Investor Presentation. November 2018

Transcription

1 Investor Presentation November

2 Legal disclosure This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 about Zillow Group s future financial performance and results that involve risks and uncertainties. The Company s actual results may differ materially from those anticipated in these forward-looking statements due to actions taken by Zillow Group as well as from risks and uncertainties beyond Zillow Group s control. Factors that may contribute to such differences include, but are not limited to, Zillow Group's ability to maintain and effectively manage an adequate rate of growth; Zillow Group's ability to innovate and provide products and services that are attractive to its users and advertisers; Zillow Group's ability to compete successfully against existing or future competitors; Zillow Group's investment of resources to pursue strategies that may not prove effective; the impact of the real estate industry on Zillow Group's business; the impact of pending litigation and other legal and regulatory matters; Zillow Group's ability to increase awareness of the Zillow Group brands in a cost-effective manner; Zillow Group's ability to attract consumers to Zillow Group's mobile applications and websites; Zillow Group's ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; the reliable performance of Zillow Group's network infrastructure and content delivery processes; and Zillow Group's ability to protect its intellectual property. The foregoing list of risks and uncertainties is illustrative, but is not exhaustive. For more information about potential factors that could affect Zillow Group's business and financial results, please review the "Risk Factors" described in Zillow Group's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 filed with the Securities and Exchange Commission, or SEC, and in Zillow Group's other filings with the SEC. These documents are available in the Investor Relations section of the Company s website at The forward-looking statements made in this presentation are based on information available and assumptions as of November 6, Information regarding Revenue and Adjusted EBITDA guidance is as stated on November 6, 2018 and is not being updated with this presentation. Except as may be required by law, the Company does not intend, and undertakes no duty, to update this information to reflect future events. This presentation includes certain non-gaap financial measures, including Adjusted EBITDA, which 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. You should not consider these metrics in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliation tables and other important information about the Company s financial results are included in Appendix A to this presentation, in the Company s Current Report on Form 8-K furnished to the SEC on November 6, 2018, and in the Company s other filings with the SEC, all of which are available at Additional information, including financial statements, is available in Zillow Group s annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, which are available at free of charge, and on the website of the Securities and Exchange Commission. 2

3 Mission Build the largest, most trusted and vibrant home-related marketplace in the world. 3

4 Consumer empowerment through information transparency buyers & sellers real estate agents & brokers renters Living database 110M homes mortgage providers property managers and multifamily marketers homeowners 80 million homes on Zillow have been updated by our community of users builders, new construction marketers 4

5 Strong portfolio of brands Consumer Brands Business Brands 5

6 Zillow Group snapshot $1.1B 195M 6.3B revenue in 2017 monthly unique users 1 visits in Annual peak, July 2018 Zillow Group mobile apps and websites 80M 32M ~3,800 homes updated by users monthly unique rental users 3 employees 4 3 Annual average, As of September 30,2018 6

7 Large total addressable market (TAM) opportunity Internet, Media & Tech (IMT) segment Homes segment $17B TAM 1 TAM linked to $1.8T $7.2B $6.6B real estate agents and brokers 1 mortgage providers 1 $1.1B real estate developers 1 $2.7B property managers 1 The TAM opportunity from Zillow Group participating in Zillow Offers by buying houses and selling them on the open market is linked to the aggregate transaction value of existing and new homes sold in the U.S. 1. Borrell Associates 2017; Total spent on online and offline residential real estate advertising. 2. $1.8T represents estimated aggregate transaction value of existing and new homes sold in US Census Bureau and National Association of REALTORS 2017; Zillow Group internal estimate. 7

8 Driving growth and steady margin expansion adjusted EBITDA 1 $1.316B 3 revenue $1.077B Homes Segment 2018 Guidance Revenue: $30M to $40M EBITDA 4 : ($43M) to ($38M) $847M $644M $198M $326M $30M $50M $88M $145M 2 $236M $201M 3,4 IMT Segment 2018 Guidance Revenue: $1277M to $1,284M EBITDA 4 : $238M to $245M Projecting 19% YOY 2018 IMT Revenue Growth E EBITDA margin % 15.3% 13.7% 17.1% % 15.3% 3 1. See Appendix A for additional information about our non-gaap financial measures, including a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, and presentation of net income (loss) margin Adjusted EBITDA was $14.8M, or 2% EBITDA margin, which includes the impact of a $130M litigation settlement. Excluding the impact of the $130M litigation settlement, 2016 Adjusted EBITDA would have been $145M, or 17.1% EBITDA margin, as presented above. 3. Based on the midpoint of guidance issued November 6, Guidance is not being updated with this presentation. 4. A quantitative reconciliation of forecasted Adjusted EBITDA to forecasted GAAP net income (loss) for total Adjusted EBITDA or to forecasted GAAP income (loss) before income taxes for segment Adjusted EBITDA is not provided because the company is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. 8

