Zillow Group, Inc. Class C (Z) Q2 2025 Earnings Report, Transcript and Summary

Hello, and welcome to Zillow Group's Second Quarter 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, 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. I'm pleased to share our strong Q2 results today, including continued double-digit revenue growth and positive net income. We're gaining share in For Sale and Rentals, and we're doing it while maintaining cost discipline to deliver on our 2025 targets for continued EBITDA margin expansion and GAAP net income. As we work to streamline residential real estate transactions with our housing super app, everything we build is designed to offer a benefit for both consumers and the industry. People want and deserve a better experience than the antiquated and analog one they've become used to in real estate. Consumers and professionals experience a digital, streamlined, automated and delightful process in almost every other part of their lives, from rides and restaurant reservations to flights and lodging. And it's reasonable we'd expect the same in real estate. That's where Zillow comes in. We are building that truly integrated, digitized end-to-end transaction experience. That relentless focus on creating great products and experiences is why we're growing share in both For Sale and Rentals and why Zillow is a beloved brand. People instinctively turn to Zillow when they think about home, whether a mover is looking to buy, sell or rent, they're likely visiting us along the way. Zillow maintains the #1 position in both For Sale and rental traffic. In Q2, we had 243 million average monthly unique users across our apps and sites and about 4x the app engagement of the next company in our category. This deep connection with our audience has been part of our foundation from the start. Just in the past month, Season 2 of Zillow Gone Wild premiered on HGTV and Zillow debuted a Marvel size collaboration with an immersive custom listing of the Baxter Building in New York from the new Fantastic Four movie, in addition to a steady drumbeat of organic mentions across the cultural zeitgeist. We've built that brand equity because Zillow is part of how people imagine their future and how they're able to turn those dreams into reality. Consumer affinity for Zillow continues to fuel our success. We're demonstrating consistently strong growth and are positioned for more. In Q2, total revenue was up 15% year-over-year, exceeding our expectations. For Sale revenue increased 9% year-over-year against a broader housing and mortgage market that remained essentially flat. Residential revenue was up 6% and mortgages revenue was up 41%. Rentals revenue growth accelerated in Q2 to 36% year-over-year. These strong results, combined with continued cost discipline, helped us deliver $155 million of EBITDA in Q2 at the high end of our outlook range. We have a strong position, a sound strategy, and we are executing well, all of which will help us keep driving growth across both For Sale and Rentals. Looking ahead to the rest of 2025, we are on track toward the full year goals we outlined earlier this year. This includes now expecting mid-teens revenue growth for the full year at the higher end of our previous 2025 outlook for low to mid-teens revenue growth. Jeremy Hofmann will take you through more detail later in the call. We are successfully executing on our for-sale strategy to deliver an easier, streamlined, tech-enabled and integrated transaction experience across Zillow with innovative products and services that solve problems for everyone involved in the move. We know our strategy is working because consumers and real estate professionals like what we have to offer and because our for-sale revenue growth continues to outpace industry growth. This effective strategy comes to life in our Enhanced Markets, where we're connecting high-intent movers with high-performing professionals and delivering a more integrated transaction. In Q2, 27% of connections came through the enhanced market experience on our way to a long-term goal of at least 75% of connections. And now 96% of enhanced market connections are handled through Follow Up Boss, our customer relationship management platform purpose-built for agents and teams. We're seeing strong traction in existing Enhanced Markets as buyers are engaging and agents who work with us are gaining share. And in Q2, Zillow Home Loans continued to have double-digit adoption rates across our Enhanced Markets, a clear sign of progress for our integrated approach. As part of our enhanced market playbook, we continue methodically expanding the experience to more customers and partners and to more places. We're excited about the potential to unlock a $1 billion incremental revenue opportunity just with that rollout, even in a flat macro housing environment. Just as important, we're focused on innovating to make the transaction smoother and more delightful. That continuous innovation is what fuels our long-term growth. So today, I'll walk you through some of the latest examples of what the team has been working on. Firstly, we're improving how we identify high-intent buyers, whether they start by viewing a property, connecting with an agent or exploring their financing options, so we can match them with the right support at the right moment in their journey. That's where products like BuyAbility play a key role. BuyAbility is a powerful tool from Zillow Home Loans that helps buyers shop based on what they can afford, instantly estimating the loan amount they may qualify for and suggesting a price cap based on their budget. It quickly adapts to market changes, interest rates and the buyer's own financial situation, helping them stay focused, confident and well informed as they shop on the Zillow app. More than 2 million people have enrolled in BuyAbility since it launched and recent enhancements now let buyers shop by both their target monthly payment and their overall maximum buying power. These buyers are then even more knowledgeable and ready to act when they connect with an agent through Zillow. We're building these tools to empower decision-making throughout the journey for consumers and the professionals who serve them. As another example, for-sale listings on Zillow now display Offer Insights, showing buyers and their agents how different offer prices are likely to perform based on real-time market data and setting the stage for a productive informed conversation about how to approach an offer. This is a huge benefit for agents. The call to action on Offer Insights is to connect with an agent and the buyers it surfaces are likely higher intent and move ready as they are exploring viable paths to making an offer with an agent. Helping movers understand what they can afford and what kind of offer they can make is especially important in a housing market like this one. To that same end, we continue to expand the Zillow Home Loans product suite. As of last week, we've broadened our down payment assistance program and enhanced our FHA loan offerings in select geographies in an effort to responsibly serve more qualified buyers. These updates are part of our ongoing work to improve access to financing and scale our mortgage operations over time. Complementing Zillow's consumer-oriented features is an increasingly powerful set of tools that boost agent productivity because we cannot deliver a truly integrated transaction without equipping the professionals who movers rely on with the software and support they need to make it possible. Follow Up Boss is a prime example of how we're innovating and delivering real value to agents. We're making Follow Up Boss even more indispensable by layering on a growing set of AI features that help agents work smarter, respond faster and ultimately close more deals. For example, AI-powered Smart Messages provide ready to send text and e-mail suggestions, personalized to a client's recent activity and conversation history. Since Smart Messages launched