SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Form 10-K
☒ | | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172022
OR☐ | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File NumberNumber: 001-36853
(Exact name of registrant as specified in its charter)
_____________________________________________________ | | | | | | | | |
| Washington | | 47-1645716 |
(State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | (IRS Employer
Identification No.) |
1301 Second Avenue, Floor 31,
Seattle, Washington
| | 98101 |
(Address of principal executive offices) | | (Zip code) |
1301 Second Avenue, Floor 31,
Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
(206) 470-7000
@ZillowGroup
(Registrant’s telephone number, including area code)
_____________________________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, par value $0.0001 per share | ZG | The Nasdaq Global Select Market |
| Class C Capital Stock, par value $0.0001 per share | Z | The Nasdaq Global Select Market |
(Title of each class) | | (Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whetherif the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:Act. Yes ☒ No ☐ Indicate by check mark whetherif the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | | | | |
Large acceleratedNon-accelerated filer | | ☒☐ | | Accelerated filerSmaller reporting company | | ☐ |
| | | |
Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
| | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):. Yes ☐ No ☒ As of June 30,
2017,2022, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant’s Class A common stock and Class C capital stock held by non-affiliates based upon the closing price of such shares on The Nasdaq Global Select Market on such date was
$7,952,046,852.$6,875,716,337.
As of February
8, 2018, 56,778,0229, 2023, 57,494,698 shares of
the Registrant’s Class A common stock, 6,217,447 shares of Class B common stock, and
127,687,439170,631,589 shares of Class C capital stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated in this Report by reference to the Registrant’s definitive proxy statement relating to the 20182023 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 20172022 fiscal year.
Annual Report on Form
10-Kfor the Fiscal Year Ended December 31,
20172022
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| | | | Page | |
| PART I | |
| | |
Item 1. | | | | | | |
Item 1A. | | | | | 18 | |
Item 1B. | | | | | 38 | |
Item 2. | | | | | 38 | |
Item 3. | | | | | 38 | |
Item 4. | | | | | 38 | |
|
| PART II | |
| | |
Item 5. | | | | | 39 | |
Item 6. | | | | | 42 | |
Item 7. | | | | | 44 | |
Item 7A. | | | | | 79 | |
Item 8. | | | | | 80 | |
Item 9. | | | | | 128 | |
Item 9A. | | | | | 129 | |
Item 9B. | | | |
| Item 9C. | | 131 | |
|
| PART III | |
| | |
Item 10. | | | | | 132 | |
Item 11. | | | | | 132 | |
Item 12. | | | | | 132 | |
Item 13. | | | | | 132 | |
Item 14. | | | | | 132 | |
|
| PART IV | |
| | |
Item 15. | | | | | 133 | |
Item 16. | | | | | 140 | |
| |
| | | 141 | |
As used in this Annual Report on
Form 10-K, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K, including the sections
entitledtitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and “Business,” contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) of this report. report, including, but not limited to risks related to:
•the current and future health and stability of the economy, financial conditions and residential housing market, including any extended downturn or slowdown;
•changes in general economic and financial conditions (including federal monetary policy, interest rates, inflation, home price fluctuations, housing inventory, labor shortages and supply chain issues) that may reduce demand for our products and services, lower our profitability or reduce our access to financing;
•investment of resources to pursue strategies and develop new products and services that may not prove effective or that are not attractive to customers and real estate partners or that do not allow us to compete successfully;
•ability to comply with multiple listing service rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers;
•ability to obtain or maintain licenses and permits to support our current and future businesses;
•ability to operate and grow our mortgage origination business, including the ability to obtain sufficient financing and resell originated mortgages on the secondary market;
•the duration and impact of natural disasters and other catastrophic events (including public health crises) on our ability to operate, on demand for our products or services, or on general economic conditions;
•acquisitions, strategic partnerships, joint ventures, capital-raising activities or other corporate transactions or commitments by us or our competitors;
•ability to manage advertising inventory and pricing;
•effectivity of our technology and information security systems, or those of third parties on which we rely;
•actual or anticipated fluctuations in our financial condition and results of operations;
•changes in projected operational and financial results;
•ability to protect the information and privacy of our customers and other third parties;
•ability to attract and retain qualified employees and key personnel;
•ability to protect our brand and intellectual property;
•changes in laws or government regulation affecting our business; and
•the impact of pending or future litigation or regulatory actions.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Annual Report on Form 10-K. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
NOTE REGARDING INDUSTRY AND MARKET DATA
This Annual Report on Form 10-K contains market and industry data that are based on our own internal estimates and research, as well as independent industry publications, trade or business organizations and other published statistical information from third parties. Third-party information generally states that the information contained therein has been obtained from sources believed to be reliable. While we are not aware of any misstatements regarding this third-party information, we have not independently verified any of the data from third-party sources nor have we validated the underlying economic assumptions relied on therein. The content of, or accessibility through, these market and industry data sources, except to the extent specifically set forth in this Annual Report on Form 10-K, does not constitute a portion of this report and are not incorporated herein, and any sources are an inactive textual reference only.
PART I
Item 1. Business.
Mission
Our mission is
Overview
We are reimagining real estate to
buildmake it easier to unlock life’s next chapter. As the
largest, most
trusted and vibrant home-related marketplacevisited real estate website in the
world.Overview
United States, Zillow Group, Inc. operates the leading real estate and home-related information marketplaces on mobileits affiliates and the web,partners offer customers an on-demand experience for selling, buying, renting or financing with a complementary portfoliotransparency and ease. Hundreds of brands and products to help people find vital information about homes and connect with local professionals. Zillow Group’s brands focus on all stages of the home lifecycle: buying, selling, renting and financing. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow, Trulia, StreetEasy, HotPads, Naked Apartments, RealEstate.com and OutEast.com. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate, rental and mortgage professionals maximize business opportunities and connect with millions of consumers. We also own and operate a number of business brands for real estate, rental and mortgage professionals, including Mortech, dotloop, Bridge Interactive and New Home Feed. Zillow, Inc. was incorporated as a Washington corporation in December 2004, and we launched the initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia. Upon the closing of the Trulia acquisition in February 2015, each of Zillow and Trulia became wholly owned subsidiaries of Zillow Group.
Our living database of more than 110 million U.S. homes—including homes for sale, homes for rent and homes not currently on the market—attracts an active and vibrant community of users. Individuals and businesses that use Zillow’s mobile applications and websites have updated information on more than 75 millionhomes, creating exclusive home profiles not available anywhere else. These profiles include detailed information about homes, including property facts, listing information and purchase and sale data. Using complex, proprietary automated valuation models, we provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 millionU.S. homes. We provide this information to our users where, when and how they want it, through our industry-leading mobile applications and websites.
