Zillow Group Inc

NASDAQ:ZG

Earnings Call Analysis

Zillow Aims for Growth in $30 Billion TAM

Zillow captured $1.5 billion in revenue from a $30 billion accessible total addressable market (TAM) in 2023. The revenue came from high-intent users in Zillow's ecosystem, comprising fees from agent referrals, mortgage, and closing. Zillow commands a strong brand presence with high organic traffic, positioning it for growth within the real estate sector's digital transformation. Key initiatives include expanding real-time touring services, enhancing the integrated transaction experience, and rolling out the Listing Showcase product. Zillow aims to grow its customer transaction share from 3% to 6% by the end of 2025 and has already seen significant purchase mortgage growth in its pilot markets, with plans to further integrate services and increase market coverage.

Accelerated Revenue Growth and Assertive Market Expansion

Despite broader industry challenges, Zillow has demonstrated robust revenue growth with a total revenue of $474 million in Q4, marking a 9% year-over-year increase. This growth outpaces the 4% industry decline, showcasing Zillow's residential revenue leading by 700 basis points. Rentals also surged, achieving a 37% growth to $93 million. This financial performance underlines Zillow's decision to accelerate expansion into new markets in 2024, reinforcing its strategy to innovate within real estate transactions.

Market Landscape and Zillow's Competitive Edge

Zillow is navigating the real estate industry's legal challenges confidently, maintaining growth amidst ongoing industry lawsuits. With a commitment to transparency and consumer advocacy, Zillow promotes equitable access to real estate listings and information. Their platform embodies these principles, positioning itself as a consumer-aligned choice in a market ripe for digital transformation.

Sizable Market Opportunity and Strategic Growth

Zillow's targeted addressable market stands at a whopping $30 billion, capturing just $1.5 billion or 7 basis points as of 2023. Their strategic growth pillars and an expansive partner network are central to tapping into this potential. With an unaided brand awareness exceeding 60%, Zillow has a commanding presence equal to leading internet brands, driving confidence in the company's capacity for long-term growth.

Expanding Product Integration and Enhancing Customer Experience

Zillow's focus on integrating services such as real-time touring, purchase mortgages, and seller solutions aims to refine the end-to-end experience for customers. Their ongoing success with existing markets and planned expansion in 2024 to 40 markets underlines a commitment to improving customer transaction share and revenue in parallel.

Solidifying Position in the Rentals Market

Zillow has capitalized on the rentals market, with substantial growth in multifamily properties leading to a 52% increase in Q4 multifamily revenue compared to the previous year. With the launch of new products and further market penetration, Zillow is fortifying its foothold in this sector.

Financial Strength and Investment Acumen

Zillow closed the year with $2.8 billion in cash and investments, underscoring their disciplined approach to cost management and investment in growth drivers like acquisitions and partnerships. Initiatives such as the Share Repurchase Program and selective market investments signal a commitment to delivering value to shareholders and strategically positioning the company within the industry.

Positive Outlook and Strategy Execution

Zillow anticipates double-digit revenue growth for 2024, fueled by the breadth and depth of its product offerings and service integration. With prudent cost management and a strategic focus on key growth pillars—touring, multifamily property listings, and mortgage services integration—the company projects continued expansion and sustained profitability.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon. My name is Sierra, and I will be your conference operator for today. At this time, I would like to welcome everyone to Zillow Group's Fourth Quarter and Full Year 2023 Conference Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Brad Berning, Vice President of Strategic Affairs and Investor Relations. Please go ahead.

[Bradley Berning, executive]

Thank you. Good afternoon, and welcome to Zillow Group's Fourth Quarter and Full Year 2023 Conference Call. Joining me today to discuss our results are Zillow Group's Co-Founder and CEO, Rich Barton; COO, Jeremy Wacksman; and CFO, Jeremy Hofmann.

During today's call, we'll make forward-looking statements about our future performance and operating plans and the housing market 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 updated investor presentation, shareholder letter and our 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. With that, I will turn over the call to Rich.

[Richard Barton, executive]

Thank you, Sierra, and thanks, Brad. Good afternoon, everyone. Thanks for dialing in for our fourth quarter and full year 2023 results. We are posting great revenue numbers across the whole of our increasingly diversified and growing businesses. Our early cohort of enhanced markets are working, so we are pressing the accelerator on expansion in 2024. I'm also pleased to share that we've released an updated investor presentation available on our Investor Relations website to bring you all up to speed on the progress we've made on our growth pillars.

We'll kick off the discussion today by walking you through our quarterly results, briefly addressing what's happening in the broader real estate industry, highlighting the opportunity in front of Zillow and then taking you through the exciting progress we're making on our journey to innovate and transform the way people buy, sell, finance and rent homes.

Starting with our quarterly results, we reported better-than-expected and accelerated revenue growth, with Q4 total revenue of $474 million, up 9% year-over-year. Residential revenue of $349 million increased 3% year-over-year, returning to positive year-over-year growth. During the same time frame, the broader real estate industry declined by 4%, meaning Zillow's residential revenue outperformed the industry by 700 basis points.

