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 March 31, 2023

☐ 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)

_____________________________________________________

Washington	47-1645716
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	ZG	The Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per share	Z	The 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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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 April 26, 2023, 57,181,148 shares of Class A common stock, 6,217,447 shares of Class B common stock and 170,619,796 shares of Class C capital stock were outstanding.

Table of Contents

ZILLOW GROUP, INC.

Quarterly Report on Form 10-Q

For the Three Months Ended March 31, 2023

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	42
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
	Signatures	47

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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 fiscal year ended December 31, 2022, including, but not limited to risks related to:

•the current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues;

•our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners;

•our ability to establish or maintain relationships with listing and data providers, which affects traffic to our mobile applications and websites;

•our ability to comply with current and future multiple listing service (“MLS”) rules and requirements;

•our ability to continue to innovate and compete successfully to attract customers and real estate partners;

•our ability to operate and grow Zillow Home Loans, our mortgage origination business, including the ability to obtain or maintain sufficient financing to fund its origination of mortgages, meet customers’ financing needs with its product offerings, continue to grow the origination business and resell originated mortgages on the secondary market;

•the duration and impact of natural disasters and other catastrophic events (including public health crises) on our ability to operate, demand for our products or services, or general economic conditions;

•our ability to maintain adequate security measures or technology systems, or those of third parties on which we rely, to protect data integrity and the information and privacy of our customers and other third parties;

•the impact of pending or future litigation and other disputes or enforcement actions;

•our ability to attract and retain a highly skilled workforce;

•acquisitions, investments, strategic partnerships, capital-raising activities, or other corporate transactions or commitments by us or our competitors;

•our ability to continue relying on third-party services to support critical functions of our business;

•our ability to protect and continue using our intellectual property and prevent others from copying, infringing upon, or developing similar intellectual property;

•our ability to comply with domestic and international laws, regulations, rules, contractual obligations, policies and other obligations, or to obtain or maintain required licenses to support our business and operations;

•our ability to pay debt, settle conversions of our convertible senior notes, or repurchase our convertible senior notes upon a fundamental change;

•our ability to raise additional capital or refinance on acceptable terms, or at all;

•actual or anticipated fluctuations in quarterly and annual results of operations and financial position;

•the assumptions, estimates and internal or third-party data that we use to calculate business, performance and operating metrics; and

•volatility of our Class A common stock and Class C capital stock prices.

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.

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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.

In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

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WHERE YOU CAN FIND MORE INFORMATION

Our filings with the Securities and Exchange Commission (“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 (https://investors.zillowgroup.com)

•Zillow Group Blog (https://www.zillowgroup.com/news/)

•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 and reflects current updated channels as of the date of this Quarterly Report on Form 10-Q. 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.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data, unaudited)

	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,394	$	1,466
Short-term investments	1,975		1,896
Accounts receivable, net of allowance for doubtful accounts	75		72
Mortgage loans held for sale	48		41
Prepaid expenses and other current assets	152		126
Restricted cash	2		2
Total current assets	3,646		3,603
Contract cost assets	23		23
Property and equipment, net	290		271
Right of use assets	114		126
Goodwill	2,374		2,374
Intangible assets, net	154		154
Other assets	13		12
Total assets	$	6,614	$	6,563
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	21	$	20
Accrued expenses and other current liabilities	101		90
Accrued compensation and benefits	45		48
Borrowings under credit facilities	42		37
Deferred revenue	49		44
Lease liabilities, current portion	29		31
Total current liabilities	287		270
Lease liabilities, net of current portion	133		139
Convertible senior notes	1,661		1,660
Other long-term liabilities	13		12
Total liabilities	2,094		2,081
Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred stock, $0.0001 par value; authorized — 30,000,000 shares; no shares issued and outstanding	—		—
Class A common stock, $0.0001 par value; authorized — 1,245,000,000 shares; issued and outstanding — 57,181,148 and 57,494,698 shares as of March 31, 2023 and December 31, 2022, respectively	—		—
Class B common stock, $0.0001 par value; authorized — 15,000,000 shares; issued and outstanding — 6,217,447 shares	—		—
Class C capital stock, $0.0001 par value; authorized — 600,000,000 shares; issued and outstanding — 170,595,563 and 170,555,565 shares as of March 31, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	6,157		6,109
Accumulated other comprehensive loss	(3)		(15)
Accumulated deficit	(1,634)		(1,612)
Total shareholders’ equity	4,520		4,482
Total liabilities and shareholders’ equity	$	6,614	$	6,563

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except share data, which are presented in thousands, and per share data, unaudited)

	Three Months Ended March 31,
	2023		2022
Revenue	$	469	$	536
Cost of revenue	92		92
Gross profit	377		444
Operating expenses:
Sales and marketing	156		174
Technology and development	137		108
General and administrative	123		112
Impairment and restructuring costs	6		14
Total operating expenses	422		408
Income (loss) from continuing operations	(45)		36
Other income	32		2
Interest expense	(9)		(8)
Income (loss) from continuing operations before income taxes	(22)		30
Income tax expense	—		(5)
Net income (loss) from continuing operations	(22)		25
Net loss from discontinued operations, net of income taxes	—		(9)
Net income (loss)	$	(22)	$	16
Net income (loss) from continuing operations per share:
Basic	$	(0.09)	$	0.10
Diluted	$	(0.09)	$	0.10
Net income (loss) per share:
Basic	$	(0.09)	$	0.06
Diluted	$	(0.09)	$	0.06
Weighted-average shares outstanding:
Basic	234,425		248,542
Diluted	234,425		265,945

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, unaudited)

	Three Months Ended March 31,
	2023		2022
Net income (loss)	$	(22)	$	16
Other comprehensive income (loss):
Unrealized gains (losses) on investments	12		(8)
Total other comprehensive income (loss)	12		(8)
Comprehensive income (loss)	$	(10)	$	8

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions, except share data, which are presented in thousands, unaudited)

	Class A Common Stock, Class B Common Stock and Class C Capital Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance at January 1, 2023	234,268	$	—	$	6,109	$	(1,612)	$	(15)	$	4,482
Issuance of common and capital stock upon exercise of stock options	373	—		13		—		—		13
Vesting of restricted stock units	1,365	—		—		—		—		—
Share-based compensation expense	—	—		121		—		—		121
Repurchases of Class A common stock and Class C capital stock	(2,012)	—		(86)		—		—		(86)
Net loss	—	—		—		(22)		—		(22)
Other comprehensive income	—	—		—		—		12		12
Balance at March 31, 2023	233,994	$	—	$	6,157	$	(1,634)	$	(3)	$	4,520

	Class A Common Stock, Class B Common Stock and Class C Capital Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Shares	Amount
Balance at January 1, 2022	250,630	$	—	$	7,001	$	(1,667)	$	7	$	5,341
Cumulative-effect adjustment from adoption of guidance on accounting for convertible instruments and contracts in an entity’s own equity	—	—		(492)		156		—		(336)
Issuance of common and capital stock upon exercise of stock options	807	—		36		—		—		36
Vesting of restricted stock units	689	—		—		—		—		—
Share-based compensation expense	—	—		101		—		—		101
Repurchases of Class A common stock and Class C capital stock	(5,858)	—		(348)		—		—		(348)
Net income	—	—		—		16		—		16
Other comprehensive loss	—	—		—		—		(8)		(8)
Balance at March 31, 2022	246,268	$	—	$	6,298	$	(1,495)	$	(1)	$	4,802

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)

	Three Months Ended March 31,
	2023		2022
Operating activities
Net income (loss)	$	(22)	$	16
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	40		43
Share-based compensation	103		91
Amortization of right of use assets	6		6
Amortization of contract cost assets	6		8
Amortization of debt discount and debt issuance costs	1		23
Loss on extinguishment of debt	—		14
Other adjustments to reconcile net income (loss) to cash provided by operating activities	(2)		2
Changes in operating assets and liabilities:
Accounts receivable	(3)		56
Mortgage loans held for sale	(7)		14
Inventory	—		3,414
Prepaid expenses and other assets	(27)		(247)
Contract cost assets	(6)		(4)
Lease liabilities	(8)		(9)
Accounts payable	—		6
Accrued expenses and other current liabilities	10		(43)
Accrued compensation and benefits	(3)		(6)
Deferred revenue	5		5
Other long-term liabilities	—		3
Net cash provided by operating activities	93		3,392
Investing activities
Proceeds from maturities of investments	433		—
Purchases of investments	(490)		(525)
Purchases of property and equipment	(31)		(33)
Purchases of intangible assets	(9)		(5)
Net cash used in investing activities	(97)		(563)
Financing activities
Repayments of borrowings on credit facilities	—		(2,205)
Net borrowings (repayments) on warehouse line of credit and repurchase agreements	5		(25)
Repurchases of Class A common stock and Class C capital stock	(86)		(348)
Settlement of long-term debt	—		(439)
Proceeds from exercise of stock options	13		36
Net cash used in financing activities	(68)		(2,981)
Net decrease in cash, cash equivalents and restricted cash during period	(72)		(152)
Cash, cash equivalents and restricted cash at beginning of period	1,468		2,838
Cash, cash equivalents and restricted cash at end of period	$	1,396	$	2,686
Supplemental disclosures of cash flow information
Noncash transactions:
Capitalized share-based compensation	$	18	$	10
Write-off of fully depreciated property and equipment	7		18
Write-off of fully amortized intangible assets	2		168
Recognition of operating right of use assets and lease liabilities	—		16

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Index to Notes to Condensed Consolidated Financial Statements

 

		Page
Note 1.	Organization and Description of Business	9
Note 2.	Summary of Significant Accounting Policies	10
Note 3.	Discontinued Operations	14
Note 4.	Fair Value Measurements	15
Note 5.	Cash and Cash Equivalents, Investments and Restricted Cash	17
Note 6.	Property and Equipment, net	17
Note 7.	Intangible Assets, net	18
Note 8.	Debt	18
Note 9.	Income Taxes	20
Note 10.	Share Repurchase Authorizations	21
Note 11.	Share-Based Awards	22
Note 12.	Net Income (Loss) Per Share	23
Note 13.	Commitments and Contingencies	24
Note 14.	Revenue and Contract Balances	27

Note 1. Organization and Description of Business

Zillow Group is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, great partners, and easier buying, selling financing and renting experiences.

Our portfolio of affiliates, subsidiaries and brands includes Zillow, Zillow Premier Agent, Zillow Home Loans (our affiliate lender), Zillow Closing Services, Zillow Rentals, Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions for the real estate industry which include Mortech, New Home Feed and ShowingTime+, which includes ShowingTime, Bridge Interactive and dotloop.

In the fourth quarter of 2021, we began to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in markets across the country. The wind down was completed in the third quarter of 2022, and we have presented the financial results of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three months ended March 31, 2022. No assets or liabilities were classified as discontinued operations as of December 31, 2022. See Note 3 for additional information.

