Zillow (ZG, Financial) saw a significant decline of 10% after releasing its Q4 results. The company reported a modest EPS beat and impressive 16.9% year-over-year revenue growth to $554 million, exceeding its previous guidance of $525-540 million. Adjusted EBITDA increased by 62% year-over-year to $112 million, surpassing the $90-105 million guidance. However, Q1 revenue guidance fell below consensus, impacting the stock negatively.
In addition to earnings, Zillow announced a partnership with Redfin (RDFN, Financial), becoming the exclusive provider of multifamily rental listings (properties with 25+ units) on Redfin's sites. This deal enhances Zillow's Rentals Network, which includes Redfin, Rent.com, and ApartmentGuide.com, alongside existing brands like HotPads and Trulia. With the rental market booming, this partnership is beneficial for both companies, positioning Zillow as a major player in the rental space.
Zillow revised its reporting segments, now categorizing revenue into For Sale and Rentals. The For Sale segment, which includes residential and mortgage revenue, saw a 15% year-over-year increase to $428 million. Residential revenue rose 11% to $387 million, driven by conversion improvements and Zillow Showcase expansion. Mortgage revenue surged 86% year-over-year to $41 million, due to a 90% increase in purchase loan origination volume to $923 million. The Rentals segment revenue grew 25% year-over-year to $116 million, with multifamily revenue up by 41%.
What led to the weak guidance? Zillow anticipates a challenging housing market in Q1, expecting it to remain relatively flat. Muted pending existing home sales trends in December and January are likely to result in lower year-over-year growth in closed transactions for Q1 compared to Q4 2024. Zillow predicts mid-single-digit growth in the For Sale segment, with residential growth in the low to mid-single digits and mortgage growth around 30%.
Additionally, Zillow mentioned that it pulled forward several closed loans in late December, affecting January and leading to Q4 outperformance relative to internal expectations. This factor somewhat diminishes the Q4 results.
Despite recent strong quarters, Zillow's Q4 report and particularly the Q1 guidance disappointed investors. The flat housing market outlook ahead of the spring selling season was not encouraging. While Zillow is primarily known for home sales, its expansion into Rentals has proven wise, as Rentals growth remains robust. The dual focus on sales and rentals is strategic, as it balances the impact of fluctuating interest rates on consumer behavior.
