Good afternoon. My name is Sierra, and I will be your conference operator for today. At this time, I would like to welcome everyone to Zillow Group's Fourth Quarter and Full Year 2023 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brad Berning, Vice President of Strategic Affairs and Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Zillow Group's Fourth Quarter and Full Year 2023 Conference Call. Joining me today to discuss our results are Zillow Group's Co-Founder and CEO, Rich Barton; COO, Jeremy Wacksman; and CFO, Jeremy Hofmann. During today's call, we'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. 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 updated investor presentation, 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. We will now open the call with remarks followed by live Q&A. With that, I will turn over the call to Rich.

Thank you, Sierra, and thanks, Brad. Good afternoon, everyone. Thanks for dialing in for our fourth quarter and full year 2023 results. We are posting great revenue numbers across the whole of our increasingly diversified and growing businesses. Our early cohort of enhanced markets are working, so we are pressing the accelerator on expansion in 2024. I'm also pleased to share that we've released an updated investor presentation available on our Investor Relations website to bring you all up to speed on the progress we've made on our growth pillars. We'll kick off the discussion today by walking you through our quarterly results, briefly addressing what's happening in the broader real estate industry, highlighting the opportunity in front of Zillow and then taking you through the exciting progress we're making on our journey to innovate and transform the way people buy, sell, finance and rent homes. Starting with our quarterly results, we reported better-than-expected and accelerated revenue growth, with Q4 total revenue of $474 million, up 9% year-over-year. Residential revenue of $349 million increased 3% year-over-year, returning to positive year-over-year growth. During the same time frame, the broader real estate industry declined by 4%, meaning Zillow's residential revenue outperformed the industry by 700 basis points. As I said, Q4 now marks the sixth consecutive quarter of meaningful outperformance versus the industry. Our ongoing efforts to improve our customer funnel, capture more demand, connect more of that demand to our partner network and focus on conversion continue to drive impressive results. Rentals also had a strong quarter, with accelerating revenue growth up 37% year-over-year to $93 million. This performance was driven by accelerating multifamily property growth with over 37,000 properties listed across Zillow at the end of Q4 2023. We continue to be the #1 most visited rentals platform, with average…

Thank you, Rich, and good afternoon, everyone. As Rich said, Zillow's housing super app is the container into which we are continually adding upgrades and improvements, guided by 5 for sale growth pillars: touring, financing, seller solutions, enhancing our partner network and integrating our services. Our for sale growth pillars marked the pathway to meeting our goals to grow customer transaction share from 3% to 6% by the end of 2025 and grow our revenue alongside that transaction share growth. You'll note that we've also added rentals as an additional growth pillar this quarter. We're excited about the opportunities here as our rentals marketplace continues to accelerate and accounted for nearly 20% of Zillow's total revenue in 2023. I'll kick off our growth pillar update with touring. The investments we're making here continue to drive our industry outperformance. When a customer raises her hand to look at a home she's been coveting on Zillow, it's a strong signal of serious intent to transact. As we work to convert more visitors on our site into transactors, the home tour remains a critical focus area for us. Touring has historically been painful for both movers and agents. So we've invested in making the process more seamless than it's ever been. Our real-time touring product powered by ShowingTime is meaningfully improving our ability to connect high-intent customers to our Premier Agent partners. We ended Q4 with our real-time touring product, delivering approximately 10% of our total connections. We expect to expand our breadth of coverage by launching additional markets and increase our depth by growing real-time touring to account for approximately 20% of connections by the end of 2024. This is driving a better customer and agent experience with less friction as we see increased successful connections and more customers working with agents.…