for Follow Up Boss customers in early June, agents using it have collectively exchanged about 2 million smart messages with our clients. Team leads can now use Follow Up Boss reporting tools to help optimize workflows and coach their agents based on lead performance, follow-up speed and conversion rates. And agents using Follow Up Boss can access organized client insights on buyers they connect with through Zillow, such as which homes they were most interested in. By easily seeing what matters most to their clients, agents can serve them better and engage more effectively as they move deals forward. They can chat directly with movers and ZHL loan officers inside the Zillow ecosystem and even get AI-powered call summaries and action items after a conversation. It is all designed to help them focus their time and energy where it matters most. Zillow in-app messaging, our proprietary feature that's closely integrated with Follow Up Boss builds on that workflow. Buyers in select geographies can now use it to communicate directly and securely with agents and ZHL loan officers to share listings, schedule tours and ask questions, all within the Zillow app. For agents and loan officers, we expect centralizing communication with this feature will help streamline customer engagement, improve response times, deliver better service and ultimately boost conversion rates. Our most recent product launches continue the momentum For Sale by enhancing the shopping experience itself. Zillow's new tour itineraries let buyers and their agents coordinate within the Zillow app to create custom shared tour plans with homes, dates and times. And virtual touring on Zillow also just got a big upgrade. A few weeks ago, we launched SkyTour, a dynamic interactive video experience as the newest feature on Zillow showcase listings. SkyTour elevates the home shopping experience by using drone footage, rendering technology and machine learning to create a smooth, realistic 3D model of a home's exterior. This enables buyers to zoom around and explore from different heights and angles, giving them a better sense of the place before they ever step foot on the property. It's a powerful way for sellers and agents to highlight a home's curb appeal and outdoor features, make their showcase listings stand out and get serious buyers in the door. Showcase is now on about 2.5% of new listings, up from 2% at the end of last quarter and just over 1% a year ago. We are continually evolving and improving Showcase and our go-to-market motion to support scaled adoption, and that is helping us gain share. I encourage you to watch the video linked in our shareholder letter that highlights the great feedback we're hearing from agents about how Zillow's suite of product offerings is supercharging their businesses. All of these tools and features across For Sale work together to deliver a better experience for movers and better performance for professionals. That's what Zillow's housing super app is built to do. Now diving into Rentals. As a reminder, our strategy here is twofold: first, to build the most comprehensive 2-sided marketplace of homes for rent; and second, to modernize the transaction experience for renters and property managers alike. The opportunity in Rentals is significant with a large total addressable market. More homes turn over each year in the rental market than in the for-sale market. In fact, about 3x as many movers are looking to rent versus looking to buy and almost every buyer starts out as a renter. Yet historically, there hasn't been a single platform where they can see all available homes for rent. Zillow Rentals is changing that. We are executing well on our strategy and scaling rapidly. Zillow Rentals is seeing strong property count growth and accelerating revenue built on the back of a sound strategy and a compelling product. Our marketplace includes the full spectrum of rental inventory from single-family homes to large multifamily buildings because we know renters aren't looking for just one type of property. They want to see everything in one place. In Q2, Zillow Rentals had 2.4 million active rental listings, the most in the category. Multifamily properties are leading our Rentals growth with multifamily revenue up 56% year-over-year and property count up 45% year-over-year to 64,000 at the end of Q2. We're also gaining wallet share with large property managers who are choosing to upgrade their advertising subscription spend with us as they recognize the value of connecting with the largest consumer rentals audience, including an increasing share of apartment seekers. Zillow Rentals is #1 in partner satisfaction in our category for return on marketing investment as we deliver high-intent qualified renters and add real value for our multifamily partners. Importantly, our reach now extends far beyond Zillow owned channels. Zillow Rentals partnerships to distribute multifamily rental listings with the Redfin rental network and with Realtor.com are helping us provide a more comprehensive rental marketplace for consumers. Multifamily property managers who advertise with us can now reach renters not only across Zillow, Trulia and HotPads and StreetEasy in New York, but also through Realtor.com, Redfin, Rent.com and Apartment Guide. This is a major value add for renters and property managers, and it's helping to drive more traffic, more inventory and more revenue for Zillow Rentals. But having the most active rental listings is just the start. We're applying the same product expertise and relentless consumer focus we've shown in the For Sale experience to building a more unified rental experience. Today, on Zillow, renters can shop, compare costs, tour, apply and in many cases, sign a lease, pay rent securely and even build or improve their credit history by having their on-time rent payments reported to major credit bureaus. For property managers, Zillow Rentals provides one easy digital platform to list, book tours, screen applicants, create and sign leases and collect rent payments. New tools like the AI Assist feature we announced in June, powered by an exclusive integration with EliseAI, simplify communication between renters and property managers, speeding up leasing. Additionally, rental listings on Zillow now support display of a full breakdown of upfront and monthly costs as well as optional add-ons and a custom calculator that lets renters toggle fees on and off and see a personalized total. This tackles a top frustration for renters, hidden fees and surprise charges, especially important for cost burden renters trying to plan accurately. In turn, property managers get more qualified serious applicants. Building a better experience for renters and property managers has earned us the #1 position in rentals traffic with 36 million average monthly rental unique visitors in Q2, and our lead continues to widen. We expect quarterly year-over-year Rentals revenue growth to keep accelerating throughout 2025 with a clear path toward the $1 billion-plus revenue opportunity in front of us. We're well positioned to keep capitalizing on the momentum we've built, scaling our marketplace and growing our share. This call marks 1 year since I stepped into the CEO role. It's an honor to be leading this company. I am incredibly proud of how our teams are delivering to get more people home while also helping our partners grow their businesses so they, too, can serve our shared customers. We are moving fast. We're staying focused, and we're building real momentum. Our Q2 performance reflects the strength of our position, strategy and execution. We're delivering growth, managing costs and leading industry innovation to provide a seamless tech-enabled experience that helps movers and real estate professionals with nearly every step of their journey. We are on track toward the full year 2025 targets we've laid out, and we are confident in our ability to keep executing in Q3 and beyond. With that, I'll turn the call over to our CFO, Jeremy Hofmann.

