Hello, and welcome to Zillow Group's Fourth Quarter 2024 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 Fourth Quarter and Full Year 2024 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 updated investor presentation, shareholder letter and earnings release all of which can be found on our Investor Relations website, as they contain important information about GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman.

Thank you, Brad, and good afternoon, everyone. Thank you for joining us today. We're excited to share our fourth quarter and full year 2024 results with you. Zillow is delivering value to movers and real estate professionals with our products and services, and that's translating to strong performance across our business. We have the leading brand in residential real estate with the largest and most engaged audience, a significant total addressable market, and we are executing well on our differentiated housing super app strategy. We believe all of this positions us to deliver sustainable, profitable growth for our shareholders. As you'll hear more about in a moment, we met our stated goals for 2024 and expect to continue our momentum in 2025. This momentum includes being on track to meet our goal of 6% share of customer transactions by the end of this year. The results we're reporting today demonstrate how we are executing and seizing our opportunity to transform and digitize residential real estate. As with everything we do at Zillow, our approach begins with the movers we serve. Over the past 20 years, we've built our top of funnel advantage by releasing a steady drumbeat of products, services and software tools designed to delight and empower customers throughout their moving journey. From the Zestimate and our vast two-sided marketplace of homes for sale or rent to Zillow Showcase and improvements to both in-person and virtual touring, to natural language search and Zillow Home Loans BuyAbility, helping people find the right home for them and their budget. As a result, Zillow has the largest audience in both for sale and rentals, with 4x the app engagement of the next company in our category, a lead we've widened this past year. About 2/3 of the real estate audience uses Zillow…

Thanks, Jeremy, and good afternoon, everyone. As you just heard, we delivered another quarter of strong results in Q4, and we are well positioned to continue doing so as we execute on our strategy in 2025 and beyond. Our Q4 2024 results exceeded expectations for revenue and EBITDA with revenue up 17% year-over-year to $554 million, which was $21 million above the midpoint of our guidance range. The broader residential real estate industry grew 13% year-over-year in Q4, as reported by NAR, and grew 15% in Q4, according to industry data tracked by Zillow that is publicly available on our site. We are now presenting our revenue in 2 major categories: for sale and rentals. The for sale category includes residential and mortgages revenue to better reflect how we manage the business. For sale revenue grew 15% year-over-year in Q4 to $428 million and rentals revenue grew 25% year-over-year in Q4 to $116 million. On a GAAP basis, Q4 net loss was $52 million, representing 9% of our revenue. EBITDA of $112 million for the quarter resulted in a 20% EBITDA margin. The combination of our revenue outperformance and effective cost management delivered better-than-expected EBITDA results in the quarter. Going further into our results, For sale revenue grew 15% in Q4 year-over-year. Within the for sale category, residential revenue grew 11% year-over-year to $387 million, outperforming our outlook range. Residential revenue benefited from continued conversion improvements as more buyers and sellers transacted with Zillow Premier Agent partners, continued expansion of Zillow Showcase which now represents 1.7% of all new for-sale listings in the country as well as contributions from Follow Up Boss, ShowingTime+ and our new construction marketplace. Within the for sale category, mortgages revenue growth accelerated in Q4, up 86% year-over-year to $41 million with purchased loan origination volume…

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

I guess a question for both Jeremys. So the first one is just on Enhanced Markets. And I think, Jeremy, you talked about 35% of connections by the end of the year with Enhanced Markets on the way to 75%. Talk to us how you get there, the path to getting that 75%? And any early benefits and not so early, but what are the benefits that you're seeing thus far with the transition to Enhanced Markets? And then with the Redfin deal, very clear on the opportunity with rental that you laid out on the call. But I wanted to hear a little bit more just on the strategic rationale with the partnership, the benefits to it. And then Jeremy, if you can talk about the payments and the distribution, what it means for the balance sheet? I guess.

