Zillow Group Inc

NASDAQ:ZG

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to Zillow's Third Quarter 2024 Financial Results Call. [Operator Instructions] Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin.

[Bradley Berning, executive]

Thank you. Good afternoon, and welcome to Zillow Group's Third Quarter 2024 Call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman; and CFO, Jeremy Hofmann.

During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law.

This call is being broadcast on the Internet and is accessible on our Investor Relations website. A recording of the call will be available later today.

During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA. We encourage you to read our shareholder letter and earnings release, which can be found on our Investor Relations website, as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures.

We will now open the call with remarks followed by live Q&A. And with that, I will turn the call over to Jeremy Wacksman.

[Jeremy Wacksman, executive]

Thank you, Brad, and good afternoon, everyone. Thank you for joining us during a busy time of year. We're excited to share our third quarter 2024 results with you. With Zillow's leading brand, deep technology expertise and strong financial foundation we are successfully seizing our incredible opportunity to transform and digitize residential real estate on behalf of consumers, agents and the broader industry.

As you will hear again today, we are in a strong position, executing our strategy well and delivering solid results. In Q3, we grew revenue by 17% and outperformed the residential real estate industry, all while demonstrating cost discipline as we steer towards sustainable, profitable growth.

As with everything we do at Zillow, our approach begins with the customers we serve, movers, agents and real estate industry professionals. We invest in providing products and services that offer a superior end-to-end transaction experience. This creates a top-of-funnel advantage that helps us identify and connect high-intent movers with high-performing partners. And alongside our software tools, this drives increased connection rates and conversion rates resulting in greater revenue. And as we continue to leverage our cost structure, our consistent revenue outperformance shows up as expanded EBITDA margins. Those outcomes bolster our continued confidence in our strategy.

Before I dive further into our results, I'll remind you why we believe Zillow is best positioned to succeed in our ever-evolving industry. As we have said consistently throughout the past year, our perspective is grounded in Zillow's consumer advocacy principles. We believe in easy and free access to all available real estate information and listings, independent representation for buyers and sellers and transparency regarding agent compensation and consumers' right to negotiate it. We launched Zillow with a promise to turn on the lights in real estate because we believe everyone benefits from transparency, an open free marketplace is good for sellers, good for buyers, good for agents and makes for the robust industry we have here in the U.S.

And as the industry has undergone its recent very healthy evolution toward more transparency, we are confident that Zillow and agents who work with us will benefit. This is clear to us for 3 reasons. First, Zillow has the most and highest intent movers. More than 2/3 of U.S. homebuyers use Zillow today. About 80% of our users come to us organically, and we have 3x more app users than anyone else in the category.

We've built and maintained this strong brand position by staying focused on what the customer wants and needs, delivering impressive and delightful tech innovations that improve their moving experience. This quarter, for example, we've launched helpful new features like comprehensive climate risk data; tools to help agents, loan officers and movers streamline their communications; and upgrades to our AI-powered natural language search.

The second reason is that we partner with top agents and teams across the country, those that offer superior customer service and real value for movers, a deep understanding of the industry and their local market and a proven ability to scale. These are the agents who are the most successful at growing their business alongside us and are poised to take customer share.

Third, we expect to benefit as the industry evolves because we provide exceptional tech solutions to make moving more efficient not just for movers but for agents, brokers, loan officers and other real estate professionals as well. We believe a rising digital tide lifts all boats. Zillow's independent software solutions like ShowingTime, dotloop, Bridge Interactive and Follow Up Boss are already used by hundreds of thousands of professionals across the residential real estate industry. Our opportunity is to expand the breadth of those offerings and stitch them together, powering the industry to be more transparent, faster and more integrated.

Considering all the professionals we are already serving today with our digital workflow tools and foundational technologies, we believe this represents a significant opportunity for Zillow to better serve customers and drive transactions within Zillow's ecosystem. It's solutions like these, combined with our many products and services for movers that together make Zillow a housing super app, giving buyers, sellers, agents and the industry the seamless, integrated and tech-enabled experience they demand and deserve.

Now on to our third quarter 2024 results. I'm excited to share that we reported total revenue of $581 million in Q3, up 17% year-over-year, exceeding our revenue outlook and outperforming the residential real estate industry. Q3 residential revenue grew 12% year-over-year to $405 million. Rentals momentum continued with $123 million in revenue in Q3, up 24% year-over-year. Multifamily rentals revenue is up 38% year-over-year, driven by growth in our multifamily property count. We're also making strong progress in mortgages. Q3 revenue was $39 million, accelerating to 63% year-over-year growth compared to 42% growth in Q2 with our purchase loan origination volume up 80% year-over-year.

We are delivering strong revenue performance while growing our engaged audience of users. For Q3, we reported 233 million average monthly unique users across Zillow's ecosystem of apps and sites according to our internal metrics and 116 million average monthly unique visitors in Q3 according to Comscore. As you'll recall, Comscore is widely viewed among Internet brands as a reliable, transparent third-party source because it aims to capture the number of unique visitors while deduping cookies.

Our success is the result of solid execution on our growth strategy. On the for-sale side of our business, we're anchored by efforts in integrating our services, financing, touring, seller solutions and enhancing our partner network. These investments are propelling us toward our goal to increase customer transaction share to 6% by the end of 2025.