Consumers increasingly are turning to the internet and mobile devices for real estate information. Traffic to Zillow Group brands’ mobile applications and websites reached a seasonal peak of more than 187 million monthly unique users in July 2017, an increase of 10% year over year. Visits increased by 19% to 6,314.4 million for the year ended December 31, 2017 compared to the year ended December 31, 2016. For additional information regarding unique users and visits, see “Unique Users” and “Visits” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” More thantwo-thirdsof our flagship brand Zillow’s usage occurs on a mobile device; on weekends it’s more than 75%. We operate one of the most popular suites of mobile real estate applications with more than fifty applications across all major mobile platforms. For example, on our flagship Zillow brand, during December 2017, nearly 630 million homes were viewed on a mobile device, or 234 homes per second. We monetize our marketplace business on mobile in the same way we do on our web platform.
Real estate, rental and mortgage professionals are a critical part of home-related marketplaces. We have created a trusted and transparent marketplace where consumers can search and read reviews on local real estate, rental and mortgage professionals and contact those professionals on their own terms.
Our home-related marketplaces benefit from network effects. As more consumers come topeople visit our mobile applications and websites every month to usebegin their journey.
At the core of Zillow is our living database of approximately 140 million U.S. homes and our differentiated content, most notably the Zestimate, our patented proprietary automated valuation model through which we provide home value estimates. With the launch of the Zestimate in 2006, we introduced important transparency to residential real estate in order to empower consumers to make better decisions. During 2022, our Zestimate had a median error rate of 2.7% for homes listed for sale and 7.6% for off-market homes. We believe our data and content has helped the Zillow brand become synonymous with residential real estate.
Our vision of a “housing super app” is to help customers across all their real estate needs serving as one ecosystem of connected solutions for all the tasks and services related to moving. We are focused on increasing customer transactions and revenue per customer transaction, which measures revenue attributable to each unique home purchase or sale transaction in which the homebuyer or seller uses Zillow Home Loans, Zillow Closing Services and/or involves a Premier Agent with whom the buyer or seller connected through Zillow Group. We estimate Zillow participated in approximately 360,000 customer transactions with both buyers and sellers in 2021, which is the first time we reported this metric. We anticipate providing this metric for 2022 in a future quarter. We believe focusing on these growth metrics allows us to build closer relationships with our customers to help them find and move into the places they call home, which is at the core of our mission. We also believe that the path to improving our growth metrics and “housing super app” vision involves product initiatives within five key growth pillars:
•Touring – Make it easier for high-intent customers to take in-person tours and connect with our partner agents
•Financing – Prepare customers to be transaction-ready with financing early in their home buying journey
•Expanding seller services – Continue to innovate on novel solutions to help sellers and seller agents
•Enhancing our partner network – Work with the best agents in real estate
•Integrating our services – Bring our engagement, products and services together to drive more real estate, rentaltransactions and mortgage professionals contribute contentmore revenue per customer transaction
Prior to
distinguish themselves, thereby makingJanuary 1, 2023, our
marketplaces more usefulbusiness was organized into three segments, the Internet, Media & Technology (“IMT”) segment, the Mortgages segment and
attractingadditional consumers. As of December 31, 2017,the Homes segment. These segments reflect the way we had published more than 3.5 million reviews, including more than 3.0 million reviews of local real estate agentsevaluated business performance and approximately 495,000 reviews of mortgage professionals submitted bymanaged our users on Zillow.
Our revenue has grown significantly since our initial website launch in 2006. Foroperations. The IMT segment includes the year ended December 31, 2017, we generated revenue of $1,076.8 million, as compared to $846.6 millionfinancial results for the year ended December 31, 2016, an increase of 27%. We generatePremier Agent and rentals marketplaces (including StreetEasy rentals product offerings) as well as Other IMT, which includes our new construction marketplace and revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, mortgage and rental industries. These professionals include real estate, mortgage and rental professionals and brand advertisers. Our two primary revenue categories are marketplace revenue and display revenue.
Marketplace revenue for the year ended December 31, 2017 consists of Premier Agent revenue, other real estate revenue and mortgages revenue. Premier Agent revenue is generated by the sale of advertising under our Premier Agent and Premier Broker programs, which offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising needs, while growing and managing their businesses and brands. We offer our flagship Premier Agent advertising product and our Premier Broker advertising product on a cost per impression basis. Impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites. Other real estate revenue primarily includes revenue generated by Zillow Group Rentals, as well as revenue from the sale of various other marketing and business products and services tosolutions for real estate professionals, including our new construction marketing solutions. Zillow Group Rentals includes our rentals marketplacedisplay, StreetEasy for-sale product offerings and suite of tools for rental professionals. Rentals revenueShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and interactive floor plans. The Mortgages segment primarily includes revenue generated by advertising sold to property managersfinancial results for mortgage originations through Zillow Home Loans and other rental professionals on a cost per lead, cost per lease and cost per click generated basis. Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis. Mortgages revenue primarily includes advertising sold to mortgage lenders and other mortgage professionals, includingprofessionals. The Homes segment includes the financial results from title and escrow services performed by Zillow Closing Services and certain indirect costs of the Homes segment which do not qualify as discontinued operations. Beginning in 2023, our Longchief operating decision maker began to manage our business, make operating decisions, and evaluate operating performance on the basis of the company as a whole. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. This serves to align our reported results with our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, beginning in the first quarter of 2023, we plan to report our financial results as a single reportable segment.
In the fourth quarter of 2021, the Board of Directors of Zillow Group made the determination to wind down Zillow Offers, our iBuying business which purchased and sold homes directly in markets across the United States. The wind down was completed in the third quarter of 2022 and resulted in approximately a 25% reduction of Zillow Group’s workforce. The
financial results of Zillow Offers have been presented in the accompanying consolidated financial statements as discontinued operations. For additional information, see Part II, Item 8 in Note 3 in our Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Customer Offerings
To deliver on our mission, we strive to provide a seamless, integrated transaction experience for movers through Zillow, our network of trusted partners, and Custom Quoteaffiliated brands. We do this through a range of services as well as revenue generated by Mortech, which provides subscription-based mortgage software solutions, includingdesigned to help our customers in whatever stage of the home buying journey they may be in. This typically includes the need for multiple services simultaneously. Approximately 71%1 of sellers are also buying at the same time, and among renters with plans to move within the next year, 45%2 plan to buy their next home.
Our services are primarily designed for the following:
For Buyers, Sellers and Partners– When a product and pricing engine and lead management platform.Display revenue primarily consistsbuyer is ready to begin their home buying journey, we offer a variety of graphical mobile and web advertising soldoptions depending on where they choose to start. After searching for a cost per thousand impressions or cost per click basis to advertisers promoting their brandshome on our mobile applications and websites, customers can choose to meet with a local real estate professional by connecting with a Premier Agent partner, schedule an in-person home tour or obtain financing through Zillow Home Loans. For customers who are focused on buying new construction homes, we connect them with our home builder partners. Once buyers find their home, they can choose to work with our Premier Agent partners and affiliated integrated services, including financing through Zillow Home Loans and title and escrow services through Zillow Closing Services, to facilitate a seamless transaction experience. For sellers, we are focused on providing multiple offerings for customers to find ways to sell their homes. For instance, we launched an exclusive multi-year partnership with Opendoor to provide our customers with the option to get a cash offer on their home. We have also announced the launch of ShowingTime+, a new brand to integrate and simplify Zillow’s technology offerings for agents, brokers and multiple listing services (“MLSs”).