Thanks, Jeremy, and good afternoon, everyone. As you just heard, we delivered strong results in Q2 and are well positioned to continue doing so as we execute on our strategy. Q2 2025 revenue exceeded our expectations, up 15% year-over-year to $655 million, which was above our outlook range. Our better-than-expected revenue performance, combined with effective cost management delivered EBITDA of $155 million at the high end of our outlook range. Q2 EBITDA margin was 24%, with our trailing 12-month EBITDA growing 26% year-over-year as we continue to scale revenue and control costs. As a result of these efforts, in Q2, we reported our second consecutive quarter of positive GAAP net income. For Sale revenue grew 9% year-over-year in Q2 to $482 million, 700 to 800 basis points above residential real estate industry growth of 2% according to data tracked by Zillow and growth of 1% reported by NAR. Of note, we estimate purchase mortgage origination volume grew 1% in Q2 as well. As a reminder, mortgage industry growth is relevant because a majority of Zillow buyers purchased their home with a mortgage. Additionally, the relative headwinds we saw in Q1 from the luxury market normalized during Q2. Within the For Sale category, residential revenue grew 6% year-over-year to $434 million in Q2, in line with our outlook. We saw contributions to this growth broadly across our agent and software offerings and within our other marketplaces. Agent offerings include Premier Agent and Zillow Showcase. Software offerings primarily include ShowingTime, DotLoop and Follow Up Boss, which has continued to grow from both our enhanced market expansion and from broader industry adoption of the software. Our new construction marketplace also contributed to the growth in residential revenue. Within the For Sale category, mortgages revenue was up 41% year-over-year in Q2 to $48 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. Purchase loan origination volume grew 48% year-over-year to $1.1 billion in the quarter. Rentals revenue in Q2 was $159 million with growth accelerating to 36% year-over-year. This growth was driven primarily by our multifamily revenue, which grew 56% in Q2, up from 47% year-over-year growth in Q1. We increased the number of multifamily properties on our apps and sites by 45% year-over-year, reaching an all-time high of 64,000 multifamily properties as of the end of Q2. As a reminder, we measure our multifamily property count as 25-plus unit buildings. When you include our industry-leading long-tail properties, Zillow Rentals had 2.4 million active rentals listings, the most in the category. We also continue to grow our leading rentals audience this quarter with 36 million average monthly rentals unique visitors in Q2 according to Comscore. The ROI and lead quality that Zillow Rentals provides continues to resonate in the market. Additionally, our Redfin partnership went live in April, which expanded our distribution to Redfin, Rent.com and Apartment Guide. This expansion is resulting in more and more multifamily property managers choosing to partner with Zillow Rentals. 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, which gives us confidence in the $1 billion-plus revenue opportunity ahead of us. Q2 EBITDA expenses totaled $500 million, slightly above our outlook of $495 million, driven by slightly higher-than-expected benefits costs and payroll taxes. The lead generation costs from our Redfin rentals partnership, which are included in cost of revenue, were within our expectations. As a reminder, these leads put us in a position to further grow our Rentals revenue. Excluding the leads costs associated with our Redfin rentals partnership, total EBITDA expenses grew 10% year-over-year, in line with our Q1 year-over-year growth. Total operating expenses and cost of revenue combined grew 9% year-over-year as compared with total revenue growth of 15% in Q2. We drove leverage on total fixed costs, which grew 3%. This includes share-based compensation expense, which was down more than 12% year-over-year in Q2. We ended Q2 with $1.2 billion of cash and investments, down from $1.6 billion at the end of Q1. This was primarily driven by our May 2025 settlement of the $419 million of convertible notes, share repurchases of $150 million in Q2 at a weighted average price of $65 and partially offset by $87 million in net cash provided by operating activities. We are now convertible debt-free and have $981 million remaining on our share repurchase authorization as of the end of Q2. Our year-to-date share repurchases of $400 million are expected to offset stock-based compensation expenses for 2025. When looking at our share repurchase program since inception, we have repurchased $2.4 billion of shares at an average price of $48, buying back 49 million shares as a result. For the rest of 2025, we expect to be more selective in our share repurchases. Turning to our outlook for Q3. We expect total revenue to be between $663 million and $673 million, implying a year-over-year increase of 14% to 16% for our outlook range. We expect For Sale year-over-year revenue growth in Q3 to be similar to the revenue growth we reported in Q2, driven by residential revenue growth in the mid-single-digit range and mortgages category revenue growth in the high 20% range. Of note, we expect Zillow Home Loans origination volume to grow 40% plus in the quarter. Our guidance reflects our expectation that challenging housing market conditions and macro uncertainty will continue. We expect our Rentals revenue growth to accelerate in Q3, increasing more than 40% year-over-year, driven by further acceleration in multifamily revenue. For Q3, we expect EBITDA to be between $150 million and $160 million, representing a 23% to 24% margin for our outlook range. This implies EBITDA expenses will increase from $500 million in Q2 to an estimated $513 million in Q3. The majority of this increase is driven by strong traffic and lead trends from the Redfin rentals partnership, which results in incremental costs in our cost of revenue. We expect the strength of Redfin's performance to translate into additional multifamily properties and packages upgrades for us. We continue to expect the Redfin partnership to be accretive to EBITDA dollars in the second half of 2025. For the full year 2025, we now expect to deliver mid-teens revenue growth at the higher end of our previous outlook of low to mid-teens revenue growth this year. For the full year, we continue to expect Rentals revenue growth to be approximately 40%. We expect fixed cost investments to grow modestly with inflation while investing in variable costs ahead of revenue to drive 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 on track toward our full year goals with mid-teens revenue growth and continued margin expansion. We have the right investments in place to support our strategy and are delivering strong growth despite a housing market that continues to bounce along the bottom of the cycle. We are growing revenue nicely while staying disciplined on costs. And the combination of revenue growth and cost discipline is driving expanding margins and positive GAAP net income. As we look forward, we are very excited about the opportunities ahead of us. And with that, operator, we'll open the line for questions.