As I said, Q4 now marks the sixth consecutive quarter of meaningful outperformance versus the industry. Our ongoing efforts to improve our customer funnel, capture more demand, connect more of that demand to our partner network and focus on conversion continue to drive impressive results.

Rentals also had a strong quarter, with accelerating revenue growth up 37% year-over-year to $93 million. This performance was driven by accelerating multifamily property growth with over 37,000 properties listed across Zillow at the end of Q4 2023. We continue to be the #1 most visited rentals platform, with average monthly rentals' unique users up double digits year-over-year in Q4. We are well positioned for future rentals revenue growth, which Jeremy Wacksman will discuss in more detail later in the call.

We're also making excellent progress in our mortgages' push, growing our purchase mortgage origination volume by more than 100% year-over-year in Q4 and further integrating Zillow Home Loans with our Premier Agent partners. Before we dive deeper into all the progress we've made over the last 2 years, I'd like to give our view of the latest real estate industry goings-on.

We're monitoring the progress of numerous lawsuits facing several organizations within the industry. Zillow is not a named party in these suits, and we are confident in our ability to meaningfully grow our company in this evolving climate. In November, we laid out our marketplace principles that underlie Zillow's position. We 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 their rights to negotiate. Recently, we elaborated on these views on a new web page, advocacy.zillowgroup.com, 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 listing types in one view, be they 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, among others.

We recently supported legislation in our home state of Washington that requires buyer's agent agreements so that consumers are aware of the services they are buying and who pays. 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, but the key takeaway is that we have found a louder and crisper voice championing what's good for mover consumers, agents and the industry as a whole, given 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 can 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, driving differentiated products and services which has resulted in a large engaged audience, a beloved brand and a growing diversified business. We believe all roads lead to Zillow.

Zooming out from our quarterly results in the latest state of play in the real estate industry. 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 better way to size that opportunity, resulting in a $30 billion accessible TAM of customers already in our funnel and raising their hands to connect.

I'll do the math to arrive at this number in a moment and then pass it over to Jeremy Wacksman to talk you through the progress we've made over the last 2 years, the proof points, the signal why we are confident in pressing the accelerator on expansion. 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 experienced today. But turning on the lights only got Zillow on our large audience so far. To affect real change for consumers and open up a much larger opportunity, we needed to focus on digital transformation of the moving experience end to end and begin our work on the transaction itself.

Everyone who's 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 discreet 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 wherein all the discreet 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 at their fingertips.

Well, 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 last 2 years, updating you all along the way. Our growth pillars, which Jeremy Wacksman will talk more about in a moment, serve as a road map for the continual upgrades and improvements we are 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 and grow it into a much bigger piece of the pie. U.S. for sale housing represents $2 trillion in total transaction value, or TTV. 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 to just 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. This is low-hanging fruit buy side TAM, not just people visiting our site, but actual buyers actively engaged in 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 listing marketing budgets from those agents already actively engaged in our funnel. This adds up to a current accessible $30 billion for sale revenue opportunity with high-intent, hand-raising consumers already in Zillow's funnel.

Today, we capture $1.5 billion of that $30 billion accessible TAM. That $1.5 billion is our reported 2023 residential and mortgages revenue. Measured as a fraction of TTV, we stood at a mere 7 basis points in 2023. Oh my, 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, gives us confidence that we have many years of growth into that $30 billion of revenue TAM accessible in our funnel today. Over the last 15-plus years, we've released a constant stream of novel engaging and practical product innovations, which is how great brands are created. Zillow brand has over 60% unaided brand awareness amongst shoppers, which is rare for a brand to achieve in any category.

Okay. That is, of course, internal survey data, but you can see a good impartial proxy for this strength in our Google search activity, where Zillow is searched more on Google than the category term "real estate" and 3x more than our nearest competitor's brand. Further evidence of our brand strength is seen in our traffic composition. About 80% of Zillow's traffic is organic as well as in our app usage, which is more than 3x our nearest competitor.

We pioneered mobile real estate shopping with our leading iPhone and Android apps. And when Apple first launched the iPad, the Zillow app was highlighted by Steve Jobs on stage at the launch event. Taking things 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 special technology.

Try it. It's early, but it's an extraordinary home touring experience. We have been and will continue to be the company that is on the leading edge of utilizing technology to create magical new consumer and agent experiences.

So I've laid out a more refined view of the opportunity as we see it: quite large, quite complex, quite accessible for us. We monetize very little of it today, yet it's in our store. I've also outlined the reasons to believe that Zillow can and will tap this $30 billion accessible TAM: one, we have the leading audience brand and engagement; two, we have proven technology and product talent that is unrivaled in the real estate industry; three, we have built an extensive, talented and increasingly integrated partner network; and four, we have a strong balance sheet that gives us the flexibility to pursue current and future growth opportunities. For these reasons, we are uniquely well positioned to transform and replatform the largest industry in the country.

