10-Q: Zillow Swings to Profit, Boosts Share Buyback Plan

Zillow Group reported a swing to net income in Q2 2025, driven by strong revenue growth across its segments, and authorized an additional $1 billion in share repurchases.

Summary

• Total revenue increased by 15% to $655 million for the three months ended June 30, 2025, compared to $572 million in the prior year period.
• Net income reached $2 million for Q2 2025, a significant improvement from a net loss of $17 million in Q2 2024.
• Adjusted EBITDA grew by 16% to $155 million for Q2 2025, up from $134 million in Q2 2024.
• Rentals revenue surged by 36% to $159 million, primarily due to a 21% increase in quarterly revenue per average monthly rentals unique visitor and a 13% increase in average monthly rentals unique visitors.
• Mortgages revenue increased by 41% to $48 million, driven by a 48% increase in total loan origination volume to $1.1 billion.
• Residential revenue saw a 6% increase to $434 million, supported by a 4% rise in visits and increased revenue per visit.
• The Board authorized an additional $1.0 billion for share repurchases, bringing the total cumulative authorization to $3.5 billion, with $981 million remaining available as of June 30, 2025.
• Zillow Home Loans expanded its credit facilities, including an increased capacity with JPMorgan Chase Bank, N.A. to $200 million and a new $100 million agreement with Bank of Nova Scotia.
• The 2025 Convertible Senior Notes, with an aggregate principal amount of $419 million, were fully settled in May 2025 with cash payments totaling $425 million.

Sentiment

Score: 8

Explanation: The company demonstrated strong financial performance, swinging to net income and achieving robust revenue growth across key segments, particularly Rentals and Mortgages, despite broader market challenges. Strategic partnerships and increased share repurchase authorization further bolster positive sentiment, indicating effective capital management and confidence in future prospects. While gross margin slightly declined due to increased lead acquisition costs and cash balances decreased due to debt settlement and share repurchases, the overall operational improvements and strategic moves are highly positive.

Positives

• Achieved net income of $2 million for the quarter and $10 million for the six months, a significant turnaround from losses in the prior year periods.
• Strong revenue growth across all segments, particularly Rentals (36% increase) and Mortgages (41% increase).
• Adjusted EBITDA increased by 16% for the quarter and 19% for the six months, demonstrating improved operational efficiency.
• Total loan origination volume for Zillow Home Loans increased by 48% for the quarter and 41% for the six months, indicating strong growth in mortgage operations.
• Increased share repurchase authorization signals confidence in the company's valuation and commitment to returning capital to shareholders.
• Strategic partnership with Redfin for exclusive multifamily rental listings expands market reach and revenue opportunities.
• Improved loss from operations, reducing from $(38) million to $(11) million for the quarter, and from $(83) million to $(20) million for the six months.

Negatives

• Gross margin decreased from 77% to 75% for the quarter and from 77% to 76% for the six months, primarily due to increased lead acquisition costs associated with the Redfin rentals partnership.
• Cash and cash equivalents decreased significantly from $1,082 million at December 31, 2024, to $587 million at June 30, 2025, largely due to debt settlement and share repurchases.
• Other income, net, decreased by 47% for the quarter and 40% for the six months, primarily due to lower interest income on investments as a result of decreased investment balances.

Risks

• The health and stability of the economy and U.S. 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.
• Compliance with current and future rules and requirements promulgated by NAR, MLSs, or other real estate industry groups.
• Ability to navigate industry changes, including as a result of past, pending, or future lawsuits, settlements, or government investigations.
• Uncertainties related to policy changes or enforcement priorities at federal and state levels.
• Ability to continue to innovate and compete to attract customers and real estate partners.
• Ability to effectively invest resources to pursue new strategies, develop new products and services, and expand existing products.
• Ability to operate and grow Zillow Home Loans mortgage operations, including obtaining sufficient financing and reselling originated mortgages.
• The duration and impact of natural disasters, climate change, geopolitical events, and other catastrophic events (including public health crises).
• Ability to maintain adequate security controls or technology systems, or those of third parties, to protect data integrity and privacy.
• Impact of past, pending, or future litigation and other disputes or enforcement actions.
• Ability to attract, engage, and retain a highly skilled workforce.
• Reliance on third-party services to support critical business functions.
• Ability to protect and continue using intellectual property and prevent infringement, including as a result of generative artificial intelligence.
• Ability to comply with domestic and international laws, regulations, rules, contractual obligations, and to obtain or maintain required licenses.
• Ability to pay debt or to raise additional capital or refinance indebtedness on acceptable terms.
• Actual or anticipated fluctuations in quarterly and annual results of operations and financial position.
• Actual or perceived inaccuracies in the assumptions, estimates, and internal or third-party data used to calculate business metrics.
• Volatility of Class A common stock and Class C capital stock prices.
• Inflation risk, which may lead to increased costs (labor, marketing, hosting) and impact demand for products and services.
• Interest rate risk, which may impact mortgage loan origination volume and net interest margin from master repurchase agreements.