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

I wanted to ask a little bit more and drill in on the Rentals business, just given the goal or the guidance for accelerating growth in the back half, but then also just the strength in multifamily properties and the net additions. So help us understand just on the insights, what you're seeing, what you're hearing with your conversations from large property managers, maybe your go-to-market strategy from a pricing perspective, how that's helping? And just your overall, call it, confidence level, which I presume to be pretty high given the comments in the prepared remarks. But just going forward as rentals becomes a larger part of the overall business.

Yes. Thanks, Ron. Hof, I'll start maybe and you can jump in with anything I missed. I think at the high level, you're seeing the results both in Q2 and our confidence for Q3 and second half of the year just come from the strategy working, the team executing and great partner satisfaction. We are, as I said in prepared remarks, really building this comprehensive 2-sided marketplace. That is what solves the renter's #1 problem, having as much of the inventory as possible because there is no one-stop shop for all the inventory. Zillow Rentals now has the most, right, at 2.4 million active rental listings. And then on top of that content, building a modern transaction experience for the renter and the property manager, right? So for the renter, it's not just about getting the content, it's about being able to apply, sign a lease, pay rent, report your rent to the credit bureaus to build credit. For the property manager, it's having a transaction-focused experience for them to find these high-quality renters. So all of that strategy yields the audience. That's why we have the largest audience, 36 million unique visitors per Comscore, a lead that continues to grow and not just volume, the #1 brand preference among renters. So you solve the renter problem, you get the renters preferring you and using you. And I say all that because all that setup is what then leads advertisers to see such great ROI. That's why you're seeing now 64,000 properties up from 50,000 at the end of the year, wanting to advertise on the Zillow network, wanting to get in front of that audience. So that is the strategy coming to life and the execution. And then to your question on sales, well, now we've expanded that offering to not just our partnership with Realtor.com, but our partnership with Redfin. And so advertisers are getting access to the renters, not just on Zillow Group sites, but on Redfin sites and on Realtor.com as well. So it's more content for all those renters. It helps all of those sites grow their audience as well, which then flips back around to be even better ROI for the advertiser. So that's part of what drove not just Q1 into Q2, it's part of what's driving our confidence in the full year and the acceleration in the second half. And it's also why we're really excited about the $1 billion target out in front of us. There's 140,000 buildings out there. We're not even halfway there. And we have a ton of great ROI conversations to go have with these partners to help them bring more of their portfolios online with us to help them try higher packages with us. So there's a long great road ahead for us.

And Ron, I'll just chime in just to put some numbers behind it. Jeremy hit it well. But Q1, we grew rentals 33% Q2, we grew rentals 36%, including 56% within multifamily. Q3, we expect 40% plus. And full year, we expect 40% for rentals. So that acceleration, you really start to see build, and it's on the back of a lot of good work and a lot of good sales efforts as well.

