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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-Q
_____________________________________________________
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36853
 
_____________________________________________________
ZILLOW GROUP, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________
Washington47-1645716
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
                    
1301 Second Avenue, Floor 31,
Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
(206) 470-7000
(Registrant’s telephone number, including area code)
 _____________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareZGThe Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per shareZThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of July 29, 2021, 61,349,554 shares of Class A common stock, 6,217,447 shares of Class B common stock, and 185,989,162 shares of Class C capital stock were outstanding.



ZILLOW GROUP, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended June 30, 2021
TABLE OF CONTENTS
 
i

As used in this Quarterly Report on Form 10-Q, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the year ended December 31, 2020, including, but not limited to:
the impact of the COVID-19 pandemic (including variants) or other public health crises and any associated economic downturn on our future financial position, operations and financial performance;
the magnitude, duration and severity of the COVID-19 pandemic and the availability and widespread distribution and use of effective vaccines;
the impact of actions taken by governments, businesses and individuals in response to the COVID-19 pandemic, including changes in laws or regulations that limit our ability to operate;
the current and future health and stability of the economy, financial conditions and residential housing market, including any extended slowdown in the real estate markets as a result of the COVID-19 pandemic;
changes in laws or regulations applicable to our business, employees, products or services, including current and future laws, regulations and orders that limit our ability to operate in light of the COVID-19 pandemic;
the satisfaction of conditions precedent to the closing of Zillow Group’s proposed acquisition of ShowingTime.com, Inc., including expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act or Zillow Group’s timing agreement with ShowingTime.com, Inc. and the U.S. Federal Trade Commission;
changes in general economic and financial conditions that reduce demand for our products and services, lower our profitability or reduce our access to credit;
actual or anticipated fluctuations in our financial condition and results of operations;
changes in projected operational and financial results;
addition or loss of significant customers;
actual or anticipated changes in our growth rate relative to that of our competitors;
acquisitions, strategic partnerships, joint ventures, capital-raising activities or other corporate transactions or commitments by us or our competitors;
actual or anticipated changes in technology, products, markets or services by us or our competitors;
ability to obtain or maintain licenses and permits to support our current and future businesses;
ability to comply with MLS rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers;
ability to operate our mortgage originations business, including the ability to obtain sufficient financing;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
the impact of natural disasters and other catastrophic events;
the impact of pending or future litigation; and
issuance of new or updated research or reports by securities analysts.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
1

You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
2

WHERE YOU CAN FIND MORE INFORMATION
Our filings with the Securities and Exchange Commission, or SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, are available on the “Investors” section of our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC.
Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters and for complying with its disclosure obligations under Regulation FD:
Zillow Group Investor Relations Webpage (http://investors.zillowgroup.com)
Zillow Group Investor Relations Blog (http://www.zillowgroup.com/ir-blog)
Zillow Group Twitter Account (https://twitter.com/zillowgroup)
The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC, and the inclusion of our website addresses and Twitter account are as inactive textual references only.
3

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
June 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$3,713,156 $1,703,130 
Short-term investments
880,875 2,218,108 
Accounts receivable, net of allowance for doubtful accounts of $3,955 and $3,427 at June 30, 2021 and December 31, 2020, respectively
101,927 69,940 
Mortgage loans held for sale171,450 330,758 
Inventory1,169,601 491,293 
Prepaid expenses and other current assets107,687 75,846 
Restricted cash141,024 75,805 
Total current assets6,285,720 4,964,880 
Contract cost assets47,938 50,719 
Property and equipment, net189,950 196,152 
Right of use assets175,058 187,960 
Goodwill1,984,907 1,984,907 
Intangible assets, net81,362 94,767 
Other assets10,486 7,175 
Total assets$8,775,421 $7,486,560 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$15,640 $18,974 
Accrued expenses and other current liabilities175,876 94,487 
Accrued compensation and benefits55,564 47,666 
Borrowings under credit facilities987,832 670,209 
Deferred revenue53,547 48,995 
Lease liabilities, current portion27,963 28,310 
Convertible senior notes, current portion330,095  
Total current liabilities1,646,517 908,641 
Lease liabilities, net of current portion193,891 207,723 
Convertible senior notes, net of current portion1,276,487 1,613,523 
Other long-term liabilities14,411 14,857 
Total liabilities3,131,306 2,744,744 
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock, $0.0001 par value; 30,000,000 shares authorized; no shares issued and outstanding
  
Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized; 61,349,434 and 61,101,303 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
6 6 
Class B common stock, $0.0001 par value; 15,000,000 shares authorized; 6,217,447 shares issued and outstanding
1 1 
Class C capital stock, $0.0001 par value; 600,000,000 shares authorized; 181,296,050 and 173,207,170 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
18 17 
Additional paid-in capital6,721,435 5,880,883 
Accumulated other comprehensive income305 164 
Accumulated deficit(1,077,650)(1,139,255)
Total shareholders’ equity5,644,115 4,741,816 
Total liabilities and shareholders’ equity$8,775,421 $7,486,560 
See accompanying notes to the condensed consolidated financial statements.
4

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data, unaudited)

 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Revenue:
Homes$777,145 $454,252 $1,481,297 $1,224,125 
IMT476,090 280,339 922,418 611,005 
Mortgages56,745 33,761 124,705 59,043 
Total revenue1,309,980 768,352 2,528,420 1,894,173 
Cost of revenue:
Homes 707,522 434,900 1,352,125 1,170,659 
IMT43,444 45,354 90,481 95,407 
Mortgages20,619 7,229 40,299 13,815 
Total cost of revenue771,585 487,483 1,482,905 1,279,881 
Gross profit538,395 280,869 1,045,515 614,292 
Operating expenses:
Sales and marketing229,434 160,667 427,389 369,111 
Technology and development128,463 97,507 248,764 197,988 
General and administrative115,102 85,380 215,556 177,580 
Impairment costs   76,800 
Acquisition-related costs3,671  4,488  
Total operating expenses476,670 343,554 896,197 821,479 
Income (loss) from operations
61,725 (62,685)149,318 (207,187)
Gain (loss) on extinguishment of debt
(931)6,391 (2,334)6,391 
Other income1,587 10,115 4,026 19,708 
Interest expense(39,430)(37,590)(78,985)(75,182)
Income (loss) before income taxes22,951 (83,769)72,025 (256,270)
Income tax benefit (expense)(13,310)(679)(10,420)8,549 
Net income (loss)$9,641 $(84,448)$61,605 $(247,721)
Net income (loss) per share:
Basic$0.04 $(0.38)$0.25 $(1.15)
Diluted$0.04 $(0.38)$0.24 $(1.15)
Weighted-average shares outstanding:
Basic248,152 219,467 245,763 215,070 
Diluted261,496 219,467 260,484 215,070 
See accompanying notes to the condensed consolidated financial statements.

5

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)

 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net income (loss)$9,641 $(84,448)$61,605 $(247,721)
Other comprehensive income (loss):
Unrealized gains (losses) on investments(178)(2,806)83 796 
Reclassification adjustment for net investment (gains) losses included in net loss (62) 372 
Net unrealized gains (losses) on investments(178)(2,868)83 1,168 
Currency translation adjustments29 107 58 17 
Total other comprehensive income (loss)(149)(2,761)141 1,185 
Comprehensive income (loss)
$9,492 $(87,209)$61,746 $(246,536)
See accompanying notes to the condensed consolidated financial statements.
6

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data, unaudited)

Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
SharesAmount
Balance at April 1, 2021247,307,862 $25 $6,596,850 $(1,087,291)$454 $5,510,038 
Issuance of common and capital stock upon exercise of stock options388,564 — 14,536 — — 14,536 
Vesting of restricted stock units779,093 — — — — — 
Restricted stock units withheld for tax liability(19)— (2)— — (2)
Share-based compensation expense— — 93,347 — — 93,347 
Settlement of convertible senior notes387,431 — 16,704 — — 16,704 
Net income— — — 9,641 — 9,641 
Other comprehensive loss— — — — (149)(149)
Balance at June 30, 2021248,862,931 $25 $6,721,435 $(1,077,650)$305 $5,644,115 

Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
SharesAmount
Balance at April 1, 2020212,913,139 $22 $4,551,866 $(1,140,413)$4,286 $3,415,761 
Issuance of common and capital stock upon exercise of stock options3,117,483 — 92,783 — — 92,783 
Vesting of restricted stock units775,249 — — — — — 
Restricted stock units withheld for tax liability(6)— — — — — 
Share-based compensation expense— — 57,171 — — 57,171 
Issuance of Class C capital stock in connection with equity offering, net of issuance costs8,800,000 1 411,522 — — 411,523 
Equity component of issuance of convertible senior notes maturing in 2025, net of issuance costs— — 154,813 — — 154,813 
Settlement of convertible senior notes753,936 — (21,784)— — (21,784)
Unwind of capped call transactions(317,865)— — — — — 
Net loss— — — (84,448)— (84,448)
Other comprehensive loss— — — — (2,761)(2,761)
Balance at June 30, 2020226,041,936 $23 $5,246,371 $(1,224,861)$1,525 $4,023,058 

7

Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
SharesAmount
Balance at January 1, 2021240,525,920 $24 $5,880,883 $(1,139,255)$164 $4,741,816 
Issuance of common and capital stock upon exercise of stock options1,991,460 — 75,685 — — 75,685 
Vesting of restricted stock units1,592,564 — — — — — 
Restricted stock units withheld for tax liability(641)— (126)— — (126)
Share-based compensation expense— — 160,733 — — 160,733 
Issuance of Class C capital stock in connection with equity offering, net of issuance costs3,163,502 1 544,557 — — 544,558 
Settlement of convertible senior notes1,590,151 — 59,703 — — 59,703 
Unwind of capped call transactions(25)— — — — — 
Net income— — — 61,605 — 61,605 
Other comprehensive income— — — — 141 141 
Balance at June 30, 2021248,862,931 $25 $6,721,435 $(1,077,650)$305 $5,644,115 

Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
SharesAmount
Balance at January 1, 2020209,066,855 $21 $4,412,200 $(977,140)$340 $3,435,421 
Issuance of common and capital stock upon exercise of stock options6,324,858 1 184,984 — — 184,985 
Vesting of restricted stock units1,414,158 — — — — — 
Restricted stock units withheld for tax liability(6)— — — —  
Share-based compensation expense— — 104,636 — — 104,636 
Issuance of Class C capital stock in connection with equity offering, net of issuance costs8,800,000 1 411,522 — — 411,523 
Equity component of issuance of convertible senior notes maturing in 2025, net of issuance costs— — 154,813 — — 154,813 
Settlement of convertible senior notes753,936 — (21,784)— — (21,784)
Unwind of capped call transactions(317,865)— — — — — 
Net loss— — — (247,721)— (247,721)
Other comprehensive income— — — — 1,185 1,185 
Balance at June 30, 2020226,041,936 $23 $5,246,371 $(1,224,861)$1,525 $4,023,058 
See accompanying notes to the condensed consolidated financial statements.

8

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 Six Months Ended
June 30,
 20212020
Operating activities
Net income (loss)
$61,605 $(247,721)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization57,882 55,199 
Share-based compensation152,068 96,146 
Amortization of right of use assets12,902 12,731 
Amortization of contract cost assets20,188 17,070 
Amortization of debt discount and debt issuance costs50,372 47,746 
Loss (gain) on extinguishment of debt2,334 (6,391)
Impairment costs 76,800 
Deferred income taxes (8,549)
Other adjustments to reconcile net income (loss) to cash provided by (used in) operating activities 8,271 (975)
Changes in operating assets and liabilities:
Accounts receivable(32,811)(1,487)
Mortgage loans held for sale159,308 (38,514)
Inventory(677,746)701,145 
Prepaid expenses and other assets(35,788)(771)
Contract cost assets(17,407)(19,608)
Lease liabilities(14,179)(495)
Accounts payable2,676 7,504 
Accrued expenses and other current liabilities80,819 (8,741)
Accrued compensation and benefits7,898 (3,285)
Deferred revenue4,552 4,767 
Other long-term liabilities(446)10,049 
Net cash provided by (used in) operating activities(157,502)692,620 
Investing activities
Proceeds from maturities of investments1,329,552 701,266 
Proceeds from sales of investments 116,394 
Purchases of investments (1,026,233)
Purchases of property and equipment(24,137)(54,653)
Purchases of intangible assets(10,407)(11,408)
Proceeds from sale of equity investment 10,000 
Net cash provided by (used in) investing activities1,295,008 (264,634)
Financing activities
Proceeds from issuance of convertible senior notes, net of issuance costs 553,282 
Proceeds from issuance of Class C capital stock, net of issuance costs544,557 411,522 
Proceeds from borrowings on credit facilities610,118 43,200 
Repayments of borrowings on credit facilities(146,839)(617,506)
Net borrowings (repayments) on warehouse line of credit and repurchase agreements(145,656)39,387 
Repurchase of convertible senior notes (194,670)
Proceeds from exercise of stock options75,685 184,984 
Value of equity awards withheld for tax liability(126) 
Net cash provided by financing activities937,739 420,199 
Net increase in cash, cash equivalents and restricted cash during period2,075,245 848,185 
Cash, cash equivalents and restricted cash at beginning of period1,778,935 1,230,909 
Cash, cash equivalents and restricted cash at end of period$3,854,180 $2,079,094 
Supplemental disclosures of cash flow information
Cash paid for interest$27,773 $29,201 
Noncash transactions:
Capitalized share-based compensation$8,665 $8,490 
Write-off of fully depreciated property and equipment$24,345 $6,942 
Write-off of fully amortized intangible assets$3,782 $ 
Property and equipment purchased on account$1,352 $5,305 
See accompanying notes to the condensed consolidated financial statements.
9