We're also focused on expanding our Rentals marketplace, which currently represents more than 20% of our revenue and is growing rapidly. The seamless transaction experience we've been building out on Zillow, the housing super app, is most fully experienced by customers in our Enhanced Markets. We've rolled out 43 Enhanced Markets thus far, surpassing our goal of reaching 40 by the end of this year. Heading into 2025, we expect to deepen our penetration in the existing markets and expand into more markets. We've been pleased with the progress we're making across the Enhanced Markets with this land and expand strategy, and we continue to expect Enhanced Markets to cover 20% of our connections by the end of this year.

As of Q3, more than 80% of Enhanced Market connections are being managed through Follow Up Boss, an industry-leading customer relationship management system we acquired about a year ago. Follow Up Boss is used by many real estate agents and teams and manages 25 million leads each year. Our efforts to upgrade and integrate it are a key part of the housing super app experience we're building.

For example, in Q3, we introduced new features, including piloting in-app messaging to allow agents to communicate with buyers on Zillow, an in-app option to connect buyers directly to a loan officer with Zillow Home Loans and new and improved client insights, allowing agents to tailor their services to an individual clients' needs and interests.

When the customer, agent, loan officer and other services are all connected through a common platform, movers have a more seamless experience and real estate professionals can work more efficiently and serve their clients better. Overall, we're excited that our efforts in Enhanced Markets are beginning to deliver results. In February, we told you our first 4 Enhanced Markets had seen share gains of more than 50% since the beginning of 2023. Then in August, we told you it had risen to more than 80%. Now it has doubled since the beginning of 2023, and we are seeing similar trends in the Enhanced Markets we've launched since.

As we land and expand in more Enhanced Markets and keep working across the business to increase connection and conversion rates, we expect to see share growth relative to the industry total transaction value, or TTV, in our residential and mortgages revenue. As you can see in the chart in our shareholder letter, our revenue per TTV has increased meaningfully over the past 2 years, a great proof point that our investments are having an impact on our business.

Moving on to financing. We are building a substantial direct-to-consumer purchase mortgage origination business, integrated with our agent partner network to offer the many mortgage seekers on Zillow financing options at the right point in their moving journey. 40% of all homebuyers start their home shopping journey looking for a mortgage, and more than 80% of those buyers don't yet have an agent. So when a high-intent customer comes to Zillow, whether they're starting with financing or starting by touring a property and being connected with a great agent, we can help. Providing a more seamless experience for movers, agents and loan officers helps identify high-intent customers in our funnel and drives conversion and revenue growth.

Most notably, our efforts are accelerating mortgage growth. Our origination revenue is beginning to scale with purchase loan origination volume up 80% year-over-year in Q3 and mortgages revenue up 63% year-over-year to $39 million. In Enhanced Markets we've been in for more than 6 months, customer adoption rates for Zillow Home Loans are in the mid-teens, with newer markets trending similarly. At the same time, we're seeing higher transaction conversion rates for agent partners working with customers who choose Zillow Home Loans, as we help agents and loan officers better serve customers together when they're ready to transact.

We're also seeing an impact from our efforts to make booking a home tour as seamless as booking a restaurant reservation online. As we work to help more Zillow visitors transact, touring remains a critical focus area for us, both so we can identify high-intent buyers and so we can solve a process that's historically been full of friction, busy work and back and forth.

In 2021, we acquired ShowingTime, the industry leader in home touring technology, which facilitates 5 million showings a month across the country. Bringing ShowingTime on to Zillow's tech-enabled platform has uniquely positioned us to remove the friction in touring, helping high-intent buyers to our homes with ease and freeing up agents' time to focus on value-added services for movers.

Our investments here are delivering improved connection rates. And today, more than 25% of our connections are coming through the digitized, improved Real Time Touring experience, which is contributing to Residential revenue outperformance. Meanwhile, our consumer-friendly touring agreement is helping agents adopt the new requirements stemming from the National Association of Realtors settlement and is connecting them with higher intent buyers who are more likely to take a tour.

While agents aren't required to use our touring agreement, it is available for more than 90% of our tour connections and is tailored by state. Our touring agreement process is automated, digital and easy to use, setting a gold standard for the industry. This is an example of how we've adapted alongside the industry in a way that is positively evolving our business.

We're also investing in seller solutions that not only make selling a home easier but also create real value for sellers and their agents. We're particularly excited about Zillow Showcase, which we made available nationwide beginning this year. As you'll remember, Zillow Showcase elevates agents' brand presence on Zillow and provides a better shopping experience through our homegrown AI-powered rich media and floor plan technologies. There is truly nothing else like it on the market. Showcase listings are driving higher engagement compared to similar non-Showcase listings on Zillow, more views, more shares and more saves. Most important, however, is that Showcase listings are selling faster and for more money than similar non-Showcase listings on our site. Zillow Showcase is already on nearly 1.5% of new for-sale listings nationwide, putting us on our way to achieving our intermediate-term goal of 5% to 10% listing coverage on Zillow.

As we've said before, we believe a rising digital tide lifts all boats, which is why we continue to look for ways to improve and expand our offerings for the benefit of the broader residential real estate industry whether through buying, building or partnering. For example, last month, we acquired Virtual Staging AI, a company whose technology helps sellers, agents and photographers create digitally staged listing images in seconds. And in October, we announced an agreement to share Zillow 3D Home tours and interactive floor plans to Realtor.com, helping agents easily provide our leading immersive virtual content to more home shoppers.