Thanks, Jeremy, and hello, everyone. As you heard from Rich and Jeremy, we are pleased with how we've executed on our strategy, and we are starting to see those efforts show up in our financial results. despite a persistently challenging housing macro backdrop. In my comments today, I will cover our Q4 results, our outlook for Q1 and some early thoughts on 2024 to help you all understand how we expect the year to play out as well as the financial philosophy that underpins how we will manage the business moving forward. I will start with our Q4 2023 results, which exceeded expectations across the board. Revenue growth accelerated in Q4, up 9% year-over-year to $474 million, which was more than $31 million above the midpoint of our outlook range. Revenue outperformance was driven by acceleration across each of our revenue lines for residential mortgages and rentals. On a GAAP basis, Q4 net loss was $73 million, representing 15% of our revenue. EBITDA was $69 million for the quarter. When excluding the impact of a $14 million onetime expense related to the partial lease termination of our Seattle office space, EBITDA would have been $83 million, resulting in an 18% EBITDA margin and marking a return to positive year-over-year EBITDA margin expansion. The combination of our revenue outperformance and effective cost management delivered the improved year-over-year EBITDA results despite a macro housing environment that remains constrained. Going a click deeper, the partial lease termination option for our Seattle office space, which we previewed on our last earnings call, was exercised in December. As a result, we estimate our 2024 facilities costs will decrease by $8 million and we will release an estimated $37 million in EBITDA expenses in total over the remaining life of the Seattle lease, which more than…

[Operator Instructions] Our first question today comes from John Campbell with Stephens.

For the gains, I just wanted to start -- maybe if we could start on the share gains. You guys are obviously using total real estate revenue, I guess, as a basis of comparison versus the industry. I know you guys aren't directly reporting on Premier Agent, but if we can maybe below the surface just isolate that for now. But my question is, what's the growth initiatives you have in place? And then obviously, the flex pricing changes, would you expect to see a similar rate or maybe even greater degree of outperformance versus the national market just over the balance of the year and maybe even in the next?

John, this is Jerry Wacksman. I think the way we think about it is the share gains that we gave out this quarter the 2 most mature markets over that 2-year period helped show the path or what you should expect to see as we roll out more enhanced markets, right? As a reminder, those were the ones where we had great year-over-year data and enough time for the cohort to mature. And then as I said earlier, the 9 markets that we're in now, we're seeing connections growth that out -- that grows faster than the industry, which is a great leading indicator for share gains. So that's why we're so confident in getting from 9 to what will be 40 by the end of 2024. And as we build the depth with more partners to offer the services to more customers in those markets, you should expect to see similar share gains from the set of customers and partners that we're working with in those markets.

Okay. That's helpful. And then one quick follow-up. I'm sure you guys are bracing for this question. But on the CoStar media blitz, if you will, obviously, spending, I guess, we'll find out soon how much this year, but it seems like a lot I think the burning question with a lot of investors is, will you guys respond? Will this be something that requires you guys to maybe up your brand investment spend? Maybe if you could talk to that. I know you guys have called out the 80% organic traffic, which is a pretty important number, but maybe if you could just shed some light on that?

Okay, John. Yes, this is Rich. So I guess I'd start off by saying we're not currently seeing any impact from this spend nor the buildup to the spend. As really Jeremy Hofmann discussed, our numbers are great. Our progress versus our growth pillars is great, and we really like our go-forward growth plan to expand our super app to more markets, as Jeremy Wacksman was just talking about, and all this culminated. Jeremy Hofmann gave his 2024 soft guidance on revenue growth to double digits with this -- with the competitive context in mind. And so that's how we feel things are going to develop. To your specific question -- or do you think we'll need to change anything? We are a company that believe as we think about our marketing mix, we think about it very broadly. We are technologists in our DNA. We are product builders, the customers our North Star. We have always believed that the most important part of the marketing mix is the product itself. This has served us really well historically. It is what has put us in the position we are in today of being the traffic leader, the brand leader, the engagement leader. And it's put us in a strategic position that is highly differentiated from anybody else in the industry. We are really trying to digitize the whole of the transaction. We're trying to replatform this whole industry. We're trying to integrate it all into the same Zillow housing super app. This is difficult stuff. It is highly differentiated, and we believe this is what ensures that we win long term.

Our next question comes from Brad Erickson with RBC.

I guess just first on real-time touring in the markets where you've had some time to see how it plays and appreciate those charts in the presentation. What would you say are kind of like the main friction points and then time frame that lie kind of between an agent getting -- starting to get those new higher quality leads and then choosing to lean in with their spend? And then I have a follow-up.