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: current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues; our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners; our compliance with multiple listing service rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers; our investment of resources to pursue strategies and develop new products and services that may not prove effective or that are not attractive for customers and real estate partners or that do not allow us to compete successfully; our ability to operate and grow Zillow Home Loans, our mortgage origination business, including the ability to obtain or maintain sufficient financing and resell originated mortgages on the secondary market; the duration and impact of natural disasters and other catastrophic events (including public health crises) on our ability to operate, demand for our products or services or general economic conditions; outcomes of legal proceedings; our ability to attract and retain a highly skilled workforce; protection of Zillow’s information and systems against security breaches or disruptions in

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operations; reliance on third-party services to support critical functions of our business; protection of our brand and intellectual property; and changes in laws or government regulation affecting our business, 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 United States 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 fiscal year ended December 31, 2022, which was filed with the SEC on February 15, 2023. The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.

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 March 31, 2023 and our results of operations, comprehensive loss, shareholders’ equity and cash flows for the three month periods ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any interim period, or for any other future year. Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Unless indicated otherwise, the information in the Notes to Condensed Consolidated Financial Statements relates to the Company’s continuing operations and does not include the results of discontinued operations.

There were no significant changes to the significant accounting policies disclosed in Note 2 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except for the updates noted below. Such updates were made due to our determination that we have a single operating and reportable segment, as well as certain changes to how we disaggregate our revenue into categories, beginning in the first quarter of 2023.

Recoverability of Goodwill

Goodwill is measured as the excess of consideration transferred for an acquired business over the net of the acquisition date fair values of the assets acquired and the liabilities assumed, and is not amortized. We assess the impairment of goodwill at the reporting unit level on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. In our evaluation of goodwill, we initially perform a qualitative assessment to determine whether the existence of events or circumstances indicates that it is more likely than not that the carrying value of each reporting unit is greater than its fair value. If it is more likely than not that the carrying value of a reporting unit is greater than its fair value, we perform a quantitative assessment and an impairment charge is recorded in our statements of operations if the carrying value of the reporting unit exceeds its fair value.

Beginning in 2023, our chief operating decision maker, who is our chief executive officer, manages our business, makes operating decisions and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. This aligns to our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. This resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. Accordingly, we have realigned our operating structure, resulting in a single operating and reportable segment. In line with this, the nature and substance of the information regularly provided to our segment manager similarly changed and we determined that we have only one reporting unit. Because the segment change impacted the structure of our reporting units, we performed a qualitative goodwill impairment assessment immediately before and immediately after the change in reporting units. Based on those assessments, we determined it was more likely than not that the fair value of our current and legacy reporting units exceeded their respective carrying values. Therefore, we concluded that it was not necessary to perform a quantitative impairment test.

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Revenue Recognition

We recognize revenue when or as we satisfy our performance obligations by transferring control of the promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.

As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component as the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service is generally one year or less.

We do not disclose the transaction price related to remaining performance obligations for (i) contracts with an original expected duration of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for performance completed to date. The remaining duration over which we satisfy our performance obligations is generally less than one year.

We disaggregate our revenue into the following categories: Residential, Rentals, Mortgages and Other, described below.

Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising and business technology solutions for real estate professionals through StreetEasy for-sale product offerings and ShowingTime+. Residential revenue also includes revenue from title and escrow services performed by Zillow Closing Services.

Our Premier Agent program offers a suite of marketing and technology products and services to help real estate agents and brokers achieve their advertising goals while growing and managing their businesses and brands. All Premier Agent partners receive access to a dashboard portal on our mobile application and website that provides individualized program performance analytics, our customer relationship management tool that captures detailed information about each contact made with a Premier Agent partner through our mobile and web platforms and our account management tools. The marketing and business technology products and services promised to Premier Agent partners are delivered over time, as the customer simultaneously receives and consumes the benefit of the performance obligations.

Premier Agent advertising products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Payment is received prior to the delivery of connections. Connections are delivered when consumer contact information is provided to Premier Agent partners. We do not promise any minimum or maximum number of connections to customers, but instead control when and how many connections to deliver based on a customer’s share of voice. We determine the number of connections to deliver to Premier Agent partners in each zip code using a market-based pricing method in consideration of the total amount spent by Premier Agent partners to purchase connections in the zip code during the month. This results in the delivery of connections over time in proportion to each Premier Agent partners’ share of voice. A Premier Agent partners’ share of voice in a zip code is determined by their proportional monthly prepaid spend in that zip code as a percentage of the total monthly prepaid spend of all Premier Agent partners in that zip code, and determines the proportion of consumer connections a Premier Agent partner receives. The number of connections delivered for a given spend level is dynamic - as demand for advertising in a zip code increases or decreases, the number of connections delivered to a Premier Agent partner in that zip code decreases or increases accordingly.

We primarily recognize revenue related to the Premier Agent products and services based on the monthly prepaid spend recognized on a straight-line basis during the monthly billing period over which the products and services are provided. This methodology best depicts how we satisfy our performance obligations to customers, as we continuously transfer control of the performance obligations to the customer over time. Given a Premier Agent partner typically prepays their monthly spend and the monthly spend is refunded on a pro-rata basis upon cancellation of the contract by a customer, we have determined that Premier Agent partner contracts are effectively daily contracts, and each performance obligation is satisfied over time as each day lapses. We have not allocated the transaction price to each performance obligation within our Premier Agent partner arrangements, as the amounts recognized would be the same irrespective of any allocation.

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We also offer a pay for performance pricing model called “Flex” for Premier Agent advertising services in certain markets. Flex is available to select partners alongside our legacy market-based pricing model. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads, generally within two years. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration and record revenue as performance obligations, or validated leads, are transferred. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a contract asset for our estimate of the consideration to which we will be entitled when the right to the consideration is conditional. When the right to consideration becomes unconditional, upon the close of a real estate transaction, we reclassify amounts to accounts receivable.

Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby we recognize revenue on a straight-line basis during the contractual period over which the communities are advertised on our mobile applications and websites. New construction revenue also includes revenue generated on a cost per impression basis whereby we recognize revenue as impressions are delivered to users interacting with our mobile applications and websites, which is the amount for which we have the right to invoice. Consideration for new construction products is billed in arrears.

StreetEasy for-sale revenue primarily consists of our pay for performance pricing model available in the New York City market for which agents and brokers are provided with leads at no initial cost and pay a performance referral fee only when a real estate purchase transaction is closed with one of the leads. Under the StreetEasy pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration based on the expected number of closed transactions during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for StreetEasy Experts when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the close of a real estate transaction, we reclassify amounts to accounts receivable.

Our dotloop real estate transaction management software-as-a-service solution is primarily billed in advance on a monthly basis and revenue is recognized ratably over the contract period which aligns to our satisfaction of performance obligations.

ShowingTime revenue is primarily generated by Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center revenue is primarily billed in advance on a monthly basis and recognized ratably over the contract period which aligns to our satisfaction of performance obligations.

Zillow Closing Services offers title and escrow services to home buyers and sellers, including title search procedures for title insurance policies, escrow and other closing services. Title insurance, which is recorded net of amounts remitted to third-party underwriters, and title and escrow closing fees, are recognized as revenue upon closing of the underlying real estate transaction.

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Rentals. Rentals revenue includes the sale of advertising and a suite of tools to rental professionals, landlords and other market participants under the Zillow and StreetEasy brands. Rentals revenue includes revenue generated by advertising sold to property managers, landlords and other rental professionals on a cost per lead, click, lease, listing or impression basis or for a fixed fee for certain advertising packages. We recognize revenue as leads, clicks and impressions are provided to rental professionals, or as rental listings are published on our mobile applications and websites, which is the amount for which we have the right to invoice. We recognize revenue related to our fixed fee rentals product on a straight-line basis over the contract term as the performance obligations, rental listings on our mobile applications and websites, are satisfied over time based on time elapsed. The number of leases generated through our rentals pay per lease product, Zillow Lease Connect, during the period is accounted for as variable consideration, and we estimate the amount of variable consideration based on the expected number of qualified leases secured during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of leases secured is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for Zillow Lease Connect when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the execution of a lease, we reclassify amounts to accounts receivable. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee. We recognize revenue for the rental applications product on a straight-line basis during the contractual period over which the customer has the right to access and submit the rental application.

Mortgages. Mortgages revenue primarily includes revenue generated by Zillow Home Loans, our affiliated mortgage lender, and marketing products sold to mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.

Mortgage origination revenue reflects origination fees on purchase or refinance mortgages and the corresponding sale, or expected future sale, of a loan. When an interest rate lock commitment (“IRLC”) is made to a customer, we record the expected gain on sale of the mortgage, plus the estimated earnings from the expected sale of the associated servicing rights, adjusted for a pull-through percentage (which is defined as the likelihood that an interest rate lock commitment will be originated), as revenue. Revenue from loan origination fees is recognized at the time the related purchase or refinance transactions are completed, usually upon the close of escrow and when we fund the purchase or refinance mortgage loans. Once funded, mortgage loans held for sale are recorded at fair value based on either sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loan is sold. Origination costs associated with originating mortgage loans are recognized as incurred. We sell substantially all of the mortgages we originate and the related servicing rights to third-party purchasers.

Mortgage loans are sold with limited recourse provisions, which can result in repurchases of loans previously sold to investors or payments to reimburse investors for loan losses. Based on historical experience, discussions with our mortgage purchasers, analysis of the volume of mortgages we originated and current housing and credit market conditions, we estimate and record a loss reserve for mortgage loans held in our portfolio and mortgage loans held for sale, as well as known and projected mortgage loan repurchase requests. These have historically not been significant to our financial statements.

Zillow Group operates Custom Quote and Connect through its wholly owned subsidiary, Zillow Group Marketplace, Inc., a licensed mortgage broker. For our Connect and Custom Quote cost per lead marketing products, participating qualified mortgage professionals typically make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Mortgage professionals who exhaust their initial prepayment prepay additional funds to continue to participate in the marketplace. In Zillow Group’s Connect platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information, or leads, when the consumer chooses to share their information with a lender. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. For our cost per lead mortgages products, we recognize revenue when a user contacts a mortgage professional through our mortgages platform, which is the amount for which we have the right to invoice.

Other. Other revenue includes revenue generated from display products, which consist of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites, which is the amount for which we have the right to invoice.

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Recently Issued Accounting Standards Not Yet Adopted

In June 2022, the Financial Accounting Standards Board issued guidance to improve existing measurement and disclosure requirements for equity securities that are subject to a contractual sale restriction. This guidance is effective for interim and annual periods beginning after December 15, 2023 on a prospective basis, with early adoption permitted. We expect to adopt this guidance on January 1, 2024. We have not yet determined the impact the adoption of this guidance will have on our financial position, results of operations and cash flows.

Note 3. Discontinued Operations

Zillow Offers Wind Down

In November 2021, the Board of Directors of Zillow Group (the “Board”) made the determination to wind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment, all of which led us to conclude that, despite its initial promise in earlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals going forward.

