Zillow Group, Inc. Class A (ZG) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon. My name is Tania, and I will be your conference operator today. At this time, I would like to welcome everyone to the Zillow Group’s Fourth Quarter and Full Year 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brad Berning, Vice President, Strategic Affairs and Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Zillow Group’s fourth quarter and full year 2022 conference call. Joining me today to discuss our results are Zillow Group’s Co-Founder and CEO, Rich Barton; CFO, Allen Parker; COO, Jeremy Wacksman. During today’s call, we’ll make forward-looking statements about our future performance and operating plans and the housing market 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. Recording of the call will be available later today. During the call, we’ll discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA. We encourage you to read our shareholder letter and our earnings release, which can be found on our Investor Relations website, as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. In addition, please note we refer to our Internet, Media & Technology segment as our IMT segment. We’ll now open the call with our remarks followed by live Q&A. With that, I will now turn the call over to Rich.

Thank you, Brad. Good afternoon, everyone. We appreciate you dialing in to hear about our fourth quarter and full year results and our excitement about the progress we're making on our growth strategy. 2022 was an extraordinarily difficult and transformative year for Zillow, one that I believe the team navigated courageously. In late 2021, after living through unprecedented volatility in the housing market, we made the hard decision to make a rapid and orderly exit from our iBuying operation, judging it too risky for Zillow given the breadth and profitability of our hard earned core business and our category leadership. We began 2022 with 10,000 homes on our balance sheet and ended the year with zero. Unfortunately, this also necessitated a workforce reduction of approximately 2,000 valued employees. When we spoke to you this time last year, we unveiled a new growth strategy oriented around driving our customer transaction share from 3% to 6% by the end of 2025 with a focus on increasing engagement, increasing customer transactions and increasing revenue per transaction. As we quickly shed our iBuying inventory and embarked on our new journey more nimbly, the unprecedented housing macro volatility continued this time to the downside, the scenario we had feared could happen. 30-year mortgage interest rates nearly doubled over the course of the first six months of 2022, meaningfully slowing turnover and home price appreciation in the housing market. Despite these significant changes for our company and the housing market at large, our team remains focused on innovation with our eyes forward. We are working on building solutions and delivering products for our customers, our agent partners and the industry that make it easier for people to transact in real estate and ultimately transact with Zillow. We're rapidly releasing products and improving both the customer and agent experience to ensure that when customers come to Zillow, they choose to stay and explore our other offerings. We released products at a rapid pace and service to our integrated transaction strategy, including the launch of natural language search, listing media services through Showing Time Plus, our partnership with Opendoor and real-time touring among many other product releases. The result of these efforts have put the company on solid ground heading into 2023. Our traffic and brand are extremely strong with average monthly unique users of 198 million during Q4, and roughly 65% of mobile app users for the real estate marketplaces category. Additionally, 2022 was a year where Zillow regained its spot as the number one most visited rentals platform according to comScore, putting us in a great position for future growth. Despite a challenging operating environment in 2022, when we attempted to normalize for COVID volatility, we have a go-forward business that has grown consolidated revenue by 12% on an annualized basis since 2019, and while our IMT segment grew EBITDA by 30% on an annualized basis over that same time frame. Equally important, we exited 2022 with a solid balance sheet of $3.4 billion in cash and investments, up more than $200 million versus a year ago, even after executing $947 million worth of share repurchases at a weighted average price of $42.63 throughout the year. Most importantly, we exit 2022 with our employee base in a far more stable place than where we started the year. Just under three years ago, we took advantage of our position as a primarily digital business with a heavy mix of engineering and product talent and committed to location flexibility permanently. That decision brought us more stability during the pandemic, and we continue to feel very good in our position as a cloud headquartered company which we define as having the flexibility of choosing where to live with the understanding that many jobs require periodic on-site gatherings, inter and intra team. We've been able to dramatically broaden our candidate pool and attract top talent from all over the country. Voluntary attrition declined steadily across the organization in 2022, down more than half in Q4 compared to Q1 and our workforce is more dispersed, more diverse and more engaged with 93% of our employees saying they clearly understand how their work is contributing to our mission. Further, our data shows that we're attracting talent at a much greater rate than before the pandemic four times more applicants per job posting versus 2019. Last and most important, we are seeing increases in productivity in critical areas of our business. Our Premier Agent sales team is more