We spent the last 2 years building the integrated transaction experience and testing it in 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.

Okay. I've talked about our opportunity and our vision for the future of real estate. Now I will pass the microphone over to our COO, Jeremy Wacksman, to give you a more detailed progress report and where we are headed.

[Jeremy Wacksman, executive]

Thank you, Rich, and good afternoon, everyone. As Rich said, Zillow's housing super app is the container into which we are continually adding upgrades and improvements, guided by 5 for sale growth pillars: touring, financing, seller solutions, enhancing our partner network and integrating our services. Our for sale growth pillars marked the pathway to meeting our goals to grow customer transaction share from 3% to 6% by the end of 2025 and grow our revenue alongside that transaction share growth. You'll note that 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're 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 high-intent customers to our Premier Agent partners.

We ended Q4 with our real-time touring product, 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. And as a reminder, approximately 40% of all homebuyers 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 Home Loans with our Premier Agent partner network, we are creating a better customer experience from the start of the home-buying 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 4 enhanced markets, we saw our customer adoption rates climb from 6% to 15% over the course of 2023. 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 purchased 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 road map to 2025, expanding integration with Premier Agent partners, rolling out more enhanced markets and converting more high-intent customers on Zillow.

I'll now move on to seller services, honing in on Listing Showcase. Listing Showcase 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, but it is clear already there is significant demand from listing agents and significant engagement with consumers. Listing Showcase listings received 68% more page views, 66% more saves, 63% more shares. We are actively rolling out Listing Showcase nationwide, with the intermediate-term goal of 5% to 10% listing coverage, which represents a $150 million to $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. And we are doing this in a few ways. First, we're expanding our enhanced market partners, increasing our depth of coverage in existing markets and our breadth by growing our enhanced market footprint from 9 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, 1 and 2 Premier Agent partners in our enhanced markets are now introducing their customers to Zillow Home Loans, and that's up from 1 in 5 at the end of 2022. Lastly, we are 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 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 cap the $30 billion accessible revenue TAM that Rich walked you through.

Moving on to our last for sale growth pillar update: integrating our services. Doing this requires us to pull together consumer, agent and loan officer 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 consumers want, and we're in the best position to deliver it to them. As evidenced by our performance in our earliest 2 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%. Additionally, across our entire set of 9 enhanced markets, we are seeing consistent outperformance in connections growth versus the industry. This gives us great confidence to further expand our enhanced market footprint more rapidly in 2024.

As we expand to our projected 40 enhanced markets by the end of 2024, our integration within those markets is going 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. Rentals is a fast-growing business with a big opportunity in front of it. Nearly every homebuyer starts out as a renter, and providing our customers with optionality 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 to grow our multifamily properties, which has accelerated our multifamily revenue growth year-on-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.

Before handing it over to Jeremy Hofmann, I do want to highlight that while we've been building these past few years, we've meaningfully outperformed a challenged housing market. For full year 2023, Zillow reported over $1.9 billion in revenue, outperforming the real estate industry by 1,600 basis points. I'm grateful to our teams who have been working hard to bring Zillow's housing super app to life over the last 2 years, solving real customer pain points with exceptional tech solutions and partners. We are looking forward to continued growth in the years ahead.

With that, I will now pass the line over to Jeremy.

[Jeremy Hofmann, executive]

Thanks, Jeremy, and hello, everyone. As you heard from Rich and Jeremy, we are pleased with how we've executed on our strategy, and we are starting to see those efforts show up in our financial results. despite a persistently challenging housing macro backdrop. In my comments today, I will cover our Q4 results, our outlook for Q1 and some early thoughts on 2024 to help you all understand how we expect the year to play out as well as the financial philosophy that underpins how we will manage the business moving forward.

I will start with our Q4 2023 results, which exceeded expectations across the board. Revenue growth accelerated in Q4, up 9% year-over-year to $474 million, which was more than $31 million above the midpoint of our outlook range. Revenue outperformance was driven by acceleration across each of our revenue lines for residential mortgages and rentals. On a GAAP basis, Q4 net loss was $73 million, representing 15% of our revenue. EBITDA was $69 million for the quarter. When excluding the impact of a $14 million onetime expense related to the partial lease termination of our Seattle office space, EBITDA would have been $83 million, resulting in an 18% EBITDA margin and marking a return to positive year-over-year EBITDA margin expansion. The combination of our revenue outperformance and effective cost management delivered the improved year-over-year EBITDA results despite a macro housing environment that remains constrained.

Going a click deeper, the partial lease termination option for our Seattle office space, which we previewed on our last earnings call, was exercised in December. As a result, we estimate our 2024 facilities costs will decrease by $8 million and we will release an estimated $37 million in EBITDA expenses in total over the remaining life of the Seattle lease, which more than makes up for this onetime expense impacting our Q4 EBITDA.