The wind down of Zillow Offers was completed in the third quarter of 2022, at which time Zillow Offers met the criteria for discontinued operations. Accordingly, we have presented the results of operations, excluding allocation of any general corporate expenses, of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three months ended March 31, 2022. No assets or liabilities were classified as discontinued operations as of December 31, 2022.

The following table presents the major classes of line items of the discontinued operations included in the condensed consolidated statements of operations for the three months ended March 31, 2022 (in millions):

Revenue	$	3,721
Cost of revenue	3,530
Gross profit	191
Operating expenses:
Sales and marketing	133
Technology and development	6
General and administrative	7
Restructuring costs	24
Total operating expenses	170
Income from discontinued operations	21
Loss on extinguishment of debt	(14)
Other income	6
Interest expense	(36)
Loss from discontinued operations before income taxes	(23)
Income tax benefit	14
Net loss from discontinued operations	$	(9)
Net loss from discontinued operations per share:
Basic	$	(0.04)
Diluted	$	(0.04)

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The following table presents significant non-cash items and capital expenditures of the discontinued operations for the three months ended March 31, 2022 (in millions):

Amortization of debt discount and debt issuance costs	$	21
Loss on debt extinguishment	14
Share-based compensation	12
Inventory valuation adjustment	5
Depreciation and amortization	4

Restructuring

Restructuring charges attributable to continuing operations relate to employee termination costs and certain indirect costs that do not qualify as discontinued operations. These costs totaled $14 million for the three months ended March 31, 2022. Cumulative restructuring charges attributable to continuing operations as of March 31, 2022 totaled $23 million.

Note 4. 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 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).

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).

Interest rate lock commitments — The fair value of 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 IRLC will ultimately result in a closed loan. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (Level 3).

The pull-through rate is based on estimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are directly related to the fair value of IRLCs as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within revenue in our condensed

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consolidated statements of operations. 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:

	March 31, 2023	December 31, 2022
Range	58% - 100%	47% - 100%
Weighted-average	82%	87%

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 millions):

	March 31, 2023
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,309	$	1,309	$	—	$	—
Short-term investments:
U.S. government treasury securities	1,762		—		1,762		—
Corporate bonds	203		—		203		—
Commercial paper	10		—		10		—
Mortgage origination-related:
Mortgage loans held for sale	48		—		48		—
IRLCs - other current assets	2		—		—		2
Forward contracts - other current liabilities	(1)		—		(1)		—
Total	$	3,333	$	1,309	$	2,022	$	2

	December 31, 2022
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,338	$	1,338	$	—	$	—
Short-term investments:
U.S. government treasury securities	1,716		—		1,716		—
Corporate bonds	161		—		161		—
Commercial paper	10		—		10		—
U.S. government agency securities	9		—		9		—
Mortgage origination-related:
Mortgage loans held for sale	41		—		41		—
Forward contracts - other current assets	1		—		1		—
Total	$	3,276	$	1,338	$	1,938	$	—

At March 31, 2023, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $92 million and $123 million for our IRLCs and forward contracts, respectively. At December 31, 2022, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $62 million and $90 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our forward contract derivative positions.

See Note 8 for the carrying amounts and estimated fair values of our convertible senior notes.

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Note 5. Cash and Cash Equivalents, Investments and Restricted Cash

The following table presents the amortized cost and estimated fair market value of our cash and cash equivalents, investments, and restricted cash as of the dates presented (in millions):

	March 31, 2023				December 31, 2022
	Amortized Cost		Estimated Fair Market Value		Amortized Cost		Estimated Fair Market Value
Cash	$	85	$	85	$	128	$	128
Cash equivalents:
Money market funds	1,309		1,309		1,338		1,338
Short-term investments:
U. S. government treasury securities (1)	1,765		1,762		1,731		1,716
Corporate bonds	203		203		162		161
Commercial paper	10		10		10		10
U.S. government agency securities	—		—		9		9
Restricted cash	2		2		2		2
Total	$	3,374	$	3,371	$	3,380	$	3,364
(1) The estimated fair market value includes $4 million of gross unrealized gains and $7 million of gross unrealized losses as of March 31, 2023 and $15 million of gross unrealized losses as of December 31, 2022.

The following table presents available-for-sale investments by contractual maturity date as of March 31, 2023 (in millions):

	Amortized Cost		Estimated Fair Market Value
Due in one year or less	$	883	$	878
Due after one year	1,095		1,097
Total	$	1,978	$	1,975

Note 6. Property and Equipment, net

The following table presents the detail of property and equipment as of the dates presented (in millions):

	March 31, 2023		December 31, 2022
Website development costs	$	334	$	291
Leasehold improvements	90		90
Office equipment, furniture and fixtures	23		24
Computer equipment	18		18
Construction-in-progress	3		7
Property and equipment	468		430
Less: accumulated amortization and depreciation	(178)		(159)
Property and equipment, net	$	290	$	271

We recorded depreciation expense related to property and equipment (other than website development costs) of $6 million and $7 million for the three months ended March 31, 2023 and 2022, respectively.

We capitalized $45 million and $33 million in website development costs for the three months ended March 31, 2023 and 2022, respectively. Amortization expense for website development costs included in cost of revenue was $22 million and $13 million for the three months ended March 31, 2023 and 2022, respectively.

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Note 7. Intangible Assets, net

The following tables present the detail of intangible assets as of the dates presented (in millions):

	March 31, 2023
	Cost		Accumulated Amortization		Net
Customer relationships	$	59	$	(12)	$	47
Software	62		(17)		45
Developed technology	49		(19)		30
Trade names and trademarks	46		(16)		30
Purchased content	9		(7)		2
Total	$	225	$	(71)	$	154

	December 31, 2022
	Cost		Accumulated Amortization		Net
Customer relationships	$	59	$	(10)	$	49
Software	54		(15)		39
Developed technology	49		(15)		34
Trade names and trademarks	45		(15)		30
Purchased content	8		(6)		2
Total	$	215	$	(61)	$	154

Amortization expense recorded for intangible assets for the three months ended March 31, 2023 and 2022 was $12 million and $19 million, respectively. Amortization expense for trade names and trademarks and customer relationships intangible assets is included in sales and marketing expenses. Amortization expense for all other intangible assets is included in cost of revenue.

We did not record any impairment costs related to our intangible assets for the three months ended March 31, 2023 or 2022.

Note 8. Debt

The following table presents the carrying values of Zillow Group’s debt as of the dates presented (in millions):

	March 31, 2023		December 31, 2022
Credit facilities
Repurchase agreements:
Credit Suisse AG, Cayman Islands	$	25	$	23
Citibank, N.A.	—		3
Warehouse line of credit:
Comerica Bank	17		11
Total credit facilities	42		37
Convertible senior notes
1.375% convertible senior notes due 2026	495		495
2.75% convertible senior notes due 2025	560		560
0.75% convertible senior notes due 2024	606		605
Total convertible senior notes	1,661		1,660
Total debt	$	1,703	$	1,697

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Credit Facilities

To provide capital for Zillow Home Loans, we utilize master repurchase agreements and a warehouse line of credit. The following table summarizes certain details related to our repurchase agreements and warehouse line of credit (in millions, except interest rates):

Lender	Maturity Date	Maximum Borrowing Capacity		Weighted-Average Interest Rate
Credit Suisse AG, Cayman Islands	March 11, 2024	$	50	6.81	%
Citibank, N.A.	June 9, 2023	100		6.64	%
Comerica Bank	June 24, 2023	50		6.76	%
	Total	$	200

On March 13, 2023, Zillow Home Loans amended its Credit Suisse AG, Cayman Islands (“Credit Suisse”) master repurchase agreement to decrease the uncommitted total maximum borrowing capacity to $50 million from $100 million, with a maturity date of March 11, 2024.

In accordance with the master repurchase agreements, Credit Suisse and Citibank (together the “Lenders”) have agreed to pay Zillow Home Loans a negotiated purchase price for eligible loans, and Zillow Home Loans has simultaneously agreed to repurchase such loans from the Lenders under a specified timeframe at an agreed upon price that includes interest. The master repurchase agreements contain margin call provisions that provide the Lenders with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreements. At both March 31, 2023 and December 31, 2022, $28 million in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.

Borrowings on the repurchase agreements and warehouse line of credit bear interest either at a floating rate based on Secured Overnight Financing Rate (“SOFR”) plus an applicable margin, as defined by the governing agreements, or Bloomberg Short-Term Bank Yield Index Rate (“BSBY”) plus an applicable margin, as defined by the governing agreements. The repurchase agreements and warehouse line of credit include customary representations and warranties, covenants and provisions regarding events of default. As of March 31, 2023, Zillow Home Loans was in compliance with all financial covenants and no event of default had occurred. The repurchase agreements and warehouse line of credit are recourse to Zillow Home Loans, and have no recourse to Zillow Group or any of its other subsidiaries.

For additional details related to our repurchase agreements and warehouse line of credit, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Convertible Senior Notes

Effective January 1, 2022, we adopted 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. Refer to Note 2 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for additional information regarding the adoption of this guidance.

The following tables summarize certain details related to our outstanding convertible senior notes as of the dates presented or for the periods ended (in millions, except interest rates):

								March 31, 2023				December 31, 2022
Maturity Date	Aggregate Principal Amount		Stated Interest Rate		Effective Interest Rate		Semi-Annual Interest Payment Dates	Unamortized Debt Issuance Costs		Fair Value		Unamortized Debt Issuance Costs		Fair Value
September 1, 2026	$	499	1.375	%	1.57	%	March 1; September 1	$	4	$	590	$	4	$	504
May 15, 2025	565		2.75	%	3.20	%	May 15; November 15	5		571		5		531
September 1, 2024	608		0.75	%	1.02	%	March 1; September 1	2		699		3		629
Total	$	1,672						$	11	$	1,860	$	12	$	1,664

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	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
Maturity Date	Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense		Contractual Coupon Interest		Interest Expense
September 1, 2026	$	2	$	—	$	2	$	2	$	2
May 15, 2025	4		—		4		4		4
September 1, 2024	1		1		2		1		1
Total	$	7	$	1	$	8	$	7	$	7

The convertible notes are senior unsecured obligations. The convertible senior notes maturing in 2026 (“2026 Notes”), 2025 (“2025 Notes”) and 2024 (“2024 Notes”) (together, the “Notes”) are classified as long-term debt in our condensed consolidated balance sheets based on their contractual maturity dates. Interest on the convertible notes is paid semi-annually in arrears. The estimated fair value of the convertible senior notes is classified as Level 2 and was determined through consideration of quoted market prices in markets that are not active.

The Notes are convertible into cash, shares of Class C capital stock or a combination thereof, at our election, and may be settled as described below. They will mature on their respective maturity date, unless earlier repurchased, redeemed or converted in accordance with their terms.