productive today than it was before the pandemic. Again, our software development and product teams are creating services faster today as well. So that was a little back in reflection on 2022. What about 2023? We are focused on our vision of building a housing super app, a single digital experience to help customers across all their real estate needs. Our goal is to increase engagement, increased customer transactions and increased revenue per transaction by investing across five growth pillars: touring, financing, seller solutions, enhancing our partner network and integrating our services. The expected output of this strategy is to grow our share of consumer transactions from 3% to 6% by the end of 2025. Critical to achieving our aspirations is building an integrated experience for customers and partners. We spent much of last year creating products and services across our five growth pillars and introducing them into our test markets as they became available. In 2023, we are ready to take the best of our learnings and roll them out market-by-market together across Raleigh, Denver, Atlanta and Phoenix in service of an integrated experience. With that as a backdrop, our first product road map update is touring. You've heard from us many times now that touring is a critical piece of the moving experience. It's the point-of-sale, where shoppers turn into transactors. And we know from all the data we see on a daily basis across our entire business that movers who request a tour convert to transactors at three times the rate of other actions on Zillow. Further, we believe improving the touring process is integral to building the seamless connected experience we envision. In late 2022, we rolled out real-time touring in Atlanta. Real-time touring is designed to make booking a home tour as easy as making a restaurant reservation online, a convenience that modern on-demand consumers certainly expect. We're excited about the early signs coming out of Atlanta, which show real-time touring enables higher connection rates and higher customer propensity to work with our Premier Agent partners, which we expect to drive benefits up and down the funnel, delivering high-intent customers to our partners. As a result of the early data we are seeing, we expanded this offering across Atlanta and are rolling out the product to our other three test markets. Of course, we have our eye on integration as well. Alongside the product improvements we are making every day to real-time touring, we've made it much easier for agents to transfer customers who are interested in financing to Zillow Home Loans loan officers as part of the touring experience. In Harmony, with state-of-the-art digital products and services, enhancing our partner network is critical to bringing our housing super app vision to live, which will be the focus of my second update. For years, we have driven increased lead volumes to our high-performing partner agents. We have done this in a variety of ways with an eye towards those who treat our customers best, who convert leads into transactions best and those that are excited about growing their businesses alongside us. We have taken our most aggressive steps in enhancing the network by meaningfully consolidating our partner network across all four test markets. We increasingly believe that a tighter set of partners allows us to deliver a better customer experience and allows us to test new products and services rapidly along the way in service of integration. One early success we've seen has come in Raleigh, North Carolina. Last quarter, we told you that in Raleigh, we were seeing approximately 15% customer adoption of Zillow Home Loans. We are happy to report that we are now seeing closer to 20% adoption just three months later. Based on our early successes in Raleigh, we have expanded our Zillow Home Loans adoption playbook to the rest of our test markets. Speaking of Zillow Home Loans, our next product road map update is on financing. We said many times before that we believe financing is crucial to the buyer's experience and merging financing at strategic points in the buyer's journey is critical to the end-to-end customer experience we envision. So in 2022, we turned our efforts towards building the foundation for a substantial direct-to-consumer purchase mortgage origination business. Last quarter, we spoke about the critical work streams we've deployed to bolster our mortgage business. In 2023, we have four key areas of focus. First, we are simplifying the entry points into our funnel and are building overall awareness of Zillow Home Loans. Second, we are building a better digital mortgage experience on Zillow to meet customers where they are in their buying journey. As a reminder, even with relatively low awareness for Zillow Home Loans, millions of customers on Zillow raised their hands for financing help last year, a testament to our brand and audience scale. Our focus is on improving our processes to better identify high intent customers and creating easy-to-use digital tools on our apps and sites to help our customers be ready-to-buy well before they tour homes. Third, we are bolstering our loan officer tools and capabilities so they can effectively handle our volume while providing a best-in-class customer experience. And finally, we're working closely with our Premier Agent partner base to build integrated processes with Zillow Home Loans, which I touched on a moment ago. As a reminder, we are building out two primary ways for customers to connect with Zillow Home Loans. The first way is financing first. It is when a customer starts their moving journey with financing to get pre-qualified before they are connected to an agent. We're investing here because we know approximately 40% of all homebuyers start their journey this way and roughly 80% of our prospective mortgage customers don't have a real estate agent. For many