Online real estate marketplace Zillow (NASDAQ:ZG) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, with sales up 18.1% year on year to $654 million. Its non-GAAP profit of $0.39 per share was in line with analysts’ consensus estimates.
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Zillow (ZG) Q4 CY2025 Highlights:
- Revenue: $654 million vs analyst estimates of $650.5 million (18.1% year-on-year growth, 0.5% beat)
- Adjusted EPS: $0.39 vs analyst estimates of $0.40 (in line)
- Adjusted EBITDA: $149 million vs analyst estimates of $151.5 million (22.8% margin, 1.6% miss)
- Operating Margin: -1.7%, up from -12.5% in the same quarter last year
- Market Capitalization: $13.23 billion
StockStory’s Take
Zillow’s fourth quarter was marked by double-digit revenue growth and a substantial improvement in operating margin, but the market responded negatively, reflecting concerns about profitability and rising legal expenses. Management attributed the strong topline gains to accelerating momentum in rentals—especially multifamily—and continued expansion of its integrated enhanced markets strategy. CEO Jeremy Wacksman cited traction in software tools like Follow-up Boss and growth in mortgage originations as key contributors, while CFO Jeremy Hofmann noted that higher-than-anticipated legal costs weighed on margins.
Looking ahead, Zillow’s guidance is shaped by expectations for continued strength in rentals, planned expansion of its enhanced markets offering, and increased investment in marketing and personnel. Management highlighted a path toward mid-teens revenue growth in the coming year, underpinned by new product launches and a focus on operational efficiency. At the same time, Hofmann cautioned that elevated legal expenses are expected to persist, creating near-term headwinds for margin expansion. Wacksman emphasized that, "integration improves outcomes," and the company remains committed to growing market share through technology and service enhancements.
Key Insights from Management’s Remarks
Management emphasized that growth in rentals and deeper adoption of integrated agent tools were the main drivers of revenue gains, while higher legal costs pressured margins in the quarter.
- Rentals momentum accelerating: Zillow’s rentals business, particularly multifamily, drove significant growth. The company expanded its property listings to 2.5 million active rentals, and multifamily revenue grew 63% year over year. Management sees high return on investment for property managers, which is driving further adoption and wallet share gains.
- Enhanced markets scaling up: The integrated enhanced markets model—connecting buyers, agents, and loan officers—now accounts for 44% of Zillow’s connections, up from 21% last year. This approach is enabling higher conversion rates and expanding the adoption of Zillow Home Loans, which posted double-digit adoption in these markets.
- Mortgage growth outpaces industry: Zillow Home Loans experienced a 53% increase in purchase origination volume, with mortgage revenue up 39% year over year. Management cited improved conversion rates and new digital tools, such as Viability and in-app messaging, as factors boosting productivity for agents and loan officers.
- Agent software and AI adoption: The rollout of Follow-up Boss Smart Messages, an AI-powered feature, scaled nationwide and saw over 7 million messages sent, improving agent-client engagement. Early testing of Zillow Pro, a bundled agent offering, is also underway, aiming to further increase agent productivity and retention.
- Legal and cost headwinds: CFO Jeremy Hofmann acknowledged that legal expenses rose above expectations, creating a 180-basis-point drag on quarterly margins. While fixed costs remained flat year over year, these legal costs were a notable exception impacting the bottom line.
Drivers of Future Performance
Management’s outlook for the coming quarters centers on expanded adoption of integrated digital offerings, sustained rentals growth, and disciplined cost management amid ongoing legal expense pressures.
- Rentals and multifamily expansion: Management expects rentals to remain a primary growth engine, projecting 30% revenue growth for the segment this year. The company plans to continue expanding its listings, especially in multifamily, and invest in sales capacity to capture additional market share.
- Enhanced markets and product rollout: Zillow will focus on broadening the reach of enhanced markets and rolling out Zillow Pro nationwide in the second half of the year. While Zillow Pro is not expected to materially contribute to financials this year, management believes it will deepen agent engagement and lay the groundwork for future growth.
- Margin pressures and cost discipline: Legal expenses are expected to remain elevated, resulting in roughly 100 basis points of margin headwind for the year. Management aims to offset some of this with flat fixed costs and continued reductions in share-based compensation, but acknowledges that these headwinds will temper the pace of margin expansion.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will focus on (1) tracking the pace of rentals revenue and property listing expansion, (2) monitoring adoption rates and agent feedback as Zillow Pro rolls out nationwide, and (3) scrutinizing margin trends as legal expenses persist and cost controls are implemented. The effectiveness of integrated product launches and ongoing enhancements to agent and consumer digital experiences will also be key signposts.
Zillow currently trades at $52.20, down from $54.42 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).
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