The following table summarizes the conversion and redemption options with respect to the Notes:

Maturity Date	Early Conversion Date	Conversion Rate	Conversion Price		Optional Redemption Date
September 1, 2026	March 1, 2026	22.9830	$	43.51	September 5, 2023
May 15, 2025	November 15, 2024	14.8810	67.20		May 22, 2023
September 1, 2024	March 1, 2024	22.9830	43.51		September 5, 2022

The following table summarizes certain details related to the capped call confirmations with respect to the convertible senior notes:

Maturity Date	Initial Cap Price		Cap Price Premium
September 1, 2026	$	80.5750	150	%
September 1, 2024	72.5175		125	%
July 1, 2023	105.45		85	%

There were no conversions of the Notes during the three months ended March 31, 2023 or 2022.

The last reported sale price of our Class C capital stock did not exceed 130% of the conversion price of each series of the Notes for more than 20 trading days during the 30 consecutive trading days ended March 31, 2023. Accordingly, each series of the Notes is not redeemable or convertible at the option of the holders from April 1 through June 30, 2023.

For additional details related to our convertible senior notes, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Note 9. Income Taxes

We are primarily subject to income taxes in the United States (federal and state), as well as certain foreign jurisdictions. As of March 31, 2023 and December 31, 2022, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. We have accumulated federal tax losses of approximately $1.8 billion as of December 31, 2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $63 million (tax effected) as of December 31, 2022.

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Our income tax expense or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account for the relevant period. We update our estimate of the annual effective tax rate on a quarterly basis and make year-to-date adjustments to the tax provision or benefit, as applicable. Income tax expense was not material for the three months ended March 31, 2023. We recorded income tax expense of $5 million for the three months ended March 31, 2022, primarily driven by state income taxes.

Note 10. Share Repurchase Authorizations

The Board has authorized the repurchase of up to $1.8 billion of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof (together the “Repurchase Authorizations”). For additional information on these authorizations, see Note 13 to our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Repurchases of stock under the Repurchase Authorizations may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, share price, trading volume, cash needs and other business factors, in each case as permitted by securities laws and other legal requirements. As of March 31, 2023, $414 million remained available for future repurchases pursuant to the Repurchase Authorizations.

The following table summarizes, on a settlement date basis, our Class A common stock and Class C capital stock repurchase activity under the Repurchase Authorizations for the periods presented (in millions, except share data, which are presented in thousands, and per share amounts):

	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
	Class A common stock		Class C capital stock		Class A common stock		Class C capital stock
Shares repurchased	314		1,698		1,412		4,446
Weighted-average price per share	$	42.44	$	42.96	$	58.38	$	59.66
Total purchase price	$	13	$	73	$	83	$	265

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Note 11. Share-Based Awards

In addition to the option awards and restricted stock units typically granted under the Zillow Group, Inc. 2020 Incentive Plan (the “2020 Plan”) which vest quarterly over four years, during the three months ended March 31, 2023, the Compensation Committee of the Board approved option and restricted stock unit awards granted under the 2020 Plan in connection with the 2022 annual review cycle that vest quarterly over three years. The exercisability terms of these equity awards are otherwise consistent with the terms of the option awards and restricted stock units typically granted under the 2020 Plan. For additional information regarding our share-based awards, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Option Awards

The following table summarizes all option award activity for the three months ended March 31, 2023:

	Number of Shares Subject to Existing Options (in thousands)	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023	28,598	$	44.90	7.08	$	15
Granted	5,837	41.88
Exercised	(373)	36.71
Forfeited or cancelled	(360)	48.03
Outstanding at March 31, 2023	33,702	44.43		7.38	145
Vested and exercisable at March 31, 2023	17,813	44.90		5.91	87

The following assumptions were used to determine the fair value of all option awards granted for the periods presented:

	Three Months Ended March 31,
	2023	2022
Expected volatility	55% - 61%	55% - 60%
Risk-free interest rate	3.80% - 4.04%	1.94% - 2.54%
Weighted-average expected life	5.25 - 6.50 years	4.50 - 6.00 years
Weighted-average fair value of options granted	$23.60	$25.08

As of March 31, 2023, there was a total of $485 million in unrecognized compensation cost related to unvested option awards.

Restricted Stock Units

The following table summarizes activity for all restricted stock units for the three months ended March 31, 2023:

	Restricted Stock Units (in thousands)	Weighted-Average Grant Date Fair Value
Unvested outstanding at January 1, 2023	10,930	$	46.85
Granted	6,649	42.11
Vested	(1,365)	48.84
Forfeited	(287)	47.78
Unvested outstanding at March 31, 2023	15,927	44.68

As of March 31, 2023, there was a total of $667 million in unrecognized compensation cost related to unvested restricted stock units.

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Share-Based Compensation Expense

The following table presents the effects of share-based compensation expense in our condensed consolidated statements of operations during the periods presented (in millions):

	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	4	$	3
Sales and marketing	16		11
Technology and development	39		28
General and administrative	44		35
Share-based compensation - continuing operations	103		77
Share-based compensation - discontinued operations	—		14
Total share-based compensation	$	103	$	91

Note 12. Net Income (Loss) Per Share

For the periods presented, the following table reconciles the denominators used in the basic and diluted net income (loss) and net income (loss) from continuing operations per share calculations (in thousands):

	Three Months Ended March 31,
	2023	2022
Denominator for basic calculation	234,425	248,542
Effect of dilutive securities:
Option awards	—	2,558
Unvested restricted stock units	—	862
Convertible senior notes due in 2024	—	13,983
Denominator for dilutive calculation	234,425	265,945

For the periods presented, the following Class A common stock and Class C capital stock equivalents were excluded from the calculations of diluted net income (loss) and net income (loss) from continuing operations per share because their effect would have been antidilutive (in thousands):

	Three Months Ended March 31,
	2023	2022
Weighted-average Class A common stock and Class C capital stock option awards outstanding	18,046	5,120
Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding	12,108	3,188
Class C capital stock issuable upon conversion of the convertible notes maturing in 2024, 2025 and 2026	33,855	19,872
Total Class A common stock and Class C capital stock equivalents	64,009	28,180

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Note 13. Commitments and Contingencies

Commitments

During the three months ended March 31, 2023, there were no material changes to the commitments disclosed in Note 18 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Legal Proceedings

We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities, some of which are at preliminary stages and some of which seek an indeterminate amount of damages. We regularly evaluate the status of legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made if accruals are not appropriate. For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories presented. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial position, results of operations or cash flow. For the matters discussed below, we have not recorded any material accruals as of March 31, 2023 or December 31, 2022.

In August and September 2017, two purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our common stock between February 12, 2016 and August 8, 2017. One of those purported class actions, captioned Vargosko v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Central District of California. The other purported class action lawsuit, captioned Shotwell v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Western District of Washington. The complaints allege, among other things, that during the period between February 12, 2016 and August 8, 2017, we issued materially false and misleading statements regarding our business practices. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. In November 2017, an amended complaint was filed against us and certain of our executive officers in the Shotwell v. Zillow Group purported class action lawsuit, extending the beginning of the class period to November 17, 2014. In January 2018, the Vargosko v. Zillow Group purported class action lawsuit was transferred to the U.S. District Court for the Western District of Washington and consolidated with the Shotwell v. Zillow Group purported class action lawsuit. In February 2018, the plaintiffs filed a consolidated amended complaint, and in April 2018, we filed our motion to dismiss the consolidated amended complaint. In October 2018, our motion to dismiss was granted without prejudice, and in November 2018, the plaintiffs filed a second consolidated amended complaint, which we moved to dismiss in December 2018. On April 19, 2019, our motion to dismiss the second consolidated amended complaint was denied. On October 11, 2019, plaintiffs filed a motion for class certification which was granted by the court on October 28, 2020. On February 17, 2021, the Ninth Circuit Court of Appeals denied our petition for review of that decision. On October 21, 2022, the parties jointly filed a notice of settlement with the U.S. District Court for the Western District of Washington to inform the court that the parties have reached an agreement to settle this action. On March 31, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 3, 2023. The terms of the parties’ proposed settlement agreement are contained in the settlement documents filed with the court on March 31, 2023. The court has set August 8, 2023 as the hearing date for final approval of the settlement. The full amount of the settlement payment has been paid by the Company’s insurance carriers under the applicable insurance policy and pursuant to the terms of the proposed settlement.

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In October and November 2017 and January and February 2018, four shareholder derivative lawsuits were filed in the U.S. District Court for the Western District of Washington and the Superior Court of the State of Washington, King County, against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties in connection with oversight of the Company’s public statements and legal compliance, and as a result of the breach of such fiduciary duties, the Company was damaged, and defendants were unjustly enriched. Certain of the plaintiffs also allege, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934 and waste of corporate assets. On February 5, 2018, the U.S. District Court for the Western District of Washington consolidated the two federal shareholder derivative lawsuits pending in that court (the “Federal Suit”). On February 16, 2018, the Superior Court of the State of Washington, King County, consolidated the two shareholder derivative lawsuits pending in that court (the “State Suit”). The Federal Suit and State Suit were stayed until our motion to dismiss the second consolidated amended complaint in the securities class action lawsuit discussed above was denied in April 2019. On July 8, 2019, the plaintiffs in the Federal Suit filed a consolidated shareholder derivative complaint, which we moved to dismiss on August 22, 2019. On February 28, 2020, our motion to dismiss the Federal Suit was denied. On February 16, 2021, the court in the State Suit matter stayed the action. On March 5, 2021, a new shareholder derivative lawsuit was filed in the U.S. District Court for the Western District of Washington against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices, alleging, among other things, violations of federal securities laws. The U.S. District Court for the Western District of Washington formally consolidated the new lawsuit with the other consolidated Federal Suit pending in that court on June 15, 2021. On November 14, 2022, the parties jointly filed a stipulation with the U.S. District Court for the Western District of Washington informing the court that, among other things, they have agreed in principle to all material terms of a settlement. On April 20, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 25, 2023. The terms of the parties’ proposed settlement agreement are contained in the settlement documents filed with the court on April 20, 2023 and found on Zillow’s Investor Relations page at https://investors.zillowgroup.com/investors/resources/investor-faqs/default.aspx. The full amount of plaintiffs’ attorneys’ fees and costs associated with the settlement is expected to be paid by the Company’s insurance carriers under the applicable insurance policy and pursuant to the terms of the proposed settlement.