Returning to more details on the quarter. Our Q4 residential revenue of $349 million outperformed our outlook range and revenue growth accelerated to 3% year-over-year. Our residential revenue performance was 700 basis points above the industry decline of 4%, according to data from the National Association of Realtors. We believe our Q4 outperformance was primarily driven by our ongoing investments in our top of funnel and mid-funnel experiences that continue to drive improvements in our overall lead volumes.

Rentals revenue growth accelerated in Q4, with revenue increasing 37% year-over-year to $93 million, primarily driven by our multifamily revenue, which grew 52% year-over-year in Q4. Our rentals strategy is working well, and our team is executing on growing the number of multifamily properties on our apps and sites, which reached an all-time high of 37,000 multifamily properties as of year-end. Total listings across our entire rentals marketplace were also up 40% year-over-year to an industry-leading 1.7 million listings.

Mortgages revenue of $22 million in Q4 returned to positive growth, up 22% year-over-year, with purchased loan origination volume growing 105% year-over-year. We are executing on our mortgage strategy to help more of our customers get financing through Zillow Home Loans. The tools and integration capabilities we have built are creating a bridge between Premier Agent partners, ZHL loan officers and our buyer customers, which is why we are seeing more than 50% of funded loans across all markets coming from customers working with our Premier Agent partner. This was a critical puzzle for us to solve before expanding more rapidly in 2024, and we are pleased with the progress to date.

EBITDA expenses in Q4 totaled $405 million. Excluding the onetime partial lease termination expense I mentioned earlier, EBITDA expenses would have totaled $391 million, roughly flat sequentially from Q3 and at the low end of our outlook range as a result of our ongoing focus on cost management. Cost of revenue increased $26 million or 29% year-over-year, primarily due to an increase in website development costs as we continue to test and release new products.

We ended the year with $2.8 billion in cash and investments, down from $3.3 billion at the end of Q3. This includes the benefit of net cash provided by operating activities, the impact of $88 million in share repurchases during Q4, the impact of $56 million towards convertible debt repurchases below par, and the approximately $400 million closing cash purchase price, a follow-up loss. Post repurchases of convertible debt in the quarter, we have $1.6 billion of principal outstanding.

Before turning the page to 2024, I want to highlight how pleased I am with our execution throughout the entirety of 2023. We accelerated revenue growth from a decrease of 13% year-over-year in Q1 to an increase of 9% year-over-year in Q4. When combining the revenue growth with a disciplined approach to our cost structure, we feel well positioned entering this year.

Turning to our outlook for Q1. I first want to level set on what we expect for existing homes' total transaction value. We estimate total transaction value to be between a decline of 4% to up 1% year-over-year in Q1. With that as a backdrop, we expect total company revenue to be between $495 million to $510 million, implying a year-over-year increase of 7% at the midpoint of our outlook range. We expect residential revenue to be between $365 million to $375 million, up 2% year-over-year at the midpoint of our outlook range.

Despite the tough macro existing home sales environment, we expect our residential revenue to outperform the industry in Q1 as our growth pillars begin to contribute to revenue and the investments we have made in our overall funnel continue to deliver benefits. We expect rentals revenue to continue to grow more than 30% year-over-year in Q1 as we benefit from the strength of our execution and favorable industry backdrop driving landlord demand for advertising. We expect positive growth in mortgages revenue year-over-year in Q1. We plan to expand integration with our Premier Agent partners in enhanced markets, send more of our mortgage lease to ZHL directly and drive engagement with more consumers on our apps and sites to grow our origination volumes.

For Q1, we expect EBITDA to be between $95 million and $105 million, implying a 20% margin at the midpoint of our outlook range. This implies EBITDA expenses will increase from the $391 million in Q4 that excludes the lease termination expense. The increase is being driven by 3 primary factors: one, we take on a full quarter of operating costs for Follow Up Boss; two, there is an annual increase in payroll taxes that occurs every Q1; and three, we are staffing up variable headcount for sales given the growth we expect in 2024 from rentals, Listing Showcase and Zillow Home Loans.

Moving on to 2024 as a whole. We want to provide some color for how we expect the year to play out based on the information we have today. First, we are currently assuming that the housing market is relatively flat in aggregate for the year. With that as a backdrop, we expect to drive double-digit revenue growth for the full year, implying accelerated year-over-year revenue growth throughout the year from the high single digits in Q1 that I've discussed in our outlook.

As we increase the breadth and depth of our products and services throughout the year, we expect our growth pillars will drive the vast majority of the revenue growth across our business in 2024. More specifically, in our residential revenue category, we expect continued market outperformance as we expand touring, make top-of-funnel improvements, integrate Follow Up Boss into our sales motions and expand the rollout of Listing Showcase. I will note that we expect the revenue contribution from Follow Up Boss to be a low single-digit percentage of our total company revenue in 2024.

In rentals, we expect continued strong growth as we increase our multifamily properties and total listings. In mortgages, we expect Zillow Home Loans' integration with Premier Agents and our enhanced market expansion to drive meaningful growth. On the cost side, we believe our fixed investments are at the right level, which should result in our fixed costs growing modestly with inflation and our variable costs growing with or slightly ahead of revenue initially as we ramp up new hires to be fully productive.

