Zillow "fully eyes forward" for 2023 After Better Than Expected Q4

The American portal giant Zillow has released its report for its activities for the fourth quarter of 2022. Notable points from a three-month period in which the company exceeded its expectations include:

• Revenue for the quarter was $435m above Zillow's outlook but 19% down on the comparison period. Revenue for the year was $1.9 billion, 8% down on 2021's figure.
• Adjusted EBITDA for the quarter was $73m which was above the company's outlook but down 53% on the comparison period. Adjusted EBITDA for the year was $514m, 21% down on 2021's total.
• Zillow's Premier Agent product saw a revenue decrease of 20% on a quarterly year-on-year basis and 8% on a yearly basis.
• Company Net loss was $72m for the quarter (a 72% improvement on Q4 2021) and $101m for the year (an 81% improvement on FY21).
• Cost of revenue and sales and marketing expenses dropped 6% and 11% year-on-year respectively.

Despite revenue numbers dropping on a quarterly and yearly basis, Zillow beat its market guidance for the quarter and its share price surged in after-hours trading on the back of its announcement.

“While navigating a slow and difficult housing market in 2022, we kept our eyes on the future — our vision of building the housing super app. Our consolidated Q4 financial results outperformed our expectations, and we’ve been rapidly shipping products aligned with our five growth pillars. We’re building momentum that will help us scale as we serve customers and the industry with an easier, more seamless way to transact in real estate,” commented CEO, Rich Barton.

Zillow is a much healthier company since its iBuying exit. The company's bombshell announcement towards the end of 2021 is now being seen as prescient management with Zillow free of all its housing stock and the associated balance sheet burden. The narrative the company wants to portray now is one of unencumbered execution with a shareholder letter saying:

"From our perspective, it’s clear that this past year we were simultaneously navigating the past and organizing for the future. Now, we are fully eyes-forward."

Zillow says that its pandemic-influenced decision to adopt a fully remote workforce is paying off with four times more applicants per role. Its flagship Premier Agent agent advertising business outperformed the market as its revenues dropped 20% in the quarter (compared to a 30% drop in dollar transactions in the market) and work towards its 'housing super app' is coming along.

Amid a serious downturn in the housing market, the performance of Zillow's main IMT reporting segment towards the end of the year stood out. The company chalked at least some of its success to the return to the market of first-time buyers who it says are more likely to be customers of its Premier Agents.

Rentals revenue of $68 million in Q4 was up 13% year over year, as Rentals traffic on Zillow grew 20% year over year to 26 million average monthly unique users in Q4. The company claims that its rentals segment regained market leadership over the course of the quarter as it competes heavily with CoStar-owned Apartments.com.

Zillow's Mortgages segment did not fair so well. The impact of increasing mortgage rates has seen mortgage companies across the United States suffer serious downturns.

The Seattle-based firm is nevertheless upbeat about the potential for its top-of-the-funnel position to fuel the adoption of its mortgage services and is continuing to invest in the project. Zillow's shareholder letter highlighted one of its test markets (Raleigh, NC) which saw a 5% improvement in the adoption of its mortgage services thanks to the efforts of its partner agents over the last quarter.

All eyes will be on the company's test markets (Raleigh, Denver, Atlanta and Phoenix) as several important initiatives there are ongoing.

• The trial of Zillow's "post pay" Flex commission share business model and shelving of its standard Premier Agent model.
• Allowing users to instantly schedule tours directly from the portal.
• Zillow's partnership with former iBuying rival Opendoor. Users in Raleigh and Atlanta are now able to simultaneously request a cash offer from Opendoor and get an estimate of their open-market home sale price with a local Premier Agent partner.

Despite yesterday's upbeat announcement, it is unlikely to be plain sailing for Zillow through 2023. Earlier this year several influential agent associations declared that they were joining forces to create a new agent-friendly challenger portal, Nestfully. There is also the looming threat posed by CoStar.

Although Zillow's latest missive revealed that it had $3.4 in cash and investments on the balance sheet, that is dwarfed by the dry powder of its new residential rival CoStar. The East Coast commercial giant is making big moves in the industry and is currently in talks to acquire number two player Realtor.com from Rupert Murdoch's News Corp.