On September 17, 2019, International Business Machines Corporation (“IBM”) filed a complaint against us in the U.S. District Court for the Central District of California, alleging, among other things, that the Company has infringed and continues to willfully infringe seven patents held by IBM and seeks unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. On November 8, 2019, we filed a motion to transfer venue and/or to dismiss the complaint. On December 2, 2019, IBM filed an amended complaint, and on December 16, 2019 we filed a renewed motion to transfer venue and/or to dismiss the complaint. The Company’s motion to transfer venue to the U.S. District Court for the Western District of Washington was granted on May 28, 2020. On August 12, 2020, IBM filed its answer to our counterclaims. On September 18, 2020, we filed four Inter Partes Review (“IPR”) petitions before the U.S. Patent and Trial Appeal Board (“PTAB”) seeking the Board’s review of the patentability with respect to three of the patents asserted by IBM in the lawsuit. On March 15, 2021, the PTAB instituted IPR proceedings with respect to two of the three patents for which we filed petitions. On March 22, 2021, the PTAB denied institution with respect to the last of the three patents. On January 22, 2021, the court partially stayed the action with respect to all patents for which we filed an IPR and set forth a motion schedule. On March 8, 2021, IBM filed its second amended complaint. On March 25, 2021, we filed an amended motion for judgment on the pleadings. On July 15, 2021, the court rendered an order in connection with the motion for judgment on the pleadings finding in our favor on two of the four patents on which we filed our motion. On August 31, 2021, the Court ruled that the parties will proceed with respect to the two patents for which it previously denied judgment, and vacated the stay with respect to one of the three patents for which Zillow filed an IPR, which stay was later reinstated by stipulation of the parties on May 18, 2022. On September 23, 2021, IBM filed a notice of appeal with the United States Court of Appeals for the Federal Circuit with respect to the August 31, 2021 judgment entered, which judgment was affirmed by the Federal Circuit on October 17, 2022. On March 3, 2022, the PTAB ruled on Zillow’s two remaining IPRs finding that Zillow was able to prove certain claims unpatentable, and others it was not. On October 28, 2022, the court found one of the two patents upon which the parties were proceeding in this action as invalid, and dismissed IBM’s claim relating to that patent. Following the court’s ruling, on October 28, 2022, the parties filed a joint stipulation with the court seeking a stay of this action, which was granted by the court on November 1, 2022. On November 25, 2022, Zillow filed a motion to join an IPR petition within Ebates Performance Mktg., Inc. d/b/a Rakuten Rewards v. Int’l Bus. Machs. Corp., IPR2022-00646 concerning the final remaining patent in this action, which the court granted on April 20, 2023. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.

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On July 21, 2020, IBM filed a second action against us in the U.S. District Court for the Western District of Washington, alleging, among other things, that the Company has infringed and continues to willfully infringe five patents held by IBM and seeks unspecified damages. On September 14, 2020, we filed a motion to dismiss the complaint filed in the action, to which IBM responded by the filing of an amended complaint on November 5, 2020. On December 18, 2020, we filed a motion to dismiss IBM’s first amended complaint. On December 23, 2020, the Court issued a written order staying this case in full. On July 23, 2021, we filed an IPR with the PTAB with respect to one patent included in the second lawsuit. On October 6, 2021, the stay of this action was lifted, except for proceedings relating to the one patent for which we filed an IPR. On December 1, 2021, the Court dismissed the fourth claim asserted by IBM in its amended complaint. On December 16, 2021 Zillow filed a motion to dismiss the remaining claims alleged in IBM’s amended complaint. On March 9, 2022, the Court granted Zillow’s motion to dismiss in full, dismissing IBM’s claims related to all the patents asserted by IBM in this action, except for the one patent for which an IPR was still pending. On March 10, 2022, the PTAB rendered its decision denying Zillow’s IPR on the one remaining patent, for which this case continues to remain stayed. On August 1, 2022, IBM filed an appeal of the Court’s ruling with respect to two of the dismissed patents. Zillow’s responsive brief was filed on September 30, 2022, and IBM’s reply brief was filed on November 4, 2022. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.

On November 16, 2021, November 19, 2021 and January 6, 2022, three purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our stock between August 7, 2020 and November 2, 2021. The three purported class action lawsuits, captioned Barua v. Zillow Group, Inc. et al., Silverberg v. Zillow Group, et al. and Hillier v. Zillow Group, Inc. et al. were brought in the U.S. District Court for the Western District of Washington and were consolidated on February 16, 2022. On May 12, 2022, the plaintiffs filed their amended consolidated complaint which alleges, among other things, that we issued materially false and misleading statements regarding our Zillow Offers business. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. We moved to dismiss the amended consolidated complaint on July 11, 2022, plaintiffs filed their opposition to the motion to dismiss on September 2, 2022, and we filed a reply in support of the motion to dismiss on October 11, 2022. On December 7, 2022, the court rendered its decision granting defendants’ motion to dismiss, in part, and denying the motion, in part. On January 23, 2023, the defendants filed their answer to the consolidated complaint. We intend to deny the allegations of wrongdoing and intend to vigorously defend the claims in this consolidated lawsuit. We do not believe that a loss related to this consolidated lawsuit is probable.

On March 10, 2022, May 5, 2022 and July 20, 2022 shareholder derivative suits were filed in the U.S. District Court for the Western District of Washington and on July 25, 2022, a shareholder derivative suit was filed in the Superior Court of the State of Washington, King County (the “2022 State Suit”), against us and certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs (including the Company as a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties by failing to maintain an effective system of internal controls, which purportedly caused the losses the Company incurred when it decided to wind down Zillow Offers operations. Plaintiffs also allege, among other things, violations of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, insider trading and waste of corporate assets. On June 1, 2022 and September 14, 2022, the U.S. District Court for the Western District of Washington issued orders consolidating the three federal derivative suits and staying the consolidated action until further order of the court. On September 15, 2022, the Superior Court of the State of Washington entered a temporary stay in the 2022 State Suit. Upon the filing of the defendants’ answer in the related securities class action lawsuit on January 23, 2023, the stay in the 2022 State Suit was lifted. The defendants intend to deny the allegations of wrongdoing and vigorously defend the claims in these lawsuits. We do not believe that a loss related to these lawsuits is probable.

In addition to the matters discussed above, from time to time, we are involved in litigation and claims that arise in the ordinary course of business. Although we cannot be certain of the outcome of any such litigation or claims, nor the amount of damages and exposure that we could incur, we currently believe that the final disposition of such matters will not have a material effect on our business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters. For additional information regarding our indemnifications, see Note 18 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Note 14. Revenue and Contract Balances

We recognize revenue when or as we satisfy our performance obligations by transferring control of the promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.

Beginning in 2023, our chief executive officer, who acts as the chief operating decision maker, manages our business, makes operating decisions and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. This serves to align our reported results with our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, we have determined that we have a single reportable segment. Our revenues are classified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.

The Residential revenue category primarily includes revenue for our Premier Agent and new construction marketplaces, as well as revenue from the sale of other advertising and business technology solutions for real estate professionals, including StreetEasy for-sale product offerings and ShowingTime+. Residential revenue also includes revenue from title and escrow services performed by Zillow Closing Services. Our Rentals and Mortgages revenue categories remain consistent with our historical presentation, and our Other revenue category primarily includes revenue generated from display advertising. Refer to Note 2 for further information on revenue recognition.

Disaggregation of Revenue

The following table presents our revenue disaggregated by category for the periods presented (in millions):

	Three Months Ended March 31,
	2023		2022
Residential	$	361	$	418
Rentals	74		61
Mortgages	26		46
Other	8		11
Total revenue	$	469	$	536

Contract Balances

Contract assets represent our right to consideration in exchange for goods and services that we have transferred to the customer when that right is conditional on something other than the passage of time. Contract assets are primarily related to our Premier Agent Flex, Zillow Lease Connect and StreetEasy Experts offerings, whereby we estimate variable consideration based on the expected number of real estate transactions to be closed for Premier Agent Flex and StreetEasy Experts, and qualified leases to be secured for Zillow Lease Connect. The current portion of contract assets is recorded within prepaid expenses and other current assets and the long-term portion of contract assets is recorded within other assets in our condensed consolidated balance sheets and totaled $85 million and $71 million as of March 31, 2023 and December 31, 2022, respectively.

Contract liabilities consist of deferred revenue, which relates to payments received in advance of performance under a revenue contract. Deferred revenue is primarily related to prepaid advertising fees received or billed in advance of satisfying our performance obligations and prepaid but unrecognized subscription revenue. Deferred revenue is recognized when or as we satisfy our obligations under contracts with customers. For the three months ended March 31, 2023 and 2022, we recognized revenue of $41 million and $45 million, respectively, that was included in the deferred revenue balance at the beginning of the related period.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those described in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, including in the section titled “Note Regarding Forward-Looking Statements,” and also those factors discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2022.

Overview of our Business

Zillow Group is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, great partners, and easier buying, selling, financing and renting experiences.

Our portfolio of affiliates, subsidiaries and brands includes Zillow Premier Agent, Zillow Home Loans, our affiliate lender, Zillow Closing Services, Zillow Rentals, Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions for the real estate industry which include Mortech, New Home Feed and ShowingTime+, which includes ShowingTime, Bridge Interactive and dotloop.

As of March 31, 2023, we had 5,852 employees compared to 5,724 employees as of December 31, 2022.

Change in Reportable Segments

Beginning in 2023, our chief operating decision maker manages our business, makes operating decisions, and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. This serves to align our reported results with our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, we have determined that we have a single operating and reportable segment.

Revenue Overview

Our revenue is classified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.

Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising and business technology solutions for real estate professionals through StreetEasy for-sale product offerings and ShowingTime+. Residential revenue also includes revenue from title and escrow services performed by Zillow Closing Services.

Premier Agent revenue is generated by the sale of advertising services, as well as marketing and technology products and services, to help real estate agents and brokers grow and manage their businesses. We offer these products and services through our Premier Agent program. Premier Agent products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Connections are distributed to Premier Agent partners in proportion to their share of voice, or an agent advertiser’s share of total advertising purchased in a particular zip code. Connections are delivered when customer contact information is provided to Premier Agent partners. Connections are provided as part of our suite of advertising services for Premier Agent partners; we do not charge a separate fee for these customer leads.

We also offer a pay for performance pricing model called “Flex” for Premier Agent advertising services in certain markets to select partners. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads, generally within two years.

New construction revenue primarily includes advertising services sold to home builders on a cost per residential community or cost per impression basis. StreetEasy for-sale revenue includes advertising services sold to real estate professionals serving the New York City for sale market primarily on a cost per listing or performance fee basis. ShowingTime revenue is primarily generated by Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center services also include call center specialists who provide scheduling support to customers.

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Appointment Center revenue is primarily billed in advance on a monthly basis. Our dotloop real estate transaction management software-as-a-service solution is a monthly subscription service allowing real estate partners to efficiently manage their transactions. Zillow Closing Services revenue includes revenue associated with title and escrow services.

Rentals. Rentals revenue includes advertising sold to property managers, landlords and other rental professionals on a cost per lead, click, lease, listing or impression basis or for a fixed fee for certain advertising packages through both Zillow and StreatEasy. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee.

Mortgages. Mortgages revenue includes revenue generated through mortgage originations and the related sale of mortgages on the secondary market through Zillow Home Loans and from advertising sold to mortgage lenders and other mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.

Other. Other revenue includes revenue generated primarily by display advertising. Display revenue consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites.