9 Investment case valuation $ enterprise value agent commission $11.9B 2 $6.0 $ $4.2B 2 $5.8B 2 Australia United Kingdom United States 1. Australian Bureau of Statistics (Average AUS sale price x average AUS real estate agent commission x total 2017 AUS home sale transactions) 2. NASDAQ IR Insight as of November 12, Land Registry Public Data (Average UK sale price x average UK real estate agent commission x total UK home sale transactions) 4. Zillow Group internal estimate (total new and existing homes sold, National Association of REALTORS 2017 x average agent commissions, REAL Trends) 9

10 2018 strategic priorities Grow our audience size and increase engagement across all brands - including launching new brands and into new geographies. Create better experiences for consumers as we accompany home buyers and sellers further down the funnel and closer to the transaction. Evolve our revenue models in each marketplace to better align our results with transactions and our industry partners commissions at the bottom of the funnel. Attract and retain the best talent and leverage Zillow Group s unique company culture focused on innovation as a competitive advantage. 10

11 Zillow Group operates the largest online real estate network 1 Zillow Group brands' mobile apps and websites reached an alltime high of more than 195 million unique users in July Across web and mobile, Zillow Group s consumer brands have more than double the audience of the nearest competitor. 1 Average Monthly Unique Users Total Quarterly Visits ,404 1,533 1,679 1,667 1,436 1,765 1,921 1,889 in millions 1,190 in millions Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 1. Comscore Media Metrix Multi-Platform, Real Estate, Total Audience, September 2018, U.S. 2. Includes visits to Zillow Group brands mobile apps and websites, Zillow, Trulia, StreetEasy (included as of March 2017) and RealEstate.com (included as of June 2017) 11

12 Audience growth is amplified by advertising Television Outdoor Social Many Ways Home Zillow.com/tv SEO / SEM Print Insiders Radio Trulia.com/tv 12

13 Zillow Group is the leader in mobile Sunset 1234 Elm Street Seattle, WA Mobile-exclusive market share leader in real estate category 1 More than 2/3 of Zillow s usage occurs on a mobile device 2 Monetizing upon the shift from desktop to mobile Variety of apps from Zillow Group brands across all major platforms 1. Comscore Media Metrix Multi-Platform, Real Estate, Total Audience, September 2018, U.S. 2. Google Analytics, September

14 Homes Internet, Media & Technology (IMT) Zillow Group s revenue streams contribution 2017 products/services description Mortgages 7% Rentals 10% Other 12% Premier Agent Rentals Suite of marketing and business technology products and services to help real estate agents, teams and brokerages achieve their advertising goals, while growing and managing their businesses and brands. Advertising sold to property managers and other rental professionals on a cost per lead, cost per click or cost per lease generated basis. Premier Agent 71% Mortgages Marketing products sold to mortgage professionals on a cost per lead and subscription basis. Other Revenue generated by new construction, dotloop and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals. Announced Q Zillow Offers Revenue from Zillow Group s selling of homes directly on the open market. 14

15 Acquisition of Mortgage Lenders of America National mortgage lender, headquartered in Overland Park, Kansas, with approximately 300 employees. Allows Zillow Group to streamline and shorten the home-buying process for consumers. Zillow Group's current advertising products for lenders - Connect, Custom Quotes and lender co-marketing - remain an important part of the business, and the company intends to support and grow that marketplace. MLOA is an existing advertising client and originated 4,400 mortgage loans in leaving plenty of opportunity for independent lenders to continue to advertise and build their businesses on the Zillow Group platform. Mortgages will become Zillow Group s third reportable segment in Q and will include financial results for advertising sold to mortgage lenders and other mortgage professionals, mortgage originations through MLOA and Mortech mortgage software solutions. 15

16 Introducing Zillow Group 5.0 End-to-end technology solution (i.e. CRM, My Agent, dotloop, etc.) allows agents and brokers to manage leads and the entire transaction from initial contact through closing on Zillow Group s tech stack. The auction-based and flex pricing models align our revenue with our Premier Agent advertisers success. New lead validation and distribution process allows Zillow Group to ensure its leads are serviced, while delivering high-quality connections for Premier Agents and consumers. Launch of Homes business has potential for significant long-term profit opportunity at scale, as well as ancillary revenue streams, including seller leads and mortgage origination. Opportunity for revenue growth from emerging marketplaces: Rentals, Mortgage, New Construction, etc. 16

17 Value for the professional Value for the consumer Rewiring the industry with an end-to-end solution Accurate, timely listings with unlimited hiresolution photos Enter Enter Empowered with data, knowledge about homes Search Help agents and brokers convert leads effectively by providing them with tools and training to generate more transactions Connect Seamless, paperless transactions Close Close + Single point of entry for listings input Reach largest audience in the online real estate category 1 Geotargeted, measureable advertising Close more deals, measureable ROI for reinvestment 1. Comscore Media Metrix Multi-Platform, Real Estate, Total Audience, September 2018, U.S 17

