10-Q: Zillow Group Returns to Profitability Amid Strong Revenue Growth

Zillow Group reported a return to net income and significant revenue growth for the third quarter and first nine months of 2025, driven by strong performance in its Rentals and Mortgages segments.

Summary

• Zillow Group achieved a net income of $10 million for the three months ended September 30, 2025, a significant improvement from a net loss of $20 million in the prior year period.
• Total revenue increased by 16% to $676 million for the third quarter of 2025, compared to $581 million in the same period last year.
• For the nine months ended September 30, 2025, net income was $20 million, reversing a net loss of $60 million in the comparable 2024 period, with total revenue growing 15% to $1.9 billion.
• Adjusted EBITDA rose 30% to $165 million for the third quarter and 23% to $473 million for the nine months ended September 30, 2025.
• Rentals revenue surged 41% to $174 million in Q3 2025, primarily due to a 46% increase in quarterly revenue per average monthly rentals unique visitor, driven by growth in multifamily property listings and upgraded advertising packages.
• Mortgages revenue increased 36% to $53 million in Q3 2025, fueled by a 56% increase in total loan origination volume to $1.3 billion, mainly from purchase loan originations.
• Residential revenue grew 7% to $435 million in Q3 2025, supported by a 4% increase in visits to 2.5 billion and improved Residential revenue per visit.
• Gross margin decreased from 76% to 73% in Q3 2025, primarily due to increased lead acquisition costs associated with the Redfin rentals partnership.
• The Board authorized an additional $1.0 billion for share repurchases on May 2, 2025, increasing total cumulative authorizations to $3.5 billion, with $943 million remaining available as of September 30, 2025.
• The company settled $419 million in aggregate principal amount of 2025 Notes with cash payments totaling $425 million in May 2025.
• Zillow settled capped call transactions related to 2026 Notes in August 2025, receiving approximately 3.1 million shares of Class C capital stock and $38 million in cash.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance with a return to profitability and significant revenue growth across key segments. However, the new antitrust lawsuits introduce considerable uncertainty and potential future costs, tempering an otherwise very positive outlook.

Positives

• Achieved net income of $10 million in Q3 2025, a significant turnaround from a $20 million net loss in Q3 2024.
• Reported strong total revenue growth of 16% in Q3 2025 and 15% for the nine months ended September 30, 2025.
• Adjusted EBITDA increased substantially by 30% in Q3 2025 and 23% for the nine months, indicating improved operational efficiency.
• Rentals revenue demonstrated exceptional growth of 41% in Q3 2025, driven by higher revenue per unique visitor and multifamily property listings.
• Mortgages revenue grew 36% in Q3 2025, with total loan origination volume increasing 56%, highlighting successful expansion of Zillow Home Loans.
• Residential revenue increased 7% in Q3 2025, supported by higher website visits and improved revenue per visit from Premier Agent, ShowingTime+, and new construction.
• The Board's authorization of an additional $1.0 billion for share repurchases signals confidence in the company's valuation and commitment to shareholder returns.
• Settlement of convertible senior notes and capped call transactions has reduced debt and simplified the capital structure.

Negatives

• Gross margin decreased from 76% to 73% in Q3 2025, primarily due to increased lead acquisition costs from the Redfin rentals partnership.
• Other income, net, decreased by $16 million in Q3 2025 and $43 million for the nine months, mainly due to lower interest income on investments following convertible note settlements.
• New antitrust lawsuits filed by the Federal Trade Commission and several State Attorneys General against Zillow and Redfin regarding their rentals partnership introduce significant legal and regulatory uncertainty.

Risks

• The health and stability of the economy and the United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages, and supply chain issues.
• Ability to manage advertising, product inventory and pricing, and to maintain relationships with real estate partners.
• Ability to establish or maintain relationships with listing and data providers, or changes to rights to use or timely access listing data, or to the quality or quantity of such listing data.
• Ability to comply with current and future rules and requirements promulgated by NAR, MLSs, or other real estate industry groups or governing bodies, or decisions to repeal, amend or not enforce such rules and requirements.
• Ability to navigate industry changes, including as a result of past, pending or future lawsuits, settlements or government investigations, which may include lawsuits, settlements or investigations in which the company is not a named party.
• Uncertainties related to policy changes, enforcement priorities, or government shutdowns at the federal and state levels.
• Ability to operate and grow Zillow Home Loans mortgage operations, including obtaining sufficient financing, meeting customer needs, growing origination operations, and reselling mortgages on the secondary market.
• The duration and impact of natural disasters, climate change, geopolitical events, and other catastrophic events (including public health crises) on operations, demand, or general economic conditions.
• Impact of past, pending or future litigation and other disputes or enforcement actions, including new antitrust lawsuits from the FTC and State Attorneys General, and ongoing patent infringement, federal securities, and shareholder derivative suits.
• Ability to protect and continue using intellectual property and prevent others from copying, infringing upon, or developing similar intellectual property, including as a result of generative artificial intelligence.
• Ability to pay debt or to raise additional capital or refinance indebtedness on acceptable terms, or at all.
• Volatility of Class A common stock and Class C capital stock prices.

Future Outlook

Management expects Residential revenue to decrease in absolute dollars during the three months ending December 31, 2025, primarily due to the impact of seasonality on the residential real estate market. The company anticipates continued impacts on the residential real estate industry, customers, and the company from inflationary pressures, but does not expect these to materially impact its long-term business strategy.