For Renters – Over 67% more households move to a new rental than homes are sold in the U.S. (over 9.5 million leases executed3 versus 5.7 million homes sold4, comprised of 5.1 million existing homes sold4 and 0.6 million new homes sold4). Our rentals marketplace assists our partners with listings, advertising, and leasing services in the U.S. market of nearly 47 million rental units.5 We connect prospective renters with our property management and landlord partners in the Zillow Rental Network, which provides landlords access to the most visited online rental network6. We also provide renters with the ability to easily submit applications, sign leases and make rental payments through our platform.
For Borrowers – Approximately 87% of homes purchased in the U.S. are financed with mortgage debt7. We provide our customers with multiple ways to pursue mortgage financing for their transaction. We provide customers with the option to finance directly with Zillow Home Loans or to connect with our mortgage partners through our mortgage marketplace for both purchase and refinance opportunities. Zillow Home Loans, which is currently available in 48 states and jurisdictions, originates mortgage loans and then sells the loans on the secondary market.
Competitive Advantages
We believe we have the following competitive advantages:
•Large and trusted brand. The Zillow Group portfolio attracted an annual monthly high of 245 million unique users in August 2022 and approximately 10.5 billion visits in 2022, primarily to Zillow, Trulia and StreetEasy. Today, more people search for “Zillow” than “real estate,”8 and Zillow is the most visited9 and trusted10 brand in the online real estate industry.
1 Source: Zillow Group’s 2022 Consumer Housing Trends Report
2 Source: Zillow Group’s 2022 Consumer Housing Trends Report
3 Source: 2021 American Community Survey
4 December 2022 Economic Data published by the National Association of REALTORS®
5 Source: 2022 U.S. Census’ Current Population Survey
6 Source: 2022 Comscore Media Metrix® report
7 Source: National Association of REALTORS® “2022 Home Buyers and Sellers Generational Trends Report”
8 Source: 2022 Google Trends report
9 Source: 2022 Comscore Media Metrix® report
10 Source: 2022 Life Story® research
•Living database of homes and superior data science and technology advantages. Our living database of approximately 140 million U.S. homes is the result of substantial investment, sophisticated economic and statistical analysis and complex data aggregation of multiple sources of property, transaction and listing data, including user updates to more than 41 million property records. This data is the foundation of our proprietary Zestimate, Rent Zestimate, Zestimate Forecast and Zillow Home Value Index.
•Superior industry partnerships.Zillow Group partners with thousands of the most productive names in real estate, maintaining strong partnerships with leading real estate agents, brokers, mortgage professionals, property managers, landlords, home builders, regional MLSs and more. Zillow is a licensed brokerage entity, which serves to enhance our partnership with MLSs. We partner with high-performing and service-focused industry partners who share our interests in providing the best-possible services to our shared customers. Continually enhancing our partner websitesnetwork enables us to implement scalable testing of products and mobile applications, primarilyfeatures, send more customers to our best-performing partners and offer our shared customers an improved mortgage product experience.
•Experienced, proven management team.We have a highly experienced management team who have successfully built Zillow and other brands into category leaders. We continue to add and develop executive talent with deep experience in building transaction-focused real estate, mortgage and e-commerce businesses. The skills and experiences of our management team provide strategic insights and abilities to deliver a seamless real estate transaction experience for our customers.
•Strong culture of innovation and inclusion. Zillow Group has built an award-winning culture of collaboration and innovation that is committed to employee equity and creating an environment where employees feel valued, supported and that they belong. We have been recognized for our commitment to these efforts, being named on the “Corporate Equality Index 2022” with a perfect score of 100 and “Best Place to Work for LGBTQ+ Equality”11. Additionally, in 2022, Zillow Group was named one of the Best Workplaces for Real Estate, for Millennials, for Parents and for Women12. Zillow Group was also named one of the Fortune 100 Best Companies to Work For® 2022 and was included on Bloomberg’s “2022 Gender Equality Index” and PEOPLE®’s 2022 “Companies That Care” list.
•Strong financial position.Our cash position, operating cash flow and now less capital-intensive operations as a result of the wind down of Zillow Offers, give us the flexibility to continue to invest in our growth strategy despite recent economic uncertainty and a volatile interest rate environment. We are mindful of our costs, while prioritizing our investments to drive our growth pillars and pursue the large opportunities we see ahead of us.
Total Addressable Market
We participate in large addressable markets of buying, selling, renting and financing residential real estate in the U.S. Our Total Addressable Market (“TAM”) includes Zillow’s estimate of total industry transaction fees derived from residential real estate transactions. In addition, we provide important adjacent services, including mortgages through Zillow Home Loans and title and escrow services through Zillow Closing Services. Our TAM also includes our complementary rentals marketplace which includes rentals advertising and property management software spend. The amounts listed below represent the estimated total industry including real estate brokerages, multi-family rental professionals, mortgage professionals and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies.On February 17, 2015, Zillow Group acquired Trulia, and Trulia and Zillow became wholly owned subsidiaries of Zillow Group. We have included Trulia in Zillow Group’s results of operations prospectively after February 17, 2015, the date of acquisition. Because the Trulia acquisition occurred during the year ended December 31, 2015, the information presented in this reportsize associated with respect to the year ended December 31, 2015 relates to Zillow on a standalone basis prior to February 17, 2015 and to Zillow Group after February 17, 2015, whereas the information presented in this report with respect to the year ended December 31, 2016 relates to Zillow Group. Results of operations, including Marketplace revenue,these opportunities for the year ended December 31, 20152022 (in billions):
11 Source: Human Rights Campaign Foundation
12 Source: Great Place to Work®
| | | | | | | | |
| Residential real estate industry transaction fees13 | | $ | 96 | |
| U.S. mortgage origination revenue 14 | | 76 | |
Title and escrow services transaction fees 15 | | 20 | |
| Rentals advertising spend16 | | 11 | |
| Property management software revenue17 | | 7 | |
| TAM | | $ | 210 | |
We also
includemay explore additional opportunities in the
Market Leader business from February 17, 2015 throughfuture. The amounts listed in the
date of divestiture of September 30, 2015. As a result, comparisons totable below represent the
prior-year period may not be indicative of future results or future rates of growth.estimated total industry size associated with these additional opportunities (in billions):
| | | | | | | | |
| Home insurance18 | | $ | 121 | |
| Home renovation services19 | | 657 | |
| Moving services20 | | 19 | |
| Home appraisal services21 | | 10 | |
Seasonality
Portions of our business
may beare affected by seasonal fluctuations in the residential real estate market, advertising spending, and other factors.
