Expanding the breadth and depth of Zillow’s housing super app

Zillow is posting great revenue numbers across the whole of our increasingly diversified and growing business. Our early cohort of enhanced markets are working, so we are pressing the accelerator on expansion in 2024.?

In this quarter’s update, I’ll briefly address what’s happening in the broader real estate industry, highlight the opportunity in front of Zillow, and then take you through the exciting progress we’re making on our journey to innovate and transform the way people buy, sell, finance and rent homes.

First, our view of the latest developments in the real estate industry: We’re monitoring the progress of numerous lawsuits facing several organizations within the industry. Zillow is not named in any of these suits, and we are confident in our ability to meaningfully grow our company in this evolving climate.

In November, I outlined our marketplace principles that underlie Zillow’s position. We will continue to advocate for what we believe is best for consumers and the industry as a whole:?

• First, we believe in a real estate marketplace that is transparent and fair, in which consumers and agents have easy and equitable access to listings and information.??

• Second, we believe buyers and sellers deserve independent representation.?
• And, finally, we believe consumers should be well informed on agent compensation, and on their right to negotiate.??

Recently, Zillow elaborated on these views on a new web page that outlines consumers’ “Real Estate Rights” and how we are working to elevate industry standards on their behalf. This includes efforts to allow better-integrated search experiences that can include all types of listings in one view — including For Sale by Agent, For Sale By Owner, New Construction, or For Rent — as well as to educate consumers on the potential pitfalls of double-siding with dual agency (using the same agent for both sides of a buy-sell transaction), among others. We recently supported legislation in our home state of Washington that requires buyer’s agent agreements so consumers are aware of the services they are buying — and who pays for them. In New York, our StreetEasy and Zillow teams are working with lawmakers and advocates to create much-needed transparency for consumers, ensure agents are fairly compensated, and open the door for more access and affordability in New York’s rental market. Those are just a few examples of how we have found a louder and crisper voice championing what’s good for mover-consumers, agents, and the industry as a whole, given that legacy practices are being actively debated and negotiated right now.?

Settlements and court-ordered equitable relief may provide some near-term direction for the industry, and some industry practices will likely be improved — for example, it could become more common to use buyer agent agreements to make fees more transparent and negotiable — but ultimately, we continue to expect industry change to play out over many years.??

Regardless of the industry debates, Zillow is well positioned for all weather, due to our long history, and future, of technology innovation that drives differentiated products and services. This has resulted in a large, engaged audience, a beloved brand, and a growing, diversified business. In short, we believe all roads lead to Zillow.??

Two years ago, we introduced our new growth strategy and broke down the massive TAM opportunity for Zillow. This quarter, we’ve released a refined and improved way to size that opportunity, resulting in a $30 billion accessible TAM of customers who are already in our funnel and raising their hands to connect(1).??

We are pleased with what we have accomplished since laying out our growth pillars in early 2022. We see this strategy as a continuation of what we’ve been working on since we founded the company in 2006 with the charge of “turning on the lights” in real estate.? Over the years, we’ve built engaging and practical products and services designed to empower consumers with data and information, transforming a previously opaque marketplace into the more transparent one we experience today. But “turning on the lights” only got Zillow and our large audience so far. To effect real change for consumers and open up a much larger opportunity, we needed to focus on the digital transformation of the moving experience, end to end, and begin our work on the transaction itself.???

Everyone who has moved knows that the process is complicated, time-consuming and expensive. The onus is primarily on the consumer to play the role of project manager/systems integrator — to research, shop, select, finance, appraise, and close — bringing all these disparate pieces together. It’s a labyrinth, and it’s clear that consumers want and need better. And they’ll eventually get it. They always do.

So, we set out to build the housing super app — an integrated digital experience in which all the disparate pieces of the gnarly moving process are brought together on one platform: Zillow.??

Rooted in our original commitment to “turn on the lights,” Zillow’s housing super app empowers consumers by delivering real estate data and education, a suite of Zillow-owned solutions, and a network of best-in-class partners, all at their fingertips. The housing super app is here today — it’s called Zillow. Zillow is now the container into which we will continually place new features and services that work together seamlessly to solve real customer and partner pain points in their moves. We have tested and iterated the experience over the past two years, updating you all along the way. Our growth pillars serve as a roadmap for the continual upgrades and improvements we’re adding to the Zillow experience as we expand our breadth and depth of coverage across more markets.??

