out in the revenue growth, and we're quite pleased with what we're doing and really see a long opportunity well beyond 2025. That $1 billion-plus revenue target feels quite achievable, and we're pleased with what we're doing in 2025.

Our next question comes from Brad Erickson with RBC Capital Markets.

So a couple of questions. One, just on market share. NAR, I guess, showed 3% growth. You guys showed 6% growth, residential grew 6%. And I appreciate, Jeremy, the comments earlier on kind of the high end, low end nuance going on there. But just in general, with these 2 reported metrics being a little bit of far apart. How should we be looking at this and aiming to kind of assess your growth relative to the market? And then I've got a follow-up.

Yes. So Brad, let me take that first. I think you're right. There's a lot of noise in the macro environment right now. And we've been bouncing along the bottom for a good bit of time in housing. I think we're pleased with the outperformance, both on the residential side and the for sale side, particularly when we look at the mortgage market. So like I called out in the prepared remarks, the high end of the market was really the driver of any growth in housing, and we tend to look more like the mortgage buyer. That's the person that shows up most frequently for Zillow. And as a result of that, being flat this quarter, the 6% growth in residential and 8% growth in for sale feels quite good. I think you've heard this from us for a long time now. We don't overly focus on the quarterly fluctuations just because macro has a lot going on. So we try to look at annual and multiyear views. And we think we're consistently outperforming and we're really pleased with the enhanced markets rollout as a big driver of that.

Got it. And then you've obviously got a growing portion of connections here coming from the enhanced markets, I guess, 24% this quarter, 35% expected by the end of the year. It would seem like that could really start to take growth rates kind of further above the market to the last -- to your last point, so I guess, is that kind of the right way to think about it? Or maybe any other nuances you might want us to be aware of as we kind of contextualize that in the full year guidance?

Yes, I'll take that, Brad. And Jeremy, pile in if I miss anything. But I think the enhanced markets are going well. You're right, we're -- that 24% of all connections in Q1, we're expecting that to be 35% plus by year-end. The bulk of the launches last year were Q2 through Q4, and it takes about 12 months to see accretion. So I do think that's something to just keep in mind as we go. But I think the progress is quite good. We're seeing double-digit adoption rates across all of the Enhanced Markets, not just those that are more mature with Zillow Home Loans and continuing to see really good customer experience and really good partner feedback as well. So I think it's just a good methodical build like we've been talking about for a while now and continue to be quite pleased with it.

Yes. The only thing I'd add there is just I know it makes it harder for you all to model, but not everything is the same, right? You think about Real Time Touring and that comes to the Enhanced Markets as we roll them out, but it also comes more broadly. And I talked about 36% of connections nationwide now being in Real Time Touring. So when we have things we can deliver in all the Enhanced Markets and beyond we do. And then when we have things that we have to really be methodical about things like Follow Up Boss improvements for our Premier Agent partners to drive Enhanced Markets results, things like introduction and training with the Zillow Home Loans' loan officers, those things will be more methodical in the land and expand strategy. All of that, if you zoom out, puts us on a path to get to the majority of Zillow customers, right? We kind of -- we gave you a mile marker of 75% of Zillow transactions to flow through that experience in the future. We don't think that's the upper limit, right? But we wanted to give everyone a guidepost to show. Our goal is to get the majority of Zillow customers to be able to use this more integrated, more digital experience with a great professional that's on board to use our software and services and to deliver the integrated transaction. So that's where we're headed and the enhanced markets are just a really good way to model our progress against that.

Our next question will come from John Colantuoni with Jefferies.

Great. Looks like your full year outlook calls for better growth in the rental segment, which kind of implies either the residential or the mortgage segment or maybe both are falling a bit short of prior expectations. Can you talk to the factors causing that shortfall relative to your expectations for either segment. And second question, based on sort of your hiring needs to service your current market footprint in your growth areas, how is that informing your pathway to get back to variable costs growing more consistent with revenue?

Yes. Thanks, John. I'll start. It's Jeremy Hofmann. On the rental side, our full year guide had already included that Rentals acceleration in our February outlook. We had just given a total company number. And we're trying to give you all this quarter, just a bit more visibility into how that builds. So it's not necessarily a change versus what we guided in February. Just more color on Rentals just given the acceleration we are seeing and expected to see. So I think that's question one. And then on the variable side, we are going to continue to invest in variable for both Zillow Home Loans and Rentals. We just see really good growth opportunities there, and we want to make sure that we're capturing those. That being said, we can clearly drive leverage in the business and grow profits faster than revenue, and that's going to be on the back of the fixed cost discipline. So Q1 is a good example of that, where we grew fixed costs 3%, revenue grew 13% for the company, and you see the margin expansion show through. We're expecting more of the same throughout the course of 2025, and that's why we feel so good about the 2025 guide overall of the low to mid-teens revenue growth, continued margin expansion and positive GAAP net income.