We believeTraffic to our
rapid growth may be masking the underlying seasonality of our business. As our revenue growth rate slows, we expect seasonal variances may become more pronounced, causing our operating results to fluctuate. For example, in the years ended December 31, 2017, 2016,mobile applications and
2015,costswebsites and expenses peaked in the three months ended June 30th, primarily attributable to increases in sales and marketing expenses which were, in turn, primarily attributable to increased investment in marketing and advertising initiatives to attract consumers across online and offline channels during peak seasons for home sales activity. In addition, the average number of unique users and visitsresulting customer actions, such as real estate transactions, have historically peaked during the threespring and summer months, ended June 30th or September 30th, also consistent with peak residential real estate activityactivity. For further discussion on seasonality, see our Quarterly Results of Operations in Part II, Item 7 of this Annual Report on Form 10-K.
13 Source: December 2022 Economic Data published by the springNational Association of REALTORS®; estimate derived from annual existing home sales data and summer months. Becauseaverage industry commission rates
14 Sources: 2022 Mortgage Bankers Association Reports; estimate derived from annual purchase and refinance mortgage origination volumes and average industry origination fees
15 Sources: American Land and Title press release dated May 6, 2022 and December 2022 Economic Data published by the numberNational Association of unique usersREALTORS®; estimate derived from annual existing home sales and visits may impact impression inventory, leads to real estate professionals,average industry title and graphical display inventory which we monetize, this trend in the average number of unique users and visits may result in seasonality of revenue.Industry Dynamics
The Importance of Homes
Homes are the center of peoples’ lives, the focus of some of their most important decisions and often their most valuable assets. In addition to whether to buy, sell or rent, consumers frequently make many other important home-related decisions, including decisions relating to home financing and home equity loans. Residential real estate is one of the largest sectors of the U.S. economy and supports millions of professionals that provide services related to home purchases and sales, rentals and home financings.
Large Market Opportunities
Based on external and internal assessments, we believe our current addressable markets include the following:
Purchase and Sale—Sales of approximately 5.5 million existing and 608 thousand new homes in the United States in 2017 had an aggregate transaction value of approximately $1.8 trillion, according to dataescrow fee rates
16 Sources: November 2022 housing statistics published in 2018 by the U.S. Census Bureau and in 2018Zillow Group internal data and estimates; estimate derived from annual rental unit inventory, average industry turnover rates and average industry advertising costs
17 Source: April 2022 report published by Fortune Business Insights which estimates North America’s annual property management market opportunity
18 Source: August 2021 report published by IBISWorld which estimates the National Associationannual homeowners’ insurance market opportunity
19 Source: 2022 Economy of REALTORS®. In an effort to acquire new client relationshipsEverything Home report published by Angi Inc. which estimates the annual home services market opportunity, inclusive of home improvements, home maintenance and sell homes, U.S.home emergency repairs
20 Source: June 2022 report published by IBISWorld which estimates the annual moving services market opportunity
21 Source: October 2022 report published by IBIS World which estimates the annual real estate agentsappraisal services market opportunity
Competition
Our business depends on our ability to successfully attract, retain and
brokers spent an estimated $7.2 billion on residential advertising in 2017, according to a forecast from Borrell Associates released in 2017. In addition, U.S.provide customers with products and services that make real estate
developers spent an estimated $1.1 billion on residential advertising in 2017, also according to a forecast from Borrell Associates released in 2017. In the United States, there are 208.6 million people residing in owner-occupied housing, according to data published by the U.S. Census Bureau in November 2017. Approximately 33% of movers in 2017, or 11.5 million people, were homeowners, according to the U.S. Census Bureau migration data published in November 2017.Rentals—In the fourth quarter of 2017, there were approximately 46.2 million rental housing units in the United States, with a national vacancy rate of 6.9%, according to data published by the U.S. Census Bureau in January 2018. According to data published by the U.S. Census Bureau from the American Housing Surveytransactions faster, easier and the Current Population Survey/Housing Vacancy Survey, approximately:
less stressful. 10.1% of rental units (4.7 million) are located in buildings with 50 or more units;
8.0% of rental units (3.7 million) are located in buildings with 20 to 49 units;
9.9% of rental units (4.6 million) are located in buildings with 10 to 19 units;
10.9% of rental units (5.0 million) are located in buildings with 5 to 9 units;
17.3% of rental units (8.0 million) are located in small multi-family structures of2-4 units;
43.8% of rental units (20.2 million) are1-unit structures.
According to a forecast from Borrell Associates released in 2017, U.S. rental property managers spent an estimated $2.7 billion on advertising in 2017, which excludes lease concessions. In the United States, there are 108.0 million people residing in rental housing units, according to data published by the U.S. Census Bureau in 2017. Approximately 67% of movers in 2017, or 23.4 million people, were renters, according to the U.S. Census Bureau migration data published in November 2017.
Home Financing—According to a forecast from the Mortgage Bankers Association published in January 2018, approximately $1.7 trillion in U.S. residential mortgage originations occurred in 2017. U.S. residential mortgage providers spent approximately $6.6 billion in 2017 marketing their services and loan products to mortgage borrowers, according to a forecast from Borrell Associates released in 2017.
Highly Fragmented, Local and Complex Market
The market for residential real estate transactions and home-related serviceslandscape is highly fragmented local and complex. Each home has unique characteristics, including location, value, size, style, agecompetitive from the beginning of the search process through the closing of a transaction, typically with single point service providers and condition. Each consumer approaches home-related transactionsnew entrants joining at a rapid pace. Approximately 5.7 million existing and new homes were sold in the U.S. in 202222, with a personal set of objectives, priorities and values. Real estate agents generally operate in local markets as independent contractors with different experiences and skills. These conditions create challenges for consumers andover 202,000 real estate rentalbrokerages23 and over 68,000 mortgage professionals alike. Consumers are challenged to find information about homes and to find real estate, rental and mortgage professionals who fit their individual needs. Real estate, rental and mortgage professionals are challenged to efficiently advertiselenders24 providing their services and identify new clients, and to measure the effectiveness of their marketing efforts.
Absence of Consumer Orientation
Historically, consumers had minimal access to comprehensive and objective residential real estate data, even though many home-related decisions are extraordinarily information-intensive. While real estate, rental and mortgage professionals had some data, consumers did not have free, independent and easy access to data. Even when accessible, the data were difficult to interpret and analyze.