customers, financing is the most opaque and intimidating part of the home buying journey, and we want to help make it easier and more transparent on Zillow. We also know how valuable it is for our Premier Agent partners to be connected with the customer who already knows what they can afford. After many, many product changes last year, we are beginning to test connecting pre-qualified customers with Premier Agent partners in multiple markets, including all four test markets. The second way is property first. This is when our Zillow Home Loans lead comes back to us from a Premier Agent partner who was working with a home shopping customer we had previously sent them. Beyond the integration point with real-time touring we discussed earlier, we have integrated Zillow Home Loans into all existing connection processes across our four test markets. Encouragingly, we are already seeing nearly one in five Premier Agent partners sending connections to Zillow Home Loans in these markets and some agents outside of those markets are also proactively choosing to connect customers with us. From our perspective, the inherent value in integrated services has made our partners supportive of these efforts, and we are pleased with the early results. In addition to the investments we're making in improving the buying experience, we're also delivering solutions for sellers and their listing agents, and we have some exciting product roadmap updates this quarter. Enabled by the small acquisition of VRX Media earlier this month, we launched listing Media Services through ShowingTime+, a photography service and comprehensive media package that enables listing agents to seamlessly deliver beautiful, immersive media for the homes they are selling. This service is a critical precursor to our upcoming listing showcase product, which we previewed last quarter. As a reminder, this product will differentiate a listing agent on Zillow through branding and a higher-quality listing that looks unlike anything else that exists on real estate sites today. Our aim with both of these products is to serve more sellers and allow listing agents to win more business. We will be rolling out listing showcase over the summer. We continue to be excited about the work that is happening here. We're also pleased to announce that our partnership with Opendoor is live in Atlanta and Raleigh. Customers who start their selling journey with Zillow can now request a cash offer from Opendoor and simultaneously receive an estimate of their open market home sale price with a local Premier Agent partner. All customers will work with one of Zillow's licensed advisers to determine the best path based on their needs so they can confidently sell their home and get into their next one, whether that's potentially maximizing sale price on the open market with the real estate agent, or being assured of a speedy sale with Opendoor. Regardless of the path, the customer chooses, they will be able to use the service as a stand-alone offering or package it with other Zillow services such as financing through Zillow home loans, working with the premiere agent partner to buy their next home or when it's available, closing with Zillow closing services. This new product experience will launch in additional markets nationwide over the course of 2023. Clearly, we have a lot of work ahead on our product road map. And of course, we are very conscious of the housing market environment while we invest for the future. Housing affordability challenges were of 2022 and remain front and center as we begin 2023. Affordability does impact demand. It also impacts supply. For homeowners, it's simply more expensive to move than to stay put right now, leaving more wood be movers on the sidelines. It's going to take time for these market dynamics to normalize. But as we head into 2023, we are seeing some early signs of stabilization, albeit at a meaningfully subdued level. Mortgage rates have come off their highs Home prices have continued to decelerate from their peak last June, and there is a looming backlog of homes under construction, both for sale homes and rentals, which is likely to give some help on affordability. However, we are not out of the woods yet given high uncertainty in the path of the macro economy and how it may affect the real estate industry. Things continue to be foggy and we can't control what the housing market does. What we can control is how we operate our business. Similar to many times in our history, including 2022, we are closely monitoring the situation and will be prudent in how we invest through this period. As we look back on the last 12 months, it is clear we were simultaneously navigating the past and organizing for the future. Now, however, we are eyes forward and focused. 2023 is a consequential year for us, and it is all about making progress on our initiatives through product launches and market rollouts so that we can further expand and scale into 2024. We see the same headlines you all see about tech companies cutting back their workforces to make up for staffing to unsustainable pandemic level growth that is now normalizing. Our story is different. After a year of significant people-related and other expense reductions in 2022, we are now investing during a very difficult housing market while others retrench as we see real opportunity for growth. We expect that 60 million homes will trade hands over the next 10 years, which reflects a much more natural and healthy mover rate. And given all the product and service innovation opportunities we have discussed, our aim is to be an increasing and meaningful share of those customer transactions. This will drive value for our customers, partners, employees and shareholders. We will continue to share our progress and learnings along the way, and we appreciate your partnership with us on this journey. I will now hand the line over to Allen. Allen?