Our next question will come from Trevor Young with Barclays.

Great. Just back to the questions on rentals and the multifamily ramp there. how much of the uptick in May to the 60,000 was from contracts that lapsed at Redfin that you were able to pick up. I think you said the partnership just launched last week. So clearly very early days. And also, can you just remind us kind of the mechanics of the partnership since it wasn't actually an acquisition. Redfin cancels their contracts, but can share a customer list with you and then your sales or can go try to sign up those properties? Is that more or less how it works?

Yes. Trevor, I'll take that. It's Jeremy Hofmann. The way that I would think about the partnership is there was no transfer of contracts. So we had to go out and win that business. And we obviously did that quite well. And that goes back to what Jeremy was talking about earlier. We have differentiated supply. We have differentiated demand, and we're driving what we believe is differentiated ROI to our partners as well. And when you put all 3 of those things together, you can start to see the success that we've had. And adding 5,000 buildings in Q1, another 5,000 in April alone makes us feel quite good that the proposition that we're putting forth in the market is clearly resonating and revenues accelerating as -- throughout the course of the year as a result of all that. And then on the partnership itself, the syndication went live in late April. So we started syndicating properties to Redfin then. And what that means is now the 60,000 buildings that are on Zillow are on Redfin and their sites as well as well as Realtor.com. And that's obviously compelling for consumers, and it's compelling for our multifamily property customers as well.

Yes. And maybe the only thing I'd add is, as Jeremy said, we had to go sell and win that business. We're, of course, knocking about 1,000, right? I mean having to earn this business, there's going to be our best efforts. You're seeing the results of that in the numbers we talked about and why we gave the color even since Q1 because it's really a win-win, right? It's a win for the advertiser that was on their sites, but was not on Zillow. They're not getting access to a bigger audience. And it is, of course, a win for our existing advertisers and partners that were on Zillow properties and maybe not yet on Redfin's properties. So that's part of why I think you're seeing such great acceleration of the property count. And as Jeremy talked about, you're also seeing them maybe select higher tiers of advertising because they want more exposure. So on the partner side, it's been really well received. And what excites me the most is that all turns around and ends up being more supply and more choice for the renter, right? So the renter on Zillow, the renter on Redfin's sites, the renter on Realtor.com is now seeing more properties and able to shop. So going back to that strategy we're trying to drive, organizing more of the supply, driving engagement with the renter providing this fantastic consumer experience. That's how this marketplace spins. And that's the benefit that we and Redfin are going to see from this partnership.

Our next question will come from Tom Champion with Piper Sandler.

Jeremy Wacksman, maybe for you, please. Could you talk a little bit about the listing access standards. This seems like an important industry development. And I'm wondering if you could just offer some comments on it and why it's important. And maybe for Jeremy Hofmann. I'm wondering if you could offer just a little more detail around Enhanced Markets growth and the plans through the balance of the year. I want to say you ended '24 with roughly 50, maybe that expanded to 90-ish in April. What inning are we in with the expansion of the Enhanced Markets? What does this look like over the next maybe couple of quarters into next year? Any thoughts on that would be really helpful.

Yes. Yes, Tom, I'll start. So our listing standards that we announced recently, it's really just about encouraging the industry to formally implement what most are already practicing, which is that if you're going to market a listing, right, if a seller is not going to choose privacy or they're not going to choose no Internet, which are all options available to them, and you're going to market it publicly to some buyers, you need to market it to all buyers. And the reason we're doing that is because the transparency that the U.S. residential real estate market has the luxury of allows buyers to be informed and be educated when they select their professional, sellers understand and get the benefits of that transparency and agents can do their job effectively. Agents can see all the inventory and cooperate with each other. So we announced those standards because we see such a consumer good in buyer and seller empowerment and education and availability of content, and we want to make sure that remains in our market so that our consumers and the professionals who work with us, the professional work with our competitors, the professional who work everywhere around the industry can continue to do their jobs effectively.