When combining our expected revenue growth and cost discipline, we expect modest EBITDA margin expansion for the full year. Beyond our revenue and EBITDA expenses, share-based compensation expense is an area of focus for us. We expect the absolute dollars of 2024 share-based compensation expense to be lower than 2023, and we expect to leverage SBC as a percentage of revenue from the combination of lower absolute dollars in SBC expense and projected revenue growth.

Stepping back from our Q4 results, Q1 outlook and 2024 early thoughts, I want to discuss the financial philosophy we have as a company as we execute on our go-forward strategy. As you heard from both Rich and Jeremy, Zillow today is a much different business from what it was several years ago. Our revenue base has diversified to the point where a majority of our revenue is now derived from sources other than buy side fees. We have growth pillars we are executing against and are excited about, with a $30 billion for sale revenue opportunity accessible in our funnel today. As we continue to execute on our growth pillars, while controlling fixed costs and gaining leverage on share-based compensation expense, we expect to deliver operating leverage resulting in strong GAAP profitability over time.

Beyond our organic investments, we have made several acquisitions to accelerate our growth pillars. For example, we acquired ShowingTime in 2021, which accelerated our launch of real-time touring. Since then, we acquired 2 real estate media businesses, VRX and Aryeo, to scale ShowingTime+'s Listing Showcase product with both first-party and third-party photographers. We also acquired Spruce, a tech-enabled title and closing business to add to our housing super app experience over time.

And most recently, we acquired Follow Up Boss to create a best-in-class CRM for our Premier Agents and the industry. M&A is not our core strategy. However, we will continue to pursue selective opportunities when we find ways to accelerate our growth pillars. Beyond our day-to-day operating philosophy, we have been active in deploying capital over the past several years, returning $1.7 billion to shareholders since the beginning of our stock repurchase program in Q4 2021. And we plan to continue to be opportunistic with the program going forward. Last, we remain focused on retiring our outstanding convertible debt. In 2023, we repurchased a total of $58 million in principal of our 2025 notes. We now have $1.6 billion of convertible senior notes, which we may opportunistically redeem if they become callable.

To close, I'll reiterate what you have heard from us before. 2022 was a year where we restrategized and reorganized around our housing super app vision. 2023 was a year for us to release new products and tests in various markets, setting us up for more depth and more breadth in 2024 and 2025. We are clearly executing on our strategy and look forward to sharing more updates throughout 2024.

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

[Operator]

[Operator Instructions] Our first question today comes from John Campbell with Stephens.

[John Campbell, analyst]

For the gains, I just wanted to start -- maybe if we could start on the share gains. You guys are obviously using total real estate revenue, I guess, as a basis of comparison versus the industry. I know you guys aren't directly reporting on Premier Agent, but if we can maybe below the surface just isolate that for now. But my question is, what's the growth initiatives you have in place? And then obviously, the flex pricing changes, would you expect to see a similar rate or maybe even greater degree of outperformance versus the national market just over the balance of the year and maybe even in the next?

[Jeremy Wacksman, executive]

John, this is Jerry Wacksman. I think the way we think about it is the share gains that we gave out this quarter the 2 most mature markets over that 2-year period helped show the path or what you should expect to see as we roll out more enhanced markets, right? As a reminder, those were the ones where we had great year-over-year data and enough time for the cohort to mature. And then as I said earlier, the 9 markets that we're in now, we're seeing connections growth that out -- that grows faster than the industry, which is a great leading indicator for share gains.

So that's why we're so confident in getting from 9 to what will be 40 by the end of 2024. And as we build the depth with more partners to offer the services to more customers in those markets, you should expect to see similar share gains from the set of customers and partners that we're working with in those markets.

[John Campbell, analyst]

Okay. That's helpful. And then one quick follow-up. I'm sure you guys are bracing for this question. But on the CoStar media blitz, if you will, obviously, spending, I guess, we'll find out soon how much this year, but it seems like a lot I think the burning question with a lot of investors is, will you guys respond? Will this be something that requires you guys to maybe up your brand investment spend? Maybe if you could talk to that. I know you guys have called out the 80% organic traffic, which is a pretty important number, but maybe if you could just shed some light on that?

[Richard Barton, executive]

Okay, John. Yes, this is Rich. So I guess I'd start off by saying we're not currently seeing any impact from this spend nor the buildup to the spend. As really Jeremy Hofmann discussed, our numbers are great. Our progress versus our growth pillars is great, and we really like our go-forward growth plan to expand our super app to more markets, as Jeremy Wacksman was just talking about, and all this culminated. Jeremy Hofmann gave his 2024 soft guidance on revenue growth to double digits with this -- with the competitive context in mind. And so that's how we feel things are going to develop.