Thanks, Rich. In Q4, we delivered consolidated results above our outlook for both revenue and EBITDA. IMT segment revenue was $417 million, down 14% year-over-year, above the high end of our outlook range, driven primarily by better-than-expected performance in Premier Agent. Premier Agent revenue outperformed both our expectations and the industry decline of 31%, decreasing 20% year-over-year. A significant contributor to the Premier Agent outperformance was improvement in the mix of first-time homebuyers during the second half of the year, trending back towards historical norms. Given our Premier Agent customers are overweighted to first-time homebuyers versus the overall industry, we believe this was a tailwind in the second half of the year compared to the headwind we faced in the first half of 2022, when cash buyers were winning a higher mix of homes in the hypercompetitive market. We plan to provide full year 2022 customer transaction share data in a future quarter as lagged county property records become available. We believe our Q4 Premier Agent revenue results also demonstrate the benefit of our continued focus and years of investments in our brand, customer experience and partner network, all things that we can control. We continually iterate and optimize our apps and sites on behalf of our customers and partners, and that became even more of a focus as teams have been freed up from iBuying. While each of the new features may seem small individually, over time, they add up and differentiate us. Our relative traffic growth has outperformed the next top 15 real estate sites combined as defined by comScore over the last several months. This has contributed to our overall relative outperformance in revenue when compared to the industry. Additionally, over the years, we have worked to refine our partner base by growing and rewarding high-performing agent partners. Rentals revenue was up 13% year-over-year as rentals traffic on Zillow grew 20% year-over-year to 26 million average monthly unique users in Q4 for comScore. Our industry-leading rentals traffic help us grow the number of multifamily properties on our platform despite an industry-wide decline in multifamily apartment renter searches and move rates. We believe macroeconomic factors, including both rental affordability and for-sale affordability challenges have pressured move rates and renter searches. This is partially offset by occupancy rates, which have continued to drift lower from historically high levels and continue to be a tailwind to the rental industry demand for advertising. IMT segment EBITDA was $113 million for Q4 or 27% of revenue, exceeding the high end of our outlook range of $100 million and 25% of revenue. The outperformance was primarily driven by better-than-expected Premier Agent revenue. Mortgages segment revenue of $18 million was near the midpoint of our outlook range as we continue to make progress building our Zillow Home Loans purchased mortgage business. Mortgages segment EBITDA was a loss of $32 million, near the high end of our outlook, as we continue to invest in building a better consumer-facing origination experience, efficient and scalable internal loan officer tools and back-end systems and integration with our Premier Agent business. We believe these investments lay the foundation for Zillow Home Loans to serve a much broader set of customers, many of whom we currently send to third-party lenders today. We expect financing will be a key driver behind growing our share of customer transactions and revenue per customer transaction. Total select operating expenses and cost of revenue, excluding share based compensation and depreciation and amortization were $362 million in Q4, up from $353 million in Q3. Consistent with our expectations implied in our outlook for the quarter. As we discussed on our Q3 earnings call, we are maintaining our planned investments in our key growth initiatives, partly offset by reductions from letting go a set of employees in October as well as other discretionary and non-people-related cost actions. We ended Q4 with $3.4 billion of cash and investments, down slightly from $3.5 billion in Q3, which includes the benefit from operating cash flow as well as the impact of $174 million in share repurchases during Q4 at an average price of $35 a share. We repurchased a total of 22 million shares for $947 million in 2022, which translates to an average share price of approximately $43 per share. Although the macro backdrop has been choppy, we continue to focus on the inputs we can control, adding value to our customers and shipping great products while prudently managing costs. We feel good about the progress we are making across our growth pillars and believe investing against our targets while managing costs is the right thing to do across this business cycle to drive share growth. Our relative brand strength at the top of the funnel, along with our balance sheet and focused growth strategy, enable us to continue to invest prudently. To align with our growth strategy and to better reflect the integrated platform of digitized solutions we are building, beginning with the first quarter of 2023, we plan to report our financial results as a single reportable segment. Within this framework, we plan to report revenue categories of residential, rentals, mortgages and other. These revenue categories are consistent with how we measure success against their respective industry total addressable markets. The new residential revenue category will primarily include revenue for Premier Agent and new construction marketplaces as well as StreetEasy for sale product offerings, Zillow Closing Services and ShowingTime+. Our rentals and mortgages revenue categories will remain consistent with historical presentation and other revenue will primarily include revenue generated from display advertising. Our cost will be reported in one consolidated segment, and we will report a single consolidated EBITDA, consistent with how we are operating the business. Silos have been broken down across lines of business teams to integrate towards providing customers and our partners' end-to-end solutions. Operations and investments across the business are intended to optimize consolidated revenue and consolidated EBITDA. We have provided a downloadable Excel version of select historical revenue data under this new presentation on our website within the supplemental financial tables and our interactive analyst center to help with modeling. These changes have no impact on historical consolidated total revenue or consolidated EBITDA. Turning to our outlook. Going forward, we are aligning our guidance with our new reporting structure and plan to provide outlook for residential revenue, total revenue and consolidated EBITDA, to help you transition to our new revenue categories, we also plan to provide Premier Agent revenue growth rates, and revenue growth rate outlook as we report over the next four quarters. For Q1, we expect total revenue to be $404 million to $437 million, implying a year-over-year decline of 22% at the midpoint of our outlook range. We expect residential revenue to be in the range of $313 million to $338 million. For Premier Agent, we estimate revenues will decline in the range of 23% to 28% year-over-year as compared to our estimate for an industry transaction dollar decline between 25% and 35% year-over-year in Q1. We expect consolidated EBITDA to be in the range of $48 million to $63 million, implying a 13% margin at the midpoint of our outlook rates. We continue to balance investments for future growth while managing discretionary costs during this challenging and uncertain macro environment. We have a high incremental margin business that should see leverage when the environment improves, which we demonstrated in both Q3 and Q4. Our Q1 EBITDA outlook assumes that from Q4 to Q1, we expect a modest increase in total operating expenses and cost of revenue. We expect this to be primarily driven by investments to support our recent acquisition of VRX Media and our new ShowingTime+ products. Our recent VRX Media acquisition has enabled us to accelerate our distribution plans for listing media services. In closing, entering 2023, we remain in a strong position to invest against our strategy to better serve more customers to drive customer transaction share and more revenue per customer transaction. As we look forward, our priorities remain focused on innovating and executing on behalf of our customers and partners, and we plan to grow our customer engagement through a compelling dream and shop experience, deliver a more integrated customer transactional experience to drive customers to choose to transact with us and our partners, invest in sustainable top line growth opportunities across the company, including new integrated services that are more scalable, less subject to earnings volatility and more capital efficient and manage our cost structure and improve productivity, including continued prioritization of our investments that we expect will drive a profitable, scalable and positive cash flow company. And with that operator, we'll open the line for questions.