Yes. And then, Tom, on the Enhanced Markets, I think we're still early innings. And when I say that, we think this is the future consumer experience that drives the vast majority of how Zillow customers interact with us, and we have to get that right and why we're so methodical in how we roll these Enhanced Markets out is that integration between our Zillow Home Loans, loan officer and Premier Agent partner is something we just have to get right from the start. So we're being really thoughtful about how we roll out and scale accordingly because we think there's so much potential in the strategy and so much potential in the customer experience for a long period of time. So I think that's the answer on the early innings. Where we are in terms of mile markers, we were at 21% of all connections at the end of 2024. We are now at 24%. We expect to be at 35% by the end of this year and then on our way to 75% plus over time. And if you ladder that back to the mid-cycle targets we put out in February, the 75% connections going into Enhanced Markets translates to what we think is a $1 billion organic revenue opportunity in front of us. So we think that is really, really attractive regardless of what happens with the housing market. That's assuming the housing market stays flat, we think there's a lot of growth there to go get, and we're going to be methodical to make sure we build the experience right.

Our next question will come from Mark Mahaney with Evercore ISI.

Okay. Two questions, please. First, your market transactions growth assumption behind your Q2 residential revenue outlook? Is it for flat, low single digits? Is that what you're assuming in the market? And then I know it's a broad range or there's probably a couple of ranges, but can you talk about the monetization of per connection differential between the Enhanced Markets and the rest of the -- and the regular markets?

Yes. Thanks, Mark. I'll take the housing market. I think on the housing market front, it's been challenged for a while. We expect it to continue to bounce along the bottom. There's not a lot new on that front. This has been the environment we have been operating in since 2022. And we expect more of the same in 2025. I think what we can do and our job is to really control what we can control regardless of the macro environment. And I think we're doing that quite well. The consistent double-digit revenue growth in the face of a really challenging housing market is something I think we're quite pleased with, and we have continued confidence that we'll grow low to mid-teens in 2025 against a challenged market. Q2 is much of the same. We don't have any more specificity around that, just given how fluid macro is, but it's bouncing along the bottom, and we expect that to continue to be the case for some time.

And then maybe on your second question, Mark, kind of monetization of Enhanced Market versus not. I mean we don't break it out that precisely. We have talked about how the Enhanced Markets are growing faster than the business on average, and that's the math that backs what Jeremy just talked through earlier around getting from the 20-odd percent to 35% of connections to 75% plus by the end, drives that $1 billion of organic growth because that's basically share outperformance against the flat housing market, right? So all of that math and the return we're seeing and the growth rates we're seeing, which we talked about a bit in the prepared remarks of enhanced market performance is good color for you, but we haven't given a precise breakout of it.

Our next question will come from Sergio Segura with KeyBanc Capital Markets.

Great. I had 2. Maybe going back to the listing standards. Just curious what the industry-wide reaction has been. For the brokerages that have been pushing these private listing networks, have you seen any signs of them maybe backing away from that strategy? And then for the EBITDA expense on 1Q was modestly below what you had in your outlook. So anything to call out there on cost savings? Or was that more just 1Q investment spend shifting into the second quarter?

Yes, Jeremy, I'll start maybe on listings, and you can take the second one. I mean it's really early, I guess, is my short answer, but we're pretty pleased to see so many in the industry, brokerages, MLSs, other organizations publicly committing to the same principle. But again, most of them already believed in and were practicing this, that if you're going to market a listing, you should market it available to everyone to all buyers so that the marketplace has transparency. We're also seeing a lot of consumer advocacy organizations, including the consumer policy center support that transparency in real estate. So again, we really put that statement and policy out because it is really supporting most of what those in the industry already believed and we're practicing.

Yes. And then on the expenses side, Sergio, Q1, the difference between the $450 million that we had in our implied outlook and the $445 million that we came in with was primarily a bit slower hiring than anticipated and a bit lower marketing than we had anticipated. So those were the 2, nothing major to call out. And then the one thing I would say on Q2, we have a $50 million sequential increase from Q1 to Q2 in our EBITDA expenses. More than half of that is driven by normal seasonal marketing step-up. And then the balance of it comes from the Redfin partnership and us starting to pay them for leads and the leads they generate to our rentals marketplace.

Our next question comes from Curtis Nagle with Bank of America Merrill Lynch.

I just want to go back to the point about the impact of high housing kind of driving a relative disparity in terms of your resi for sale performance versus the market as a whole. I guess was that more outsized in 1Q relative to other quarters? I know high-end housing has been largely or I think for the most part, doing better than the market as a whole for let's say, the past several quarters. So yes, just curious on your thoughts on that.