Our opportunity is to take our current small slice of a large total addressable market, or TAM, and grow it into a much bigger piece of the pie. U.S. for-sale housing represents $2 trillion of total transaction value, or TTV(2). Of that $2 trillion of TTV, there were approximately $162 billion of service fees in 2023 across buy- and sell-side agent referral fees, mortgage fees, and closing fees. Based on survey data, we estimate that 70% of all consumers who transact visit and use Zillow, resulting in a $113 billion “Zillow Visitor” TAM. Cutting that down just to shoppers who raise their hands on Zillow — meaning they proactively request to connect with one or more of our services — we estimate, first, a $16 billion opportunity made up of brokerage referral, mortgage, closing and other homebuyer-related transaction fees associated with those high-intent buyers. We believe this is “low-hanging fruit” buy-side TAM; not just people visiting our apps and sites, but actual buyers actively engaged and seeking to do business with us. Additionally, on the sell side, we have good line of sight on an estimated $14 billion of sell-side TAM derived from our increasing opportunity to capture more sell-side referral fees and listings marketing budgets from those agents already actively engaged in our funnel. This adds up to a current, accessible $30 billion estimated For Sale revenue opportunity with high-intent, hand-raising consumers already in Zillow’s funnel.??

Today, we capture only $1.5 billion of that $30 billion accessible TAM. That $1.5 billion is our reported full-year 2023 Residential and Mortgages revenue. Measured as a fraction of TTV, we stood at a mere 7 basis points in 2023 — so much blue ocean.?????????

Our position as one of the largest internet brands in the United States, alongside iconic brands such as Facebook, Spotify and Netflix(3), gives us confidence that we have many years of growth into that $30 billion of revenue TAM accessible in our funnel today. For more than 15 years, we’ve released a constant stream of novel, engaging and practical product innovations, which is how great brands are created. The Zillow brand has more than 60%(4) unaided brand awareness among shoppers, which is rare for a brand to achieve in any category. That is, of course, internal survey data; however, you can see a good, impartial proxy for this strength in our Google search activity, in which “Zillow” is searched more often on Google than the category term “real estate” and three times more often than our nearest competitor’s brand(5). Further evidence of our brand strength is seen in our traffic composition: About 80%(6) of Zillow’s traffic is organic; this is also true for our app usage, which is more than three times that of our nearest competitor(7).

We pioneered mobile real estate shopping with our leading iPhone and Android apps.? And when Apple launched the iPad, Steve Jobs highlighted the Zillow app onstage at the launch event. Coming full circle, this month we partnered with Apple once again for the launch of Zillow Immerse on the new Apple Vision Pro to offer mover-consumers an interactive and immersive way to explore Listing Showcase listings with spatial technology. It’s early, but it’s an extraordinary home touring experience. We always have been, and will continue to be, the company that is on the leading edge of using technology to create magical new consumer and agent experiences.??

I’ve laid out a more refined view of the opportunity, as we see it: It’s quite large, quite complex, and quite accessible to us. We monetize very little of it today, yet it’s in our store. I’ve also outlined the reasons to believe Zillow can and will tap this $30 billion accessible TAM:

1. We have the leading audience, brand and engagement;??
2. We have proven technology and product talent that is unrivalled in the real estate industry;??
3. We have built an extensive, talented and increasingly integrated partner network;?
4. We have a strong balance sheet that gives us the flexibility to pursue current and future growth opportunities.??

For these reasons, we believe Zillow is uniquely well-positioned to transform and re-platform the largest industry in the country.??

We’ve spent the past two years building the integrated transaction experience and testing it in our Enhanced Markets. Now it’s time to press down on the accelerator — to increase our breadth of coverage across more markets and our depth of penetration in those markets. We made a great deal of progress in 2023; we will make more in 2024.??

Zillow’s housing super app is guided by five For Sale growth pillars: touring, financing, seller solutions, enhancing our partner network, and integrating our services. Our For Sale growth pillars mark the pathway to meeting our goals to grow customer transaction share from 3% to 6% by the end of 2025, and to grow our revenue alongside that transaction share growth(8). We’ve also added rentals as an additional growth pillar this quarter; we’re excited about the opportunities here as our rentals marketplace continues to accelerate and accounted for nearly 20% of Zillow’s total revenue in 2023.