18 Premier Agent funnel T 1 Aggregate transaction value 5.5M sales of existing and 608K new homes sold in $87B 2 Total industry commissions U.S. real estate agents, brokers and developers spent an estimated $8.3B on advertising in $6.5B 4 ZG incremental commissions Zillow Group facilitated an estimated 7.5% share of transaction sides 5 $762M Premier Agent revenue Estimated 8x ROI for Premier Agents 6 1. US Census Bureau and National Association of REALTORS 2017; Zillow Group internal estimate 2. Internal estimate (total new and existing homes sold, National Association of REALTORS 2017 x average agent commissions, REAL Trends) 3. Borrell Associates Internal estimate (2017 total industry commissions, REAL Trends x estimated share of sales) 5. Internal estimate (total transactions attributable to ZG / total industry transactions, National Association of REALTORS 2017) 6. Internal estimate of ZG incremental commissions / Annual Premier Agent revenue 18

19 Premier Agents bid for share of voice on the Buyer s Agent List BAL 1 How the Buyer's Agent List (BAL) works: Premier Agents, Premier Brokers and teams are shown on the BAL of a listing page based on estimated Share of Voice (SOV). SOV = percentage of times a Premier Agent will show up on the BAL in that ZIP code. Premier Agents buy a percentage of the SOV in a zip code and will show up in one of the three rotating BAL spots based on how much of the total 300% the agent purchased. Example 2 : Agent Budget Share of voice Estimated share of total impressions A $1, % 33% B $1, % 33% C $500 50% 17% D $250 25% 8% E $250 25% 8% Total $3, % 100% Each BAL is based on a total percentage of 300 and has four spots: The first spot of the BAL will always show the Listing Agent. Premier Agents show up in the next three slots based on their SOV. 1. Information displayed is generalized and may not reflect how the BAL appears for all listings. 2. Example for illustrative purposes only. Cost per impression is dynamic and changes as demand in a given zip code increases or decreases. 19

20 Demand in marketplace drives pricing with auction model A Example: Premier Agent increases monthly advertising A spend with Zillow Group B A Premier Agent moves up in ranking by share of voice in a zip code Agent 1 Agent 2 A Bob Sullivan Agent 1 A Share of voice for other Premier Agents advertising in that zip code is decreased Agent 3 Bob Sullivan Agent 2 Agent 3 B Estimated monthly leads delivered to Premier Agent grows Agent 4 Agent 5 Agent 6 Agent 4 Agent 5 Agent 6 Cost per lead increases for all Premier Agents B advertising in zip code B ROI over time decreases slightly for all Premier Agents advertising in zip code 20

21 Moving from leads to connections to improve conversion When a consumer selects an agent on Zillow or Trulia: We validate the lead and introduce the agent to their new connection. Validation When a consumer does not select an agent, but requests information on a listing: We validate the lead and call Premier Agents based on share of voice until we make a connection. Validation Validated lead All other leads Validated lead Not agent-ready If agent is unavailable Connect attempt If agent is unavailable Connect with agent Lead to inbox Connect attempt Lead to inbox If agent is unavailable A validated lead is actively looking to buy or sell a home, not yet working with an agent, and is ready to speak to a Premier Agent. Connect with agent If a Premier Agent misses our call, they will be next in the queue, based on share of voice. 21

22 Zillow Offers is a massive opportunity at scale Zillow Offers provides homeowners in some metropolitan areas with the opportunity to receive offers to purchase their home from Zillow. When Zillow buys a home, it will make necessary updates and list the home for resale on the open market. If 5% Market Share of new and existing homes sold in the U.S. is achieved. 1 Now live Coming soon Now live in 4 markets Phoenix, AZ Las Vegas, NV Atlanta, GA Denver, CO Coming soon to 3 markets Houston, TX Charlotte, NC Raleigh, NC Potential complementary benefits: Premier Agent seller leads Ancillary revenue: Mortgages, New Construction, etc. Estimated $3,500 net profit per transaction* ~$1 billion profit opportunity annually at scale* *Example for illustrative purposes only. Assumes 90 day or less holding period ,000 homes in 2017: US Census Bureau and National Association of REALTORS

23 Seller lists with agent Agent requests an offer Zillow buys a home How Zillow Offers works A seller requests an offer on their home using Zillow Offers. The seller accepts the cash offer from Zillow. Zillow purchases the home with the help of a Premier Agent and makes repairs. A Premier Agent will list the home on behalf of Zillow. If an agent wants to present an offer from Zillow on their active listing, they can request one. The seller may receive a cash offer from Zillow. Zillow purchases the home with the help of a Premier Agent, and makes repairs. A Premier Agent will list the home on behalf of Zillow. Should the seller accept, Zillow will work through the agent to close. A seller requests an offer on their home using Zillow Offers. The seller may receive a cash offer from Zillow. If the seller declines Zillow s offer, they are connected to a partnering Premier Agent. A Premier Agent will list the home on the market. 23

