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Zillow 3rd Quarter Earnings A Mixed Bag

Steve Goode
Nov 03, 2022
Zillow Group

Online real estate data company beat expectations but expects continued challenges into next year.

Seattle-based Zillow Group's third-quarter earnings report beat market expectations Wednesday, but the online real estate data company also cautioned that it — and the mortgage industry — aren't out of the woods yet, and that it could be some time before they are.

The company’s press release reported that:

  • Consolidated third-quarter revenue from continuing operations was $483 million, above the high end ($453 million) of the company’s outlook range.
  • That its IMT (internet, media, and technology) segment revenue of $457 million, while down 5% year over year , was above the high end of the company’s outlook range.
  • Premier Agent revenue decreased 13% year over year to $312 million, above the high end of the company’s outlook range (20%) primarily due to better-than-expected conversion rates, customer connections, and retention rates during the quarter, and
  • Officials said the year-over-year decrease was driven by macro-housing market factors, including interest rate and home price increases, as well as tight inventory levels.

Other highlights:

  • Mortgages segment revenue was $26 million, near the high end of the company’s outlook range but down from $70 million in Q3 2021, with purchase-loan origination volume growing 24% compared to Q2 2022. 
  • The wind-down of the company’s iBuying business was complete as of Sept. 30, 2022, and has been presented as discontinued operations for all periods presented.
  • Rentals revenue increased 10% year over year to $74 million, also better than the company’s expectations.

Also:

  • Consolidated GAAP net loss was $53 million and consolidated net loss from continuing operations was $51 million in the third quarter. Segment income (loss) from continuing operations before income taxes was $5 million for IMT and ($51 million) for mortgages. 
  • Consolidated Adjusted EBITDA from continuing operations was $130 million in the third quarter, exceeding the high end of the company’s outlook range. 
  • In the quarter, the company launched real-time tours in Atlanta, demonstrating continued progress within its touring growth strategy. The company also announced ShowingTime+, a new, unified brand to integrate and simplify its best-in-class technology offerings for agents, brokers and multiple listing services. 
  • Traffic to Zillow Group’s mobile apps and websites in the third quarter was 236 million average monthly unique users, an increase of 4% year over year. Visits during the quarter were 2.8 billion, up 4% year over year.

In a letter to shareholders, Zillow co-founder and CEO Rich Barton wrote that the past quarter “has been an important one for our product roadmap on our journey to our midterm targets we shared with you nine months ago. As a reminder, we introduced a goal to grow our share of customer transactions from 3% to 6% by the end of 2025, oriented around increasing engagement, increasing transactions, and increasing revenue per transaction.” 

Barton said the path to achieving those targets involves product initiatives within five growth pillars: touring, financing, seller solutions, enhancing the company’s partner network, and integrating its services. 

”Zillow’s vision of a ‘housing super app’ is to create a single digital experience to help customers across all their real estate needs, including buying, selling, financing and renting — serving as one ecosystem of connected solutions for all the tasks and services related to moving," Barton said during an earnings call. “Through our many years helping people dream and shop on our apps and sites, we feel confident that this experience — one that offers choice, convenience and ease — is what customers want, and we are in a strong position to deliver it to them.”

Barton also acknowledged the difficulty of laying off 25% of the company’s staff after the decision was made to exit iBuying, followed by another 300 job cuts last week as Zillow puts its focus on product and technology.

“We have to be clear-eyed about the market we find ourselves in,” he said during the earnings call, adding that the company is predicting that 60 million homes will change hands in the next 10 years and that Zillow is well-capitalized to take advantage of that. Company officials said Zillow ended the third quarter with $3.5 billion in cash on hand.

CFO Allen Parker said during the earnings call that the company’s cash position gives it flexibility.

Looking forward, company officials said they expect a difficult fourth quarter that will carry over into a challenging first quarter of 2023, but added they believe they have the right strategies in place, especially in innovation and execution, to combat headwinds created by a combination of persistent low inventory and a lack of new listings.

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