Yes, Brad, on real-time touring, it is a mix of eligibility with both the consumer and the agent and the listing, right? It's like all 3 things. And so we're really pleased with how real-time touring has gone. And I think you heard earlier, we talked about getting from 10% of connections currently to 20% by the end of 2024, and that's through a mix of going broader into more markets, but also going deeper in those markets with both customers and agents. And then on your specific question on the sort of agent partnering with the buyer, what we tend to find as we talk about this enhanced market strategy is when we start to work with these enhanced partners on the whole basket of services, real-time touring, Zillow Home Loans, seller services, increasingly Follow Up Boss. This becomes a much broader conversation around how to help them grow and operate their business better in service of our customers. And so it is one part of the overall playbook we work with. Of course, it's a really important one because these are incredibly high-value, high-intent customers who want to go see a house right now. And so the feedback on the reception continues to be really positive when they get a chance to work with those buyers. But if you remember, we've talked a lot about how this is a new workflow for those agents as well. And many times, they have to build new muscle with their teams, with their team leads, with their individual agents to help service those customers to really provide that delightful experience that we're creating for the customers. So when it works, it's really magical because the consumer gets what they want different from anything else in the industry. But to your point, it really is a new training mechanism, which is why we've been so methodical in testing and iterating on it in the markets we've been in.

Got it. And then maybe just a quick follow-up on Follow Up Boss. Can you just give a little more detail there, just kind of on the unlock of the synergies you guys are going after within the PA business? And then just any integration costs for investment embedded there? Any color on that would be great.

Yes. Maybe I'll start on the strategy, and Jeremy, you can hit costs. The strategy for Follow Up Boss, as Jeremy Hofmann said, is really twofold, right? One, it's help make what is already one of the best CRMs in the industry even better, right, give them oxygen and the ability to accelerate the road map of features and services that they have. And then secondly, it's to help introduce Follow Up Boss to more customers. So it's already the most popular CRM with our Premier Agents, but many of our Premier Agents don't yet use it. And obviously, many agents industry-wide don't yet use it, so helping them grow and attract more agent customers is the second part. When we do both those things, that rising tide is going to lift all boats, it's going to lift the Zillow transaction boat, right? And our agents working with the Zillow customers are going to be able to perform better, be more responsive satisfy the customer better and convert more, and you'll see that in conversion increases. So that's really the strategy. Maybe I'll turn it over to you for cost. The only thing I'll add on cost is we're really excited to help them accelerate their road map. They had great plans in place already and the acquisition just closed in December. So we're still early in our planning.

Yes. It's Jeremy Hofmann. I'll reiterate what Jeremy Wacksman just said. It is early, right? So I highlighted in our prepared remarks, we're having -- we're seeing the first quarter of full cost to Follow Up Boss early in integration. I wouldn't say that there's outsized investment at this moment, but definitely really pleased with the product road map they have and the opportunity we have to really help them accelerate from here as we integrate them into our sales motions.

Our next question today comes from Mark Mahaney with Evercore.

Okay. Two questions, please. This sort of outperformance, I think you said it was about 700 bps of outperformance versus the residential market. I think you had first guided the 400 bps. So just explain why you think you've been able to outperform. I know you've been doing it for a while, but maybe you outperformed a little bit more than you had expected in the quarter. And just how should we think about or how do you think about how your level of outperformance versus the market goes into this next year, into '24? And then I want to switch and ask you about costs. And get back to this question of if you're going to keep fixed costs fixed to this $1.1 billion and variable costs get leverage against it at that $400 million level and how long do you think you can sustain that for. You've been talking about it for a couple of quarters. It sounds like you're giving in a little bit on the variable cost, showing a little bit of deleverage first before leverage. But just, is that framework still going to hold for you that you can keep that fixed cost at $1.1 billion and variable at $400 million and getting leverage against that over time?