Thank you. [Operator Instructions] The first question comes from Lloyd Walmsley with UBS. You may proceed.

Thanks. Two, if I can. First, just on the product side. Can you help us understand the listings showcase product? It seems like kind of the beginning of effectively monetizing placement on the site. How do you plan to go to market? Like are we right to think that of all the new products, that's one that could contribute and scale and contribute to revenue fairly quickly? And then second, kind of higher level, can you just talk to how you see the potential entry of CoStar deeper into the residential side of the space impacting the ecosystem? And do you think this kind of fits in with the potential unbundling of buying sell-side commissions and the notion of just a national MLS? Can you just give us your sense of that and how Zillow would be positioned if the industry moves in that direction. Thanks.

Okay. Thanks for the question, Lloyd. This is Rich. I think let's send the first one over to Jeremy and then maybe come back to me for the second one.

Sure. Thanks, Lloyd. On listing, media services and listing showcase. As Rich said, we are excited that we just launched Listing Media Services after closing the acquisition of VRX Media, and that's solving a real problem for listing agents, which is helping them get high-quality media, photography, videos, our rich media experience, our interactive floor plans for their listings. And that really sets the groundwork for listing showcase, which is coming later this year. And listing showcase is really about helping a listing agent differentiate themselves and win more business, while also helping a seller really showcase their home because we know that super-immersive interactive listing is something buyers want and buyers crave and we'll spend more time with. So it's a little too early for us to talk about how it might land in the P&L, given we haven't even launched it yet, and we talking to you all about that in future quarters.

Okay. And I'll jump on the second one and basically say, our formula has been our formula from the beginning, Lloyd, and that is focus on the mover consumer and what they want and engaging them and building audience around them and building really magic things for them. And that started all the way back when we launched this estimate Brazil. So we really truly believe that all goodness for us downstream in business model and partnerships, et cetera, flows from initially captivating and capturing the attention of the consumer. And that has worked really well for us as evidenced by a couple of hundred million unique users a month and 65% app share. I think Allen in his prepared remarks said that even though we're the leader, we outgrew the next 15 competitors according to comScore over the last several quarters. This comes from our focus on that consumer. And it also has led us to taking a big bet on the transaction and the super app vision that we have of addressing these consumer pain points and integrating the process and making it more seamless and may be more joyful and fewer tiers. And we like -- as you've heard, we really like where we are on that. I guess I'll say another thing in that is building great consumer products and brands is really hard. It requires kind of ninja-level skills on multiple dimensions, not the least of which is software engineering skills. And software engineering is in our DNA in this company. We -- many of us date back to finding Expedia at Microsoft. We were all -- many of us were Microsoft people and many of us engineers at Microsoft. And so we couldn't -- we can't shake that kind of engineering DNA that we have. So anyway, we like our position. I know that's a roundabout way answering it, but it does basically give us great comfort that no matter what comes to pass from a competitive perspective or from a regulatory perspective or even from this kind of DOJ lawsuits perspective, it is -- our position in power and confidence is derived from the fact that we have this great relationship with this giant audience and through by our trusted brand.

Got it. Yes, that makes a lot of sense. Thanks, Rich.

Thanks Lloyd.

Thank you. The following question comes from Mark Mahaney with Evercore. You may proceed.

Thanks. A couple of questions, please. You talked about seeing early signs of stabilization in 2023. Any more color on what those are, and does your crystal ball tell you that things are troughing in this March quarter? And then secondly, this disclosure, this commentary about how your PA customers are more over-weighted to first-time homebuyers than the market as a whole. Is there any quantification of that? And just talk through a little bit about what the implication of that is? So I think what that means is that you've got a pretty good brand set up with younger buyers, millennials and people are just entering the home buying stages of their lives. And just so that's – so what from that. So just spend a little bit more time on what the -- if you can quantify it and what you think the so what of that is? Thanks a lot.

