In an earnings report today, Zillow Group, the operator of listing portals Zillow, Trulia and RealEstate.com, posted a net loss of $21.8 million in second-quarter 2017, up from a $4.6 million loss in the first quarter of 2017, but a steep drop from a $156.1 million loss in second-quarter 2016.

In an earnings report today, Zillow Group, the operator of listing portals Zillow, Trulia and RealEstate.com, posted a net loss of $21.8 million in second-quarter 2017, up from a $4.6 million loss in the first quarter of 2017, but a steep drop from a $156.1 million loss in second-quarter 2016. The latter includes the impact of a $130 million litigation settlement with realtor.com operator and archrival Move Inc.

The company’s revenue grew 28 percent to a record $266.9 million from $208.4 million in the second quarter of 2016, beating its own revenue forecast and surpassing last quarter’s record $245.8 million in revenue. As a result, the company upped slightly its revenue expectations for all of 2017, to between $1.055 to $1.065 billion.

As usual, most of the company’s first quarter revenue came from Premier Agent advertisers. That program pulled in $189.7 million in Q2, up from $147.1 million in the second quarter of 2016 — a 29 percent jump.

Zillow Group also reported that traffic to its mobile apps and websites reached an all-time high of more than 182 million unique users in May.

“Zillow Group finished the first half of 2017 with another quarter of record revenue and traffic, further solidifying our foundation for long-term growth,” said Zillow Group CEO Spencer Rascoff in a statement.

“Our growing consumer audience is increasingly engaged and we achieved revenue growth across all of our emerging marketplaces. As we continue to expand our suite of marketing and technology solutions to help our industry partners achieve long-term success, we’re excited about the opportunities in front of us.”

Expenses and revenue

Zillow Group’s Q2 expenses clocked in at $283.4 million, down from $363.7 million a year earlier. Sales and marketing expenses accounted for 49 percent of revenue at $131.2 million. Technology and development costs were 29 percent of revenue at $78.5 million. General and administrative costs were 20 percent of revenue at $53.3 million.

The company anticipates revenue of between $273 million and $278 million in the third quarter, of which between $196 million and $198 million will be Premier Agent revenue. The company forecasts between $760 million and $765 million in such revenue for all of 2017.

Zillow Group expects to post a profit of between $2.25 million and $7.25 million in third-quarter 2017. Nonetheless, the company anticipates a net loss of between $15 million and $25 million for all of 2017.

Nonetheless, Zillow Group expects to post a net loss of between $29.8 million and $34.8 million in second-quarter 2017 and a net loss of between $17 million and $32 million for all of 2017.

Besides Premier Agent, other sources of Zillow Group’s “marketplace revenue,” which totaled $248.6 million in Q2 (up 30 percent from $191.6 million in Q2 2016) include:

  • Other real estate revenue — $37.9 million in Q2, up 45 percent year-over-year (this includes agent services, dotloop, StreetEasy, Naked Apartments, rentals and “other offerings to endemic advertisers that are not traditional display advertising,” including new construction).
  • Mortgages revenue — $20.9 million, up 14 percent year-over-year.
  • Display revenue — $18.3 million, up 9 percent year-over-year.

The company ended the quarter with 3,036 employees and about $600 million in cash and investments, up from about $560 million last quarter.

Record traffic

In an earnings call today, Rascoff noted that traffic to Zillow Group’s mobile apps and websites had risen 6 percent year over year in Q2, to more than 178 million average monthly unique users.

The company told investors last year that it would no longer report agent advertiser count in 2017 because it considered the metric misleading given that many of its “Premier Agents” are likely agent teams.

So, instead, the company now reports quarterly visits as a key metric. The company counted nearly 1.7 billion visits to its apps and websites in the second quarter, up 17 percent year over year.

“[T]he visits metric helps us evaluate progress toward our goal of increasing engagement with our audience,” Rascoff said.

“Users who visit frequently have a greater intent to buy, sell or rent a home, which ultimately means more high-quality leads for our agent advertisers.”

Zillow Group said in its last earnings call that it expects to spend more on advertising this year than last year, in order to grow its audience. This held true in the second quarter.

“As in prior years, our advertising spend is the highest in the second quarter, in line with the seasonality of the real estate industry,” said Zillow Group CFO Kathleen Philips during today’s call.

“Our second quarter advertising expense typically accounts for approximately one third of our annual advertising budget. Advertising spend in the third quarter will look more like Q1 and the fourth quarter will be the lightest.”