Yes. So it's Jeremy Hofmann, Mark. I'll take the second one first. On the cost structure, we feel -- continue to feel really good. So the fixed cost base, we expect to get leverage on over time. We feel like we're at the right levels right now. It will grow with inflation a bit, but generally at the right levels, and that's really with an eye towards our year-end 2025 targets on customer share gains. And we feel like we're well invested on the fixed side. And then on the variable side, you're right, over time, we will get leverage, of course. And Listing Showcase, and rentals, and ZHL, we see really exciting growth opportunities, and we're staffing up sales ahead of that. That will take a little bit of time to ramp to get people fully productive, but over time, of course, get leverage there, and we're looking for efficiencies across the entire cost base always. So feel really good there. And then on the outperformance side, I'd say Q4 was about as expected, and we're really pleased with the outperformance across all of 2023. We don't overfocus on quarter-to-quarter fluctuations, just given how fluid macro has been and will continue to be. But I think 2023 was a great year for us. We accelerated revenue from Q1 to Q4. Total company revenue outperformed housing by 1,600 basis points. And then we've had 6 straight quarters of outperformance in residential as well. And we expect more of the same in 2024. I alluded to it in my prepared remarks, but we expect to grow double digits in 2024 against the flattish housing market. And then to double-click further into that, we expect acceleration throughout 2024 with a lot of that acceleration coming from our growth pillars as we get into more markets and go deeper into existing markets. And when I look across our enhanced markets are going to go from 9 to 40, covering 20% of all connections. Real-time touring, we think, is going to go from 10% of all connections to 20% of all connections. Showcase is really starting to sell broadly in January, and we expect that revenue to build throughout the course of the year. And then rentals is executing really, really well. We're expecting to see 30%-plus growth again in Q1. And ZHL will grow alongside market expansion and more consumption of mortgage leads. So just across the business, it feels like we're really well set up for 2024 as well.

Our next question comes from Ryan McKeveny with Zelman Associates.

Congrats on the progress. Curious if you can talk about Listing Showcase. I guess just reception to date between what are Premier Agents and let's call the non-Premier Agents, and I ask because within the slide deck and kind of the opportunity ahead of getting to 5% to 10% share of listings seems to suggest plenty of opportunity, both for Premier Agents and kind of cross-selling the Listing Showcase product and non-Premier Agents. So anything you can share with us to date. Obviously, knowing it's small at this point in time, but yes, how that's going so far and how you think about that balance and opportunity between kind of cross-selling in the PA side of things versus new agents that don't currently partner with Zillow.

Yes. Happy to. I mean you're right. It is early, and Listing Showcase having just launched in Q3 and we're just now flipping to national. But in the early signal, there's lots of signal. And as I talked about, the agent response has been really positive. I think folks are seeing it as a tool to market themselves and win more listings as well as market the listings. And then, of course, that provides us benefit to our buyer experience that results in the higher engagement with page view saves and shares, we shared some of the data on. We are seeing success with both Premier Agents and non-Premier Agents in the markets we've been in and as we've continued to take it to more markets and we expect that to continue. And that's what gives us excitement for the intermediate-term target we shared with you all going from what is less than 1% of listings today to 5% to 10% of total active listings at some point here in the future. And we think there's growth and opportunity beyond that. Scale in this business requires solving a bunch of operational complexity. The team has been hard at work doing, as Jeremy Hofmann talked about, it required a bunch of media investments. It requires a bunch of partner operations that the team has worked hard to get right, and we're now benefiting from the fruits of a lot of that investment as we take this nationwide. So it is still early. We'll share more as we learn from being in more markets with a larger set of partners, but we're really pleased with the response and the progress and the ability to work with just great agents, whether they are existing Premier Agents or this is their way into working with Zillow for the first time is an exciting opportunity for Listing Showcase. And it's something we're seeing.

That's helpful. And one on ZHL. So the purchase volume growth kind of speaks for itself. But I think it implies market share-wise in the purchase origination business, close to a doubling in just the last 2 quarters alone. So obviously, good progress there. I guess I'm curious on the comments you made about going from 23% to 53% of customers that are also working with the PA. Is that a combination of the 2 kind of connection approaches you've talked about in the past being property first and financing first? Is that kind of a mix of both PA coming back to you and you going to PA? And just any commentary on whether it's one of those approaches meaningfully driving things or if it's a combination of both moving in the right direction.

Yes, it's a good question. The short answer to your last question is it's both. And I think the reason why it's both, it's important to remember sort of why mortgage for the customer and for Zillow, right? And yes, we all know 80% of homes are financed with a mortgage, but it is more importantly that 40% of homebuyers start their journey shopping for a mortgage. And so that's why we talk so much about most consumers either want to go see the house and book a tour, ideally with real time touring, or they want to figure out what they can afford, which Zillow Home Loans can help them with. Ultimately, they need to go through both those experiences. And whichever door they start with, they need to use a great agent and they need to get a mortgage to get the house done. And so it really is a contribution of both those things that's driving that 23% to 53%. And that's why we're so excited about the opportunity to grow and deliver that integration to more customers in more of these enhanced markets as we scale this recipe. And that really does speak to the strong customer acquisition cost advantage, we think we have at Zillow, the majority of those customers, as Rich talked about, are already on Zillow, and many of them are already going through one of those doors. And so helping them understand and get what they need to use more of our services to get the house transaction done, right, that's a great business for us. But ultimately, as Rich said, it's what the consumer wants. It's what they need to be able to buy the house. So that's why we're so excited about mortgage. Yes, you're right, we're seeing over 100% year-over-year growth in purchase mortgage origination volume, and we expect growth to continue in 2024 as we continue to scale the business.