Increasing Role of Mobile Technologies and the Internet
Consumers are increasingly turning to mobile devices and the internet to access real estate information. With the widespread adoption of mobile and location-based technologies, consumers increasingly expect home-related information to be available on their mobile devices where, when and how they want it. According to comScore data published in December 2017, Zillow Group brands represent nearly three quarters of market share of all mobile exclusive visitors to the real estate category. More thantwo-thirds of our flagship brand Zillow’s usage occurs on a mobile device; on weekends it’sacross more than 75%500 different MLSs that span the country25. Zillow Home Loans currently makes up less than 0.05% of the mortgages originated in the U.S.
We
believecompete for customers with companies that
the technological platform shift from desktop computers to mobile devices benefitsprovide technology,
leaders like Zillow Group that are quick to innovate. In 2017, we unveiled a new,first-of-its-kind, mobile app that allows homeowners and real estate professionals to capture 3D tours of their homes from their iPhones® and post onfor-sale andfor-rent listings.Competitive Advantages
We believe we have the following competitive advantages:
| • | | Powerful Brand and Scale.We have established a powerful brand identity that includes a portfolio of the largest and most vibrant brands, and we have built a large user community. The majority of our traffic comes direct, not dependent on search engines, with demonstrated consumer intent to visit Zillow Group’s brands. Traffic to Zillow Group brands’ mobile applications and websites reached a seasonal peak of more than 187 million monthly unique users in July 2017, an increase of 10% year over year. Visits to Zillow Group brands’ mobile applications and websites, including Zillow, Trulia, StreetEasy and RealEstate.com, increased 19% to 6,314.4 million for the year ended December 31, 2017 compared to the year ended December 31, 2016. For additional information regarding unique users and visits, see “Unique Users” and “Visits” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” |
| • | | InimitableDatabase of Homes.Our living database of homes is the result of years of substantial investment, sophisticated economic and statistical analysis, complex data aggregation and millions of
|
| user contributions. Our dynamic and comprehensive living database includes detailed information on more than 110 million U.S. homes, and includes homes for sale, for rent and recently sold, as well as properties not currently on the market. This database is central to the value we provide to consumers and real estate, rental and mortgage professionals. It contains extensive information that users can search, through aneasy-to-use interface, to identify, analyze and compare homes. Our database is relevant to a broad range of users, including buyers, sellers, renters, homeowners, real estate agents and other real estate professionals. It includes information such as:
|
| • | | Property facts: Zestimate and its corresponding value range, number of bedrooms, number of bathrooms, square footage, lot size, assessed tax value and property type such as single-family, condominium, apartment, multifamily, manufactured home or land. |
| • | | Listing information: price, price history and reductions, dollars per square foot, days on the market, listing type (such as for sale by agent, for sale by owner,pre-market inventory, which includes foreclosure,pre-foreclosure, Coming Soon and Make Me Move listings, new construction and rental homes), open houses, property photos and estimated monthly mortgage payment. |
| • | | Purchase and sale data: prior sales information and recent sales nearby. |
We synthesize data from hundreds of automated feeds, representing information from tens of thousands of public and private sources. Applying extensive computer analytics to the data, we transform it into information that is accessible, understandable and useful.
We refer to the database as “living” because the information is continually updated by the combination of our proprietary algorithms, synthesis of third-party data from hundreds of sources, and through improvements by us and, importantly, by our community of users. User-generated content from owners, agents and others enriches our database with photos, videos, and additional property information. Individuals and businesses that use Zillow’s mobile applications and websites have updated information on more than 75 million homes in our database, creating exclusive home profiles not available anywhere else. Our inimitable database enables us to create content, products and services not available anywhere else, and attracts an active, vibrant community of users. As of December 31, 2017, we had published more than 3.5 million reviews, including more than 3.0 million reviews of local real estate agents and approximately 495,000 reviews of mortgage professionals submitted by our users on Zillow.
| • | | Zestimates and Rent Zestimates.We have developed industry-leading automated home valuation models that use advanced statistical methods and complex, proprietary algorithms. We use these models to provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 million U.S. homes. Based on our Zestimates, we produce Zillow Home Value Indexes at the neighborhood, zip code, city, metropolitan statistical area, county and national levels. Our Zillow Home Value Indexes have been cited by government entities such as the Federal Reserve Bank and the Congressional Oversight Panel, university studies and respected national publications. For historical comparisons, we provide up to 15 years of Zestimate history on each home and valuable information about property and real estate market trends. Our Zestimates, Rent Zestimates and Zillow Home Value Indexes allow consumers to evaluate homes and neighborhoods, and to easily evaluate historical trends, as they contemplate critical home-related decisions. |
| • | | Mobile Leadership and Monetization.Shopping for a home is a far more meaningful consumer experience when it occurs curbside, untethered and on location, so we have developed and operate the most popular suite of mobile real estate applications across all major platforms. For example, on our flagship Zillow brand, during December 2017, nearly 630 million homes, or 234 homes per second, were viewed on a mobile device. More thantwo-thirdsof our flagship brand Zillow’s usage occurs on a mobile device; on weekends it’s more than 75%. We operate one of the most popular suites of mobile real estate applications with more than fifty applications across all major mobile platforms. In 2017, we
|
| unveiled a new,first-of-its-kind, mobile app that allows homeowners and real estate professionals to capture 3D tours of their homes from their iPhones® and post onfor-sale andfor-rent listings. We monetize our marketplace business on our mobile platform in the same way we do on our web platform.
