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Spencer Rascoff speaks at the 2016 Zillow Premier Agent Forum (Photo by GeekWire/Kevin Lisota)
Spencer Rascoff speaks at the 2016 Zillow Premier Agent Forum (Photo by GeekWire/Kevin Lisota)

Zillow Group appears to be doing a good job of absorbing its acquisitions, and turning a profit. The Seattle-based online real estate giant today announced record net income and revenues during the third quarter, with CEO Spencer Rascoff labeling it “terrific” performance.

“With all of our marketplaces performing strongly, we expect to end 2016 in a strong position to continue executing on our strategic priorities,” said Rascoff in an earnings release.

Spencer Rascoff speaks at the 2016 Zillow Premier Agent Forum (Photo by GeekWire/Kevin Lisota)
Spencer Rascoff speaks at the 2016 Zillow Premier Agent Forum (Photo by GeekWire/Kevin Lisota)

Net income came in at $6.8 million, a 126 percent increase when compared to the same period last year, when it lost $26 million. Its EBITIDA (Earnings Before Interest Taxes Depreciation Amortization) stood at $59.5 million. Meanwhile, revenues grew 35 percent during the quarter to $224.6 million, a record for the company. Analysts expected revenues of $220.9 million for the quarter, and EBITIDA of $50.2 million.

Zillow boosted its revenue outlook for 2016 to $837 million to $842 million, up from $830 million to $840 million.

Shares of the company initially gained more than six percent in after hours trading, but as of 2:05 p.m have settled back to about $33 per share.

Zillow acquired its longtime rival Trulia in February 2015 for $2.5 billion, and since then the company’s combined traffic has continued to climb. During the third quarter, Zillow Group attracted more than 164 million average monthly unique visitors, a 16 percent increase year-over-year.

Here’s a look at Zillow’s results for the quarter:

zillow-screen-shot-2016-11-01-at-1-48-25-pm

Here’s a copy of the prepared remarks from Rascoff for today’s earnings call, which is taking place at 2 p.m.

Spencer Rascoff, CEO

Thank you for joining the call today to discuss our third quarter 2016 financial results. Zillow Group delivered strong third-quarter results that exceeded our expectations, and that demonstrated progress in executing our strategic priorities. Total revenue for the quarter grew 35 percent year-over-year to a record of approximately $225 million and exceeded the high end of our guidance range. The increase in revenue was driven by strong contributions from each of our marketplaces, but primarily from the Premier Agent business, which grew revenue 33 percent year over-year to more than $158 million, also ahead of our outlook. On the bottom line, GAAP net income was $6.8 million, or 3 percent of revenue, and third-quarter EBITDA was $59.5 million, or 26 percent of revenue. Our profitability this quarter was well ahead of our expectations and an exception to our typical cadence of steady year-over-year margin expansion. The outperformance in profitability was primarily driven by strong revenue results and operating expense savings, which Kathleen will discuss in a moment.

As we entered the second half of 2016, we continued to gain momentum from the first two quarters. Total revenue growth has accelerated across our business throughout the year, and all our marketplaces are performing strongly. With just one quarter left in 2016, we are on track to deliver full-year revenue growth of better than 30 percent year-over-year. We are excited to finish 2016 strong, with a continued focus on our four strategic priorities.

1. Growing our audience size,
2. Growing our Premier Agent business,
3. Growing our emerging marketplaces, and
4. Attracting and retaining the best talent in the technology, media and real estate industries.

We are making great progress against each of those strategic priorities. Our audience across all of Zillow Group’s mobile applications and websites continues to grow in an expanding category. Zillow Group’s market share remained substantial as our traffic lead persisted. According to comScore, all five of Zillow Group’s consumer brands combined represented nearly two thirds of the total online real estate category in September and nearly three quarters of the category on mobile only.

Average monthly unique users for the quarter grew 16 percent year-over-year to more than 164 million, reaching a seasonal high point in July with nearly 170 million unique users. Traffic to the Zillow mobile apps and website hit a new record high, while traffic to the Trulia mobile apps and website grew steadily year-over-year and contributed meaningfully to Zillow Group’s overall audience leadership. We are able to achieve these impressive audience numbers by building great products that consumers love, and then effectively marketing our brands through earned and paid media. This growth is a testament to our product, engineering and marketing teams’ excellence.

Turning to our Premier Agent marketplace, revenue grew 33 percent year-over-year. The nation’s best real estate agents – those who convert leads at high rates – are gaining transaction share in their respective markets as a result of advertising on Zillow Group’s platform. Our Premier Agent program provides our advertisers with a tremendous opportunity to grow their business in the form of high quality leads connected with software. During the third quarter, we delivered 4.6 million leads to Premier Agent advertisers across our brands’ mobile apps and websites. This was an increase of nearly 40 percent year-over-year. As a reminder, the growth rate of leads is expected to normalize in 2017 when we begin comparisons to greater lead volume resulting from Trulia’s traffic improvement in early 2016. That said, we expect the growth rate in leads will continue to be greater than the growth rate of unique users in the near term.