Our next question will come from Brad Erickson with RBC.

Two for me. So one, last quarter, resi rev growth was a little bit below the market. And this quarter, it was noticeably ahead. Thanks for all the -- I appreciate all the drivers within marketplace and kind of software services you gave in the prepared remarks. But I guess, quarter-over-quarter, what specifically would you say the change was that drove the faster than market growth? And I'm talking, of course, excluding the mortgage piece of it. And then I have a follow-up.

Thanks, Brad, for the question. I'll take it. It's Jeremy Hofmann. We were quite pleased with Q2 revenue growth and the outperformance there, and that was in both Residential and For Sale more broadly. And I think you've heard this from us many times before, but we'll say it again. We tend to look at this metric over a time period of kind of full year multiyear view. And if you look back, those periods in time are pretty smooth. So look at the last 2 years, for example, on a 2-year stack basis, For Sale outperformed the market by 15% and that outperformance is what really gives us confidence for the longer-term mid-cycle targets, right? We're trying to go from 27% of connections in these Enhanced Markets now to 35% by the end of this year and then 75% for those mid-cycle targets. It's that formula plus everything else within residential and the for-sale segment that we're doing. And it's some combination of continuing to execute on Enhanced Markets, Showcase continuing to expand, Zillow Home Loans growing alongside that Enhanced Markets expansion, Follow Up Boss getting in the hands of more people across the Premier Agent base and the broader agent population. Real Time Touring continues to expand. It's a bigger portion of connections this quarter than it was obviously a year ago and drives conversion. And then last but not least, the new construction business continues to perform well, too. So when we look at the formula, we are appreciative of the outperformance over time and love the opportunity ahead of us as well.

Got it. And then just a follow-up on rentals kind of along the lines of Ron's question. We get asked a lot about the contribution from Redfin on this back half acceleration where you're calling for. Can you help us just maybe unpack that at all? Or maybe if you could just walk us through how we should think about the Redfin contribution that's layering on top of the rentals growth?

Yes. I'll take that one as well. We are really pleased with the partnership. It launched late April, early May and has started great. Our sales force executed well in Q2. We added 9,000 properties. I would expect that to normalize to pre-Q2 levels going forward. But when we look at the value Redfin and Realtor.com bring to us, it's the ability to take the expanded distribution and leads to all 64,000 existing properties and sell into the rest of the roughly 76,000 buildings we don't yet have on Zillow. So within the 64,000 properties, we are adding more value, we are bringing more customers, and we're hopeful that folks will upgrade their packages accordingly. And then it gives us the opportunity to go sell into a much larger addressable market than we are today. So that's the way I would think about it. It's a component of -- an important component of a larger rentals business we are building, not a separate piece. And the positives these folks bring to us impact the entire business.

Our next question will come from Ryan McKeveny with Zelman & Associates.

Nice job in the quarter. I wanted to drill in a bit on Zillow Showcase. You called out it's now on about 2.5% of listings, up from 2% last quarter, 1% a year ago. So obviously, some nice momentum there. As we think about the translation for market share of listings to the Showcase revenue opportunity, I think that discussion historically has revolved around effectively like a subscription fee per listing that works out to about $500 per listing. But in a scenario where a homeowner actually comes directly to Zillow and says, "Hey, I want this for my home when I list it." I want help connecting with a listing agent who uses a Showcase. Presumably, that's a pretty nice connection opportunity to take that demand and bring it to 1 of your listing partners. So I guess I'm curious if that potential for monetizing the connection is embedded within the revenue targets for Showcase?Or could that be a source of upside over time?

Ryan, thanks for the question. The short answer to your question is it's all considered part of the Showcase opportunity. I think the longer answer is kind of maybe why that is. So you're right, 2.5% of all new listings. We put out a goal of kind of 5% to 10% of all listings in intermediate term. And we don't think that's the end state. We think Showcase is something that becomes the default expectation for buyers and sellers. You want to get to that 10% number to then really start to have it become an expectation to have a flywheel. And the question you're asking, does a seller ask for it or does an agent pitch it to a seller, that starts to become both things start to contribute to seller growth. We do that now. I mean if you use the Zillow website and you don't have a listing agent and you ask for a listing agent, you are asking about Showcase, and we will connect you with a great agent that is trained to use Showcase, and that's a new opportunity for them. So we do think about both sides of that, both agent-driven and seller-driven. But we don't think about them as kind of separate revenue opportunities. It's more about bringing Showcase and changing the customer expectation experience for the buyer and seller. And then, of course, the incremental benefit for the agent is agents win more listings with Showcase, right? And when an agent walks into a listing presentation and they say, "Well, I'm aligned with Zillow, and I have these great Zillow digital tools, it's why you should list with me", they're winning more listings. That is the real ROI that agents are feeling and why they're subscribing and renewing. So we think about the opportunity for seller more broadly as both the seller and the agent. And I think it will take a while, but the expectation in the industry to just expect this rich media on more types of listings is what will really power that flywheel.