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| • | | Independent Market Positions and Consumer Focus.Zillow Group has been built independent of any real estate industry group. We maintain an unwavering commitment to giving consumers free access to as much useful information as possible. We provide unbiased information, products and services, empowering consumers to make informed decisions about homes and the residential real estate market. We believe our independence enables us to create compelling products and services with broad consumer appeal. |
| • | | Multiple Robust Home-Related Marketplaces.We have created trusted and transparent marketplaces in real estate, rentals and mortgages where consumers can identify and connect with local professionals that are best suited to meet their needs. Our living database of homes provides a foundation on which we can build new consumer and professional marketplaces in other home-related categories. |
| • | | Technology Solutions for Professionals.We offer a suite of marketing and technology solutions to help real estate, rental and mortgage professionals grow their businesses and personal brands including our Premier Agent app that allows real estate professionals to manage their business from wherever they are, dotloop that has digitized the real estate transaction, and Bridge Interactive which has streamlined listing data management. |
| • | | Consumer-Oriented Mortgage Marketplace. Unlike other sources of mortgage rate quotes, consumers can anonymously submit mortgage loan information requests and receive an unlimited number of personalized mortgage quotes directly from hundreds of consumer-rated lenders. Because we operate this marketplace as part of our real estate home shopping experience, we can efficiently attract motivated users to the marketplace and prioritize the consumer’s experience. For the year ended December 31, 2017, there were approximately 22.7 million mortgage loan information requests submitted on Zillow Group platforms by consumers. |
| • | | Personalized Experience. We present homebuyers and sellers and real estate, rental and mortgage professionals with many opportunities to personalize their Zillow Group experience, leading to more informed home shopping and financing decisions. As immediacy is paramount in the home search experience, all Zillow Group mobile applications and websites empower users by allowing them to set the criteria that matters most to them, while we take on the action of alerting them when a home or rental that matches their criteria hits the market. Whether it is through an email, desktop notification, Apple Watch® alert or Facebook® chatbot, we keep users updated on the most current home information available in our marketplace. |
| • | | Proven Management Team. We believe the broad experience and depth of our management team are distinct competitive advantages in the complex and evolving industry in which we compete. The Zillow Group management team has an extensive history building successful consumer internet companies. In particular, we believe that the shared experience of our executives, many of whom have worked together at Zillow Group for the better part of a decade, provides our management team with unique cohesion and insight. |
Growth Strategies
Our growth strategies are:
| • | | Focus on Consumers. Maintain our unwavering focus on empowering consumers and leveraging our industry partnerships to enhance existing products and services, while developing new technology offerings that meet the ever-changing demands of today’s home shoppers. |
| • | | Efficiently Increase Brand Awareness. Expand our targeted marketing and advertising programs, public relations, social media initiatives and content distribution to efficiently increase consumer awareness across all brands in our portfolio. |
| • | | Leverage and Expand Our Mobile Leadership. Innovate on our mobile device products, continue to optimize for mobile web and launch new features and applications that extend our brands and products across additional mobile platforms. |
| • | | Continuously Provide Growth Opportunities for Premier Agents and Brokers, Home Builders, Rental Property Managers, and Mortgage Lenders.Provide real estate, rental and mortgage professionals participating in our marketplaces continuous opportunities to grow their respective businesses by developing a broad variety of marketing software, technology solutions and other support services to help those professionals manage and grow their businesses and personal brands. |
| • | | Deepen and Expand Our Marketplaces Across the Lifecycle of Homes. Deepen and expand our platform beyond advertising services for real estate, rental and mortgage professionals by creating new opportunities for high-quality consumer-initiated connections and professional services and relationships. Also, pursue commercial relationships and acquisitions to strengthen our market position, enhance our technology offerings and accelerate our growth. |
| • | | Enhance Our Living Database of Homes. Enhance the information in our database of more than 110 million homes, and use it as the foundation for new analyses, insights and tools to inform consumers throughout the home ownership lifecycle. Our living database of homes provides a foundation on which we can build new consumer and professional marketplaces in other home-related categories. |
Our growth strategies support our strategic priorities for the year ended December 31, 2017, which include growing the size of, and increasing engagement with, our consumer audience; continuing to grow our Premier Agent revenue; growing our emerging marketplaces, and maintaining our extraordinary company culture, which attracts and retains incredible people and motivates them to do their best work. Our growth strategies also support our strategic priorities as we look ahead to 2018, which include growing our audience size and increasing engagement across our brands; creating better experiences for consumers and more efficiency for our real estate industry partners; evolving our revenue models to better align our results with transactions and our industry partners’ commissions; and attracting and retaining the best talent and leveraging our unique company culture focused on innovation as a competitive advantage.
Advertising Products and Services
We provide advertising products and services for real estate rentalfocused customers. Factors that may influence customer decisions include the quality of the experience, value and mortgage professionals that enable them to createutility of the services offered, the breadth, depth and promote useful content for consumers.
Marketplace Advertising
Premier Agentaccuracy of information available, and Premier Broker Program
Our Premier Agentbrand awareness and Premier Broker programs offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising needs, while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive access to a dashboard portal on our mobile application or website that provides individualized program performance analytics, self-service ad buying tools and our free customer relationship management, or CRM, tool that captures detailed information about each contact made with a Premier Agent or Premier Broker through our mobile and web platforms.
We offer our flagship Premier Agent advertising product and our Premier Broker advertising product on a cost per impression basis. Impressions are delivered when a sold advertisement appears on pages viewed by users
of our mobile applications and websites. In 2016, we began testing and implementation of a new auction-based pricing method forreputation. For example, our Premier Agent business competes for customers based on price, visibility, perceived and actual value and quality of service. For customers shopping for a mortgage, Zillow Home Loans competes with other mortgage originators based on a combination of interest rates, origination fees, product by which we determine the cost per impression delivered in each zip code based upon the total amount spent by Premier Agents to purchase impressions in the zip code during the month. The cost per impression that we charge is dynamic – as demand for impressions in a zip code increases or decreases, the cost per impression in that zip code may be increased or decreased. This new auction-based pricing method complements our self-serve account interface, which we introduced to Premier Agents over the course of 2016. The interface includes account management tools that allow agent advertisers to independently control their budgets, impression buys,selection, brand awareness and trust and the durationlevel of their advertising commitment. We began testing this auction-based pricing method for our Premier Agent product to better align our revenue opportunities with increasing traffic levels to our mobile and web platforms and leveraging increasing demand by real estate agents for access to home shoppers who use our mobile applications and websites. In the fourth quarter of 2016,service we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. With this auction-based pricing method, we recognize revenue related to our dynamic impression-based Premier Agent and Premier Broker products based on the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered. Our Premier Agent and Premier Broker products include multiple deliverables which are accounted for as a single unit of accounting, as the delivery or performance of the undelivered elements is based on traffic to our mobile applications and websites. In our history of building our real estate and other information marketplaces and product offerings, we have continually evaluated and utilized various pricing and value delivery strategies in order to better align our revenue opportunities with the growth in usage of our mobile and web platforms.
We continue to support some legacy Trulia Premier Agent products, which are primarily sold on a fixed fee subscription basis for periods that generally range from six months to 12 months. Subscription advertising revenue for Trulia’s products included in Premier Agent revenue is recognized on a straight-line basis during the contractual period over which the services are delivered.
Our Premier Agent App gives agents the freedom to work anywhere by allowing them to manage their contacts, reviews and listings from their mobile device, and provides the ability to automatically add and manage leads from third party sources. The Premier Agent App is designed to make agents more efficient by giving them a fast, streamlined way to manage their incoming contacts from Zillow and Trulia, as well as the ability to manage their listings, reviews and their profile on Zillow and Trulia.
Instant Offers
In 2017, we began testing the Zillow Instant Offers marketplace, a way for homeowners to sell their homes quickly by providing them with offers from investors and a comparative market analysis from a local real estate agent, as an estimate for what the home might fetch on the open market. In addition to investors being required to use an agent, should a homeowner select an investor’s offer, Zillow will also offer to connect them with a local agent to represent them throughout the transaction.