Will Instant Offers expand?

Zillow Group had little to say about its latest controversial product offering, Instant Offers. The pilot program allows homeowners to receive quick offers from multiple investors alongside a comparative market analysis (CMA) from a Zillow Premier Agent.

“We’ve heard from listing agents participating in the test that Instant Offers is a great way for them to get listing leads,” Rascoff said.

“There are several startups and real estate brokerage websites experimenting in this space, but Zillow is the only one that has designed a product to keep the agent involved in every part of the transaction, most notably by giving them the opportunity to secure new listing agreements.

“Ultimately, Zillow Instant Offers has the potential to deliver the highest intent, highest quality listing leads at scale to our Premier Agents.”

He declined to say whether the company would expand the Instant Offers program beyond the initial two test markets. He also said it was “way too early” for speculate how Instant Offers might impact average spend by Premier Agents.

Rascoff emphasized, however, that Zillow Group was focused on “putting the agent at the center of the transaction rather than disintermediating anyone.”

“Despite the growing consumer demand for faster and easier processes, buying or selling a home will remain an infrequent and high-stakes transaction. An agent’s role as trusted advisor is incredibly valuable and permanent,” he added.

In that vein, Zillow Group will spend more than $300 million this year building products that attract consumers to connect with agents and developing marketing software and tech products for agents, brokerages and MLSs, according to Rascoff.

“One of Zillow Group’s goals has always been to establish itself as the industry’s trusted technology partner,” he said.

“Home shoppers today want easier, less stressful and more integrated experiences available to them that provide transparency and control.

“We want to make it possible for agents from all brokerages, brokerages themselves, and our MLS partners to leverage technology to provide those experiences to their clients in a way that ensures their growth and long-term success.”

Premier Agent growth

Premier Agent revenue grew 29 percent year over year last quarter, in part due to increased traffic.

“Premier Agent revenue was positively impacted by growth in visits, which increased the number of impressions we could monetize,” Philips said.

“Premier Agent revenue per visit grew 10 percent year-over-year, which we attribute in part to our new auction-based pricing platform.”

Traffic growth plus demand from agent advertisers “lifted market pricing in our most important markets,” Rascoff said.

Premier Agent revenue per visit increased 10 percent in the second quarter, to $0.113 from $0.103 in the same period last year, the company said.

Of total Premier Agent bookings for the second quarter, 52 percent were sales to existing Premier Agents, according to Zillow Group. Total sales to Premier Agents who have been customers for more than one year rose 49 percent year-over-year in Q2.

At the same time, the number of Premier Agent accounts spending more than $5,000 per month grew by 107 percent year-over-year and increased 92 percent on a total dollar basis, the company said.

Zillow Group did not report how many leads Premier Agents received in the second quarter, but did say that leads continue to grow at a rate faster than traffic. The company estimates its Premier Agents’ lead conversion rate is in the 3 to 5 percent range and has “doubled down” on its lead conversion initiatives to grow that rate, according to Rascoff.

In March, Zillow Group’s rollout of its Premier Agent program for the first time on StreetEasy, its New York listings site, prompted objections from some New York City brokers who opposed lead forms next to their listings that went to paid agent advertisers. At least seven big New York City brokers cut off their listings to StreetEasy and Zillow Group websites this month, making good on their threat to do so if Zillow Group did not agree to certain licensing terms.

The brokers’ trade group, REBNY, also just signed a syndication deal with realtor.com.

Nonetheless, Rascoff noted that the Big Apple accounts for about 5 percent of the U.S. residential real estate market and said “We’re more excited than ever about our potential in New York.”

“Our audience size really dwarfs the competition in New York,” he added.

Rascoff also downplayed the broker boycott in today’s investor call.

“The reception of Premier Agent by real estate professionals and brokers seeking to build their businesses with homebuyers has been strong,” he said.

“Monthly recurring Premier Agent revenue in this market in June 2017 was nearly double the size it was when we launched in March 2017.

“Leading brokerages and agents in New York recognize the benefit of empowering consumers with a choice, as well as the opportunity to build the buy-side of their business, and have committed to partnering with StreetEasy.”

CFPB, VHT and Hutch

In a public filing with the Securities and Exchange Commission (SEC), Zillow Group provided updates on several events that have prompted headlines in recent months.

Editor’s note: This story has been updated with details from Zillow Group’s earnings call with investors and from the company’s quarterly earnings filing with the SEC.

Email Andrea V. Brambila.

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