Management Comments

• We continue to invest in the growth of our business, which we believe has resulted in year over year total revenue results that exceeded industry performance for the same periods.
• We believe that using an internal measurement tool to measure visits to Zillow and StreetEasy allows us to maintain control over and provide greater insight into our end-to-end data as we enhance our broader long-term analytics strategy, while also becoming less reliant on third-party providers.
• We believe that using an internal measurement tool to measure unique users of Zillow, StreetEasy and HotPads allows us to maintain control over and provide greater insight into our end-to-end data as we enhance our broader long-term analytics strategy, while also becoming less reliant on third-party providers.
• We believe that cash from operations and cash and cash equivalents and investment balances will be sufficient to meet our ongoing operating activities, working capital, capital expenditures, strategic acquisitions and investments and other capital requirements for at least the next 12 months.
• We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operations, debt financing and equity offerings, as applicable.

Industry Context

The U.S. residential real estate industry continues to be impacted by low housing inventory, elevated and volatile mortgage interest rates, changes in rental inventory and occupancy rates, and home price fluctuations. Zillow Group's TTV increased 6% in Q3 2025 and 5% for the nine months, indicating a resilient market despite challenges. The company's strong revenue growth, particularly in Rentals and Mortgages, suggests it is outperforming broader industry trends, leveraging its digital solutions and expanded service offerings to capture market share. The new antitrust lawsuits highlight increasing regulatory scrutiny in the online real estate and rental listing sectors.

Comparison to Industry Standards

• Zillow Group's total revenue growth of 16% in Q3 2025 and 15% for the nine months ended September 30, 2025, exceeded the residential real estate industry's Total Transaction Value (TTV) growth of 6% and 5% for the respective periods, indicating market share gains and effective strategy execution.
• The 56% increase in Zillow Home Loans' total loan origination volume in Q3 2025 demonstrates significant outperformance compared to the broader mortgage market, which has faced headwinds from elevated interest rates, suggesting successful penetration and growth in its mortgage segment.
• The decline in gross margin from 76% to 73% in Q3 2025, attributed to lead acquisition costs from the Redfin partnership, suggests that while the partnership is driving revenue, it comes with a cost that impacts profitability metrics relative to prior periods or potentially to competitors with different cost structures.

Management Changes

Corporate Governance

Legal Proceedings

• IBM Patent Infringement: Ongoing appeal regarding one patent after other claims were dismissed. The U.S. Patent and Trial Appeal Board (PTAB) found claims unpatentable, affirmed by Ninth Circuit, but Zillow filed an en banc petition on October 24, 2025. Possible loss not estimable.
• Federal Securities Suit: Consolidated class action alleging false and misleading statements regarding Zillow Offers. Class certification was granted and affirmed by the Ninth Circuit, but Zillow filed an en banc petition on October 24, 2025. The suit is stayed pending appeal. Possible loss not estimable.
• Shareholder Derivative Lawsuits: Multiple suits alleging breach of fiduciary duties, failure of internal controls related to Zillow Offers wind-down, and other claims. These suits are currently stayed. Possible loss not estimable.
• Antitrust Lawsuits (FTC and State Attorneys General): Complaints filed on September 30, 2025, and October 1, 2025, alleging that the Zillow-Redfin rentals partnership harmed competition for online multifamily rental listings. Plaintiffs seek injunctive and other equitable relief. Zillow intends to vigorously defend the claims.

Stakeholder Impact

• Shareholders: Positive impact from return to profitability, strong revenue growth, and increased share repurchase authorization. However, new antitrust lawsuits introduce significant uncertainty and potential for adverse outcomes.
• Employees: Continued investment in human capital, as evidenced by increased headcount-related expenses in sales and marketing and technology and development, suggests stable to growing employment opportunities.
• Customers (Real Estate Professionals, Renters, Mortgage Seekers): Enhanced digital solutions and expanded service offerings aim to improve their experience, but potential impacts from legal proceedings could affect service availability or pricing in the long term.
• Competitors: Zillow's strong performance and strategic partnerships (like Redfin) indicate aggressive market positioning, potentially increasing competitive pressure. The antitrust lawsuits highlight regulatory scrutiny on market concentration.
• Creditors: Improved net income and Adjusted EBITDA strengthen the company's financial health, while the settlement of convertible notes reduces debt obligations. Increased credit facilities for Zillow Home Loans support its operations.

Next Steps

• Continue to invest in the growth of the business, including technology platforms, new products and services, and sales and marketing.
• Monitor and respond to ongoing legal proceedings, including the IBM patent infringement appeal, the Federal Securities Suit appeal, shareholder derivative suits, and new antitrust lawsuits from the FTC and State Attorneys General.
• Manage liquidity and capital resources, including potential future share repurchases under the remaining $943 million authorization.
• Evaluate the impact of recently issued FASB guidance on income tax rate reconciliation and disclosure of specified costs and expenses for future adoption.
• Assess the impact of new FASB guidance on internal-use software costs for future adoption.

Key Dates

Recommendation

Zillow Group's Q3 2025 results demonstrate a strong operational turnaround, marked by a return to net income and robust revenue growth across its core segments, particularly Rentals and Mortgages. The increased share repurchase authorization is a positive signal for shareholder value. However, the newly filed antitrust lawsuits by the FTC and multiple State Attorneys General introduce a significant and unquantifiable legal overhang. While the underlying business performance is strong, the uncertainty and potential for substantial penalties or changes to business practices from these lawsuits warrant a cautious 'hold' recommendation until there is greater clarity on their potential impact.

Keywords

Real Estate, Online Real Estate, Mortgage Origination, Rentals, Residential Sales, SEC Filing, 10-Q, Financial Results, Zillow Home Loans, Premier Agent, Antitrust, Share Repurchase