Finally, I'll update you on our continued progress in rentals. As you know from our investor presentation 6 months ago, we've spent the past several years building a highly differentiated 2-sided marketplace with a comprehensive suite of listings, combining multifamily properties with unique long-tail properties, which we define as fewer than 25 units but primarily comprises single-family homes.

As a result, Zillow is rapidly becoming the nationwide marketplace renters and landlords have sorely needed. And as we've said, we're in the best position to fix the fragmented rental experience because of our many years of success building great products for our massive audience of movers on the for-sale side.

Renters on Zillow can shop, tour, apply, sign a lease and pay rent securely. And property managers can list, book tours, screen applicants, create leases and sign them electronically and collect rent payments all on one convenient platform, Zillow. These efforts to create a more seamless and convenient experience on both sides of the rental process are paying off, yielding growth in traffic, multifamily property count and revenue.

Our multifamily advertising campaign and our ongoing partnership to share rental listings with Realtor.com are also helping boost our success by contributing to increased customer awareness of Zillow Rentals. In Q3, our total average monthly Rentals unique visitors were up 20% according to Comscore. We continue to expect multifamily to be the main engine of Rentals revenue growth. We now have 47,000 multifamily properties on Zillow, having added close to 10,000 year-to-date, and multifamily revenue was up 38% year-over-year.

As it stands today, with the combination of both long tail and multifamily properties, we have the most rental listings in the country and consequently, the most users. With steady growth under our belts, we believe Zillow Rentals is well on its way toward the $1 billion-plus revenue opportunity we see in front of us. Across the entire business, I'm proud of the progress we're making to improve the experience of getting home. We have a much loved and trusted brand with the largest, most engaged audience of movers, a partner network made up of some of the best and most productive agents and teams in the country, a solid financial foundation and deep tech expertise that allows us to invest in software solutions to benefit movers in the entire industry. Our business is increasingly diversified, and we've continued to outperform the industry while maintaining strong cost discipline.

Looking ahead, we're focused on capturing a more meaningful share of the $30 billion accessible TAM in residential real estate while continuing to deliver on behalf of our customers and shareholders. Thank you as always for being on this journey with us. And on that note, I'll hand the mic over to CFO, Jeremy Hofmann.

[Jeremy Hofmann, executive]

Thanks, Jeremy, and good afternoon, everyone. As you just heard, we delivered excellent results in Q3, and we are well positioned to continue doing so as we execute on our strategy. Our Q3 2024 results exceeded expectations for revenue and EBITDA with revenue up 17% year-over-year to $581 million, which was $28 million above the midpoint of our outlook range.

Executing on our strategy drove double-digit year-over-year growth across each of our revenue categories, including Residential, Rentals and Mortgages. We outperformed the broader residential real estate industry by approximately 1,500 basis points as the housing market grew 2% this quarter according to NAR. Additionally, we estimate that the total purchase loan volume for mortgage buyers, which is more aligned with our customer base for Premier Agent declined low single digits in Q3, underperforming the overall housing market.

On a GAAP basis, Q3 net loss was $20 million, representing 3% of our revenue. EBITDA was $127 million for the quarter, resulting in a 22% EBITDA margin. The combination of our revenue outperformance and effective cost management delivered better-than-expected EBITDA results in the third quarter. Residential revenue grew 12% year-over-year to $405 million, outperforming our outlook range. Our Premier Agent revenue benefited from continued conversion improvements as more buyers and sellers transacted with the Zillow agent partners.

We also had a strong quarter of growth in Zillow Showcase, which now represents nearly 1.5% of all new for-sale listings in the country. Additionally, our New Construction marketplace and the software solutions from ShowingTime+ and Follow Up Boss performed well. The combination of these factors led to better-than-expected results.

Rentals revenue grew 24% year-over-year in Q3 to $123 million, driven primarily by our multifamily revenue, which grew 38% year-over-year. We increased the number of multifamily properties on our apps and sites by 34% year-over-year, reaching an all-time high of 47,000 multifamily properties as of the end of Q3, up from 44,000 properties at the end of Q2. Total listings across our entire Rentals marketplace were up 15% year-over-year to an industry-leading 1.9 million listings in September. With steady growth under our belts, we believe Zillow Rentals is well on its way toward the $1 billion-plus revenue opportunity we see in front of us.

Mortgages revenue growth accelerated in Q3, up 63% year-over-year to $39 million, with purchased loan origination volume growing 80% year-over-year to $812 million. Our mortgage strategy is leading to more buyers choosing financing through Zillow Home Loans. As expected, we are also seeing our purchased loan origination volume growth more closely aligned with Mortgages revenue growth. This means our purchase mortgage revenue is now the main growth driver of our overall Mortgages revenue category.

Our disciplined cost management resulted in Q3 EBITDA expenses of $454 million, roughly in line with our outlook and allowed our Q3 revenue upside to flow to the bottom line. Additionally, our Q3 share-based compensation expense of $108 million was down year-over-year, and we are on track for these full year 2024 expenses to decline from 2023 levels.

As we execute on our growth strategy, we are successfully driving operating leverage. Looking ahead, as we continue to grow revenue, we expect this leverage to play out in both expanding EBITDA margins and sustainable profitable growth over time.

We ended Q3 with $2.2 billion of cash and investments, down from $2.6 billion at the end of Q2, primarily due to the maturity and settlement of our 2024 convertible debt in September, which included aggregate cash payments of $610 million. This was partially offset by Q3 net cash provided by operating activities of $171 million.