Okay. Thanks Mark. Maybe I'll attack the e-com question of your first part, and then maybe pitch it over to Jeremy again for the second part, is that cool Jeremy? Okay, thumbs up on Zoom. And Brad, of course, jump in if I don't get the macro stuff, I'm not the Chief Economist and they report to you now. So you're probably in a better position to comment. I think the crystal ball is hard as you all know better than most and the crystal balls, no matter what you're trying to predict right now are particularly foggy and volatile still, given the stream of conflicting data that we're getting every day. And is the real estate market troughing? I certainly hope so, but we're certainly not counting on it. I said -- I did say mortgage rates have pulled back a bit, and you guys have seen that, but they are still pretty volatile. Other inputs into this equation look pretty good in terms of just buyer demand, and we do have some supply constraints, just look at our unique users and you can see people do want to move. So that is -- we see lots of decent buyer signal ready -- wanting and ready to buy. Maybe if you want, maybe offline, Brad can give you more data on the specifics of the macroeconomic buildup. But because the overall macro is just so cloudy, it's hard to make a call that this is the bottom and the things are just going to get better. It's just the overall macro is certainly going to affect the housing. As I said in the prepared remarks, we are confident that a much more natural and healthy mover rate is more like six million or more home transactions a year, which gave -- which led us to say 60 million transactions over the next 10 years is what we can count on. I guess, I'd finally make the point that it is not what the macro does or doesn't do that drives the growth for this company. However, it really is the fact that we have almost -- we have most all of the audience coming in using us and yet, we still have this measly low transaction share. And so the big lever is going to be driving our transaction share from 3% to 6%, and that's what's really going to move the needle for us. We have some good early signs. I love the pace and the quality of the product and service innovations that we're launching right now. It gives us good confidence to prudently invest through this kind of foggy choppy market. We've already been through it. You all have seen us go through this last year, and the year before, but last year with a lot of prudent – difficult and prudent decisions that we have made. So we kind of got an early jump on the stuff we're seeing across the tech economy right now. Anyway, long-winded way, we're not really calling a bottom because of the fogginess, but we do feel really good about our position. Okay, Wacks – Jeremy?

Yes. And I think you actually started on the second one, too, which is, we think about the share opportunity coming from really all types of buyers. And that first-time homebuyer mix is, I think, intended to give a bit of color on the stabilization off of some more extreme, but Allen painted in terms of where the market was with cash buyers. But our first home buyer mix is actually pretty consistent with the mortgage market overall. And as Rich said, our growth pillars and our growth strategies really are there not just for first-time homebuyers, but for all buyers, right, but all types of buyers need touring and be able to get into the home. They need to line up financing, repeat buyers need to sell their home into the seller services we offer and all of them need to get in the hands of a great agent if they don't have one already. So the growth pillars that we are working on we really think are what drive our share growth across all segments, both first-time homebuyers and repeat home buyers.

Okay. Thank you. Thank you very much.

Yeah, maybe Rich, and Jeremy, I'll just add on the this, somewhat for Mark, in terms of our comments, we wanted to indicate that as first-time homebuyers normalized we were seeing a little bit of a tailwind. But that tailwind is more temporal than permanent, I think. And so we just wanted to call that out in transparency. And we believe that the things we're executing around the growth strategy, as Jeremy called out, are what's going to be driving our growth longer term.

And in conclusion, before we go to the next question, most all of you on the call already know this, but Brad and Mary Allen have a really terrific team that does deep dive on forecasting the housing market, and we publish it. and offline connect with them, we can provide you with our economists' view of the housing market.

Thanks, Rich. Thanks, Allen.

Thank you. Our next question comes from Lloyd Walmsley with RBC. You may proceed.

Hi. Thanks. This is Brad Erickson with RBC. Two questions, I guess, one for Jeremy, probably one for Allen. Just on the touring stuff you called out related to Atlanta and integration that you've rolled out there with the instant booking and all. It sounds like it's going at least as well as the old sort of legacy touring product. Maybe if you could just expand on sort of what the early successes are going on there? And what do you think is driving hopefully maybe a better experience in terms of conversion and what have you? And then second, for Allen, just a clarification. I think you said you're going to start reporting transactions at some point, not to like front run that disclosure, but maybe just how do you expect to sort of define that? Like is it all transactions you touch with PA conversions, or is it just transaction-oriented revenue streams, maybe just a little clarity there? And what are you looking for before you start from that? Thanks.

Yeah, Allen, why don't I start. So I'm touring a reminder for all of us on the call. Touring is so important to us because that a touring customer converts at three times the rate of customers that come in other ways on Zillow. And so it's a high intent customer, someone who, as Rich said, it's the point-of-sale. But even with the general touring experience, as you alluded to, there's a lot of friction in that process, right? You have to – your really requesting a tour, you and your buyer's agents have to coordinate with the seller's agent than the seller on the calendar. And what ends up happening is a minority of the time, the buyer actually gets to go, see the home when they wanted to when they initially make their request. So we have launched something called real-time touring, which is really intended to remove that friction, right, to make as Rich said, scheduling or going to see a home as easy as booking our restaurants online. And that is what's live in Atlanta, and we're now taking to the rest of our test markets. And the early signal that we're seeing there is really positive from partner feedback as well as customer feedback and in our data. We are seeing higher connection rates and higher likelihood of the customer working with that agent. And so those are great leading indicators for us of transaction conversion. It's obviously very early to see actual transaction data in one market on a lag basis. But those early indicators are what give us confidence and that plus the partner and customer feedback is why we expanded it across all of Atlanta and are now taking it to the rest of our test markets.