For additional information regarding our revenue recognition policies, see Note 2 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Discontinued Operations

In the fourth quarter of 2021, the Board made the determination to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in certain markets across the United States. The wind down was completed in the third quarter of 2022 and resulted in approximately a 25% reduction of Zillow Group’s workforce. The financial results of Zillow Offers have been presented in the accompanying condensed consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations. Given the wind down of Zillow Offers and corresponding shift in our strategic plans, financial performance for prior and current periods may not be indicative of future performance. For additional information, see Note 3 in our Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

August 2022 Equity Award Actions

On August 3, 2022, upon the recommendation of the Compensation Committee of the Board, the Board approved adjustments to the exercise price of certain outstanding vested and unvested option awards for eligible employees. The exercise price of eligible option awards was reduced to $38.78, which was the closing market price of our Class C capital stock on August 8, 2022. No other changes were made to the terms and conditions of the eligible option awards. In addition, the Board approved a supplemental grant of restricted stock units to eligible employees that was granted on August 8, 2022 and vests quarterly over a two-year period beginning in August 2022. The repricing of eligible option awards and the issuance of supplemental restricted stock units (collectively the “August 2022 Equity Award Actions”) has and is expected to continue to result in incremental share-based compensation expense over the remaining requisite service period, which is largely through the third quarter of 2024. For additional information regarding the August 2022 Equity Award Actions, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Financial Overview

For the three months ended March 31, 2023 and 2022, we generated total revenue of $469 million and $536 million, respectively, representing a year-over-year decrease of 13%. The decrease in total revenue was primarily attributable to the following:

•Residential revenue decreased by $57 million to $361 million for the three months ended March 31, 2023 compared to $418 million for the three months ended March 31, 2022, driven primarily by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations. These factors resulted in a 9% decrease in Residential revenue per visit.

•Mortgages revenue decreased by $20 million to $26 million for the three months ended March 31, 2023 compared to $46 million for the three months ended March 31, 2022, driven by a decrease in revenue from Custom Quote and Connect advertising services as well as a decrease in revenue generated from Zillow Home Loans, as total loan origination volume decreased 63% primarily resulting from a decrease in demand for refinance mortgages attributable to the higher interest rate environment as compared to the prior year period.

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•Rentals revenue increased by $13 million to $74 million for the three months ended March 31, 2023 compared to $61 million for the three months ended March 31, 2022. The increase in Rentals revenue was primarily due to growth in average monthly rentals unique visitors which increased 16% to 29 million during the three months ended March 31, 2023 from 25 million during the three months ended March 31, 2022.

During the three months ended March 31, 2023 and 2022, we generated gross profit of $377 million and $444 million, respectively, representing a year-over-year decrease of 15%, due to the factors discussed below.

Health of Housing Market

Our financial performance is impacted by changes in the health of the housing market, which is impacted, in turn, by general economic conditions. Current market factors, including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations, inflationary conditions and changing rental occupancy rates may have a negative impact on the number of transactions that consumers complete using our products and services and on demand for our advertising services. The extent to which these factors impact our results and financial position will depend on future developments, which are uncertain and difficult to predict.

Key Metrics

Management has identified visits, unique users and the volume of loans originated through Zillow Home Loans as relevant to investors’ and others’ assessment of our financial condition and results of operations.

Visits

The number of visits is an important metric because it is an indicator of consumers’ level of engagement with our mobile applications, websites and other services. We believe highly engaged consumers are more likely to use our products and services, including Zillow Homes Loans, or be transaction-ready real estate market participants and therefore are more sought-after by our Premier Agent partners.

We define a visit as a group of interactions by users with the Zillow, Trulia and StreetEasy mobile applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months.

Zillow and StreetEasy measure visits with Google Analytics, and Trulia measures visits with Adobe Analytics. Visits to Trulia end after thirty minutes of user inactivity. Visits to Zillow and StreetEasy end either: (i) after thirty minutes of user inactivity or at midnight; or (ii) through a campaign change. A visit ends through a campaign change if a visitor arrives via one campaign or source (for example, via a search engine or referring link on a third-party website), leaves the mobile application or website, and then returns via another campaign or source.

The following table presents the number of visits to our mobile applications and websites for the periods presented (in millions, except percentages):

	Three Months Ended March 31,		2022 to 2023 % Change
	2023	2022
Visits	2,487	2,627	(5)	%

During the three months ended March 31, 2023, visits to our mobile applications and websites decreased by 5% compared to the three months ended March 31, 2022. This decrease was primarily driven by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations.

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Unique Users

Measuring unique users is important to us because much of our revenue depends in part on our ability to connect home buyers and sellers, renters and individuals with or looking for a mortgage to real estate, rental and mortgage professionals, products and services. Growth in consumer traffic to our mobile applications and websites increases the number of impressions, clicks, connections, leads and other events we can monetize to generate revenue. For example, our revenue depends in part, on users accessing our mobile applications and websites to engage in the sale, purchase and financing of homes, including with Zillow Home Loans, and a significant portion of our Residential revenue, Rentals revenue and Other revenue depend on advertisements being served to users of our mobile applications and websites.

We count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses more than one of our mobile applications within a given month, the first access to each mobile application is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Zillow, StreetEasy and HotPads measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.

Due to third-party technological limitations, user software settings or user behavior, Google Analytics may assign a unique cookie to different instances of access by the same individual to our mobile applications and websites. In such instances, Google Analytics would count different instances of access by the same individual as separate unique users. Accordingly, reliance on the number of unique users counted by Google Analytics may overstate the actual number of unique users who access our mobile applications and websites during the period.

The following table presents our average monthly unique users for the periods presented (in millions, except percentages):

	Three Months Ended March 31,		2022 to 2023 % Change
	2023	2022
Average monthly unique users	212	211	—	%

Loan Origination Volume

Loan origination volume is an important metric as it is a measure of how successful we are at the origination and subsequent sale of mortgage loan products through our mortgage origination business, Zillow Home Loans, which directly impacts our Mortgages revenue. Loan origination volume represents the total value of mortgage loan originations closed through Zillow Home Loans during the period.

The following table presents loan origination volume by purpose and in total for Zillow Home Loans for the periods presented (in millions, except percentages):

	Three Months Ended March 31,				2022 to 2023 % Change
	2023		2022
Purchase loan origination volume	$	259	$	123	111	%
Refinance loan origination volume	3		578		(99)	%
Total loan origination volume	$	262	$	701	(63)	%

During the three months ended March 31, 2023, total loan origination volume decreased 63% compared to the three months ended March 31, 2022. The decrease in total loan origination volume was primarily driven by interest rate increases which negatively impacted refinancing loan originations. The decrease in total loan origination volume was partially offset by the increase in purchase loan originations as we prioritize growth in Zillow Home Loans purchase originations.

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Results of Operations

Given continued uncertainty surrounding the health of the housing market, interest rate environment and inflationary conditions, financial performance for current and prior periods may not be indicative of future performance.

Revenue

									% of Total Revenue
	Three Months Ended March 31,				2022 to 2023				Three Months Ended March 31,
	2023		2022		$ Change		% Change		2023		2022
	(in millions, except percentages, unaudited)
Residential	$	361	$	418	$	(57)	(14)	%	77	%	78	%
Rentals	74		61		13		21		16		11
Mortgages	26		46		(20)		(43)		6		9
Other	8		11		(3)		(27)		2		2
Total revenue	$	469	$	536	$	(67)	(13)	%	100	%	100	%

Three months ended March 31, 2023 compared to three months ended March 31, 2022

Total revenue decreased $67 million, or 13%, to $469 million:

•Residential revenue decreased 14% to $361 million, primarily driven by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations. These factors resulted in a 16% decrease in Premier Agent revenue during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. These factors also resulted in a decrease in Residential revenue per visit, which decreased by 9% to $0.145 for the three months ended March 31, 2023 from $0.159 for the three months ended March 31, 2022. We calculate Residential revenue per visit by dividing the revenue generated by our Residential offerings by the number of visits in the period.

•Mortgages revenue decreased 43% to $26 million due to a decline in our Custom Quote and Connect advertising services revenue which drove 49% of the decrease in Mortgages revenue and a decrease in mortgage originations revenue which drove 47% of the decrease in Mortgages revenue. The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 40% decrease in leads generated from marketing products sold to mortgage professionals driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period, as well as an increase in leads consumed by Zillow Home Loans. The decrease in mortgage originations revenue was due to a 63% decrease in total loan origination volume from $701 million for the three months ended March 31, 2022 to $262 million for the three months ended March 31, 2023, primarily resulting from a decrease in demand for refinance mortgages attributable to the higher interest rate environment as compared to the prior year period. The decrease in mortgage originations revenue was partially offset by a 19% increase in gain on sale margin. Gain on sale margin represents the net gain on sale of mortgage loans divided by total loan origination volume for the period. Net gain on sale of mortgage loans includes all components related to the origination and sale of mortgage loans, including the net gain on sale of loans into the secondary market, loan origination fees, unrealized gains and losses associated with changes in fair value of interest rate lock commitments and mortgage loans held for sale, realized and unrealized gains or losses from derivative financial instruments and the provision for losses relating to representations and warranties.

•Rentals revenue increased 21% to $74 million. The increase in Rentals revenue was primarily due to growth in average monthly rentals unique visitors which increased 16% to 29 million during the three months ended March 31, 2023 from 25 million during the three months ended March 31, 2022. Average monthly rentals unique visitors are measured with Comscore data, which includes average monthly unique visitors on rental listings on Zillow, Trulia and HotPads mobile apps and websites. We expect Rentals revenue to increase in absolute dollars during the three months ending June 30, 2023, driven primarily by macroeconomic factors, including housing availability and affordability, as well as continued investment in growing our Rentals business.

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Adjusted EBITDA

The following table summarizes net income (loss), which includes the impact of discontinued operations, and Adjusted EBITDA, which excludes the impact of discontinued operations (in millions, except percentages):

									% of Revenue
	Three Months Ended March 31,				2022 to 2023				Three Months Ended March 31,
	2023		2022		$ Change		% Change		2023		2022
Net income (loss)	$	(22)	$	16	$	(38)	(238)	%	(5)	%	3	%
Adjusted EBITDA	$	104	$	166	$	(62)	(37)	%	22	%	31	%

To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA, a non-GAAP financial measure, within this Quarterly Report on Form 10-Q. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable U.S. generally accepted accounting principle (“GAAP”) financial measure.

We have included Adjusted EBITDA in this Quarterly Report on Form 10-Q as it is a key metric used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•Adjusted EBITDA does not reflect the results of discontinued operations;

•Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or contractual commitments;

•Adjusted EBITDA does not reflect impairment and restructuring costs;

•Adjusted EBITDA does not reflect interest expense or other income;

•Adjusted EBITDA does not reflect income taxes; and

•Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently from the way we do, limiting its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash-flow metrics, net income (loss) and our other GAAP results.