As of the end of Q3, we had $918 million of outstanding convertible senior notes. In December of this year, we will settle the $499 million of our outstanding convertible senior notes due in 2026. We issued a notice of redemption for these notes on October 8, and we plan to repay the principal in cash and issue shares to satisfy any conversion premium. We have outstanding cap call hedges related to these notes and we expect any dilution from settling the 2026 notes ultimately to be offset by settlement of the cap calls upon unwind or at maturity.

Because the cap calls have additional value, as our Class C share price appreciates up to approximately $81 per share, we don't expect to settle the cap calls at this time, and we will continue to monitor and evaluate the economics of unwinding prior to maturity. After our Q4 debt settlement, we will have only the $419 million of senior convertible notes due in May 2025 outstanding. Our current expectation is that we will also settle the principal balance of these notes in cash and any conversion premiums and shares of Class C capital stock. Once these notes are retired, we expect to be convertible debt free in Q2 2025.

As we look in aggregate, 2024 has been an important year for our capital allocation strategy. $1.2 billion of cash has or will soon be returned to shareholders via the settlement of our convertible senior notes. We have also had $301 million of share repurchases at a weighted average price of roughly $42. We are pleased with our execution this year. From the end of 2021 to today, we have repurchased approximately $2 billion of stock at a weighted average price of roughly $45. Our balance sheet is rock solid, and we believe the share repurchases we've made since the end of 2021 have been a great use of capital as we execute on our growth strategy and drive share price appreciation over time.

Turning to our outlook for Q4. We expect total company revenue to be between $525 million and $540 million, implying a year-over-year increase of 12% at the midpoint of our outlook range. We expect Residential revenue to be between $364 million and $374 million. Our Residential revenue outlook for Q4 is driven by the normal seasonality of our Premier Agent revenue as well as the continued strength of revenue contributions from Zillow Showcase, ShowingTime+, New Construction and Follow Up Boss. We expect that the housing market will continue to bounce around at current levels, implying modest year-over-year growth in the fourth quarter.

While there continues to be pent-up desire to move, affordability remains a challenge. Our Q4 outlook takes this into consideration. We expect our Rentals revenue to grow in the mid-20% range year-over-year in Q4 as we benefit from our execution on building our 2-sided marketplace. Our multifamily rentals revenue is expected to grow faster than our overall Rentals revenue as we see the benefits of continued property expansion, our national rentals brand awareness campaign and our partnership with Realtor.com.

For Mortgages, we expect revenue growth to be in the mid-60% range year-over-year. For Q4, we expect EBITDA to be between $90 million and $105 million, equating to an 18% margin at the midpoint of our outlook range, up approximately 300 basis points year-over-year. This implies EBITDA expenses will decrease from $454 million in Q3 to an estimated $435 million in Q4. The majority of the sequential decrease in EBITDA expenses from Q3 to Q4 is expected to be driven by seasonally lower advertising spend.

Additionally, we expect our annual fixed cost run rate will continue to be approximately $1 billion, consistent with where we stood at the end of 2023. We are on track to deliver our original 2024 full year target of double-digit revenue growth with EBITDA margin expansion. At the midpoint of our Q4 outlook ranges, our total company revenue in 2024 would be up 14% and our total company EBITDA margin in 2024 would be 22%, which implies approximately 200 basis points of margin expansion versus 2023.

Before we close, I would like to take a moment to highlight the results we're seeing from the investments we've made over the past 2 years in our for-sales strategy. As you'll recall, we look at revenue per total transaction value, or TTV, on a trailing 12-month basis as a comprehensive indicator of relative growth against the residential real estate industry.

When we combine our Residential and Mortgages revenue categories, which in aggregate represent our for-sale revenue, our revenue per TTV in Q3 was up 800 basis points year-over-year and more than 2,000 basis points since the beginning of 2023. This is the culmination of investments we have been making over the past couple of years to improve our customer experiences so that we can identify high intent movers and connect them with high-performing agents.

This has helped us drive more connections and convert more buyers and sellers to transact with us and our partners. We are also beginning to benefit from the early stages of scaling our newer products to more markets, most notably with Zillow Home Loans, which has grown purchase loan origination volume by over 3x from the beginning of 2023 to now. We expect continued success in 2025 as we expand into more Enhanced Markets and provide more services within those markets, including offering more of our unique software solutions such as Zillow Showcase and Follow Up Boss.

On the cost side, we understand it is important for us to demonstrate to our investors that the investments we've been making to increase top line growth will result in expanding margins. As we have been saying for some time, we believe we are at the right fixed investment level to achieve our 2025 transaction share target and expect fixed investment costs to grow modestly with inflation. Our fixed costs remain just under $1 billion annualized run rate in Q3, growing only 4% year-over-year and decreasing as a percentage of revenue by 500 basis points year-over-year despite 3 acquisitions: Aryeo, Follow Up Boss and Spruce.

Looking at variable costs, we have intentionally increased these costs as a percentage of revenue during 2024 as we invest in our Rentals and Zillow Showcase sales teams as well as additional ZHL loan officers to support future expected growth. For marketing and advertising, we have been clear that we make discrete decisions to dial our efforts up or down based on the opportunities we see. The most obvious opportunity we've had on the marketing front has been for our Rentals marketplace, and we have invested in a national campaign this year. This investment in Q2 and Q3 has noticeably expanded Zillow brand awareness for apartment seekers and we are pleased with the early results.