Yes. That's helpful. Second question, in the press release, you called out that part of the contribution to the residential growth was through the new construction marketplace. And I feel like the new construction marketplace tends to be kind of a big part of the quarterly update. So maybe you can just talk to us about what's driving that? Is that some of the macro trends that we see on the homebuilding side of things? Is that share gains within the space, expanding the number of homebuilding partners. Maybe you could just unpack the new construction marketplace side of things a bit.

Yes, Ryan, I'll take that one. I would think of our new construction business as one that feels table stakes for builders. So similar to the rest of the residential business and what you're familiar with on the agent front, that business just tends to do quite well because we're a really good advertising channel, and we've been able to grow nicely through the various swings in macro as a result.

Our next question will come from John Colantuoni with Jefferies.

I wanted to ask 2. Starting with variable expenses, they've been outpacing revenue growth in the past couple of years. Can you talk about the key areas of investment you've been making? And what milestones you're looking to achieve before you'll start turning down the dial so variable expenses start tracking more closely with revenue? And second, turning to the Redfin partnership specifically, and if possible, can you discuss sort of incrementality from the leads you're now receiving from Redfin versus the opportunity to find new property managers using Redfin's existing relationships?

Yes, John, I'll take the first one, and I'll start on the second and Jeremy chime in. So the first one, we expect our variable cost base to grow ahead of revenue in 2025 with our initiatives, but grow more in line over time as initiatives scale and mature. We have to make sure and we will make sure that we're rightsizing our investments to meet the expected growth curves we see, and we're primarily investing in Rentals and Zillow Home Loans, both of which are obviously growing faster than our overall revenue base. On the rentals front, we're investing in multifamily sales heads, lead acquisition costs and advertising to support that 45% property growth and 56% multifamily revenue growth we saw in Q2. And then for ZHL, we're really hiring loan officers as we expand our enhanced market footprint and bring ZHL to more customers. So that's where that is on the variable front. There are other parts of the variable cost structure that we've obviously gotten leverage over time. The primary places that we're investing are the places where we're seeing the most growth. I think I'd just remind you, the real profit driver here for the company and why you're seeing us continue to expand margins is we're controlling fixed costs and scaling revenue. That's the way that we grow profits faster than revenue. And fixed costs this quarter across the cost base were up 3%. We expect to continue to do that for the rest of 2025 and deliver positive net income in 2025 as well. So I think that's the first one. And then the second one on the Redfin leads versus opportunity. I think the way to think about it is similar to what we said a little bit earlier, which is the opportunity now is to take the expanded distribution that we have with Zillow, HotPads, Trulia, StreetEasy in New York, Redfin, Realtor.com, that's now the expanded distribution. We take that to the 64,000 properties that we have on sites and apps now, and we look to upsell them into higher packages. That will be one opportunity. That will be coupled with bringing that distribution channel to the 76,000 or so properties that we don't yet have. So it's less segmented out and more just think about it as the offering is just incrementally compelling, and we're going to go look to bring that to the entire space.

Yes. And maybe the only thing I'd add there is the incremental, which Jeremy commented on, these are incremental customers, right? Because there is no one-stop shop yet for all rental listings, you're finding renters on multiple sites, right? And so Zillow Rentals is the most, but Redfin has great rental sites and realtor.com has a rental site, and you find renters on there that are not on Zillow or vice versa. And so that becomes more value for the advertiser and the advertiser wants to advertise to that network. It's more customers to go attract for their advertising dollars. That's great ROI for them. And then that flywheel spins because when those advertisers bring more content on, that provides more content to the entire network, which drives the traffic for all those sites. So the incremental benefit to us and to our partners is really positive here. And the cool thing about that is it's a huge benefit for the renter, too. So a renter finds one of these sites largely from top-of-funnel sources and all of a sudden, they're finding more content, right? So for free, they have more choice and more content available to them than they would have without the partnership. So that's why we get so excited about it. It's a great consumer experience, and it's a great advertiser experience.

Our next question will come from Trevor Young with Barclays.

Great. Just back to the comment around Redfin and being dollar accretive in 2H. Just to clarify, is that for 2H in aggregate? Or should we expect it to start being accretive here in 3Q?

Yes, Trevor, I'll take it, Jeremy. I think about it as both, both 3Q and second half of the year. And then obviously, we expect it to be more accretive beyond that.

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

This is Jeff on for Ben. Can you maybe just talk about the assumptions that you're making about the broader real estate market as we look into Q3 and the back half of the year? And what kind of levers can you pull to further increase monetization on a per connection basis even in a slower housing market?

Hof, maybe I'll start. I think the short answer is we're not assuming a lot of help from the macro. And we're just focused on driving growth in spite of that, right? We grew total company revenue 15% in '24. We expect mid-teens growth in '25. We grew 15% in Q2. We're guiding to 14% to 16% in Q3. And that's with the housing market largely flat, right? It was flat in Q2, and we don't expect a lot of relief into the latter part of the year. The story on the housing market is it's going to take a while to normalize, right, because the affordability challenge we have is really an availability problem. So mortgage rates easing helps on the margin, but we're still dealing with the fact that we're nearly 5 million homes underbuilt from not building out of new construction inventory coming out of the global financial crisis. And so that plus a bunch of sellers being locked into high mortgage or low mortgage rates and not wanting to trade up, creates a supply-demand imbalance. That's why you've seen prices run up so much from the pandemic. And it's why even with prices starting to ease in so many markets, you're still seeing volume low. So all that doesn't paint a story of a housing market that untangles itself quickly. So we aren't factoring a lot of goodness in. I think we hope that you actually see some home prices start to come down more. There are many markets where home prices have already rolled over and are down a few percentage points year-on-year and are continuing to go down because there's enough listing inventory out there. But again, we don't expect that to provide overall total transaction value relief anytime soon. And so we are just planning to grow through that. We're gaining share in for sale. We're gaining share in rentals, and we're doing that because the strategy we're putting together allows us to build great products and services for the consumer and for the professional, and they choose to use us and our stuff more often, and that drives transaction share for us and for our agent partners. So at some point, the housing market will become a growth tailwind, but we plan to grow regardless.