ZILLOW GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Description of Business
Zillow Group, Inc. is reimagining real estate to make it easier to unlock life’s next chapter. As the most visited real estate website in the United States, Zillow and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and nearly seamless end-to-end service. Zillow Offers buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase. In September 2020, Zillow launched Zillow Homes, Inc., a licensed brokerage entity, to streamline Zillow Offers transactions.
Other consumer brands include Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions which include Mortech, dotloop, Bridge Interactive and New Home Feed. Zillow, Inc. was incorporated as a Washington corporation in December 2004, and we launched the initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia, Inc. (“Trulia”), and upon the closing of the Trulia acquisition in February 2015, each of Zillow, Inc. and Trulia became wholly owned subsidiaries of Zillow Group, Inc.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, we believe that changes in any of the following areas could have a significant negative effect on us in terms of our future financial position, results of operations or cash flows: public health crises, like the COVID-19 pandemic (including variants) and the availability and widespread distribution and use of effective vaccines; rates of revenue growth; our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; the satisfaction of conditions precedent to the closing of our proposed acquisition of ShowingTime.com, Inc., including expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act or Zillow Group’s timing agreement with ShowingTime.com, Inc. and the U.S. Federal Trade Commission; our ability to manage advertising inventory or pricing; engagement and usage of our products; our investment of resources to pursue strategies that may not prove effective; competition in our markets; the stability of the residential real estate market and the impact of interest rate changes; changes in technology, products, markets or services by us or our competitors; addition or loss of significant customers; our ability to maintain or establish relationships with listings and data providers; our ability to obtain or maintain licenses and permits to support our current and future businesses; actual or anticipated changes to our products and services; changes in government regulation affecting our business; outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; management of our growth; our ability to attract and retain qualified employees and key personnel; protection of customers’ information and other privacy concerns; protection of our brand and intellectual property; and intellectual property infringement and other claims, among other things.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include Zillow Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in Zillow Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 12, 2021. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.
10