To close, it is clear we are executing on our strategy, and we are very excited about the opportunity ahead of us. We have a beloved brand with the largest, most engaged audience of movers, a partner network made up of some of the best and most productive agents and teams in the country, a solid financial foundation and unmatched tech expertise to tackle the hard problems necessary to digitize this analog industry. As I look forward, we are growing across every part of our business with investments in place to drive future growth. We are disciplined on our costs, and we expect to drive sustainable profitable growth on our way to strong GAAP profits over time.

And with that, operator, we'll open the line for questions.

[Operator]

[Operator Instructions] Our first question will come from John Colantuoni from Jefferies.

[John Colantuoni, analyst]

A multi-parter on Real Time touring. Can you give us some perspective on how lead conversion for Real Time Touring is comparing to other types of connections. And I believe Real Time Touring generally lends itself to agents transitioning to the Flex model. So I'm curious if you could detail how agents -- how many agents are transitioning to Flex in markets you rolled out Real Time Touring and if that transition is providing additional tailwinds to revenue given you're now more directly monetizing the commission through a product that has a higher lead conversion.

[Jeremy Wacksman, executive]

John, this is Jeremy Wacksman. On Real Time Touring, we haven't broken out Real Time Touring versus other touring types, but we have, for a while, talked about how the touring customer in general converts to transaction at about 3x the rate. And the other color I can give is Real Time Touring is going to be north of 25% of our connections at the end of the year. That's been our goal, and we're going to be ahead of that.

We did talk a bit in the prepared remarks about seeing conversion improvements generally. Touring is obviously a piece of that. And so that's driving obviously the increased conversion generally as a component.

In terms of payment model and kind of business model mix, Real Time Touring actually is available across both. And again, it just goes back to our strategy of trying to help identify higher-intent customers. Real Time Touring does a pretty big job of that and then trying to help land them with our best agent partners.

As a reminder, we don't work with -- I mean, we work with lots of agents, but they represent the top end of the industry. The top 20% of the industry is the majority of our Premier Agent base. So we're really pleased, as we're able to identify and hand them higher intent customers, you're seeing the benefits of that play out in conversion.

[Operator]

Our next question will come from Brad Erickson with RBC Capital Markets.

[Bradley Erickson, analyst]

I guess I have 2. First, on the kind of regulatory changes and just curious, you guys have obviously rolled out kind of a light version of the mandated buyers' agreements for agents. Just curious if you're seeing any structural changes to conversion where particularly those are markets where that's kind of a brand-new practice. I'm just curious if that's maybe at all affecting your market share on everything.

And then second, just on the Zillow Showcase. Can you just remind us -- you gave the overall share of new listings, I know, in the prepared remarks and everything. But just remind us where you've kind of seen your market share of total listings or new listings go in some of the more mature markets, like the individual markets if you could.

[Jeremy Wacksman, executive]

Sure. So let me take Zillow Showcase first and then maybe we'll go in reverse order. So on Zillow Showcase, yes, we said in the prepared remarks, it's now nearly 1.5% share of new listings. We just rolled it out nationwide earlier this year. And so the growth, while has some dispersion in markets, we haven't given out any kind of market mix details.

I will say, across the board, we continue to be really impressed that the product market fit holds as we grow that scale. So that higher engagements that we talked about, 80% more page views, 75% more saves, 75% more shares, those stats hold across markets as we grow availability. And we're continuing to see homes sell faster and for more money, so 2% more which is about $9,000 on average per home. And we continue to see agents who use it, as we talked about in the remarks, win more listings. They're winning about 20% more listings than similar agents who are not using Zillow Showcase.

So we're still really early. We just went nationwide earlier this year, and we see a long runway ahead of us. We talked about a 5% to 10% total active listing goal over time. And I think as we get to that level, Brad, I think we'll have more maturity in markets to talk about the machinations across price points or geographies. But right now, it's still really early.

And then on the buyer's agreement, we aren't -- we don't have any concrete data to share other than to say we look at it as really helpful friction for the buyer. It's an education process. It's getting them through a really necessary education step, and it better prepares them to meet the agent. As we talked about in the prepared remarks, it's available on more than 90% of touring connections nationwide, and we've worked really hard to customize it where necessary by state. And we see this as a really healthy evolution in processing all these settlement changes to help start to educate the buyers on how this process works to make sure when they meet these great agents, they're even more educated on what to expect, both in the initial tour and then in what to expect in the relationship if they choose to move forward.

[Operator]

Our next question will come from Ron Josey with Citi.

[Ronald Josey, analyst]

Jeremy, I wanted to ask a little bit more just about Residential revenue. And 3Q was another quarter where revenue growth outperformed the broader industry, and I wanted to understand just the drivers of this outperformance. And obviously, Enhanced Markets now in 43 markets. Showcase listings, you just talked about. Any insights on what's driving just the better overall outperformance would be helpful, I think.

And then another sort of maybe bigger picture question on the overall go-to-market strategy. I think we saw a new head of agent sales was hired back in July. Wanted to understand just how Premier Agent sales might interact with Showcase listing sales and just the overall -- and also the software and services sales team and just understand the go-to-market strategy overall going forward.

[Jeremy Hofmann, executive]

Yes. Thanks, Ron. It's Jeremy Hofmann. I'll take the first one, and then I'll pass it to Jeremy Wacksman for the second one. I think on the -- across the business, we performed quite well in Q3. We grew double digits in Residential, Rentals and Mortgages. And obviously, total growth of 17% year-over-year, we're quite pleased with.