Okay. Great. And maybe just as a follow-up, could you talk to if you're seeing any regulatory or listening access changes influencing your platform or agent ecosystem and/or any kind of early trends in agent behavior?

Sure. we're quite pleased to see the -- really the vast majority of the industry agrees with our listing standards, right, which were crafted to work alongside the listing cooperation rules that many MLSs and brokers already practice. So we love to see that the entire industry really has been encouraged to formally implement what they most already believe that if you're going to market a listing publicly to some consumers, you should market it to all consumers. It's a huge consumer benefit that buyers can see all available inventory, that sellers can maximize their exposure. And it's a huge industry benefit because if you're an agent, whether you're at a big brokerage or a small brokerage to do your job effectively, you got to see all the content and be able to count on the MLS to have it all. So we are really pleased that early on, we've seen the majority of the industry largely adopt these standards.

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

One of the questions we get a lot is around Enhanced Markets. And perhaps you could just talk about what you're seeing in the intermediate Enhanced Markets that are maybe part of the 2024 cohort. Curious if those are kind of coming up the maturity curve like you expect. And then maybe for Jeremy Hofmann, I'm wondering if you could just talk to the outperformance of mortgage in Q2, looked like the growth stepped up quite a little bit, but maybe is going to expect it to settle back down to high 20s in 3Q. Just curious if you could walk us through the trend in mortgage and linearity that you've seen through the year.

Sure. Jeremy, why don't I take the Enhanced Markets question and then you can hit mortgage. We're pretty pleased with the overall progress we're seeing in Enhanced Markets. We're going to start to sound like a broken record when we say methodical rollout, but that is really the name of the game here. In every market, it's about finding the next agent team or helping the agent team we have grow to take on more customers. And then it's about going into the next market and starting that process while measuring the conversion, the Zillow Home Loans adoption and most importantly, the customer satisfaction of that experience with the buyers and sellers that we introduce these people to. And we're seeing those metrics within our expectations across all cohorts, both new and old. We are on track to getting to 35% of our customers by the end of the year. That was the goal we put out at the beginning of the year with you all. And we're at 27% in Q2, and we feel good about getting to 35%. And what gets us excited about that is that's still barely 1/3 of Zillow customers, right? That is still means that 2/3 of Zillow customers are not getting this enhanced market experience yet. And that's opportunity we want to mode down as fast as we can on our way to 75% at least 75% of our customers sometime in the future. So we feel great about that progress. It is one part digital and one part analog and the software goes faster, as I talked about earlier, getting to 96% of our connections going through Follow Up Boss is great. It's a great job by the team to get most of our agent teams, nearly all of them on Follow Up Boss. We roll out Real Time Touring faster because we can train on that software faster. But then staffing up Zillow Home Loans, loan officers and creating the relationships between loan officer and agent and agent team is hand-to-hand combat with individual humans, and it's important to get that right one at a time. And so that -- those are the things that govern our progress and why we get to 27% now, 35% end of the year, 75% in the future. All that adds up to the $1 billion of incremental revenue that we see coming just from rolling out and expanding the set of services, let alone the upside from improving these services, which, of course, we will do over time.

Yes. And then to your second one on mortgage, we expect mortgages revenue growth in the high 20% range for Q3, which includes 40% plus purchase loan origination volume growth as the key component. So I think that's an important one to call out. As you've heard us say time and again across the for-sale business, we don't overfunction on the quarterly fluctuations. And for mortgages, things like loan value, gain on sale, that will fluctuate quarter-to-quarter. The market has been bouncing along the bottom for a while now, and we've consistently grown quite nicely despite that and expect to continue to do so. And then when we zoom out, where we're really pleased, and Jeremy hit this as well, is the consistent double-digit adoption rates across the Enhanced Markets, while the number of markets have meaningfully increased. It's -- ZHL is a critical portion of this overall strategy, and we're really excited about the progress.

Our next question will come from Dae Lee with JPMorgan.

I have 2 and those are follow-ups. First one on the rental opportunity. You did talk about growing the wallet share with your advertisers as one of the opportunities. So curious like where you are in terms of unlocking some of that opportunity? And is the $1 billion medium-term target more driven by the supply growth? Or is the growing wallet share part of that?