Mortgages
We offer two mortgage advertising products – Long Form and Custom Quotes. In Zillow Group’s Long Form platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive contacts based on data such as location and customer reviews. In our Custom Quotes mortgage marketing platform, lending institutions display their mortgage rates directly to consumers who are shopping for refinance and purchase rates. In Custom Quotes, consumers request free, personalized quotes in response to their submission of limited anonymous data, such as specific loan amount, zip code, purchase price or estimated home value, and credit score. Consumers decide if and when to contact the mortgage professionals who provide quotes. For the year ended December 31, 2017, there were approximately 22.7 million mortgage loan information requests submitted on Zillow Group platforms by consumers through Long Form and Custom Quotes. User-generated ratings and reviews of mortgage professionals are provided as a powerful tool to help consumers shop
for their loans. Our Long Form and Custom Quote services are operated by our wholly owned subsidiary, Zillow Group Mortgages, Inc., a licensed mortgage broker, pursuant to a support services agreement.
Zillow Group Rentals
Zillow Group continues to develop its rental marketplace across mobile, web, and a diverse set of apps that serve both consumers and rental professionals. Zillow Group Rentals is the largest rental network on the internet and includes listing distribution across Zillow, Trulia and HotPads, reaching millions of rental shoppers each month. Zillow Group Rentals advertisers gain access to the leading technology and marketing platform that connects rental properties with consumer contacts.
Zillow Group New Construction
Zillow Group’s new construction marketing platform, Promoted Communities, allows home builders to showcase their available inventory to our millions ofin-market home shoppers across the web. Promoted Communities continues to drive discoverability for home builders through dynamic listings of their available lots, plans, and spec homes, while our Builder Boost products with Precision Targeting let home builders enhance their community’s presence on Zillow, Trulia and Facebook®. Zillow Group marketing partners also receive exclusive access to robust data and consumer insights to help them make informed marketing decisions.
Display Advertising
Our display advertising primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites and our partner websites and mobile applications, primarily in the real estate industry, including real estate brokerages, multi-family rental professionals, mortgage professionals and home services providers. We offer customers display advertising opportunities on our mobile applications through display ads that are optimized for the mobile experience, on our home page, and on individual web pages, through graphical displays and text links.
Information Products and Services
We provide consumers with information products and services to enable them to make intelligent decisions about homes.
Zestimates and Rent Zestimates
Our Zestimate and Rent Zestimate valuations are computed using complex, proprietary algorithms we have developed and refined through years of statistical analysis and technological development.
A Zestimate is our estimated current market value of a home. We generate Zestimates using a variety of information, including:
| • | | Physical attributes: location, lot size, square footage, number of bedrooms and bathrooms and many other details. |
| • | | Tax assessments: property tax information, actual property taxes paid, exceptions to tax assessments and other information provided in the tax assessors’ records. |
| • | | Prior and current transactions: actual sale prices over time of the home itself and comparable recent sales of nearby homes. |
| • | | User data: data provided directly by millions of users of our mobile applications and websites. |
We use proprietary automated valuation models that apply advanced algorithms to analyze our data to identify relationships within a specific geographic area between home-related data and actual sales prices. We provide current home value estimates, or Zestimates, on approximately 100 millionU.S. homes. Home characteristics, such as square footage, location or the number of bathrooms, are given different weights according to their influence on home sale prices in each specific geographic area over a specific period of time, resulting in a set of valuation rules, or models, that are applied to generate each home’s Zestimate.
To improve the accuracy of our Zestimates, our algorithms automatically remove or reconcile data that would otherwise inappropriately skew the valuation rules. provide.
In addition, our
algorithms will automatically generate a new set of valuation rules based on the constantly changing universe of data included in our database. This allows us to provide timely home value information on a massive scale, updated daily. In 2017, we announced Zillow Prize, a machine learning competition to improve Zestimate accuracy, with a grand prize of up to $1 million to the person or team who submits the most improved the Zestimate algorithm model.We publicly disclose the accuracy of our Zestimates to further empower consumers in assessing a home’s value. The accuracy may be impacted by a variety of factors, including the amount of data about homes we have for a particular geographic area.
A Rent Zestimate is our estimated current monthly rental price of a home, computed using similar automated valuation models we have designed to address the unique attributes of a rental home. We estimate rental prices on approximately 100 million homes, including apartments, single-family homes, condominiums and townhomes. Our Rent Zestimates are updated daily.
Rich, Searchable Home-Related Data and Analysis
We provide consumers and real estate professionals with a rich set of home-related information. Through our mobile applications and websites, users can access detailed information about homes, including:
| | | | |
Value Information | | Zestimate | | Regional foreclosure statistics |
| | Zestimate Forecasts | | Prior sale prices |
| | Rent Zestimate | | Historical Zestimate values |
| | For sale price | | Historical Rent Zestimate values |
| | Estimated mortgage payment | | Zillow Home Value Index |
| | Estimated down payment | | Zillow Home Value Index Forecasts |
| | Rental price | | Tax-assessed value |
| | Make Me Move price | | Property taxes paid |
| | Easy links to county assessor records | | Price per square foot |
| | Regional12-month home value forecast | | |
| | |
Home Details | | Bedrooms | | Number of stories |
| | Bathrooms | | Number of units in building |
| | Square footage | | Finished basement |
| | Lot size | | Cooling system |
| | Year built | | Heating system |
| | Property type | | Heat source |
| | County | | Fireplace |
| | Parcel number | | Exterior material |
| | Legal description | | Parking type |
| | Construction quality | | Garage size |
| | Location | | |
| | | | |
| | |
Neighborhood Information | | School district | | School ratings |
| | Elementary school | | Crime data |
| | Middle school | | Transit access |
| | High school | | |
| | |
For Sale Listing Details | | Price | | Days on Zillow or Trulia |
| | Listing agent information | | MLS number |
| | Listing brokerage information | | Foreclosure stage and type |
| | Link to listing source | | Home overview description |
| | Property type and property features | | Neighborhood name and description |
| | Open house dates and times | | Coming Soon on market date |
| | Virtual tour | | Community information for newly |
| | Video walkthroughs | | constructed homes in developments |
| | Home photos | | Building name and information |
| | Price reductions | | 3D tours |
| | |
Rental Listing Details | | Building name and number of stories | | Property manager |
| | Rent amount and lease terms | | Parking availability |
| | Application and deposit fees | | Utilities and amenities |
| | Historical rental listings | | 3D tours |
Consumers and real estate professionals can update property information by, for example, adding home photos and personalized information regarding the neighborhood or school district, creating exclusive home profiles not available anywhere else.
Ourmap-based user interface enables our users to search, navigate and zoom to areas of interest and find and compare home information quickly and efficiently from a variety of different perspectives across homes, neighborhoods, cities, counties and other geographic regions. Our consumer search experience supports complex search queries and filters across our data set of homes, allowing consumers to customize their searches and gain actionable insights.
Our team of economists and statisticians generates unbiased local and national real estate data and analysis on 916 metropolitan areas and approximately 16,800 individual neighborhoods that we provide to consumers and real estate, rental and mortgage professionals at no cost. This gives our users access to local market trends and data, such as home price cuts, list to sale price ratio and foreclosure data that was historically not easily obtained, if available at all. Users can compare these metrics across neighborhoods and different time periods using our real-time charting and filtering.