Within Residential, the drivers are a few fold. So one, PA, just benefited from continued conversion improvements. We've been investing pretty heavily in honing our funnel for a while at this point, and we're just seeing the benefits of those, particularly as we go into more Enhanced Markets, and we get more contributions from Real Time Touring.

And then beyond that, we had another strong quarter of growth from Zillow Showcase, which is now nearly 1.5% of all new listings in the country, and that was all supplemented by the New Construction marketplace continues to perform well, and the software solutions we're providing from ShowingTime+ and Follow Up Boss are being well received, too. So it really has been across the board and something we're quite pleased with.

And then Jeremy, you want to hit the second one?

[Jeremy Wacksman, executive]

Yes. On the new sales leader, yes, that is the start of maybe more integration and scale for our sales organization to offer just a more seamless go to market to our agent community. And so you should expect to see us scale some of our products across that larger sales force and start to bring them to market in a more integrated fashion. To date, we've been doing that in pockets and places, but our goal over time is to have one face to the industry to represent all of our products. That will most notably show up in kind of our market-based pricing and Showcase offerings, but over time, you can imagine that will scale beyond that.

[Operator]

Our next question will come from Mark Mahaney with Evercore ISI.

[Mark Stephen Mahaney, analyst]

Okay. Great. I want to ask 2 things. I want to follow up on Brad's question about these NAR settlement changes. And can you just talk about what you've seen in the market so far? I guess we're 3 or 4 months into this. From your perspective, has greater friction occurred in the market? Or has it been largely immaterial so far?

And then your comments also on stock-based compensation being down year-over-year, what's your goal with stock-based compensation kind of going forwards the next 2 years? I ask that from a perspective of trying to figure out when you get to kind of sustained GAAP profitability, and stock-based compensation will be one key lever for that. So just talk about how do you plan to manage that going forwards.

[Jeremy Hofmann, executive]

Great. Thanks, Mark. It's Jeremy Hofmann. I'll take both of those. So I think on the NAR settlement impact, we can't speak to broad commission trends just because 80% of our Premier Agent base is in that top 20% of all producers. So we're really working with top agents versus a broad swath of folks in PA. And for our agents across our PA business, we've seen commission rates stay in a tight band.

Obviously, Q3 performance was quite strong. Being able to grow the total company revenue 17%, 12% across Residential and pretty substantially outperforming the category, we were really pleased. Beyond that, I'd say we've been pretty consistent here for a while. We believe we and our partners are the outsized beneficiaries of any changes in the real estate industry.

We have the most customers. We work with the best partners and we provide the most technology. So we expect our PAs will deliver value and get paid because they provide great service. And that we and they are share takers in really any evolution or dispersion of the industry. So that's how we're feeling on that front.

And then the second question around stock-based compensation, we plan to leverage it going forward. So just as a reminder, our fixed cost base is in about the $1 billion range on an annualized basis. And 90% of our stock-based comp sits within that bucket. So as we are controlled on the fixed cost front and grow revenue, we will get more and more leverage on the SBC line. That will drive to greater GAAP profitability over time.

[Operator]

Our next question will come from Nicholas Jones with JMP Securities.

[Nicholas Jones, analyst]

Great. I guess as a follow-up on Zillow Showcase, as you roll this out, can you kind of speak to the demand you're seeing in market for the product? And I guess, what are you learning about how you're pricing it today and potentially where that can go against kind of the intermediate or longer-term targets you have for that business?

[Jeremy Wacksman, executive]

Yes. Nick, happy to take that. So as we said a couple of times, it's early. We're really pleased that this earlier, we're at nearly 1.5% share of new listings. And the 2 things I would say we've learned so far is price, which is variable by home price and geography, lands well with agents and teams. The big challenge is helping them work through their workflow and operations to scale listings across them, right?

So we have folks who have a listing at a time. We have folks who have teams that have hundreds of listings on their team and across our agent force and just working with them to operationalize the change. It's new media. It's new media capture. It's a new client sales experience with sellers. That's what we're working through. And doing that with different size types of teams across the country is something we'll continue to learn and mature as we go.

We continue to see great results from it. I talked about the stats earlier. It continues to remain really engaging with buyers and with sellers, and we continue to see agents benefit it to win more business. That's why we remain confident in that intermediate-term goal, right?

Our mid- or medium-term target is 5% to 10% of total active listings, and that's a $150 million to $300 million annual business for us. And of course, we think there's potential beyond that. We want to give you all kind of a mile marker in the road. What excites us about Zillow Showcase and the tech powering it is once a buyer and a seller experience it, they don't really want to go back to a traditional listing of just photos and text. They kind of have this expectation that that's how a listing should behave. They should be able to really immersively tour the home that way as a buyer and the seller should be able to show off their home that way.

So we get excited about the ability to drive adoption of the tech and the product far beyond the goal we've shared with you. That will, of course, take time to retrain the industry, but you can see the potential of it in the product. And as you guys do your channel checks with our agents who have experienced it, I think you'll see the same.

[Operator]

Our next question will come from Chris Kuntarich from UBS.

[Christopher Kuntarich, analyst]

Great. Maybe just one on the market share doubling within the 4 oldest Enhanced Markets. I think if I'm looking at the right chart from an investor deck a while back, that was closer to 3.5% in January of 2023. So that implies, I guess, we're closer to 7% and above that average now. Can you maybe talk to us a bit about this oldest cohort of Enhanced Markets and how kind of the puts and takes we should be thinking about as it relates to using that as a case study for some of these newer cohorts of Enhanced Markets ramping?