Yes, I can start and Hof jump in. I think part of why we don't talk about it is because we see just such a greenfield opportunity in front of us in terms of volume at the ROI we're providing for our partners. So Jeremy talked about it a bit. We have plenty of room as we win new advertisers, they bring a portion of their portfolio and they try one of our packages and then they experience these great ROI benefits of being on the Zillow Rental Network and they bring more of their portfolio and they upgrade their packages. So we see that sales go-to-market as really durable growth for us, and you're seeing that in the results, right? You're seeing 56% multifamily revenue growth coming from that. That's from 45% property count growth. So that shows both bringing new advertisers on and having them use the Zillow Rental network more. So as long as we continue to deliver increasing value and increasing ROI to them, we'll have the opportunity to win more and more of their business. And the percentage of advertisers we have reached is still, as Jeremy Hofmann said, not even 50%. So that's why we feel so great about the $1 billion-plus opportunity and why we see a lot of ways to go grow and get to it.

Got it. And as a follow-up, on Enhanced Markets, I think in May, you guys put out a release saying you're targeting 60 additional markets at the end of July. So I was curious if that 27% number you have in the letter includes that? And if not, how are you progressing on getting those additional markets live? And when you get these markets up and running, how long does it take for them to show up in your results?

Yes, good question. So the 27% in Q2 does not include that. But I will encourage you to think about percent of connections rather than market count. We started moving out of that as a better source of modeling because each market has a different mix and share and capacity of agent teams, loan officer capacity and all that. So think about it more as we are at 27% as of the end of Q2, and our goal is to get to 35% by year-end. And then it's about a year to start to see the accretive benefits of the new experience across the cohort of customers and agents for that share of connections. So it is quite an involved process to get all the folks up and running, all the staff and training up and running. But once you do, you really see agents not just gain share, but are able to grow their businesses with our software and tools, and you start to see them try and use Zillow Home Loans to drive adoption. So that's the formula and the playbook we're focused on. And I think percent of connections is probably the right way to try and think about it.

Our next question will come from Stephen Sheldon with William Blair.

I just wanted to follow up on Zillow Showcase. I'm curious how monetization of that solution has been trending and whether it's becoming a more material contributor -- revenue contributor to the residential segment. And then as we think about the housing backdrop, has that actually become more favorable for Showcase given that home sellers and their agents could be a little more concerned about the home selling altogether and the price received in this environment. I guess, just what are you seeing on the demand side there?

Sure. So Showcase now at 2.5% of new listings, up from 2% end of Q1. I think trying to tease it out as a part of the overall residential component is going to be tough just actually because of the earlier question, it's all part of the agent's ROI. So we feel great about that progress. And the thing I think we're most excited about is agents see the value in winning more listings with it and sellers and buyers both see the value in having it, right? So it's this really rare kind of win-win where everyone has a great experience with it. The macro question is a good one. I think the reality is it's too small showcases to be a macro driver yet. But I will point out, we're growing Showcase this nicely in what has historically been mostly a seller's market. And as if the market were to shift to more balance, you'd think the seller and the seller's agent would benefit even more from Showcase in their listing. But if you go talk to our agent partners who use it, what they're seeing the benefits of is their ability to win more listings with it, right? And so in an environment where they have to work harder to win a listing presentation, Showcase is an even more powerful tool. And we're not exactly just sitting still with Showcase, right? Showcase launched a little more than a year ago, and we've been improving it ever since. So we added the listing dashboard last quarter. We just added SkyTour, which you haven't -- if you haven't checked it out, you should really go check out a SkyTour listing. It's an immersive experience outside the home. It stitches drone photography together to get you to be able to fly around the exterior and really get a sense of what the home is like. Those are just a couple of examples of how we'll continue creating this incredibly immersive experience that the buyer, of course, loves. Therefore, the seller will want, therefore, the agent will have to offer if they want to win listings.

Our last question will come from Andrew Boone with Citizens Bank.

I wanted to ask about AI and the improvement of just automation across the platform. You guys mentioned in the letter the 2 million people -- the 2 million smart messages that have been exchanged since June. Can you guys just talk about what AI allows for automation in terms of connecting buyers and sellers more efficiently? And what's kind of the overall vision, if we think kind of 1 to 2 years out of what you guys can do with Follow Up Boss as just more capabilities are enabled?

For sure. Thanks, Andrew. We are tremendously excited about AI's potential to rewire the industry just as it rewires all of us as workers. And if you think about the real estate industry as such a highly considered regulated purchase where you need great professionals, that is just tailor-made for supercharging the services that humans are doing and allowing humans to be great at what they do. And you're already seeing that today, right? I mean just look at some of the examples we called out this quarter for the consumer, it's a better customer experience, right? It's things like I just talked about with SkyTour, virtual staging AI, better personalization while you're shopping for the professional, the hard-working professional that has so much work to do to help delight clients, it's AI-powered relationship management software to supercharge them to let them do what they do best, which is client relations and advice and consulting and guidance, same thing for the loan officer by taking away the busy work, by automating follow-ups, by suggesting messages, by pulling in insights to make them a better client manager. So those are the features we're already putting into the wild today. And that's really, in many ways, the low-hanging fruit to start to elevate the professional and make the transaction experience more delightful. If you fast forward a couple of years into the future, you can just draw a line on what we're doing now to where we might be able to get to, to really create a more magical transaction for the buyer and seller and allow the professionals to do what they do best and have the software and the tools do more of the work for them.

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 are excited for what's ahead and look forward to speaking with you all next quarter.

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