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The following table presents a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net income (loss) for each of the periods presented (in millions, unaudited):

	Three Months Ended March 31,
	2023		2022
Reconciliation of Adjusted EBITDA to Net Income (Loss):
Net income (loss)	$	(22)	$	16
Loss from discontinued operations, net of income taxes	—		9
Income taxes	—		5
Other income	(32)		(2)
Depreciation and amortization	40		39
Share-based compensation	103		77
Impairment and restructuring costs	6		14
Interest expense	9		8
Adjusted EBITDA	$	104	$	166

Costs and Expenses, Gross Profit and Other Items

									% of Total Revenue
	Three Months Ended March 31,				2022 to 2023				Three Months Ended March 31,
	2023		2022		$ Change		% Change		2023		2022
	(in millions, except percentages, unaudited)
Cost of revenue	$	92	$	92	$	—	—	%	20	%	17	%
Gross profit	377		444		(67)		(15)		80		83
Operating expenses:
Sales and marketing	156		174		(18)		(10)		33		32
Technology and development	137		108		29		27		29		20
General and administrative	123		112		11		10		26		21
Impairment and restructuring costs	6		14		(8)		(57)		1		3
Total operating expenses	422		408		14		3		90		76
Other income	32		2		30		1,500		7		—
Interest expense	(9)		(8)		(1)		(13)		(2)		(1)
Income tax expense	—		(5)		5		100		—		(1)

Cost of Revenue

Cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount-related expenses, such as salaries, benefits, bonuses and share-based compensation expense, as well as revenue-sharing costs related to our commercial business relationships, depreciation expense, and costs associated with hosting our mobile applications and websites. Cost of revenue also includes amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangible assets and other costs to obtain data used to populate our mobile applications and websites, and amortization of certain intangible assets recorded in connection with acquisitions, including developed technology. Cost of revenue also includes credit card fees and ad serving costs paid to third parties, and direct costs to originate mortgage loans, including underwriting and processing costs.

Cost of revenue was flat year over year, primarily driven by a $5 million decrease in lead acquisition costs due to a decrease in loan origination volume, partially offset by a $3 million increase in depreciation and amortization expense due to an increase in capitalized website and software development activities.

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Gross Profit

Gross profit is calculated as revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross profit has and will continue to be affected by a number of factors, including the mix of revenue from our various product offerings.

Gross profit decreased by $67 million, or 15%, due to a decrease in revenue, discussed above. Total gross margin decreased from 83% to 80%.

Sales and Marketing

Sales and marketing expenses consist of advertising costs and other sales expenses related to promotional and marketing activities, headcount-related expenses, including salaries, commissions, benefits, bonuses and share-based compensation expense for sales, sales support, customer support, including the customer connections team and mortgage loan officers and specialists, marketing and public relations employees, depreciation expense and amortization of certain intangible assets recorded in connection with acquisitions, including trade names and trademarks and customer relationships.

Sales and marketing expenses decreased $18 million, or 10%, due to decreases of $12 million in marketing and advertising costs and $5 million in headcount-related expenses due to active cost management, as well as a decrease of $3 million in depreciation and amortization expense. The decreases were partially offset by a $3 million increase in travel expenses. We expect sales and marketing expenses to increase in absolute dollars during the three months ending June 30, 2023 as we continue to invest and support the growth of our business.

Technology and Development

Technology and development expenses consist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for individuals engaged in the design, development and testing of our products, mobile applications and websites and the tools and applications that support our products. Technology and development expenses also include equipment and maintenance costs and depreciation expense.

Technology and development expenses increased $29 million, or 27%, primarily due to increases of $24 million in headcount-related expenses, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions, $3 million in professional services fees and $2 million in travel expenses.

General and Administrative

General and administrative expenses consist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for executive, finance, accounting, legal, human resources, recruiting, corporate information technology costs and other administrative support. General and administrative expenses also include legal settlement costs and estimated legal liabilities, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.

General and administrative expenses increased $11 million, or 10%, primarily due to an increase of $14 million in headcount-related expenses, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions.

Impairment and Restructuring Costs

Impairment costs of $6 million for the three months ended March 31, 2023 were primarily due to reductions in our right of use assets associated with changes in the use of certain office space in our lease portfolio. Restructuring costs of $14 million for the three months ended March 31, 2022 were primarily attributable to the wind down of Zillow Offers operations. These restructuring costs do not qualify as discontinued operations and related to employee termination costs. For additional information regarding the restructuring, see Note 3 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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Other Income

Other income consists primarily of interest income earned on our cash, cash equivalents and investments and fair value adjustments on an outstanding warrant.

Other income increased $30 million for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase was primarily driven by increases in returns on investments due to the higher interest rate environment as compared to the prior year period.

Interest Expense

Interest expense consists of interest and deferred issuance costs associated with our convertible senior notes as well as interest on the warehouse line of credit and on the master repurchase agreements related to our Zillow Home Loans business. Borrowings on the repurchase agreements bear interest at Secured Overnight Financing Rate (“SOFR”) plus an applicable margin, as defined in the governing agreements. Borrowings on the warehouse line of credit bear interest at Bloomberg Short-Term Bank Yield Index Rate (“BSBY”) plus an applicable margin, as defined in the governing agreements. For additional details on our convertible senior notes and credit facilities, see Note 8 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Interest expense for the three months ended March 31, 2023 was slightly higher than for the three months ended March 31, 2022 due to the impact of higher interest rates on our Zillow Home Loans credit facilities, partially offset by lower average borrowings on the credit facilities. Borrowings on the credit facilities were lower during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 due to lower loan origination volumes, as discussed above.

Income Taxes

We are primarily subject to income taxes in the United States (federal and state), as well as certain foreign jurisdictions. As of March 31, 2023 and December 31, 2022, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. There is a reasonable possibility that within the next several quarters, sufficient positive evidence will become available to demonstrate that a significant portion of the valuation allowance against our U.S. net deferred tax assets will no longer be required. We have accumulated federal tax losses of approximately $1.8 billion as of December 31, 2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $63 million (tax effected) as of December 31, 2022.

Income tax expense was not material for the three months ended March 31, 2023. We recorded income tax expense of $5 million for the three months ended March 31, 2022, primarily related to state income taxes.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash flows from operations, debt financing and equity offerings. Our cash requirements consist principally of working capital, general corporate needs and mortgage loan originations. We generally reinvest available cash flows from operations into our business and to service our debt obligations.

Sources of Liquidity

At both March 31, 2023 and December 31, 2022, we had cash and cash equivalents, investments and restricted cash of $3.4 billion. Cash and cash equivalents balances consist of operating cash on deposit with financial institutions and money market funds. Investments consist of fixed income securities, which include U.S. government treasury securities, U.S. government agency securities, investment grade corporate securities, and commercial paper. Restricted cash primarily consists of amounts held in escrow related to funding customer home purchases in our mortgage origination business. Amounts on deposit with third-party financial institutions exceed the Federal Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation insurance limits, as applicable. As of March 31, 2023, Zillow Group and its subsidiaries were in compliance with all debt covenants specified in the facilities described below.

We believe that cash from operations and cash and cash equivalents and investment balances will be sufficient to meet our ongoing operating activities, working capital, capital expenditures and other capital requirements for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operations, debt financing and equity offerings, as applicable.

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Summarized Cash Flow Information

The cash flows related to discontinued operations have not been separated. Accordingly, the condensed consolidated statements of cash flows and the following discussions include the results of continuing and discontinued operations for the three months ended March 31, 2022. There were no cash flows related to discontinued operations for the three months ended March 31, 2023. See Note 3 in our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information on discontinued operations, including supplemental cash flow information. The following table presents selected cash flow data for the periods presented (in millions, unaudited):

	Three Months Ended March 31,
	2023		2022
Cash Flow Data:
Net cash provided by operating activities	$	93	$	3,392
Net cash used in investing activities	(97)		(563)
Net cash used in financing activities	(68)		(2,981)

Cash Flows Provided By Operating Activities

Our operating cash flows result primarily from cash received from real estate professionals, rental professionals, mortgage professionals, builders and brand advertisers, as well as cash received from sales of mortgages originated by Zillow Home Loans and, prior to September 30, 2022, from customers for sales of homes through Zillow Offers. Our primary uses of cash from operating activities include marketing and advertising activities, mortgages funded through Zillow Home Loans and employee compensation and benefits. Additionally, uses of cash from operating activities include costs associated with operating our mobile applications and websites and other general corporate expenditures. Prior to the wind down of Zillow Offers operations, our primary uses of cash from operating activities also included payments for homes purchased through Zillow Offers.

For the three months ended March 31, 2023, net cash provided by operating activities was $93 million. This was driven by a net loss of $22 million, adjusted by share-based compensation of $103 million, depreciation and amortization of $40 million, amortization of contract cost assets of $6 million and amortization of right of use assets of $6 million. This was partially offset by $2 million in other adjustments to reconcile net loss to net cash provided by operating activities. Changes in operating assets and liabilities decreased cash provided by operating activities by $39 million. The changes in operating assets and liabilities are primarily related to a $27 million increase in prepaid expenses and other current assets due primarily to an increase in revenue from products and services billed in arrears, an $8 million decrease in lease liabilities due to contractual lease payments, a $7 million increase in mortgage loans held for sale due to an increase in loan origination volume, a $6 million increase in contract cost assets, a $3 million increase in accounts receivable and a $3 million decrease in accrued compensation and benefits. These changes were partially offset by a $10 million increase in accrued expenses and other current liabilities primarily driven by the timing of billings and a $5 million increase in deferred revenue.

For the three months ended March 31, 2022, net cash provided by operating activities was $3.4 billion. This was primarily driven by net income of $16 million, adjusted by share-based compensation of $91 million, depreciation and amortization of $43 million, amortization of debt discount and debt issuance costs of $23 million, a loss on extinguishment of debt of $14 million, amortization of contract cost assets of $8 million, amortization of right of use assets of $6 million and $2 million in other adjustments to reconcile net income to net cash provided by operating activities. Changes in operating assets and liabilities increased cash provided by operating activities by $3.2 billion. The changes in operating assets and liabilities are primarily related to a $3.4 billion decrease in inventory and a $56 million decrease in accounts receivable, primarily associated with Zillow Offers as we wound down Zillow Offers operations, a $14 million decrease in mortgage loans held for sale, a $6 million increase in accounts payable driven by the timing of payments, a $5 million increase in deferred revenue and a $3 million increase in other long term liabilities. These changes were partially offset by a $247 million increase in prepaid expenses and other current assets related to the partial repayment of the term loans associated with our Zillow Offers securitization transactions, a $43 million decrease in accrued expenses and other current liabilities driven by the wind down of Zillow Offers operations, a $9 million decrease in lease liabilities, a $6 million decrease in accrued compensation and benefits, and a $4 million increase in contract cost assets.

Cash Flows Used In Investing Activities

Our primary investing activities include the purchase and sale or maturity of investments and the purchase of property and equipment and intangible assets.

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For the three months ended March 31, 2023, net cash used in investing activities was $97 million. This was the result of $57 million of net purchases of investments and $40 million of purchases of property and equipment and intangible assets.

