Zillow Group Earnings Call Highlights Growth Amid Headwinds

Zillow Group Inc Class C ((Z)) has held its Q1 earnings call. Read on for the main highlights of the call.

Zillow Group’s latest earnings call struck a cautiously optimistic tone, as management balanced robust top-line growth with an honest acknowledgment of near-term pressures. Revenue grew at a healthy double-digit pace, rentals and mortgages surged, and profitability improved, even as legal costs, a flat housing market, and stepped-up investments weighed on margins in the first half.

Strong Revenue Performance Anchors the Quarter

Zillow reported first-quarter revenue of $708 million, an 18% year-over-year increase that landed near the high end of guidance. Management framed this as evidence that the company can grow meaningfully even in a largely stagnant housing market, underscoring the strength of its platform and diversified revenue mix.

Profitability and EBITDA Outpace Expectations

EBITDA reached $182 million, translating to a 26% margin that exceeded the company’s outlook despite elevated legal expenses. Excluding $11 million in incremental legal costs, adjusted EBITDA would have been $193 million with a 27% margin, up about 160 basis points, while net income rose to $46 million for a 6% margin, over 500 basis points better than a year ago.

Free Cash Flow and EPS Show Clear Upside

Free cash flow climbed 44% year over year to $127 million, highlighting Zillow’s ability to convert growth into cash even as it invests in new initiatives. Diluted earnings per share improved sharply to $0.19 from $0.03 a year earlier, signaling a meaningful turnaround in bottom-line performance.

For Sale Segment Driven by Mortgage Strength

For Sale revenue reached $514 million, up 12% year over year, with residential revenue at $450 million growing 8%. Mortgage revenue accelerated 56% to $64 million, powered by a 96% jump in purchase loan originations to $1.5 billion, showing that Zillow is gaining share in a challenging lending environment.

Rentals Deliver Exceptional Momentum

Rentals remained a standout, with revenue rising 42% year over year to $183 million and multifamily revenue up 57%. The rentals platform expanded to 76,000 multifamily properties, up 38% from a year ago, and averaged 2.7 million active rental listings with 36 million unique monthly visitors, underscoring strong renter demand and advertiser interest.

Product Innovation and AI Fuel Engagement

Zillow highlighted steady progress on its product roadmap, with AI mode now live for about 5% of users and generating deeper, more substantive user interactions. The company noted that engineers are shipping roughly 40% more code per person, and new offerings like Preview, Showcase, Follow Up Boss, ShowingTime, and Zillow Pro are gaining adoption across the ecosystem.

Operational Levers Support Long-Term Ambitions

Enhanced markets now account for 49% of connections, up from 44% in the prior quarter, reflecting ongoing execution on structural initiatives. Management reiterated long-term targets including mid-teens annual revenue growth, more than $1 billion in annual rentals revenue, and a $1 billion mid-cycle expansion opportunity in the For Sale business.

Capital Return and Liquidity Strategy in Focus

The company continued to return capital aggressively, repurchasing $626 million of stock in the quarter and reducing shares outstanding from 256 million to 240 million. Despite the drawdown in cash to $788 million, Zillow emphasized that total liquidity remains around $1.3 billion when including its undrawn $500 million revolving credit facility.

Housing Market and Seasonal Conditions Remain a Drag

Management described the broader housing environment as essentially flat, citing harsher-than-expected winter weather and interest rate volatility as key headwinds. Industry transaction volumes were characterized as roughly unchanged, while purchase mortgage origination volumes slipped about 1% year over year, weighing on residential activity.

Slower Residential Growth and Limited Near-Term Visibility

Residential revenue growth decelerated to 8% year over year in the quarter, and guidance points to only mid-single-digit growth in the second quarter. Executives pointed to cautious agent sentiment and softness in market-based pricing dynamics as factors limiting near-term visibility, even as they execute on structural changes.

Legal Costs Put Pressure on Margins

Incremental legal spending weighed on results, with about $11 million in additional costs in the first quarter and roughly $20 million expected in the second quarter. Management indicated these legal expenses could create around a 200-basis-point drag on EBITDA margins in the first half, though they emphasized that these pressures are temporary.

Higher Variable and Advertising Spend Near Term

Variable expenses were a more than 400-basis-point headwind to EBITDA margins in the first half as Zillow leaned into performance-based investments. Advertising spend is set to rise to about $80 million in the second quarter from $64 million a year ago, with the $16 million increase tied to new product launches and aimed at driving future growth.

Cash Levels Dip After Aggressive Buybacks

Cash and investments declined from $1.3 billion at the end of last year to $788 million at the close of the quarter, largely because of the sizeable share repurchase program. Even so, management stressed that the company maintains robust liquidity of roughly $1.3 billion when factoring in its undrawn revolving credit line, supporting continued investment and flexibility.

Transition Away from Market-Based Pricing

Zillow is deliberately shifting away from market-based pricing as agents migrate toward preferred partner arrangements, leading to a near-term revenue mix transition. While this change is dampening some current revenue streams, management framed it as a strategic move to build a more durable and aligned marketplace model over time.

Forward Guidance Emphasizes Growth and Margin Expansion

For the second quarter, Zillow guided revenue to $750 million to $765 million, implying about 16% growth with mid-single-digit residential gains, mortgage growth similar to the first quarter, and rentals up around 30%. The company projects EBITDA of $150 million to $165 million, or $170 million to $185 million excluding incremental legal costs, and reaffirmed for full-year 2026 mid-teens revenue growth, rentals up roughly 30%, expanding margins, and a stable $1.3 billion liquidity position despite continued investments.

Zillow’s earnings call painted a picture of a business gaining momentum beneath a flat housing backdrop, with strong rentals and mortgage growth offsetting external headwinds. While legal costs, higher variable spending, and slower residential growth will weigh on near-term margins, management’s confidence in sustained revenue expansion, improving profitability, and disciplined capital allocation suggests the long-term thesis remains intact for investors.