Yes, you're right, Curtis, the high-end just outperformed in the first quarter. Homes at the high-end where -- we had 6% total growth on our calculation, high-end contributed 500-plus basis points. So that means the middle and lower end was roughly flat. And that is the set of customers that we tend to more commonly work with. I think that's been a trend particularly the affordability challenge, I think, for homebuyers and first-time homebuyers in particular, has been a headwind for more than just Q1. We had that headwind through the course of 2024 as well. It was a bit of a tailwind back in 2023, but more of a headwind in '24, and I think continue to be the case into Q1. And I think that's -- like I said, on the relative performance question, that's why we try not to over function, right? The macro is just so fluid at the moment. It has been for a long period of time now that we try to look at how are we doing in residential for sale and total company over longer periods of time where that stuff starts to smooth out, and I think quite pleased with the ability to take share in residential and for sale and across the business.

Okay. And then maybe just a quick follow-up, Jeremy, on that point. Just I guess the philosophy behind not giving a market forecast this quarter, I think you have or at least, I don't know, past -- as far back as I can see, that's something you've done. So just why not do it for 2Q?

It's just a little too hard to predict, Curtis. I think we -- the housing market itself has been challenging to predict the last few years. And you throw in the more uncertainty going on in the rest of the macro, we felt like better served to just tell you all, our expectation is much of the same, and our expectation is to grow right through it. So that's what we plan to do in Q2.

Our next question will come from Benjamin Black with Deutsche Bank Research.

Great. One on the Listing Showcase. Just can you talk a little bit about the learnings there, your go-to-market strategy, what are some of the feedback that you're getting from your listing agents? And is there anything on the product side that you're working on that could potentially drive even greater adoption? And just longer term, when do you think we get to the place where not having Listing Showcase is seen as sort of a real disadvantage and the sellers start to pressure agents to use it more?

I love that question. We ask ourselves that question, too. So on Showcase, 2% of all new listings, up from 1.7% last quarter. We are thrilled with that for a product that's really just nationwide a little more than a year. And your second question is what we all think about, right, when this becomes the standard, but the reality is we're sitting in a world where this is still new and most sales calls are introducing and educating an agent on what this is, right? So we're really pleased with that progress. And you've seen us do a great job enrolling agents and teams, and we're starting to also work with brokers as well to work with their agents. We just announced a partnership this quarter, and we're going to continue to evolve our go-to-market to get the word out more with agents and brokers. And then when do we move from kind of the fear of missing out version of Showcase to the table stakes, that comes with scale and with time and with share of Showcase. I mean -- and that is the future we see. I think it's when you see buyers engage more with the Showcase Listing and they spend nearly double the time engaging with it, that's a higher intent buyer, right? And so the agent trying to sell that home absolutely wants that because it helps them sell the home faster. You see that in the data, right? In every market, we see homes sell faster and sell for more money when they are showcased and that's what allows agents to win more listings when they use it. So right now, it's new, it's novel. We've been talking to you all about it for many quarters now. But if you go sit inside a real estate agent's office, they're still learning about it for the first time in many places. So we will get there. Part of the guidance we tried to give you all was, we think, at 5% to 10% share that's the incremental $150 million to $300 million of the product. But when we get beyond that and when we start to get to real penetration of the content, it does turn into an expectation. And we know that because every time you give the consumer access to more content, they move from new, innovative to expectation. You saw that with mobile, you're going to see that with things like Showcase and AI-powered technology in our category. So we're really excited about its potential. We didn't put a time frame on that 5% to 10%, and we haven't put a time frame on your second question, but that is ultimately the goal is to really move all buyer and seller expectations to a much more interactive, much more immersive way to virtually shop. That empowers the consumer, and that ultimately empowers the agent, too. It's a higher intent buyer and seller. It's a more educated customer.

Our next question will come from Dae Lee with JPMorgan.

Can you hear me?

Yes.

I have 2. It's a follow-up on the macro comments you made earlier. So I understand that housing remains challenged. But with that said, how is that translating into agent participation on your platform? I'm wondering if you're seeing any changes in how they're participating this year relative to last year? And then secondly, you've been seeing acceleration in your unique user growth. Sort of curious what's driving that acceleration? And if you're seeing any changes to consumer behavior on your platform that could help us guide how to think about how '25 housing market should look like.