For the three months ended March 31, 2022, net cash used in investing activities was $563 million. This was the result of $525 million purchases of investments and $38 million of purchases of property and equipment and intangible assets.

Cash Flows Used In Financing Activities

Net cash used in financing activities has primarily resulted from repurchases of Class A common stock and Class C capital stock, the exercise of employee option awards, repayments of borrowings on the warehouse lines of credit and master repurchase agreements related to Zillow Home Loans, and, prior to September 30, 2022, settlement of long term debt including our Zillow Offers securitization term loans, proceeds from our Zillow Offers securitization transaction, and proceeds from and repayments of borrowings on our credit facilities related to Zillow Offers.

For the three months ended March 31, 2023, net cash used in financing activities was $68 million, which was primarily related to $86 million of cash paid for share repurchases. The cash outflows were partially offset by $13 million of proceeds from the exercise of option awards and $5 million of net borrowings on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans.

For the three months ended March 31, 2022, cash used in financing activities was $3.0 billion, which was primarily related to $2.2 billion of repayments on borrowings of our credit facilities related to Zillow Offers, $439 million for the partial repayment of the term loans associated with the Zillow Offers securitization transactions, $348 million of cash paid for share repurchases and $25 million of net repayments on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans. The cash outflows were partially offset by $36 million of proceeds from the exercise of option awards.

Capital Resources

We continue to invest in the development and expansion of our operations. Ongoing investments include, but are not limited to, improvements in our technology platforms, infrastructure and continued investments in sales and marketing. To finance these investments and ongoing operations, and in the event that we require additional funding to support strategic business opportunities, we have issued convertible senior notes. As of March 31, 2023, we have outstanding a total of $1.7 billion aggregate principal of convertible senior notes outstanding. The convertible notes are senior unsecured obligations, and interest on the convertible notes is paid semi-annually. The following table summarizes our convertible senior notes as of the periods presented (in millions, except interest rates):

					March 31, 2023		December 31, 2022
Maturity Date	Aggregate Principal Amount		Stated Interest Rate		Carrying Value		Carrying Value
September 1, 2026	$	499	1.375	%	$	495	$	495
May 15, 2025	565		2.75	%	560		560
September 1, 2024	608		0.75	%	606		605
Total	$	1,672			$	1,661	$	1,660

Refer to Note 8 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding our convertible senior notes, including conversion rates, conversion and redemption dates and the related capped call transactions.

The Board has authorized the repurchase of up to $1.8 billion of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. During the three months ended March 31, 2023, we repurchased 0.3 million shares of Class A common stock and 1.7 million shares of Class C capital stock at an average price of $42.44 and $42.96 per share, respectively, for an aggregate purchase price of $13 million and $73 million, respectively. As of March 31, 2023, $414 million remained available for future repurchases pursuant to this authorization, which repurchases decrease our liquidity and capital resources when effected. For additional information on this authorization, see Notes 13 and 15 to our Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Zillow Home Loans operations impact our liquidity and capital resources as a cash intensive business that funds mortgage loans originated for resale in the secondary market. We primarily use debt financing to fund mortgage loan originations. The following table summarizes our warehouse line of credit and master repurchase agreements as of the periods presented (in millions, except interest rates):

Lender	Maturity Date	Maximum Borrowing Capacity		Outstanding Borrowings at March 31, 2023		Outstanding Borrowings at December 31, 2022		Weighted Average Interest Rate
Credit Suisse AG, Cayman Islands	March 11, 2024	$	50	$	25	$	23	6.81	%
Citibank, N.A.	June 9, 2023	100		—		3		6.64	%
Comerica Bank	June 24, 2023	50		17		11		6.76	%
	Total	$	200	$	42	$	37

Refer to Note 8 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information on Zillow Group’s warehouse line of credit and master repurchase agreements.

Contractual Obligations and Other Commitments

Convertible Senior Notes - Includes the aggregate principal amounts of the 2024 Notes, 2025 Notes and 2026 Notes due on their contractual maturity dates, as well as the associated coupon interest. As of March 31, 2023, we have an outstanding aggregate principal amount of convertible senior notes of $1.7 billion, none of which is payable within 12 months. Future interest payments associated with the convertible senior notes total $69 million, with $27 million payable within 12 months. Refer to Note 8 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for maturity dates, stated interest rates and additional information on our convertible senior notes.

Credit Facilities - Includes principal amounts due for amounts borrowed under the warehouse line of credit and master repurchase agreements to finance mortgages originated through Zillow Home Loans. As of March 31, 2023, we have outstanding principal amounts of $42 million. Amounts exclude an immaterial amount of estimated interest payments.

Operating Lease Obligations - Our lease portfolio primarily comprises operating leases for our office space. For additional information regarding our operating leases, see Note 12 to our Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Additionally, as of March 31, 2023, we had outstanding letters of credit of approximately $12 million, which secure our lease obligations in connection with certain of the operating leases of our office spaces.

Purchase Obligations - We have non-cancellable purchase obligations for content related to our mobile applications and websites and certain cloud computing costs. During the three months ended March 31, 2023, there were no material changes to the purchase commitments disclosed in Note 18 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. We evaluate our estimates, judgments and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates, and the health of the real estate market and the broader economy have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact our estimates. For information on our critical accounting policies and estimates, see Part II Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily consist of fluctuations in interest rates.

Interest Rate Risk

Under our current investment policy, we invest our excess cash in money market funds, U.S. government treasury securities, U.S. government agency securities, investment grade corporate securities and commercial paper. Our current investment policy seeks first to preserve capital, second to provide sufficient liquidity for our operating and capital needs and third to maximize yield without putting our principal at risk.

Our short-term investments are exposed to market risk due to the fluctuation of prevailing interest rates that may reduce the yield on our investments or their fair value. For our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio.

As of March 31, 2023, we had approximately $1.7 billion aggregate principal amount of convertible senior notes outstanding with maturities ranging from September 2024 through September 2026. All outstanding convertible senior notes bear fixed rates of interest and, therefore, do not expose us to financial statement risk associated with changes in interest rates. The fair values of the convertible senior notes change primarily when the market price of our stock fluctuates or interest rates change.

We are also subject to market risk which may impact our mortgage loan origination volume and associated revenue and the net interest margin derived from borrowings under our warehouse line of credit and master repurchase agreements that provide capital for Zillow Home Loans. Market risk occurs in periods where changes in short-term interest rates result in mortgage loans being originated with terms that provide a smaller interest rate spread above the financing terms of our warehouse line of credit and master repurchase agreements, which can negatively impact our net income (loss). This risk is primarily mitigated through expedited sale of our loans. As of March 31, 2023 and December 31, 2022, we had $42 million and $37 million, respectively, of outstanding borrowings on our warehouse line of credit and master repurchase agreements which bear interest either at a floating rate based on SOFR plus an applicable margin, as defined by the governing agreements, or BSBY plus an applicable margin, as defined by the governing agreements. We manage the interest rate risk associated with our mortgage loan origination services through the use of forward sales of mortgage-backed securities. Assuming no change in the outstanding borrowings on the warehouse line of credit and master repurchase agreements, we estimate that a one percentage point increase in SOFR or BSBY, as applicable, would not have a material effect on our annual interest expense associated with the warehouse line of credit and master repurchase agreements as of March 31, 2023 and December 31, 2022.

For additional details related to our credit facilities and convertible senior notes, see Note 8 to our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Inflation Risk

The macroeconomic environment in the United States has experienced, and continues to experience, significant inflationary pressures, including the highest levels of sustained inflation in nearly four decades. While it is difficult to accurately measure the impact of these inflationary pressures on our business, we believe these effects have been pervasive throughout our business during the past several quarters. In response to ongoing inflationary pressures in the United States, the Federal Reserve has implemented a number of increases to the federal funds rate in recent quarters. These increases have impacted other market rates derived from this benchmark rate, including mortgage interest rates. The increase in mortgage interest rates across the industry has decreased demand for mortgages overall and, in turn, had an adverse impact on our Mortgages revenue.

If the inflation rate continues to increase, our costs, in particular labor, marketing and hosting costs, will continue to be subject to significant inflationary pressures and we may not be able to fully offset such higher costs through price increases. In addition, uncertain or changing economic and market conditions, including inflation or deflation, may continue to affect demand for our products and services and the housing markets in which we operate. Our inability or failure to quickly respond to inflation could harm our business, results of operations and financial condition. We cannot predict the duration or magnitude of these inflationary pressures, or how they may change over time, but we expect to see continued impacts on the residential real estate industry, our customers and our company. Despite these near-term effects, we do not expect these inflationary pressures to have a material impact on our ability to execute our long-term business strategy.

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Foreign Currency Exchange Risk

We do not believe that foreign currency exchange risk has had a material effect on our business, results of operations or financial condition. As we do not maintain a significant balance of foreign currency, we do not believe an immediate 10% increase or decrease in foreign currency exchange rates relative to the U.S. dollar would have a material effect on our business, results of operations or financial condition.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of March 31, 2023. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective as of March 31, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings in which we are involved, see Note 13 under the subsection titled “Legal Proceedings” in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 1A. Risk Factors

There have not been any material changes to the risk factors affecting our business, financial condition or future results from those set forth in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. However, you should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities during the three months ended March 31, 2023.

Purchase of Equity Securities by the Issuer

The following table summarizes our stock repurchases during the three months ended March 31, 2023 (in millions, except share data which are presented in thousands, and per share amounts):

	Total Number of Shares Purchased		Average Price Paid Per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
Period	Class A common stock	Class C capital stock	Class A common stock		Class C capital stock
January 1 - January 31, 2023	—	—	$	—	$	—	—	$	500
February 1 -February 28, 2023	229	1,125	42.70		43.32		1,354	442
March 1 - March 31, 2023	85	573	41.73		42.26		658	414
Total	314	1,698					2,012
(1) On December 2, 2021, the Board authorized a stock repurchase program granting the authority to repurchase up to $750 million of its Class A common stock, Class C capital stock or a combination of both. On May 4, 2022, the Board of Directors authorized the repurchase of up to an additional $1 billion (together the “Repurchase Authorizations”) of its Class A common stock, Class C capital stock or a combination thereof. On November 1, 2022, the Board of Directors further expanded the Repurchase Authorizations to allow for the repurchase of a portion of our outstanding convertible senior notes. There were no repurchases of convertible senior notes during the three months ended March 31, 2023. The Repurchase Authorizations do not have an expiration date.

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Item 6. Exhibits

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation of Zillow Group, Inc. (Filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2015, and incorporated herein by reference).
3.2	Amended and Restated Bylaws of Zillow Group, Inc. (Filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 5, 2020, and incorporated herein by reference).
31.1	Certification of Chief Executive Officer pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1^	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2^	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document).
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (embedded within the inline XBRL document).
^	The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: May 3, 2023	ZILLOW GROUP, INC.
	By:	/s/ JENNIFER ROCK
	Name:	Jennifer Rock
	Title:	Chief Accounting Officer

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