Zillow Group IR Blog

Rich Barton’s Annual Shareholder Letter – April 2020

Dear Fellow Shareholders,

As I write this letter, we at Zillow Group are finishing up our fifth work-from-home week as the Coronavirus pandemic burns across the globe. As a Seattle-headquartered company, we were on the forefront of taking actions to support our people, partners, and customers. We were one of the first technology companies that moved to a national work from home status, and our teams have quickly adapted to deliver high quality work and services from their home workspaces. During this uncertain time, one thing is certain, home, in all its connotations, has never been more important to us than it is right now.

While it is still early in 2020, the close of 2019 now feels like a lifetime ago. That said, I’d like to briefly summarize some of our key 2019 accomplishments that position us well to continue to execute on our vision to re-platform real estate as we navigate the current storm:

  • We stabilized Premier Agent and returned the business to health as we re-accelerated growth in the second half of the year by improving customer “connections” and by partnering with the best agents. This led to higher customer satisfaction and some of the best retention rates we’ve ever seen. It also enabled us to methodically expand the testing of our success-based service offering called “Flex” in which agents pay us a success fee only after they close a transaction from a Zillow lead. Our other marketplaces in our Internet, Media and Technology (IMT) segment delivered strong performance and growth.
  • We launched 17 new markets for Zillow Offers and ended Q4 on a $2.4 billion Homes segment revenue run rate – less than two years into this business. We did this while operating within the expectations we set for ourselves at the per-home level to make or lose an average of 2% return on homes sold before interest expense1. In all, we bought 6,511 homes and sold 4,313 homes in 2019. Our team and machines learn every day, and we applied these learnings to inform and improve our buying and selling strategies.
  • We restructured our operations, more closely aligning Zillow Home Loans and Premier Agent with Zillow Offers to deliver a more seamless transaction experience. We also expanded our Mortgage management bench and made progress on digitizing and automating Zillow Home Loans to become our integrated payments platform. And, we built Zillow Closing Services and began offering Zillow-branded title and escrow services as another important step to integrate the transaction experience.
  • We started our journey to “get fit,” focusing on cost management and operational rigor that led to improved IMT segment Adjusted EBITDA margins.
  • We raised $1.1 billion of net cash from convertible notes in a September offering and ended 2019 with $2.4 billion in cash and short-term investments on our balance sheet.
  • We “modernized” Zillow 2.0 with our new mission to give people the power to unlock life’s next chapter and expanded our values to orient ourselves toward transactions and keep our customers front and center as our north star.

You will find more details about our financial performance in our Annual Report on Form 10-K.

In all, 2019 was a really successful year and a critical one of transition that required us to evolve our operations, mindset, and culture further down funnel toward transactions and closer to our customers. Though we certainly didn’t contemplate a global pandemic in our 2020 business plan, the progress we made in 2019, combined with our recent actions to protect the enterprise, our people, customers, and partners, gives us confidence that we are well positioned to come out of the current health crisis in an even stronger competitive position than we entered.

With the rapid expansion of the novel coronavirus (COVID-19), our 2020 priorities have changed quickly. When we reported Q4 in February, we put forth our key priorities for this year that focused on executing growth and scaling our businesses. While we plan to return to these at some point, our immediate priorities are more basic:

  • Protect the ZG enterprise, including protecting the health and safety of our people, customers, and partners
  • Reduce costs
  • Accelerate technology innovations to deliver seamless and, now, more virtual real estate shopping and transaction experiences
  • Enhance our relative competitive position to lead the industry to Real Estate 2.0

In line with these new priorities, on March 23, in a conference call with investors, we announced a 25% reduction in run-rate operating expenses versus our 2020 operating plan through four immediate actions. First, we paused hiring for most roles; Second, we reduced and delayed marketing spend; Third, we paused home buying in Zillow Offers; and, Fourth, we reduced all discretionary spending. These cost-saving actions have helped to offset the discounts and credits we extended to our Premier Agents and other industry partners to help reduce their financial burdens during these uncertain times. We are all in this together and we want them to know we believe we are better together. They have appreciated that.

We are prepared for any and all scenarios. My co-founder and our Executive Chairman, Lloyd Frink, and I, along with many of our executive team, have successfully navigated unexpected crises in the past and emerged stronger on the other side. This was true while at Expedia post-9/11 and here at Zillow as we grew through the global financial crisis. We did this by making decisive calls quickly to use the brakes — and, alternatively, the accelerator — when appropriate.

An important lesson Lloyd and I learned from Bill Gates early in our careers is optionality during crises is always greater with cash. Part of Microsoft lore is Bill Gates Sr. advised his son in the earliest days of Microsoft to always have enough cash to run the company for one year without any revenue. That’s a lesson we have taken to heart. Zillow Group’s cash position affords us more than enough runway to navigate whatever may come.

In fact, the past several weeks have given us even greater confidence in our company’s opportunity to re-platform real estate through innovation and technology. The current health crisis has brightly illuminated how antiquated systems and paper-driven processes weigh down the real estate sector and how technology can ultimately make exchanges with our customers and partners more seamless and the entire market more efficient. We believe real estate can and should be “always on” and we intend to make it so.

We are in the pole position to lead the industry to Real Estate 2.0 with our leading brand, platform, and customer scale combined with our great people, culture and partners. Our team is rapidly innovating on new features and technology to improve the virtual shopping and transaction experience, including our proprietary free 3D Home Tours, to meet rapidly evolving expectations.

We will all get through this. Right now our top priority is keeping our people, customers and partners safe as we protect the Zillow Group enterprise on this unexpected, but navigable journey. As always, we appreciate your partnership. From our homes to yours, we hope you and your families remain safe and healthy.


Rich Barton
Co-founder and Chief Executive Officer, Zillow Group, Inc.


Zillow’s 2019 Annual Report and 2020 Proxy Statement can be found on Zillow Group’s Investor Relations site: https://investors.zillowgroup.com/investors/financials/annual-reports-and-proxies/default.aspx


A note about Forward-Looking Statements: This letter contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that involve risks and uncertainties, including, without limitation, statements regarding our financial condition and the future of Zillow Group, Zillow Offers, Premier Agent and other parts of our business. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “will,” “projections,” “continue,” “estimate,” “outlook,” “guidance,” or similar expressions constitute forward-looking statements. Forward-looking statements are made based on information currently available to management, and although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee these results. Differences in Zillow Group’s actual results from those described in these forward-looking statements may result from 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, the impact of the novel coronavirus (COVID-19) pandemic and any associated economic downturn on our future financial position, operations and financial performance; the magnitude, duration and severity of the COVID-19 pandemic; the current and future health and stability of the economy and residential housing market, including any extended slowdown in the real estate markets as a result of COVID-19; Zillow Group’s ability to execute on strategy; 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; and Zillow Group’s investment of resources to pursue strategies that may not prove effective. The foregoing list of risks and uncertainties is illustrative but 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 Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC and in Zillow Group’s other filings with the SEC. Except as may be required by law, Zillow Group does not intend, and undertakes no duty to update this information to reflect future events or circumstances.

1 In this letter we use certain non-GAAP financial measures, including Average Return on Homes Sold Before Interest Expense and IMT segment Adjusted EBITDA, which are not calculated or presented in accordance with U.S. generally accepted accounting principles, or GAAP, and should not be considered in isolation or as a substitute for our financial results as reported under GAAP. For additional important information, please refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 19, 2020 and available on our Investor Relations website at https://investors.zillowgroup.com/investors/financials/sec-filings/default.aspx.

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