To your specific question -- or do you think we'll need to change anything? We are a company that believe as we think about our marketing mix, we think about it very broadly. We are technologists in our DNA. We are product builders, the customers our North Star. We have always believed that the most important part of the marketing mix is the product itself. This has served us really well historically. It is what has put us in the position we are in today of being the traffic leader, the brand leader, the engagement leader.

And it's put us in a strategic position that is highly differentiated from anybody else in the industry. We are really trying to digitize the whole of the transaction. We're trying to replatform this whole industry. We're trying to integrate it all into the same Zillow housing super app. This is difficult stuff. It is highly differentiated, and we believe this is what ensures that we win long term.

[Operator]

Our next question comes from Brad Erickson with RBC.

[Bradley Erickson, analyst]

I guess just first on real-time touring in the markets where you've had some time to see how it plays and appreciate those charts in the presentation. What would you say are kind of like the main friction points and then time frame that lie kind of between an agent getting -- starting to get those new higher quality leads and then choosing to lean in with their spend? And then I have a follow-up.

[Jeremy Wacksman, executive]

Yes, Brad, on real-time touring, it is a mix of eligibility with both the consumer and the agent and the listing, right? It's like all 3 things. And so we're really pleased with how real-time touring has gone. And I think you heard earlier, we talked about getting from 10% of connections currently to 20% by the end of 2024, and that's through a mix of going broader into more markets, but also going deeper in those markets with both customers and agents.

And then on your specific question on the sort of agent partnering with the buyer, what we tend to find as we talk about this enhanced market strategy is when we start to work with these enhanced partners on the whole basket of services, real-time touring, Zillow Home Loans, seller services, increasingly Follow Up Boss. This becomes a much broader conversation around how to help them grow and operate their business better in service of our customers. And so it is one part of the overall playbook we work with. Of course, it's a really important one because these are incredibly high-value, high-intent customers who want to go see a house right now. And so the feedback on the reception continues to be really positive when they get a chance to work with those buyers.

But if you remember, we've talked a lot about how this is a new workflow for those agents as well. And many times, they have to build new muscle with their teams, with their team leads, with their individual agents to help service those customers to really provide that delightful experience that we're creating for the customers. So when it works, it's really magical because the consumer gets what they want different from anything else in the industry. But to your point, it really is a new training mechanism, which is why we've been so methodical in testing and iterating on it in the markets we've been in.

[Bradley Erickson, analyst]

Got it. And then maybe just a quick follow-up on Follow Up Boss. Can you just give a little more detail there, just kind of on the unlock of the synergies you guys are going after within the PA business? And then just any integration costs for investment embedded there? Any color on that would be great.

[Jeremy Wacksman, executive]

Yes. Maybe I'll start on the strategy, and Jeremy, you can hit costs. The strategy for Follow Up Boss, as Jeremy Hofmann said, is really twofold, right? One, it's help make what is already one of the best CRMs in the industry even better, right, give them oxygen and the ability to accelerate the road map of features and services that they have. And then secondly, it's to help introduce Follow Up Boss to more customers. So it's already the most popular CRM with our Premier Agents, but many of our Premier Agents don't yet use it. And obviously, many agents industry-wide don't yet use it, so helping them grow and attract more agent customers is the second part.

When we do both those things, that rising tide is going to lift all boats, it's going to lift the Zillow transaction boat, right? And our agents working with the Zillow customers are going to be able to perform better, be more responsive satisfy the customer better and convert more, and you'll see that in conversion increases. So that's really the strategy.

Maybe I'll turn it over to you for cost. The only thing I'll add on cost is we're really excited to help them accelerate their road map. They had great plans in place already and the acquisition just closed in December. So we're still early in our planning.

[Jeremy Hofmann, executive]

Yes. It's Jeremy Hofmann. I'll reiterate what Jeremy Wacksman just said. It is early, right? So I highlighted in our prepared remarks, we're having -- we're seeing the first quarter of full cost to Follow Up Boss early in integration. I wouldn't say that there's outsized investment at this moment, but definitely really pleased with the product road map they have and the opportunity we have to really help them accelerate from here as we integrate them into our sales motions.

[Operator]

Our next question today comes from Mark Mahaney with Evercore.

[Mark Stephen Mahaney, analyst]

Okay. Two questions, please. This sort of outperformance, I think you said it was about 700 bps of outperformance versus the residential market. I think you had first guided the 400 bps. So just explain why you think you've been able to outperform. I know you've been doing it for a while, but maybe you outperformed a little bit more than you had expected in the quarter. And just how should we think about or how do you think about how your level of outperformance versus the market goes into this next year, into '24?

And then I want to switch and ask you about costs. And get back to this question of if you're going to keep fixed costs fixed to this $1.1 billion and variable costs get leverage against it at that $400 million level and how long do you think you can sustain that for. You've been talking about it for a couple of quarters. It sounds like you're giving in a little bit on the variable cost, showing a little bit of deleverage first before leverage. But just, is that framework still going to hold for you that you can keep that fixed cost at $1.1 billion and variable at $400 million and getting leverage against that over time?

