ZILLOW GROUP, INC. Q3 FY2026 earnings call

• Macroeconomic Context: The housing market faced significant headwinds with mortgage rates rising nearly 100 basis points during Q3. Despite this, Zillow outperformed the industry, maintaining durability through brand strength and diversified business lines.
• AI Integration (AI Mode): AI mode is now available to 100% of signed-in users. Users engage 3x longer, run more searches, and request more tours. AI is also embedded in professional tools like Follow Up Boss to increase agent productivity, with engineers shipping 60% more changes than in 2024.
• Rentals Strategy: Zillow targets a path to over $1 billion in annual rentals revenue. Multi-family advertising reached a record 81,000 properties (up 17% YoY), driven by strong ROI for property managers. The long-tail single-family rental market remains a strategic asset.
• For Sale & Preferred Transition: The transition to the 'Preferred' partner model is accelerating, with 2/3 of buyer connections going to Preferred agents in Q3. The goal is 100% adoption by H1 2027. Preferred partners generate 35% more revenue per connection than legacy models.
• Mortgage Growth (Zillow Home Loans): Purchase mortgage originations grew 53% in 2025. In mature markets, ZHL adoption among Preferred agents is ~20%. The integrated experience of combining Preferred agents with ZHL drives higher conversion rates.
• Seller Solutions: Expecting >$300 million contribution from seller products (Showcase, Preview) in 2026. Zillow Showcase is on 5.4% of new listings, helping agents win 35% more listings.
• Professional Software: ShowingTime powers tours for >90% of homes for sale; Dotloop facilitates closings for nearly half of all transactions. Follow Up Boss has 141,000 MAUs (up 16% YoY).
• Financial Discipline: EBITDA margin expanded to 25%. Fixed expenses (excluding one-time items) decreased 8% YoY due to restructuring and cost management. Share-based compensation was down 25% YoY.

• Total Revenue: $724 million, up 7% year-over-year.
• Rentals Revenue: $220 million, up 26% year-over-year (30% of total revenue). Driven by multi-family revenue growth of 35% year-over-year.
• For Sale Revenue: $489 million, flat year-over-year. This category includes:
  • Residential Revenue: $419 million, down 4% year-over-year.
  • Mortgages Revenue: $70 million, up 32% year-over-year.

• Q4 2026 Total Revenue: Expected to be $635 million to $665 million, roughly flat year-over-year.
• Q4 2026 For Sale Revenue: Expected to decline 9% to 15% year-over-year, reflecting a 10-15% expected decline in industry purchase mortgage volumes.
• Q4 2026 Mortgages Revenue: Expected to decline low single-digits at the mid-point, though origination volume is expected to grow high-single-digits.
• Q4 2026 Rentals Revenue: Expected to grow similarly to Q3’s 26% year-over-year rate.
• Q4 2026 EBITDA: Expected between $100 million and $135 million, implying an 18% margin at the mid-point.
• Full Year 2026 Revenue: Expected to grow approximately 10% to 11%, including ~30% growth in rentals.
• Full Year 2026 EBITDA: Expected to be $655 million to $690 million, with flat EBITDA margins.
• Headwinds: Management expects 400-500 bps of headwind to For Sale revenue and 900-1,000 bps to Residential revenue due to the Preferred transition timing.
• Cost Outlook: Full-year share-based compensation expected to be down >20% YoY.

• Interest Rate Volatility: Sharp increases in mortgage rates negatively impacted affordability, causing a decline in industry purchase origination volumes and hurting Zillow's 'Finance First' pipeline.
• Macroeconomic Uncertainty: The housing market is softening with fewer buyers stepping into the market; management plans as if conditions will remain pressured into 2027.
• Execution Risk on Preferred Transition: While progressing well, the shift to a performance-based model requires successful integration of agents and loan officers to maintain transaction flow.
• Litigation Costs: Although recent matters have been resolved, legal costs were elevated in prior periods; management notes costs are normalizing but remains vigilant.

Q: Jamesmichael Sherman-Lewis asked about the timeline for translating long-term growth drivers into financial performance amidst a pressured macro, and whether evolving AI search agents (like Google's AI Overviews) are impacting Zillow's traffic patterns or acquisition channels.

A: CFO Jeremy Hofmann reiterated that Zillow has consistently outperformed the market for three years via software-driven transaction growth and rentals expansion, targeting a $1B+ rentals revenue milestone. CEO Jeremy Wacksman stated that agentic AI enhances rather than replaces human interaction, driving deeper engagement and transaction readiness. Regarding traffic, Zillow sees no meaningful impact from AI search changes yet; category traffic is down 10% while Zillow remains flat, demonstrating strong direct brand loyalty and share gains.