[Jeremy Hofmann, executive]

Yes. I can take that. It's Jeremy Hofmann. What we're referring to in the shareholder letter and then also in Jeremy Wacksman's prepared remarks is that we've grown in our oldest 4 Enhanced Markets. We grew revenue per total transaction value. So it's a combination of Residential and Mortgages grew versus total transaction value in those markets by 50% through the course of 2023, by 80% in aggregate through the end of June and then doubled by the end of September of this year.

So that's really good proof point for why we've continued to roll out these Enhanced Markets at the pace that we have. We went from 9 at the end of last year to 43 as of October. And what we're seeing from a trend perspective in the earlier Enhance Markets are quite consistent with the older ones, which gives us confidence to keep landing and expanding from here.

[Christopher Kuntarich, analyst]

Got it. And maybe just one on the Virtual Staging AI, the acquisition that you made in early October. Apologies if you touched on this earlier. But just could you maybe talk to us about how you're thinking about letting this value and integration into Zillow Showcase, like how you may let that value accrue to the seller agents versus potentially offering different tiers of Zillow Showcase?

[Jeremy Wacksman, executive]

Yes, this is Jeremy Wacksman. I'll take that. We continue to look for ways to improve and expand our offerings for sellers and for buyers. And I just talked a bunch about Zillow Showcase as it exists today. Virtual staging is a fantastic capability that we're excited to bring to both sellers and agents as well as their photographers, right, because you can digitally stage listing images in seconds.

So we're not sharing any changes to go to market other than I think you should expect us to bring that to market on listings in a broad way. I'll comment, we also announced an agreement to share our Zillow 3D Home tours and interactive floor plans to Realtor.com this quarter as well. Again, just back to trying to get the technology out there and well understood by buyers and sellers as they enter the category and experience content and create this new norm and expectation for what a digital listing should look like.

[Operator]

Our next question will come from Michael Ng with Goldman Sachs.

[Michael Ng, analyst]

I just have 2. I guess the first one is just on Rentals. Really impressive Rentals traffic growth, and it sounds like the marketing campaign that you're leaning into is working well. As we head into 2025, do you see opportunities to further expand that marketing campaign or other advertising levers that you could pull that you see as potential high returns? I'm just thinking about the OpEx outlook for next year.

[Jeremy Wacksman, executive]

Why don't I start on Rentals? And then maybe, Jeremy, you can talk about maybe how to think about future. Yes, we're -- as Jeremy Hofmann said, we're really pleased with the results of our demand efforts here. That is both our multifamily advertising campaign and our partnership with Realtor.com.

It's really helping develop and mature our strategy, right, which is the sustainable supply of unique listings to drive the largest audience, right? And that audience, like you mentioned, largest audience of renters in the country, up 20% year-over-year and well ahead of the competition. And that, in turn, as a strategy, bringing high-quality renters, solving their major problem, which is finding as much inventory as possible, it's what's leading advertisers to want to get in front of that audience.

And that's what's driving not just the revenue growth in Rentals but the multifamily revenue growth, up 38% year-over-year. So we expect that growth to continue. We saw a strong growth in Q3. We expect too in Q4. And Jeremy, I don't know if you want to talk at all about how to think about 2025.

[Jeremy Hofmann, executive]

Yes, Mike, all I would say there is we're pretty excited about the opportunity in Rentals not just towards the $1 billion-plus mile marker we gave you all, which we think will really be on the back of multifamily growth but beyond that as well. We just think the strategy that we are going after, really aggregating both single-family homes and multifamily properties in one experience is quite unique and quite differentiated.

So the long-term opportunity is one we think is well beyond the $1 billion revenue mile marker we put out there. And I think marketing will be a mix -- will be part of that mix. I think we've always been the types of folks that start with product and then add marketing to accelerate growth, and I would assume the same type of strategy going forward.

[Michael Ng, analyst]

Great. That's all very helpful color. And my second question, I was wondering if you could speak to any risks to changes in clear cooperation. I think you made some comments in your prepared remarks, but would just love your view on where we stand today and how you're thinking about any potential changes in the future.

[Jeremy Wacksman, executive]

Happy to. Yes, I outlined in our prepared remarks, I mean, our advocacy principles have been consistent for some time. They start with access. Zillow was founded to help turn on the lights and provide free access to buyers, sellers in the real estate industry. And changes to rules and cooperation that would pull listings off MLSs so that Zillow and others couldn't share as many of them, that's just not good for buyers or sellers. It's also not good for agents. Putting listings in private networks means buyers, agents can't show all the available inventory.

So it's not as much of a business issue for us right now, especially as the largest audience and the largest brand, we will always find ways to get a share -- our share of inventory to create that experience for buyers, sellers and connect them with great agents. It's more about the consumer good for the industry. The U.S. real estate market is the most transparent market in the world because of policies like this, and we'd love to see those policies strengthen, so we can build great businesses and consumer experiences on top of them versus weekend so that some can benefit from trying to pull what is a pretty small share of listings behind the velvet rope for their own benefit.

[Operator]

Our next question comes from John Campbell with Stephens.