I’ll kick off our growth pillar update with touring. The investments we are making here continue to drive our industry outperformance. When a customer raises her hand to look at a home she’s been coveting on Zillow, it’s a strong signal of serious intent to transact.? As we work to convert more visitors on our site into transactors, the home tour remains a critical focus area for us. Touring has historically been painful for both movers and agents, so we’ve invested in making the process more seamless than it’s ever been.????

Our Real Time Touring product, powered by ShowingTime, is meaningfully improving our ability to connect higher-intent customers to our Premier Agent partners. We ended Q4 with real-time touring delivering approximately 10% of our total connections. We expect to expand our breadth of coverage by launching additional markets and increase our depth by growing real-time touring to account for approximately 20% of connections by the end of 2024. This is driving a better customer and agent experience, with less friction, as we see increased successful connections and more customers working with agents.?

Equally as important as touring is financing. As a reminder, about 40% of all home buyers start their journey shopping for a mortgage, and 80% of those buyers don’t yet have an agent. Knowing that almost all of these mortgage seekers use Zillow positions us well to build a substantial direct-to-consumer purchase mortgage business that is seamlessly integrated with our extensive Premier Agent partner network.?

By integrating Zillow Homes Loans with our Premier Agent partner network, we are creating a better customer experience from the start of the homebuying journey on Zillow to when a customer moves into that brand-new home. And it’s clear that customers and partners are increasingly enjoying this integrated housing super app experience.?

Most notably, our efforts are driving purchase mortgage growth. In our original four Enhanced Markets, we saw our customer adoption rates climb from 6% to 15% over the course of 2023(9). Since Q1 2023, the percentage of purchase mortgages in which a customer works with a Premier Agent partner increased from 23% to 53%.? All of this success translates to $487 million in purchase loan origination volume this quarter, a more than 100% year-over-year increase, despite a very challenging mortgage-rate environment.??

We expect continued mortgage growth as we follow our roadmap to 2025, expanding integration with Premier Agent partners, rolling out more Enhanced Markets, and converting more high-intent customers on Zillow.??

Moving on to seller solutions: Our Listing Showcase product elevates agents’ brand presence on Zillow and helps them win more listings. Our AI-powered Listing Showcase also improves the shopper experience through listings that are powered by our home-grown rich media and floor plan technology. This is a unique differentiator in the marketplace and a significant benefit to buyer engagement and experience. We are in the early days of this product, having launched in Q3 of last year, but it is clear already there is significant demand from listing agents and significant engagement with consumers. Listing Showcase listings receive 68% more page views, 66% more saves and 63% more shares(10).

We are actively rolling out Listing Showcase nationwide, with the intermediate-term goal of 5%–10% listing coverage, which we estimate represents a $150 million – $300 million annual revenue opportunity. And we believe there is potential future growth beyond that.?

Moving on to our next growth pillar update — enhancing our partner network. Our mandate here is simple: Help the best agents provide better service to more of our shared customers to grow their businesses and our business. We are doing this in a few ways. First, we’re expanding our enhanced markets partners, increasing our depth of coverage in existing markets and our breadth by growing our enhanced markets footprint from nine at the end of 2023 to a projected 40 markets by the end of 2024.? Second, we’re working to deliver the integrated experience between ZHL and Premier Agent. As a result, one in two Premier Agent partners in our Enhanced Markets is now introducing their customers to Zillow Home Loans, up from one in five at the end of 2022.??

Lastly, we’re excited to accelerate improvements to Follow Up Boss and make it available to more agents to increase conversion. With the power of Follow Up Boss, our Premier Agent agent partners will be better equipped than ever to deliver the best possible customer experience while supercharging their businesses. We think these efforts across the board will drive transaction conversion to help close the gap on the vast majority of Zillow connections that transact elsewhere and better tap the $30 billion accessible revenue TAM.????