Yes. Thanks, Ron. Jeremy, why don't I start and you can chime in with some of the deal specifics. On Enhanced Markets, you're right, we talked about ending last year at 21%. And then our goal is to get to 35% of customers by the end of this year. The big drivers of that for us is methodically scaling to additional partners, right, agent partners and teams and capacity of those partners as well as scaling our loan officer capability and integration with those partners. And you can see how we've done it over the last couple of years and the results we gave out a bit in the refreshed investor deck. We're seeing mid-teens Zillow Home Loans adoption rates in those enhanced markets that are older than 6 months. That's continuing as we've gotten more of those markets to bigger maturity. And then you're also seeing inflections in revenue per TTV after that 12 months of rolling out. It takes time to land and expand. And most importantly, it's really important, we've talked about this for a while that each agent partner and team as they train their agent group. They get introduced to the new way of working to real-time touring to Zillow loan officers and Zillow Home Loans, so they can -- we can collectively serve the customer. So we've learned a lot, and we've gone and found lighter weight-ways to scale and still see great performance, and that's why we're so excited to go from 21% in connections to 35% by the end of '25. That's also why we gave you all a bit of a mile marker on where are we trying to get to, and we said we'd like to get to 75% of customer connections. We don't know what the upper limit is yet, but we felt like that was a really good guide post just to help signal to you all. Our goal is to get the majority of our customers into this experience, the better experience for buyers and sellers. It's better for our agents. It's higher-quality customers. They look to grow their business with those higher-quality customers as well. So that's on Enhanced Markets. And then, Jeremy, do you want to take the deal?

Yes, I can start on the deal terms and then he asked around strategic rationale as well, so maybe I'll hand it back to you on that one. Yes. So Ron, the deal terms, we're making $100 million payment upfront. It's a 5-year term with two, 2-year extensions as well. So that's what we've announced publicly. Mechanics for it, we will pay Redfin for leads generated from their network. They'll be supportive on the sales front through the transition of new properties on to Zillow. And then I think we're just -- Jeremy will hit more of this, but we're really excited about the opportunity to work more closely with them to deliver value to consumers and deliver great ROI to multifamily partners. So that's where we are at the moment. With respect to financial impact, we expect the partnership to ramp over the course of 2025, and we'll see the full financial benefits in '26 and beyond. And then if I step back before I hand it to Jeremy, we think we have an opportunity for a great partnership here and any great partnership has to be a win for both companies, and we think we're well set up here for that dynamic.

I mean, I would echo a lot of with what Jeremy said. We're very excited about the partnership with Redfin. We're very similar mission companies. We're trying to digitize the industry and turn on the lights. This agreement is really a great win-win. It strengthens the value of partnering with Zillow for property managers on the network, right? It expands the reach of the network, and we expect the marketplace overall to benefit as those advertisers can now get access to Zillow, to Redfin's network and, of course, to Realtor.com, our existing partner. And it's just a great next step in our strategy, right. We've talked for a long time and Jeremy talked about it, in his remarks and so did I, this unique rental strategy we have to organize as much of the supply as we can because there's no national database of all rentals, and that is the biggest problem renters face, right? Every renter has a compressed time frame, a high stress time to find a rental, and they are endlessly scouring the planet for available inventory. And so we know that strategy works. It's why you see the audience lead we have today and the widening audience lead in brand preference. It's why you've seen such rapid organic scale in property growth into our network. And that -- that has, in turn, reinforced the marketplace and driven revenue growth. So now when you add in Redfin later this spring, we just see that as the next step of growth, and we're really excited about it.

Our next question comes from Ryan McKeveny with Zelman.

I wanted to start on the 2025 outlook for positive GAAP net income for the full year and revisit some of that breakdown between fixed variable advertising and SBC. So the fixed cost sounds very straightforward. I guess on the variable side of things, in the investor deck, you've got the slide showing that was 25% of revenue in '24, up from 24% in '23. I guess is that 100 bps growth that we saw in '24 a decent guidepost for 2025 on the variable cost? I guess that's part one. And then on the advertising piece, I know you described it as kind of opportunistic. The step-up this year, I think, was largely attributed to the efforts on the rental side. I guess I'm just curious where you sit today, how you're thinking about the advertising piece into '25 relative to that expense category in 2024?

Yes. Ryan, it's Jeremy Hofmann. I'll take that. You're right on we're targeting GAAP profitability for the year. The way in which we do that is pretty straightforward, which is we need to continue to meaningfully outperform the housing market and grow revenue. We need to hold our fixed cost base flat, let it -- it can grow with inflation, but really even fight against that. And then stock-based comp is a big lever as well. 90% of our stock-based comp charge sits with fixed head count employees, so we can get leverage as we hold those fixed costs in line. And obviously, it becomes less and less a percent of revenue as we're growing revenue. With respect to variable and marketing, no further guidance at the moment. But we feel like we have a real opportunity to expand margins while we continue to invest for growth in rentals and Zillow Home Loans. And as we expand margins, we think GAAP profitability is achievable in '25.