The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of June 30, 2021 and our results of operations, comprehensive income (loss) and shareholders’ equity for the three and six month periods ended June 30, 2021 and 2020, and our cash flows for the six month periods ended June 30, 2021 and 2020. The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any interim period or for any other future year.
Reclassifications
Certain reclassifications have been made in the condensed consolidated statements of operations to conform data for prior periods to the current format. Beginning with the three and six month periods ended June 30, 2021, we present a gross profit subtotal in our condensed consolidated statements of operations, which requires certain depreciation expense and amortization expense to be included within cost of revenue. We believe the presentation of gross profit is preferable as it facilitates investors’ ability to model across our segments and enhances comparability with our public company peers. To effect the presentation of gross profit, we present the amortization expense for certain intangible assets and data acquisition costs within cost of revenue and have reclassified certain amounts in prior periods in the condensed consolidated statements of operations from technology and development expenses to cost of revenue. Additionally, we reclassified the amortization expense for trade names and trademarks and customer relationship intangible assets from technology and development expenses to sales and marketing expenses. This change has no impact on income (loss) from operations or net income (loss).
Amounts previously reported in the condensed consolidated statements of operations for the periods presented were revised herein as shown below (in thousands):
Three Months Ended
June 30, 2020
Six Months Ended
June 30, 2020
 As ReportedAs RevisedEffect of ChangeAs ReportedAs RevisedEffect of Change
Cost of revenue:
Homes $431,788 $434,900 $3,112 $1,163,987 $1,170,659 $6,672 
IMT23,387 45,354 21,967 47,705 95,407 47,702 
Mortgages5,896 7,229 1,333 11,051 13,815 2,764 
Total cost of revenue461,071 487,483 26,412 1,222,743 1,279,881 57,138 
Operating expenses:
Sales and marketing155,598 160,667 5,069 360,246 369,111 8,865 
Technology and development128,857 97,507 (31,350)263,775 197,988 (65,787)
General and administrative85,511 85,380 (131)177,796 177,580 (216)
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to the accounting for certain revenue offerings, the net realizable value of inventory, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets, share-based compensation, income taxes, business combinations and the recoverability of goodwill, among others. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The COVID-19 pandemic has introduced additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the estimates previously listed, among others.
Recently Issued Accounting Standards Not Yet Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, the guidance removes the liability and equity separation models for convertible instruments. Instead, entities will account for convertible debt instruments wholly as debt unless convertible instruments contain features that require bifurcation as a derivative or that result in substantial premiums accounted for as paid-in capital. The guidance also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a retrospective or modified retrospective basis. We expect to adopt this guidance on January 1, 2022. Although we continue to evaluate the method of adoption and impact of this guidance on our financial position and results of operations, upon adoption we expect this guidance to result in a reclassification of conversion feature balances from additional paid-in capital to debt and to decrease reported interest expense for our convertible senior notes.
In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. This guidance is effective from March 12, 2020 through December 31, 2022. Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We expect to apply some of the expedients and exceptions provided in this guidance to our credit facilities, warehouse line of credit and master repurchase agreements, all of which reference the one-month LIBOR in the applicable interest rate, as publication of the one-month LIBOR is expected to cease after June 30, 2023. We expect to amend our facility agreements prior to that date. As the goal of the reference rate reform transition is for it to be economically neutral to entities, we do not believe the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.
Note 3. Fair Value Measurements
We apply the following methods and assumptions in estimating our fair value measurements:
Cash equivalents — The fair value measurement of money market funds is based on quoted market prices in active markets (Level 1). The fair value measurement of other cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).
Short-term investments — The fair value measurement of our short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means (Level 2).
Restricted cash — The carrying value of restricted cash approximates fair value due to the short period of time amounts are borrowed on our credit facilities, home sales proceeds are held in restricted accounts for repayment of our credit facilities and amounts are held in escrow (Level 1).
Mortgage loans held for sale — The fair value of mortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).
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Interest rate lock commitments — The fair value of interest rate lock commitments (“IRLCs”) is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an interest rate lock commitment will ultimately result in a closed loan (Level 3).
The following table presents the range and weighted-average pull-through rates used in determining the fair value of IRLCs as of the dates presented:
June 30, 2021December 31, 2020
Range
47% - 100%
47% - 100%
Weighted-average79%75%
Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments is calculated by reference to quoted prices for similar assets (Level 2).
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands):
 June 30, 2021
TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$3,494,642 $3,494,642 $ $ 
Short-term investments:
U.S. government agency securities829,925  829,925  
Treasury bills44,988  44,988  
Municipal securities5,962  5,962  
Mortgage origination-related:
Mortgage loans held for sale171,450  171,450  
IRLCs6,413   6,413 
Forward contracts - other current assets69  69  
Forward contracts - other current liabilities(686) (686) 
        Total$4,552,763 $3,494,642 $1,051,708 $6,413 
 December 31, 2020
 TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$1,486,384 $1,486,384 $ $ 
Municipal securities3,228  3,228  
Short-term investments:
Treasury bills1,163,813  1,163,813  
U.S. government agency securities1,037,577  1,037,577  
Municipal securities16,220