[John Campbell, analyst]

Congrats on a great quarter. Just want to stick on the 4Q revenue guidance. You guys have obviously provided some direction for pretty sharp growth, continuation of growth out of Rentals and Mortgage. So just isolating Residential. It seems like you have a fairly large subscription mix there, so I'm thinking the swing factor is probably going to be Flex. But from just what you guys have given and if -- just kind of taking the back of the napkin here, I'm thinking going to have to assume that Premier Agent revenue is going to be down year-over-year. I know you guys don't report on that anymore. But maybe just directionally, if you could help us, does the guide imply a Premier Agent decline year-over-year?

[Jeremy Hofmann, executive]

Yes. Thanks, John, it's Jeremy Hofmann. I would think of it as seasonality in the business from Q3 to Q4 and went overfocused on that. I think overarchingly, we're pleased with our Q4 guide. 12% growth at the midpoint for the company and a continued challenged housing market, we think, is quite solid. And the macro has been and we expect to continue to remain choppy just because affordability remains a challenge. And in the meantime, we're consistently outperforming the industry just given how many product and partner improvements we're making.

And then stepping kind of further back, we're on track to deliver double-digit growth and margin expansion in both Q4 and full year '24. So assuming the midpoint of the range, we'll grow revenue 14% year-over-year in 2024 for the company. And 22% EBITDA margins, which implies 200 basis points of margin expansion, so overarchingly feeling quite good.

And then as you think about what we're doing on the residential side, which obviously, Premier Agent is a huge piece of that, we're really gaining our share versus total transaction value. We were up 800 basis points year-over-year in Q3, and we've had 2,000 basis points of share gains since the beginning of '23.

We expect continued growth just on the back of the Enhanced Market rollouts we're having and the success we're having there, along with things like listing Showcase, Rentals, Follow Up Boss and ShowingTime+. So I think, overarchingly, I think we're well set up not just in Q4 but beyond that.

[John Campbell, analyst]

Okay. Makes sense. And then a quick follow-up just on Follow Up Boss. It seems like the adoption uptick has been pretty sharp of late. I don't know how much of that is due to the Enhanced Market expansion, so maybe if you could touch on that.

And then I saw that you raised the contingent consideration for Follow Up Boss. It seems like you're doing really well there. So maybe if you can talk about how you've been able to change, to what extent you'll be able to change the Follow Up Boss growth trajectory.

[Jeremy Wacksman, executive]

Maybe I'll hit adoption and Hofmann, you can hit his second piece. The -- yes, John, we are seeing really great success with Follow Up Boss. And as you remember, it's really a two-part strategy. One is just continuing to help the Follow Up Boss team grow their efforts to attract more agent teams, having the power of Zillow behind them and helping them grow and onboard more partners broadly. That's a big part of the strategy.

And then the other part of our strategy is to help get our Enhanced Market partners using Follow Up Boss as we start to build really good integrations between Zillow customers and as our Enhanced Market partners. And we shared 80% of connections in our Enhanced Markets now are flowing through Follow Up Boss so that you're just seeing the adoption of Follow Up Boss by the lion's share of those partners right alongside just a healthy organic Follow Up Boss growth.

So it's just now coming up on a year since acquisition, and we're just so pleased both with how the team is executing on that dual charter mandate and how the integration has gone. And we continue to hear just great feedback from our agent partners on how Follow Up Boss is helping them power their business.

[Jeremy Hofmann, executive]

Yes. And then, John, on your second question around the contingent consideration, there's no change to expected payout. We just have a change in fair value based on the time value of money and getting closer to those payout dates. So I wouldn't overlook at that. I think what Jeremy just highlighted is what we're most excited about, and we think it's a really great piece of software that our agents are really enjoying.

[Operator]

Our next question will come from Ryan McKeveny from Zelman & Associates.

[Ryan McKeveny, analyst]

Congrats on the results. Just one for me related to how you're thinking about expense growth going forward. So Jeremy, you talked about the variable cost side and the investments outpacing revenue growth in '24, obviously, still resulting in margin expansion with low fixed cost growth. I know it's early to give any 2025 guidance in terms of revenue or margin. But if we do assume mortgage rates stay high and we're in this kind of stuck slow housing market, should we generally expect that trend to continue in terms of variable costs relative to revenue cost growth? Or are you reaching a point where some of those initiatives have scaled to the point where maybe that will no longer be the case.

[Jeremy Hofmann, executive]

Yes. Ryan, it's Jeremy Hofmann. I'll take it. You said it right. No guidance on 2025. We're quite pleased with execution this year. I think 2025, you should assume more of the same strategy and go to market, right? We're going to continue to land in new Enhanced Markets, expand into existing ones, and that will drive Residential revenue, drive Mortgages revenue alongside Showcase, FUB, New Construction and then we keep executing on Rentals as well.

At the same time, we're going to continue to be disciplined on the cost side. We have been, I think, fairly consistent here that macro has been choppy. We expect it continues to be choppy, and we'll plan the cost structure accordingly. So you shouldn't expect much different in terms of how we think about our cost structure. And obviously, we'll dial up and down opportunities on the variable and marketing side, depending on what we see fit, but that fixed cost level that we've been at, we feel comfortable with to go hit our 2025 share targets.

[Operator]

This completes the allotted time for questions. I will now turn the call back over to Jeremy Wacksman for any closing remarks.

[Jeremy Wacksman, executive]

I just want to close by saying thank you all. We really appreciate your time this quarter. Thanks for all the questions, and we'll see you all next quarter.

[Operator]

Thank you for joining the Zillow Group Third Quarter 2024 Call. This concludes today's conference call. You may now disconnect.