[Jeremy Hofmann, executive]

Yes. So it's Jeremy Hofmann, Mark. I'll take the second one first. On the cost structure, we feel -- continue to feel really good. So the fixed cost base, we expect to get leverage on over time. We feel like we're at the right levels right now. It will grow with inflation a bit, but generally at the right levels, and that's really with an eye towards our year-end 2025 targets on customer share gains. And we feel like we're well invested on the fixed side.

And then on the variable side, you're right, over time, we will get leverage, of course. And Listing Showcase, and rentals, and ZHL, we see really exciting growth opportunities, and we're staffing up sales ahead of that. That will take a little bit of time to ramp to get people fully productive, but over time, of course, get leverage there, and we're looking for efficiencies across the entire cost base always. So feel really good there.

And then on the outperformance side, I'd say Q4 was about as expected, and we're really pleased with the outperformance across all of 2023. We don't overfocus on quarter-to-quarter fluctuations, just given how fluid macro has been and will continue to be. But I think 2023 was a great year for us. We accelerated revenue from Q1 to Q4. Total company revenue outperformed housing by 1,600 basis points. And then we've had 6 straight quarters of outperformance in residential as well. And we expect more of the same in 2024.

I alluded to it in my prepared remarks, but we expect to grow double digits in 2024 against the flattish housing market. And then to double-click further into that, we expect acceleration throughout 2024 with a lot of that acceleration coming from our growth pillars as we get into more markets and go deeper into existing markets. And when I look across our enhanced markets are going to go from 9 to 40, covering 20% of all connections.

Real-time touring, we think, is going to go from 10% of all connections to 20% of all connections. Showcase is really starting to sell broadly in January, and we expect that revenue to build throughout the course of the year. And then rentals is executing really, really well. We're expecting to see 30%-plus growth again in Q1. And ZHL will grow alongside market expansion and more consumption of mortgage leads. So just across the business, it feels like we're really well set up for 2024 as well.

[Operator]

Our next question comes from Ryan McKeveny with Zelman Associates.

[Ryan McKeveny, analyst]

Congrats on the progress. Curious if you can talk about Listing Showcase. I guess just reception to date between what are Premier Agents and let's call the non-Premier Agents, and I ask because within the slide deck and kind of the opportunity ahead of getting to 5% to 10% share of listings seems to suggest plenty of opportunity, both for Premier Agents and kind of cross-selling the Listing Showcase product and non-Premier Agents. So anything you can share with us to date. Obviously, knowing it's small at this point in time, but yes, how that's going so far and how you think about that balance and opportunity between kind of cross-selling in the PA side of things versus new agents that don't currently partner with Zillow.

[Jeremy Wacksman, executive]

Yes. Happy to. I mean you're right. It is early, and Listing Showcase having just launched in Q3 and we're just now flipping to national. But in the early signal, there's lots of signal. And as I talked about, the agent response has been really positive. I think folks are seeing it as a tool to market themselves and win more listings as well as market the listings. And then, of course, that provides us benefit to our buyer experience that results in the higher engagement with page view saves and shares, we shared some of the data on.

We are seeing success with both Premier Agents and non-Premier Agents in the markets we've been in and as we've continued to take it to more markets and we expect that to continue. And that's what gives us excitement for the intermediate-term target we shared with you all going from what is less than 1% of listings today to 5% to 10% of total active listings at some point here in the future. And we think there's growth and opportunity beyond that.

Scale in this business requires solving a bunch of operational complexity. The team has been hard at work doing, as Jeremy Hofmann talked about, it required a bunch of media investments. It requires a bunch of partner operations that the team has worked hard to get right, and we're now benefiting from the fruits of a lot of that investment as we take this nationwide.

So it is still early. We'll share more as we learn from being in more markets with a larger set of partners, but we're really pleased with the response and the progress and the ability to work with just great agents, whether they are existing Premier Agents or this is their way into working with Zillow for the first time is an exciting opportunity for Listing Showcase. And it's something we're seeing.

[Ryan McKeveny, analyst]

That's helpful. And one on ZHL. So the purchase volume growth kind of speaks for itself. But I think it implies market share-wise in the purchase origination business, close to a doubling in just the last 2 quarters alone. So obviously, good progress there. I guess I'm curious on the comments you made about going from 23% to 53% of customers that are also working with the PA. Is that a combination of the 2 kind of connection approaches you've talked about in the past being property first and financing first? Is that kind of a mix of both PA coming back to you and you going to PA? And just any commentary on whether it's one of those approaches meaningfully driving things or if it's a combination of both moving in the right direction.

[Jeremy Wacksman, executive]

Yes, it's a good question. The short answer to your last question is it's both. And I think the reason why it's both, it's important to remember sort of why mortgage for the customer and for Zillow, right? And yes, we all know 80% of homes are financed with a mortgage, but it is more importantly that 40% of homebuyers start their journey shopping for a mortgage. And so that's why we talk so much about most consumers either want to go see the house and book a tour, ideally with real time touring, or they want to figure out what they can afford, which Zillow Home Loans can help them with.