The next question comes from Tom Champion with Piper Sandler.

Rentals growth is really strong, and it sounds like multifamily is driving a lot of that. The business has been around for a while. I'm just curious kind of the timing and why now that it's become kind of so large and picked up so much momentum. And just curious if there's any comment on the single-room initiative, I think, that was announced recently?

Yes, Tom, I'll take both of those. I mean I think the why now is just the rental strategy that we've had in place for a while is working and it's working for both consumers and partners. We've had -- we have grown and have the largest audience in the category where we have the most renters coming to Zillow Group properties because we have the most listings, we have the most complete set of listings, which is really the #1 problem to solve for renters. And we're able to leverage that audience growth and engagement to really drive multifamily growth and start to work with more multifamily partners to bring their inventory online on to our properties. And that's why we see a lot of growth potential ahead of us for rentals. That's what's driven the meaningful growth throughout 2023. And as Jeremy Hofmann said, we expect that to continue into 2024. And then you specifically asked about the room for rent. Again, so for those who didn't see, we launched this week a new listing type, which is folks can post rooms for rent rather than entire places for rent, which is something that is increasingly common and prevalent across a lot of our rental markets. And we're really pleased with the early results there. We just turned it on in the last couple of weeks. But that again speaks to the strategy of try and organize and provide the most services and experiences for the renter and all renter personas and segments and then help them figure out which door they need to get through and which subset of inventory they want and that drives then the benefit for our partners, for the folks who are trying to find the right renter, whether that is a big building or an individual single-family home.

Our last question today comes from Ron Josey with Citigroup.

Great. Just a quick follow-up on the rentals question right there. Just -- when you think about growth going forward, is that from the multifamily property growth of 37,000 and growing or the mix of single-family, multifamily and sort of offering everything to everyone, which given your audience, I'm assuming that's the case, but any insights on those 2? And then I think, Jeremy, you talked about staffing up in head count for sales, and you mentioned rentals and Listing Showcase and Zillow Home Loans. Talk to us a little bit more about just the maturity of the current sales force and how you -- where you're investing, I guess, across those newer areas like rentals, Showcase and ZHL?

Yes. Maybe I'll start, and you can hit the staffing. I mean the short answer is it's going to be a mix of both. You're seeing, I would say, over-indexing growth from a revenue contribution standpoint in multifamily right now, but back to the strategy of the most complete set of listings. We do have both multifamily growth and longer tail, smaller inventory growth in terms of our rental manager and suite of products and services that are landlords and property managers use on that side. So we're excited about both segments of supply driving not just audience growth and engagement but the business over time. But obviously, in the near term, you're seeing a faster acceleration in ramp on the multifamily side. In Q4, you saw that overindex, and I think you saw it in Q3 as well. And you should expect to see that early into next year as well. And then maybe on the various staff-ups, I don't know if you want...

Yes, I can hit that. I mean I think it's natural at this point just given the evidence of traction that we have that we should be accelerating growth, and it's across all 3 of those. They all are doing quite well but have a lot of opportunity ahead of them. And we want to make sure we are well positioned from a sales staffing perspective to capture that growth.

This will conclude our Q&A session. So I would like to pass the conference over to Rich for any further remarks.

Thanks, Sierra, and thanks, everybody, for your questions. You've heard today about our tremendous progress that we've made over the past 2 years on our journey to transform and replatform this largest of industries. As we look ahead, we are pressing down on the accelerator, increasing the breadth and depth of our products and services across more markets as we tap into this $30 billion TAM that's already accessible, already raising their hands for help, already inside our store. We'd like to thank you again for being on this journey with us, and we look forward to sharing more progress with you in the months ahead. All right. Have a nice evening.

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.