Great. Thanks, Jeremy. And Brad, I'll try to clarify for your question. So I think in my prepared remarks, I talked about we're going to share our transaction share data -- and so this is really just to provide where we are in terms of our share performance. So if you think back to the targets we provided, we went through the transactions or the size, the total transaction is the number of sites and what percentage we participated in either on the buy side, the sell side or through mortgage. And so you can kind of think about this as share percentage share data is what we would plan to share. And we would think of share on sell side, buy side, participate in mortgage for a transaction. If we had a mortgage and a buy side transaction integrated, that would just be one transaction, not two. And so we're -- due to the latency of records, we won't be prepared to share that until later in the future, but we believe at least on an annual basis, we want to share our progress on that 3% to 6%.

Got it. That’s great. Thanks.

Thank you. Our next question comes from Ryan McKeveny with Zelman & Associates. You may proceed.

Hi, thanks for taking the questions. I appreciate the detail on the two ways of connecting with home loans with the financing first or property first approaches. I guess I'm curious if there's anything you could share on how your current origination volume skews between those two approaches? And then maybe specifically on the on the Raleigh example with mortgage adoption going from 15% to 20%. Is that an improvement there because there's more traction with the PA partners sending customers back through that property first approach, or maybe just generally, you could elaborate on kind of the drivers of the mortgage adoption in Raleigh? Thank you.

Thanks, Ryan. Jeremy, maybe you -- we have a few things that we're sharing here about this. Maybe you want to take a stab on them?

Yes. Yes. I mean I don't think we're giving a mix out on the types of property versus finance first. That's something that they're both small, and we're trying a bunch of programs and we expect them to change over time. So I think giving any sort of guidance or color on where we expect that to end up.

Although, we did say in my prepared remarks, if you go to the very top of the funnel Ryan that 40% of people enter their home shopping processing via financial first that’s not be confused with your question exactly whether that gives you some indication of the overall volume. It’s a pretty big number, 60% the normal way. But there you go.

Yeah, that's where I was headed. So I don’t want you to confuse transaction volume with customer interest, but that's a pretty good proxy for how we think about the customer and why we're investing in both is that, we know those are the two main questions a customer has, they either want to go see a home 40% to 60% of the time, or they want to ask to find in question, depending on the situation. And so that's why we're investing in both. So stay tuned on how those things ultimately scale over time at the bottom of the funnel. And then on the adoption gains in Raleigh, that is just -- it's a function of being in the market a little longer. There's a big piece that's agent and partner training and adoption. There's a big piece that's customer experience. As Rich said, we're continuing to build and innovate the product itself while we're rolling it out and trying it, that's why we're calling these test markets because these are V1 and the V2 experiences that we improve. So we're excited about the early signal and the tick up in that adoption, which is why we are bringing that program to more of our test markets. But it is still early, and we are still, in many ways, trying these things for the first time.

That’s very helpful. Thank you. Thank you for the answer there. Another high-level one on the ShowingTime+. So as you bring that offering together, I assume there's some overlap with customers, of course, that are also Premier Agents. But I also assume the opportunity set of potential agent customers is much wider than only PAs. So I know aspects like listing showcase are still yet to come, but I'm curious, just big picture, if you can talk about how you think of the addressable market opportunity for ShowingTime+? And ultimately, is that something that proves to be more transaction based over time, or could that be a channel that's more of a maybe subscription or recurring revenue type of business that flows into things? Thank you very much.

Yes. Rich, why don't I start? And anything you want to add. I mean, I’m going to sound like a broken record on early, but it's early. We just launched listing these services, and we haven't even launched listing showcase yet. So in terms of how we might price and package the product, I would say stay tuned on the specific mechanics, but more broadly on your question, we absolutely think about ShowingTime+ as a much broader TAM of agents. And we've talked about that, I think, before, where if we can help the industry acquire, operate and convert listings more effectively any agent, whether that agent is choosing to work with our shared Zillow customer, that benefit Zillow, that benefits everyone who uses that in that set of industry software tools. So that's really the strategy behind ShowingTime+, and why so many -- so much of what we offer in showing ShowingTime+ today is really about all segments of agents, whether they have one listing, whether they have a team that has many listings or a few buyers or many. So that is the strategy has helped all agents be more effective and productive. And of course, that benefits the Zillow brands customers and the Premier Agents that work with those Zillow brand customers.