On agent sentiment, we aren't seeing a ton of change, but I will caveat that with whenever we get asked about agent sentiment in the industry nationwide. It's a reminder that our agents are not the average, right? 80% of agents that work with Zillow are in the top 20% of producers of transactors in the industry. And so those are the folks that run staff at scale, have higher volumes, are more professional in their services. So they tend to both grow share in the boom times, but also maintain and preserve and grow share in the tough times, right? It's oftentimes in the depressed real estate market, the best agents are the ones that actually survive and then thrive. So we're seeing agents still like the ROI and see great ROI from places like Zillow. But in a challenged market, you often turn to this flight to safety of the places you know are going to work to help build your business, make you more efficient and help you grow your business, and that is Zillow for many of them. So for us, we feel very fortunate. The strategy we have of partner with the top end is really durable in all weather, and I think you're seeing that. So I can't speak to this more broadly, but that's for sure what we're seeing. And then on the consumer side, you're seeing overall year-over-year traffic gains, and I think you see a bit in the category, the demand is there. I mean the demand has been in the real estate category for the last couple of years. Jeremy has talked at length about macro on this call, what's keeping transaction volumes down at this kind of have to move level, right? The 4 million and change existing home sales that trade, 4 and change million, down from 5.5 million to 6 million average, were really down at only the folks that have to pull the trigger. That doesn't mean the demand is out there. It just means that they're not actually following through and able to buy. And that's the affordability challenge, which is exacerbated by lack of inventory, right? So you'll see that in the buy-side signals. You'll see that in the demand signals and our traffic and other companies that report on buy-side demand. Even with the challenges in the outside for their wallet, right, the pent-up desire is still there.

Yes. And then I think just to pile on that, if you think about how to get comfortable with why do we continue to grow in the low to mid-teens for 2025. It's not so much on the back of user growth. It's going to be on the back of things like rentals, multifamily property growth, which you're seeing enhanced market expansion, continued expansion of Follow Up Boss and continued expansion of Showcase. Those are all really much more kind of self-help transactional services that we're delivering to help us drive growth rather than user-specific at the top of the funnel.

That's right. And that's because, as we said maybe in the beginning of the hour, our strategy is convert more of the highly engaged brand-direct audience we have, right? This isn't about lead gen and lead acquisition. This is about helping more buyers and sellers use an integrated shopping experience to not just shop but actually buy and sell with great partners. And everything Jeremy just laid out are the ways in which we're doing that, and we're doing that in our Enhanced Markets most fully.

Our next question will come from Maria Ripps with Canaccord.

Maria, I think you're still on mute. If you're trying to talk.

[Operator Instructions]

Great. Sorry about that. Just first, sort of a broad industry question. Would love to hear sort of your thoughts on what Rocket's announced acquisitions of Redfin and Mr. Cooper sort of what the strategy there could mean for Zillow and the industry more broadly? And maybe relatedly, does the acquisition change sort of anything as it relates to any sort of key aspects of the Redfin partnership? And then I have a quick follow-up.

Why don't I start, and then Jeremy, obviously jump in on anything on the partnership specifically. I think for me, Rocket announcing their acquisition of Redfin is really about a recognition that the future of real estate is this integrated transaction, right? That is what buyers and sellers are demanding. The idea that you need to put together a fantastic technology for the buyer and for the seller and for the real estate agent and for the loan officer and for all the transaction services along the way because a buyer and a seller wants to do that increasingly in the palm of their hand inside one app. That's how I think about that. The great news for us is that's been our strategy for a while, and you're seeing us grow our share of transactions executing against that strategy. And we like the assets we have to continue to grow and be a big share gainer in that future of real estate. And it's a huge and highly fragmented market, right? There's going to be multiple winners here. And so as more companies see that, that is actually a feature of real estate is building this integrated experience, there's going to be more than just us doing it. So we love the bet we are making that real estate is going to be further digitized and integrated, and we love our strategic positioning.

Yes. And then to the Redfin question, we expect, and I think Rocket has said this as well. We expect them to be supportive there. We don't expect changes to the partnership as a result of the acquisition. And like Jeremy said, really big market, really interesting strategy. We think there are multiple winners. And of course, in these partnerships, we look for ways to create win-wins. That's how these partnerships work best, and we think the Redfin one is a win for us. We think it's a win for Rocket/Redfin as well.

Got it. That's very helpful. And then can you maybe help us kind of understand sort of the magnitude of gross margin impact from the Redfin partnership that's sort of -- that's embedded in your guidance?

Yes. I would go back to just thinking about the sequential uptick between Q1 and Q2 is about $50 million. So $445 million in Q1, $495 million in Q2. More than half of that is just seasonal marketing step-up, and then the balance of it will come from that Redfin partnership, and that will be showing up in cost of revenue.

This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks.

Thank you all for joining us today. We really appreciate your continued support. We're excited for what's ahead, and we look forward to speaking with you in August.

Thank you for joining Zillow Group's First Quarter Financial Results Call. This concludes today's conference call. You may now disconnect.