Moving on to our last For Sale growth pillar update: integrating our services. Doing this requires us to pull together consumer, agent and loan offer technology in one place — Zillow — to create an end-to-end experience that carries the customer through the entire transaction process with more transparency and ease. It’s no small feat, but it’s what mover-consumers want, and we’re in the best position to deliver it to them. As evidenced by our performance in our two earliest Enhanced Markets, Phoenix and Atlanta, our integrated strategy is working to drive customer transaction share gains. Since the beginning of 2022, our customer transaction share has grown more than 80%(11). Additionally, across our entire set of nine Enhanced Markets, we are seeing consistent outperformance in connections growth relative to the industry(12). This gives us great confidence to further expand our Enhanced Markets footprint more rapidly in 2024. ?

As we expand to a projected 40 Enhanced Markets by the end of 2024, our integration within those markets is expected to cover 20% of total Zillow connections by the end of the year. We land in each market with a subset of partner and customer coverage and work to expand our product offerings across the market over time. We are seeing share gains that will move the needle as we roll out more Enhanced Markets throughout the year into 2025.?

I’ll wrap up with a progress update on rentals, a fast-growing business with a big opportunity ahead. Nearly every homebuyer starts out as a renter, and providing our customers with options is as important as ever in a challenging housing market. Today, we have the largest audience of renters and the most listings in the market, with limited marketing spend to date. We’re now leveraging our position as traffic leader(13) to grow our multifamily properties, which has accelerated our multifamily revenue growth year over year from 14% in Q4 2022 to 52% in Q4 2023. As we look to serve more of this market and grow revenue, we plan to expand the number of multifamily properties and deliver a superior experience for our rentals partners.?

While we’ve been focused on building, we’ve continued to meaningfully outperform a challenged housing market. I’m grateful to our teams who have been working hard to bring Zillow’s housing super app to life over the past two years — solving real customers’ problems with exceptional tech solutions and partners. We are looking forward to continued growth in the years ahead.?

This LinkedIn article is adapted from my and COO Jeremy Wacksman’s remarks to Zillow shareholders on Feb. 13, 2024. For more details regarding Zillow Group’s results for Q4 & FYE 2023, visit Zillow Group’s Investor Relations site and shareholder letter.?

Footnotes:

1. ?Estimate of buy- and sell-side transactors engaged in Zillow’s funnel multiplied by estimated revenue per transaction for buyers and sellers, respectively.?
2. Total transaction value (TTV) calculated as existing homes sold multiplied by the average existing home sales price from December 2023 published by the National Association of REALTORS?.
3. Comscore Top 100 Internet Properties data for the month of December 2023.? Zillow Group is ranked No. 35.?
4. Based on Zillow Group internal data.?
5. Source: Google Trends (2010–2023) for search terms “Zillow,” “real estate,” “Realtor.com,” and “Redfin.”
6. Based on Zillow Group internal data.
7. data.ai data for January 2023 – December 2023.?
8. Please see the “Forward-Looking Statements” section below and in our shareholder letter for additional information about these forward-looking targets.
9. Adoption rate measures the percentage of Zillow Home Loans customers who also use a Premier Agent partner to purchase a home, as measured by Zillow Group’s internal data.?
10. Compared to listings on Zillow without virtual tours. The data is from Jan. 14, 2024, and is an average from the immediately preceding six-month period. The data excludes the top 5% and bottom 5% lift of total page views, saves, and shares from each month and the immediately preceding six-month average.
11. Represents customer transaction share growth in the Phoenix and Atlanta enhanced markets in Q1 2022 compared to Q4 2023. Please see the “Use of Operating Metrics” section in our shareholder letter for additional information about our calculation of customer transaction share.
12. Represents monthly year-over-year growth in connections versus monthly year-over-year growth in existing home sales in 2023 for the nine enhanced markets.?
13. Comscore data as of December 2023.

Forward-Looking Statements:?

This post contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including, without limitation, statements regarding our 2025 targets, the future performance and operation of our business, the current and future health and stability of the residential housing market and economy, volatility of mortgage interest rates, and our expectations regarding future shifts in behavior by consumers and employees. Differences in Zillow Group’s actual results from those described in these forward-looking statements may result from actions taken by Zillow Group as well as from risks and uncertainties beyond Zillow Group’s control. For more information about potential factors that could affect Zillow Group’s business and financial results, please review the “Risk Factors” described in Zillow Group’s other filings with the Securities and Exchange Commission.