Yeah. I don't know how much I have to add, but just to be -- to give some examples there, Ryan, just so that everybody that we have ShowingTime, which is scheduling tours. We have DotLoop, which is trafficking documents for closing and signatures. We have RMX, Rich Media Experiences, which is a lot of the – of the backbone of the cool stuff that's going in to the listing showcase product. We have all of these that we are slowly but surely assembling into a package of, you could think of it as a software platform that increasingly more and more with a more and more feature-rich set of features, the industry is adopting and we hope we'll adopt. And we – we believe there is a really big, long-term business opportunity for us there. It's early -- very early days, but that is an interesting kind of way down the road next potential growth business for us in an industry that has not had a lot of the massive R&D investment in the residential real estate industry has not been huge for lots of reasons. And we see a real business opportunity there on a stand-alone basis as well.

Very helpful. Thank you, Rich.

Thank you. Our next question comes from John Colantuoni with Jefferies. You may proceed.

Thanks for taking my question. So Rich, the teams rolled out sort of a blend of new products across test markets. If you look out, if you sort of step back and look out five years, can you just sort of talk about the role you envision Zillow playing across the housing market ecosystem? And related to that, do you see Zillow offering sort of the full suite of products across every market, or do you envision taking sort of a more tailored approach that keeps the product offerings to what's most appropriate to each market? And second on guidance. The first quarter guidance for Premier Agent implies sort of the third quarter in a row of outperformance compared to the underlying housing market. Can you just walk through some of the drivers of this outperformance and how you're thinking about levers to drive continued outperformance for the remainder of the year? Thanks.

Thanks for the question, John. Maybe we'll start with the second part, Allen. And then we can – if we have time, we'll do another, but maybe land the plane on the first question.

Sure. Thanks for the question, John. Our PA relative revenue performance in Q3, Q4 and as you mentioned, implied in our Q1 outlook. I'd say it's reflective of 3 elements. Our focus on the customer search experience, we talked about the mix of first-time homebuyers normalizing and continued efforts to work with better partners. And in Q4, this showed up as PA revenue growth down 20% year-over-year as compared to industry down 31% and according to the data from NAR. So our focus on customer engagement is to drive higher-intent customers to higher-performing Premier Agent partners. And we've seen consumers tend to flock towards the industry-leading brands during some uncertain times. So at the top of the funnel, we've been really pleased with the engagement and traffic we continue to get, and we continue to invest in improving our customer search experience. And we're seeing that show up as brand preference, which we believe is very important. As a result, as we called out, traffic growth for us outperformed the next top 15 real estate sites combined over the last several months for comScore. Deeper in the funnel, I won't spend too much time on it was the normalization of mix first-time high homebuyers. We talked about that. And then lastly, was this focus also on improving customer engagement by working with better partners. And we're continuing to test consolidating our partner base, we believe working with the best partners has been extremely supportive of conversions even in this tough macro environment. And this combination of high-intent customers from the top of the funnel to working with higher-quality agents has resulted in higher work with rates for us over the last few quarters, which we're seeing as a positive. Kind of with respect to going forward, we'll continue to focus on these things. I did want to call out that our current performance is not yet reflective of the investments in our growth strategies. They're still in test, they're relatively small. So we're going to continue to focus on growing our share from 3% to 6% as we test, iterate, launch and then scale these offerings and these strategies. And over time, we'd expect to see share gaining growth over this, but it won't be linear from here to there. So hopefully, that helps provide a little color.

And that's a good -- it's a good segue, Allen, thanks in the answer to John's first question, which is the 3% to 6% will provide a lot of a good growth profile for the company. But it would still only be 6% transaction share, which, to me, seems modest, especially given the length of the shadow that we cast here, the size of the audience that we have here. We do -- more specifically on the question, we do believe that mover customers really want this magic application that integrates all of these disparate pieces of the move, all of these difficult and coordinated things that people have to track and do in order to move. And it seems very logical to us that we ought to be able to bring that all into a single application experience where we plug partners and services into that app in order to make that move much, much easier and more efficient and more enjoyable. Exactly what form that will take by each local market in terms of the configuration of the types of partners we choose, where we have partners versus where we do it ourselves. I think it's too early to tell, but we are really focused on building out what I would call a reference platform of sorts in these test markets to get it working so that we can prepare to really scale it out nationwide. So stay tuned. We like the pace and the quality of the products and the services that we're shipping. It feels like we're building momentum. The company is in a terrific balance sheet position for investment and has good medium-term and long-term growth prospects. So we're feeling good about our position, despite the fact -- but I guess I'll end with despite the fact that macro and housing market are pretty foggy and pretty choppy right now. So we do have or Allen at least has his hands on the cost levers and our hands on the wheel. So we'll be prudent. All right. Thank you all for tuning in today. We really thank you for coming along on this journey with us, and we look forward to reporting our progress to you next quarter. All right. Have a nice evening.

This concludes the conference call. Thank you for your participation. You may now disconnect your lines.