24 Homes segment financial model For illustrative purposes only Revenue Sales price of homes Cost of revenue: Purchase price of homes (Less Zillow fee of 6% to 9% on average) Costs to purchase homes (closing costs, commissions, escrow, title, etc.) Home improvement costs (including direct labor) Gross Margin Other operating expenses: Model assumes 90 day or less holding period. Holding costs (insurance, taxes, HOA fees, etc.) Costs to sell homes (closing costs, commissions, escrow, title, etc.) Corporate overhead (indirect labor, marketing, etc.) Adjusted EBITDA 1 1. Adjusted EBITDA is a non-gaap financial measure which excludes other income, depreciation and amortization expense, share-based compensation expense, impairment costs, acquisition-related costs, interest expense and income taxes. Segment Adjusted EBITDA is reconciled to income (loss) before income taxes, which is the most directly comparable GAAP financial measure. 24

25 Balance sheet snapshot Year Ended December 31, 3 Months Ended September 30, ($ in millions) (unaudited) Cash, cash equivalents and investments $520.3 $507.5 $762.5 $681.0 $1,643.0 Working capital ,641.5 Property and equipment, net Total assets 3, , , , ,202.5 Long-term debt Deferred tax liabilities and other long-term liabilities Total shareholders' equity 2, , , , ,

26 Zillow Group leadership team Extensive history building successful consumer internet and real estate companies Rich Barton Executive Chairman Years at ZG 13 Background David Beitel Chief Technology Officer Years at ZG 13 Background Lloyd Frink Vice-Chairman 13 Stan Humphries Chief Analytics Officer 13 Spencer Rascoff Chief Executive Officer 13 Errol Samuelson Chief Industry Development Officer 4 Allen Parker Chief Financial Officer Jennifer Rock Chief Accounting Officer Greg Schwartz President, Media & Marketplaces < Jeremy Wacksman President, Zillow Brand Co-head of Zillow Offers Arik Prawer President, Homes Division Co-head of Zillow Offers 9 <1 Aimee Johnson Chief Marketing Officer <1 26

27 Strong company culture focused on innovation ~3,800 employees 1 94% of Zillow Group employees say they would recommend working for the company to a friend 2 Recognized as a Best Place to Work across nearly all locations 1. As of September 30, Ziillow Group employee engagement survey, October

28 Investment highlights Leading brand identity Largest real estate network on the web 1 Significant market opportunity and margin potential at scale Strong suite of innovative technology and products Monetizing the mobile opportunity as a mobile-first company 1. Comscore Media Metrix Multi-Platform, Real Estate, Total Audience, September 2018, U.S. 28

29 Appendix A Reconciliation of Adjusted EBITDA to net loss Year Ended December 31, (in thousands, unaudited) Net loss $ (12,453) $ (43,610) $ (148,874) $ (220,438) $ (94,420) Other income (385) (1,085) (1,501) (2,711) (5,385) Depreciation and amortization expense 23,254 35,624 75, , ,155 Share-based compensation expense 23,436 34, , , ,571 Impairment costs 3, ,000 Acquisition-related costs ,493 16,576 1, Restructuring costs , Loss (gain) on divestiture of businesses - - 4,368 (1,251) - Interest expense - - 5,489 7,408 27,517 Loss on debt extinguishment ,757 - Income tax (benefit) expense (4,111) - (4,645) 130 (89,586) Adjusted EBITDA $ 30,117 $ 49,766 $ 87,564 $ 14,826 $ 236,315 Calculation of net loss margin Year Ended December 31, (in thousands, unaudited) Net loss $ (12,453) $ (43,610) $ (148,874) $ (220,438) $ (94,420) Revenue $ 197,545 $ 325,893 $ 644,677 $ 846,589 $ 1,076,794 Net loss margin -6.3% -13.4% -23.1% -26.0% -8.8% Calculation of Adjusted EBITDA margin Year Ended December 31, (in thousands, unaudited) Adjusted EBITDA $ 30,117 $ 49,766 $ 87,564 $ 14,826 $ 236,315 Revenue $ 197,545 $ 325,893 $ 644,677 $ 846,589 $ 1,076,794 Adjusted EBITDA margin 15.2% 15.3% 13.6% 1.8% 21.9% 1. For the year ended December 31, 2016, Adjusted EBITDA of $14.8M includes the impact of a $130.0 million litigation settlement and $28.9 million in related legal costs. Excluding the impact of the $130M litigation settlement, 2016 Adjusted EBITDA would have been $144.8M, or 17% EBITDA margin. 29