Got it. That's helpful. And I guess a follow-up, maybe somewhat related to cost structure over time. But maybe just the ways AI can benefit the business, whether it's the search experience or elsewhere. I guess maybe just curious if you could share some thoughts on how you're generally thinking about the influence of AI on the business over time?

Yes, happy to. We're really bullish on the potential of AI for our customers, for our partners, our agents and for our employees. We have long been innovators around AI, really since our founding, many folks forget that the very first product Zillow launched back in 2006, the Zestimate of 2006-era AI, machine learning, automated valuation model. And we've been investing in AI experiences all the way up through our search experience and our rich media, our computer vision work on Zillow Showcase, these super listings and this homegrown tech we've built. So when generative AI really came to the forefront, we've been running at it, trying to figure out how it's going to change how we all work and all consume real estate. And one of the things we've learned in our early days is the opportunity to make the workforce more efficient is a big one over time. And that applies, of course, to all of us as employees in terms of learning how we do our work and doing our work better and getting to more customers more efficiently internally, but it really applies to the professional service providers in our industry, right? The #1 thing a buyer and a seller need is great advice, great guidance, great support. And the #1 thing our professionals do is spend time in the back office doing busy work and not providing that service because that's how they have to try and win their next client. And so if we can take away and automate and provide guidance and support and proactive tools to help them become super agents and super loan officers, that's going to help them do their best job, showcase what they do well, win more business for themselves, for sure, but just make the marketplace more efficient. So those are the things we're investing in in the short term. You've seen us bring to market some innovations in Follow Up Boss trying to help agents automate their conversations and their follow-ups with their customers. We're doing that for loan officers as well. And we're innovating and experimenting on how do we do that with customers. So I mean, it's still very, very early days. We'll be talking about this for years to come, but we get really excited to think about how AI can really be this huge phase shift for the software and the technology in the category.

Our next question will come from Brad Erickson with RBC.

Can you guys hear me?

Yes. We got you, Brad.

Yes. So a couple of questions. First, can you just hit for Q4, the revenue growth was a little bit below the market that you reported just kind of why that was? And then in the guide for Q1, why does that apparently revert to share gains? That's question number one. Question number two, you're starting out this year with a lot more Enhanced Market, call it, horsepower than you did have last year at this time. And I guess, market share gain-wise, it seems like you're kind of roughly baking in maybe a similar amount year-over-year. So I guess there's kind of decent logic there as to why that market share delta should expand. Is that the right expectation? Or maybe if you could guide us a little bit more on that, that would be great.

Yes, Brad, it's Jeremy Hofmann, I can take those. So just on the first question, you've heard this from us many times, regardless of the quarter, but we just don't overfocus on the quarterly fluctuations. The housing market definitely got softer at the end of last year into starting this year. And I think that's reflected in the guide, particularly given the weak -- the weaker pending sales activity in December and January. So I think with that said, we're expecting revenue to grow at 10% at the midpoint across the company versus flattish for the housing market, which implies roughly 1,000 basis points of outperformance. And we expect to grow as a company low to mid-teens in '25 against the housing market that we think grows low to mid-single digits for '25. So I think overarchingly, feel like it's another year of -- we're set up for another year of good outperformance. We did it in 2024. We expect to do it again in '25, and we'll do it while expanding margins and generating positive GAAP net income. So we're definitely excited about where we are and how the year is setting up. I think on the Enhanced Markets side, I'd say we continue to see strong growth in the oldest Enhance Markets, right? The first 4 Enhanced Markets are up greater than 100% relative to the housing market since the beginning of '23. And we're seeing repeatable success across all subsequent Enhanced Markets. So the early to mid-funnel metrics look good versus older markets. We're seeing consistent mid-teens adoption in Zillow Home Loans as we've scaled. And the growth inflection typically occurs more than 12 months after a market launch. So last year's expansion really helps contribute to this year's growth and so on. It takes time for us to land and expand. It takes time for us to ensure the ZHL integration is going well. I think all of that sets us up for sustainable growth not just in 2025, but well beyond. We think this really is the consumer experience of the future. And Jeremy put out -- we think that 75% of the customer experience over time is a good mile marker for you all to think about what mature looks like, and that gives us what we think is a $1 billion of incremental revenue even against the flat housing market. So all in, I think on the Enhanced Markets side, it's going well. It's going to continue to roll out, and we're going to be methodical, but we think we take share along the way.