We recently announced the launch of exciting new features to our Premier Agent platform that will drive even more leads to our advertisers. In October, we launched our Seller Boost program, which is an ad product that connects Premier Agents with prospective home-sellers from Zillow and Trulia. Additionally, we launched the Premier Agent Direct program, which promotes our Premier Agent advertisers on Facebook. Buying ads on Facebook using Zillow Group’s precision targeting allows real estate agents, teams or brokerages to expand the audience to whom they advertise through our simple platform.

Meanwhile, we continue to invest heavily in our Premier Agent app, adding important functionality for our advertisers with the goal of improving their lead conversion. Recent features include better lead routing and lead ingestion from other lead sources. The free Premier Agent app is rapidly becoming a full-featured business management platform which can handle all of an agent’s, team’s, or broker’s workflow. We have also started to roll out our self-serve account interface to Premier Agents nationally, with a goal of completing the rollout by the end of the year.

After testing, and based on feedback and data from our advertisers, we now provide account management tools that enable our advertisers to independently control their budgets and impression buys. This flexibility and control strengthens our partnership with Premier Agents and facilitates their growth on our platform. This transition introduces some uncertainty in the near-term in regard to Premier Agent revenue, and we have incorporated sensitivity for this into our outlook for Q4.

We recently modified and extended our Premier Agent program to accommodate brokers’ needs. The Premier Broker program allows brokers to purchase impressions and route leads to agents at their firms. We provide brokers with a tool to monitor performance of their agents through our Premier Agent app platform to ensure that leads are responded to within a reasonable timeframe. Including brokerages as Premier advertisers brings additional advertiser liquidity into our marketplace, provides consumers with better service, and improves our overall partnership with the brokerage community.

Turning now to our third strategic priority — growing our emerging marketplaces including rentals, mortgages and New York City. We’ve been very successful here, and each of these emerging marketplaces is growing even faster than our core Premier Agent business. These newer marketplaces together will bring in annual revenue this year that’s nearly three times larger than all of Zillow at our IPO five years ago.

Our Mortgages marketplace once again performed very well in the third quarter. Revenue grew 57 percent year-over-year and we are on track to exceed $70 million for the full year. In the third quarter, we completely overhauled the lender directory and the Mortgages ratings and reviews platform. Enterprises and individual loan officers now have more flexibility in managing the presentation of their profiles with consumer feedback on our mobile apps and websites, which is a big win for consumers and our lender partners.

Our Rentals marketplace once again experienced year-over-year revenue growth that exceeded 100 percent for the third quarter. According to comScore, the Zillow Group brands of Zillow, Trulia and Hotpads are now three of the top four brands in the rental category.

In addition to Premier Agent Direct, we launched a similar partnership with Facebook for rentals, which enables our multi-family advertisers to buy Facebook ads through us using our precision targeting. Our New York City marketplace continues to grow rapidly across both of our New York brands — StreetEasy and Naked Apartments. These platforms provide New York home shoppers and their real estate agents with accurate for-sale and for-rent listings from thousands of landlords and real estate brokerages throughout New York City. StreetEasy is testing a new lead product for open rentals, which are apartments marketed by multiple agents.

Representing the first integration between the StreetEasy and Naked Apartments teams, this product brings new inventory to StreetEasy, creating a more comprehensive search experience of available New York apartments. It also helps agents connect with StreetEasy’s unparalleled audience of New York renters. Both brands continue to generate significant PR in New York City, with StreetEasy positioned as the media’s primary resource for New York real estate information.

Our fourth strategic priority – which is crucial to the success of everything we do here at Zillow Group – is attracting and retaining the best talent while maintaining our unique company culture focused on innovation. Our people and culture are key competitive advantages. We strongly believe that great people build great products, which in turn attract audience. We dedicate significant resources and focus at Zillow Group toward creating an environment in which our more than 2,600 employees can do their best work. I am thrilled to say that Zillow Group employees continue to positively rate their experience working here in our regular anonymous surveys. In addition, I’m proud to report that Trulia employee reviews on Glassdoor are now at their highest level since the merger with Zillow, highlighting a successful integration. This positive feedback supports our efforts in attracting the best talent to Zillow Group so we can continue innovating in the online real estate media

I’d like to extend my sincere thanks to all of Zillow Group’s hard working employees for contributing to our ongoing success.

Now, turning to our outlook for the year: We are raising our full-year 2016 revenue outlook range to $837 to $842 million and our EBITDA outlook range to $136 to $141 million, excluding the litigation settlement charge from last quarter. We are in growth mode and focused on our long-term strategy to drive audience and revenue growth along with steady margin expansion. Our long-term target of more than 40 percent EBITDA margin at scale remains intact.

As we approach 2017, we remain focused on growing our audience across all Zillow Group brands and delivering more high-quality leads to advertisers. To do this, we are investing heavily in our products – tools like dotloop and our Premier Agent app – to improve lead conversion and improve the efficiency of Premier Agents. As part of our disciplined approach to grow through investment, we will continue to deliver steady margin expansion over time. We will discuss our 2017 outlook further when we finalize our annual plan and report our full year 2016 results next year. Agents and homebuilders are spending nearly $11 billion annually on advertising and the portion of that dedicated to online and mobile advertising increases each year. In addition, our emerging marketplaces – Mortgages, Rentals and New York City – represent several billion more in online advertising spending that we’ve just begun to address. With that in mind, we are very excited about the future for Zillow Group. I will now turn it over to Kathleen.

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