Future Outlook

The company expects Rentals revenue to increase in absolute dollars during the three months ending September 30, 2025, driven by growth in multifamily property listings and increased revenue per property as managers upgrade advertising spend. Continued investment in business growth is anticipated to lead to higher direct product and service costs. The company is evaluating the impact of the recently enacted 'One Big Beautiful Bill' on its consolidated financial statements starting Q3 2025.

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.

Industry Context

The U.S. residential real estate industry continues to be shaped by low housing inventory, elevated and volatile mortgage interest rates, and inflationary conditions. Despite these headwinds, Zillow Group's total revenue growth of 15% for the quarter and 14% for the six months significantly outpaced the overall residential real estate industry's Total Transaction Value (TTV) growth of 2% and 4% respectively. The persistently high mortgage interest rates have impacted the number of consumer transactions and demand for advertising services across the industry, yet Zillow Home Loans saw substantial growth in loan origination volume.

Comparison to Industry Standards

• Zillow Group's total revenue growth of 15% for the three months ended June 30, 2025, and 14% for the six months ended June 30, 2025, exceeded the residential real estate industry's Total Transaction Value (TTV) growth of 2% and 4% for the same periods, respectively. This indicates Zillow's ability to capture a larger share of the market or grow revenue per transaction more effectively than the overall market trend.
• The increase in For Sale revenue per TTV to 10.3 basis points for the trailing twelve months ended June 30, 2025, from 9.8 basis points in the prior year, suggests improved monetization of real estate transactions relative to the industry's total value.
• The company's strategic partnership with Redfin Corporation, making Zillow the exclusive provider of multifamily rental listings on Redfin and its sites (including Rent.com and ApartmentGuide.com), positions Zillow to consolidate its leadership in the rentals market by leveraging a competitor's network.

Corporate Governance

Legal Proceedings

• International Business Machines Corporation (IBM) filed a complaint alleging patent infringement. While some claims were dismissed or found unpatentable by PTAB, an appeal is ongoing for one patent. The possible loss or range of loss is not estimable, but Zillow intends to vigorously defend the claims.
• A consolidated Federal Securities Suit alleges materially false and misleading statements regarding the Zillow Offers business. Class certification was granted, but Zillow has been granted permission to appeal this order, and the suit is currently stayed pending the appeal. The possible loss or range of loss is not estimable.
• Multiple shareholder derivative suits have been filed, alleging breach of fiduciary duties, violations of federal securities laws, insider trading, and waste of corporate assets related to the Zillow Offers wind-down. All these lawsuits are currently stayed. The possible loss or range of loss is not estimable.

Stakeholder Impact

• Shareholders: Positive impact from the swing to net income, strong revenue growth, increased share repurchase authorization, and strategic partnerships, potentially leading to increased share price and shareholder returns.
• Employees: Continued investment in human capital and a slight increase in headcount (6,944 employees as of June 30, 2025, up from 6,856 at December 31, 2024) suggest stable to growing employment opportunities.
• Customers (real estate professionals, renters, mortgage seekers): Benefit from expanded product offerings, improved services, and increased reach through strategic partnerships like the Redfin rental network, enhancing their ability to find and transact homes.
• Creditors: The company is in compliance with all debt covenants, and the settlement of convertible senior notes reduces long-term debt obligations, indicating sound financial management and reduced credit risk.
• Suppliers/Partners: The Redfin partnership and continued reliance on third-party services suggest ongoing business for key partners, though increased lead acquisition costs impact gross margins.

Next Steps

• Evaluate the provisions of the 'One Big Beautiful Bill' and determine its impact on consolidated financial statements beginning with the quarterly period ending September 30, 2025.
• Continue to invest in human capital to grow the business.
• Continue to invest in the growth of the rentals marketplace.
• Support growth in revenue, which is expected to lead to higher direct product and service costs.
• Expect Rentals revenue to increase in absolute dollars during the three months ending September 30, 2025, driven by growth in multifamily property listings and increased revenue per property.

Key Dates

Recommendation

Zillow Group's Q2 2025 results demonstrate a significant turnaround, swinging to net income and achieving robust revenue growth that outpaced the broader real estate market's transaction volume. The strong performance in the Rentals and Mortgages segments, coupled with strategic partnerships like the Redfin deal, indicates successful execution of growth initiatives. The increased share repurchase authorization signals strong management confidence and a commitment to shareholder returns. While legal proceedings and macroeconomic risks persist, the company's improved operational efficiency and financial health suggest a compelling investment opportunity, especially given its market leadership and innovation efforts in a recovering housing market.

Keywords

Real Estate, Online Real Estate, Mortgage Origination, Property Technology, PropTech, Digital Real Estate, Residential Real Estate, Rentals, Zillow Home Loans, Premier Agent, SEC Filing, 10-Q, Financial Results