Our next question comes from Mark Mahaney with Evercore ISI.

Okay. I just want to ask about the cost structure going forward. I know you made a couple of comments just maybe long term in the next 2 or 3 years when you think about your head count levels and your overall, I guess, fixed expenses like your confidence in being able to keep head count growth relatively modest and your confidence in a 2 to 3 year outlook and being able to keep these costs relatively close to the current fixed cost base? Just talk about that, please.

Yes, Mark, it's Jeremy Hofmann, thanks for the question. We like the setup of the cost structure at the moment. We think we're well invested for our growth strategy. If we continue to get leverage -- in the fixed cost base, you can obviously see it expand margins. So I think we feel good there. Nothing too specific over the next 2 to 3 years, but I think the 2025 guide should help inform you in terms of how we're thinking about cost structure for '25. And then the mid-cycle targets imply a $5 billion revenue path and 45% EBITDA margins, and we feel quite comfortable with both of those and feel like we're on a really nice slope to go get there.

Our next question comes from Nicholas Jones with JMP Securities.

Two. One on kind of 2025 outlook. Can you maybe speak to how are agents behaving today as you roll out all these new solutions? You've kind of outlined this kind of suite of products in the deck. Are agents being more discerning and if transaction volume were to maybe pick up, they potentially get more opportunistic in taking on new solutions? Or is it the opposite, I guess, just what have you learned kind of talking to agents and their willingness to adopt all these new solutions as you roll them out nationally? And then kind of the follow-up is based on that dynamic, does that kind of make it easier to accelerate enhanced markets roll out over time? Or is the loan business and hiring folks kind of a gating factor and as we think about it longer term?

Yes, great questions. We are hearing, I would say, great support and partnership from our agent partners. As a reminder, in the Enhanced Market experience, we really focus in on the top producers and top professionals in the industry, 80% of the agents we work with are in the top 20% of all, right? So these are folks that have built systems, scale, staff, discipline around digital-enabled real estate experiences with us. And so when we bring them new things, of course, it's a change in their workflow, but it's an opportunity for growth and a lot of them lean in. And you've seen that with everything from real-time touring, where we brought them an entirely new lead type and they had to change how they engage with customers from Zillow to Zillow Home Loans, and they started to learn a new motion with us on how to talk to their customers about financing, differently than maybe they were doing before to Follow Up Boss. And now, as Jeremy said, 80% of our customers in these markets are talking to agents through Follow Up Boss and starting to build this great 3-way experience between Zillow, the customer and the agent all powered by our software. So we find that agents typically lean in when it yields higher-intent customers, more customers, more efficiency. And I think to your question where you're trying to figure out where does it go, when we get back to mid-cycle, we hope and expect that these are the agents that are best positioned to gain share. And I think you can kind of look at the uncertainty around all the regulatory changes last year with the lawsuits and settlements as an example of that. There was a lot of fear and uncertainty about how things were…

Our next question comes from John Colantuoni with Jefferies.

So just starting with the full year outlook, just wanted -- it looks like you're expecting faster growth relative to the first quarter. So just maybe walk through the drivers of that improving outperformance relative to your expectation for the housing market as the year progresses? And second, in the rental segment, it looks like your first quarter outlook implies an acceleration relative to the fourth quarter. I imagine Redfin has something to do with it, but maybe walk through the key drivers of the acceleration in the rental segment.

Yes, John, so I can take both of those. I think on the full year comment, you're right that it implies some acceleration. And that's just through a function of more enhanced markets being opened, deeper expansion into existing enhanced markets, ramp in Zillow Showcase, ramp in Zillow Home Loans and then continued execution on rental side. So we just think that continues to build over the course of the year. And then on the rentals one, it actually does not include the Redfin partnership. We expect that to really launch throughout the course of the spring and then steadily through the bulk of 2025. I think the acceleration you're seeing in rentals at this point is just some of the fruits of our labor that we put in place in '23 and '24. The combination of property growth. So we were at 37,000 properties, at the end of '23. We were at 50,000 properties at 12/31/24. So that's obviously been really helpful organically. The marketing campaign is working quite well. The partnership with Realtor.com we're pleased with. If we just look across the business, we're executing quite well. And again, the key here is deliver more value to renters and really be a great ROI partner to the multifamily community as well.