Ultimately, they need to go through both those experiences. And whichever door they start with, they need to use a great agent and they need to get a mortgage to get the house done. And so it really is a contribution of both those things that's driving that 23% to 53%. And that's why we're so excited about the opportunity to grow and deliver that integration to more customers in more of these enhanced markets as we scale this recipe.

And that really does speak to the strong customer acquisition cost advantage, we think we have at Zillow, the majority of those customers, as Rich talked about, are already on Zillow, and many of them are already going through one of those doors. And so helping them understand and get what they need to use more of our services to get the house transaction done, right, that's a great business for us.

But ultimately, as Rich said, it's what the consumer wants. It's what they need to be able to buy the house. So that's why we're so excited about mortgage. Yes, you're right, we're seeing over 100% year-over-year growth in purchase mortgage origination volume, and we expect growth to continue in 2024 as we continue to scale the business.

[Operator]

The next question comes from Tom Champion with Piper Sandler.

[Thomas Champion, analyst]

Rentals growth is really strong, and it sounds like multifamily is driving a lot of that. The business has been around for a while. I'm just curious kind of the timing and why now that it's become kind of so large and picked up so much momentum. And just curious if there's any comment on the single-room initiative, I think, that was announced recently?

[Jeremy Wacksman, executive]

Yes, Tom, I'll take both of those. I mean I think the why now is just the rental strategy that we've had in place for a while is working and it's working for both consumers and partners. We've had -- we have grown and have the largest audience in the category where we have the most renters coming to Zillow Group properties because we have the most listings, we have the most complete set of listings, which is really the #1 problem to solve for renters.

And we're able to leverage that audience growth and engagement to really drive multifamily growth and start to work with more multifamily partners to bring their inventory online on to our properties. And that's why we see a lot of growth potential ahead of us for rentals. That's what's driven the meaningful growth throughout 2023. And as Jeremy Hofmann said, we expect that to continue into 2024.

And then you specifically asked about the room for rent. Again, so for those who didn't see, we launched this week a new listing type, which is folks can post rooms for rent rather than entire places for rent, which is something that is increasingly common and prevalent across a lot of our rental markets. And we're really pleased with the early results there.

We just turned it on in the last couple of weeks. But that again speaks to the strategy of try and organize and provide the most services and experiences for the renter and all renter personas and segments and then help them figure out which door they need to get through and which subset of inventory they want and that drives then the benefit for our partners, for the folks who are trying to find the right renter, whether that is a big building or an individual single-family home.

[Operator]

Our last question today comes from Ron Josey with Citigroup.

[Ronald Josey, analyst]

Great. Just a quick follow-up on the rentals question right there. Just -- when you think about growth going forward, is that from the multifamily property growth of 37,000 and growing or the mix of single-family, multifamily and sort of offering everything to everyone, which given your audience, I'm assuming that's the case, but any insights on those 2? And then I think, Jeremy, you talked about staffing up in head count for sales, and you mentioned rentals and Listing Showcase and Zillow Home Loans. Talk to us a little bit more about just the maturity of the current sales force and how you -- where you're investing, I guess, across those newer areas like rentals, Showcase and ZHL?

[Jeremy Wacksman, executive]

Yes. Maybe I'll start, and you can hit the staffing. I mean the short answer is it's going to be a mix of both. You're seeing, I would say, over-indexing growth from a revenue contribution standpoint in multifamily right now, but back to the strategy of the most complete set of listings. We do have both multifamily growth and longer tail, smaller inventory growth in terms of our rental manager and suite of products and services that are landlords and property managers use on that side.

So we're excited about both segments of supply driving not just audience growth and engagement but the business over time. But obviously, in the near term, you're seeing a faster acceleration in ramp on the multifamily side. In Q4, you saw that overindex, and I think you saw it in Q3 as well. And you should expect to see that early into next year as well. And then maybe on the various staff-ups, I don't know if you want...

[Jeremy Hofmann, executive]

Yes, I can hit that. I mean I think it's natural at this point just given the evidence of traction that we have that we should be accelerating growth, and it's across all 3 of those. They all are doing quite well but have a lot of opportunity ahead of them. And we want to make sure we are well positioned from a sales staffing perspective to capture that growth.

[Operator]

This will conclude our Q&A session. So I would like to pass the conference over to Rich for any further remarks.

[Richard Barton, executive]

Thanks, Sierra, and thanks, everybody, for your questions. You've heard today about our tremendous progress that we've made over the past 2 years on our journey to transform and replatform this largest of industries. As we look ahead, we are pressing down on the accelerator, increasing the breadth and depth of our products and services across more markets as we tap into this $30 billion TAM that's already accessible, already raising their hands for help, already inside our store. We'd like to thank you again for being on this journey with us, and we look forward to sharing more progress with you in the months ahead. All right. Have a nice evening.

[Operator]

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.