Our next question comes from Tom Champion with Piper Sandler.

I guess the mortgage revenue, 86% accelerating again, it really stands out. Can you talk about what you've learned here? What are the innovations you figured out? How connected is that outperformance to Enhanced Markets? Just any details on mortgage would be really helpful. And then I'd just be curious, your view of the market, we've been kind of at this 4 million home sale level for a long, long time. That would seem to be well below the long-term base rate. So do you think pent-up demand is building? Is the market at some point headed for a kind of step function change in a catch-up?

No, Tom, I'll hit both. On mortgage, yes, we continue to be pleased with the mortgage growth. Jeremy talked about it in his prepared remarks, there's going to be ins and outs and fluctuations in seasonal quarter-to-quarter, but it's really strong growth against a really challenged market. And our Enhanced Markets strategy is really driving the bulk of that as we introduce customers to Zillow Home Loans if they want to start with financing or we work with agents and agent teams to introduce loan officers to them to partner with when they want to start by touring first. So those two paths are really what the buyer wants, right? They either want to figure out what they can afford or they want to go to start looking at homes and they ultimately end up needing a great agent to help them and they need to get a loan. And so it's just about trying to find the right way to introduce them to those great services that they can choose. And you're seeing that motion really work well in our Enhanced Markets. We put out in the investor deck, we're seeing mid-teens adoption rates across all of our mature markets now. And so that continues to give us confidence that this is a great experience for the buyer. This is, of course, a get experience for Zillow and it's a great experience for our Agent Partner as well. So we continue to be very bullish on mortgage growing right alongside our Enhanced Market strategy. It's part of what Jeremy talked about when you take the 21% to 35% of connections and you get to 75% of connections and the transactions down the road, you see this incremental $1 billion of for sale revenue again, with still today's housing market,…

Our last question comes from Jay McCanless with Wedbush.

The first one I had is on -- you talked about the rentals and you're up to 50,000 properties now. I guess what was the level that you need to have to where this becomes more durable than maybe some of the benefit you received from multifamily starts and construction probably being the highest level we've seen in 40 years. I guess, what's the number of properties or listings that you'd have to make this a durable longer-term model?

Yes, Jay, I'll take that. I wouldn't necessarily equate the success we've had in rentals around starts. It's really been an organic growth story for us. And that's been a function of a long-standing strategy and a lot of investment over the years to really build out the most comprehensive set of listings on the Internet. So I would think about the growth and the opportunity from here. The more listings we can get both single-family and multifamily, the more we can attract renters, the more value we can provide to partners and it's just got this great two-sided marketplace dynamic and one that we're really excited about. I think we've performed quite well over the last few years and we see a very clear path to $1 billion-plus revenue business in rentals. So I would think of it that way versus anything macro-specific.

Maybe I'd add there. I mean, if you zoom out to the rental strategy, as Jeremy was alluding to, it is organized as much of the supply in the rentals marketplace as possible because that solves the primary problem all renters have. And that, of course, builds this great business for us, but it also everyone start it out as a renter and becomes a buyer and a seller someday. So it also helps introduce them to the Zillow brand and get them excited about us for the long-term relationship we have with them. And so you see that in our audience. You can look at the inputs to that multifamily specific revenue growth as the audience growth we have with the leading brand and audience and it's a lead that's widening in the brand preference and the fantastic ROI we drive, yes, for our multifamily partners, but also the engagement we drive with our long tail partners who more and more are just turning to the Zillow Rental network, to be their rental network, and they're providing listings to us, and we're getting them out in front of this growing audience of renters. So the flywheel that we've built, we really love as a strategy because it is really durable, and it is really unique. And now what you're seeing is just regardless of macro, a lot of advertisers wanting to get great ROI from our audience network. And that's even before we add Redfin as a partner later this year on top of what Zillow Group does and what our partner Realtor.com does. So the future is really bright for our rentals business. We talk about $1 billion target in the medium term or in the future with a $25 billion TAM out there to go attack. So yes, we're very excited about rentals.

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

Great. Thank you. Thank you all for being on this journey with us. We are proud of all we accomplished in 2024, and we look forward to speaking with you throughout 2025 as we continue to execute on our strategy. Thanks again for joining us and following our progress over the years. We are excited for what's ahead.

Thank you for joining Zillow Group's Fourth Quarter and Full Year 2024 Financial Results Call. This concludes today's conference call. You may now disconnect.