For Sale and Rental Listings
We provide comprehensive for sale and rental listings through relationships with real estate brokerages, real estate listings aggregators, multiple listing services, apartment management companies, home builders and other third parties. In addition, we provide consumers with access to exclusive home listings, such as our Make Me Move listings, which are a homeowner’s posted price at which they would be willing to move. We also show listings that may not be available on other sources, including for sale by owner,pre-market inventory, including our Coming Soon listings, and rental listings. Real estate agents and landlords may feature and gain more exposure for their listings through our advertising products.
Marketplace of Real Estate Agents
We present consumers with ratings and contact information for the listing agent and local buyer’s agents alongside home profiles and listings for homes to assist them in evaluating and selecting the real estate agent best suited for them. We enhance this offering by providing an online professional directory for consumers to search and contact real estate professionals that they might wish to engage. Our directory includes rich profiles of real estate professionals, including more than 3.0 million ratings and reviews provided by our users, allowing consumers to evaluate these agents based on a number of criteria, including neighborhood specialization and number of listings.
Marketplace of Mortgage Professionals
In our mortgages marketplace, consumers can answer a series of questions to find a local lender, and mortgage professionals receive contacts based on data such as location and customer reviews, or consumers can anonymously request free, personalized mortgage quotes fromconsumer-rated-and-reviewed mortgage professionals. Consumers can then choose to contact those mortgage professionals at their discretion. For the year ended December 31, 2017, there were approximately 22.7 million mortgage loan information requests submitted on Zillow Group platforms by consumers. More than half of consumers who submit a loan information request do so on a mobile device. As of December 31, 2017, we had published approximately 495,000 reviews of mortgage professionals submitted by our consumers.
Mobile Access
We operate one of the most popular suites of mobile real estate applications with more than fifty applications across all major mobile platforms. Our mobile real estate applications provide consumers and real estate, rental and mortgage professionals with location-based access to many of our products and services, including Zestimates, Rent Zestimates, for sale and rental listings and extensive home-related data. Through our mobile applications, for example, a consumer can learn about the home’sfor-sale price, Zestimate, number of bedrooms, square footage and past sales, as well as similar information about surrounding homes. The consumer can call a real estate professional through our mobile applications to get more information or schedule a showing. For example, on our flagship Zillow brand, during December 2017, nearly 630 million homes were viewed on a mobile device, which equates to 234 homes per second.
Marketing
We believe Zillow Group has considerable opportunity to increase brand awareness and grow traffic through product development, targeted advertising programs and strategic partnerships. As such, we opportunistically advertise to consumers and professionals in various online and offline channels that have tested well for us and pursue strategic partnerships that drive traffic and brand awareness for Zillow Group.
At Zillow Group, marketing begins with effective product development, which then becomes amplified by impactful brand advertising and marketing communications. We create immersive consumer products that people want to use frequently, talk about and share. The engaging nature of our products enables us to execute compelling advertising campaigns integrated with our robust and viral communications program, which together comprise the primary drivers of our brand awareness and traffic acquisition efforts. For example, for our flagship Zillow brand, we launched our consumer brand with communications at the core of our marketing strategy. Next, after years of vigorous field testing, we began large-scale national advertising in early 2013 on television and across other complementary channels, which has continued through the year ended December 31, 2017. In part as a result of these advertising efforts, traffic to Zillow Group brands’ mobile applications and websites reached a seasonal peak of more than 187 million monthly unique users in July 2017, an increase of 10% year over year. Visits to Zillow Group brands’ mobile applications and websites, including Zillow, Trulia, StreetEasy and RealEstate.com, increased 19% to 6,314.4 million for the year ended December 31, 2017 compared to the year ended December 31, 2016. The majority of our traffic and brand awareness comes direct, not dependent on search engines, with demonstrated consumer intent to visit the Zillow Group brands.
The communications team for our flagship Zillow brand includes former print and broadcast journalists who have established Zillow Group as an authoritative source for information on a broad range of home and real estate-related subjects. A typical week includes commentary from our real estate experts across dozens of national print and broadcast media outlets, guest opinion pieces or blog posts by our chief economists, and wide-ranging national and local media coverage of Zillow Group products, listings, data and consumer tips. We also produce considerable home and real estate-related content on our blogs that are syndicated across dozens of prominent media sites with content ranging from real estate market trends, to home financing tips, to celebrity real estate listings.
In September 2017, we released the second annual Zillow Group Report on Consumer Housing Trends, which highlights our latest consumer research. The report has garnered the attention of media outlets such as theWall Street Journal,New York Times,Fox Business,Associated Press andMoney Magazine and serves to establish Zillow Group as the authority on residential real estate consumers and their needs, aspirations and challenges.
We focus substantial public relations effort around the marketing of our Zillow Real Estate Market Reports, which arein-depth reports produced by our economics and analytics bureau for 905 U.S. markets. Data is released on a monthly and quarterly basis, and the data is widely used by government entities such as the Federal Reserve and Congressional Oversight Panel, as well as regularly featured in respected media outlets such as theWall Street Journal,New York Times,Bloomberg,Reuters and across numerous national network and cable news shows including CNBC, CNN, Fox News and Bloomberg. We believe the considerable effort we have spent on public relations and social media has allowed us to build large and credible brands.
Our living database of homes creates significant opportunities for home-ownership lifecycle marketing. A typical person will at various times in life be a renter, buyer, homeowner, mortgage refinancer or seller, and this presents opportunities to communicate with consumers over many years before, during and after a transaction. We actively communicate with our users through email and social media channels.
Sales, Consumer Care and Customer Support
Our sales teams are responsible for generating advertising customers across our mobile applications and websites.
Our largest sales teams sell our Premier Agent and Premier Broker products to real estate agents, and are located in Seattle, Washington, Denver, Colorado, Irvine, California, and New York, New York. We also have sales teams in Seattle, Washington, Denver, Colorado, New York, New York, and Irvine, California that sell our rental products to rental professionals. In addition, we have sales teams in Seattle, Washington and Lincoln, Nebraska that support sales in our mortgage marketplaces. We also have sales teams in Seattle, Washington, Denver, Colorado, and San Francisco, California that sell our new construction marketing solutions. We attract customers through a combination of outbound calling and inbound customer requests generated from our websites and event marketing activities. We also maintain field sales teams in San Francisco, California and New York, New York to specifically target larger advertising customers in the real estate and related content categories, such as real estate brokerages, home builders, lenders and home service providers, as well as advertisers in the telecommunications, automotive, insurance and other industries.
We believe that consumer care and customer support are important to our success. Our consumer care and customer support teams are located in Seattle, Washington and Denver, Colorado. Our customer support team responds to commercial and technical issues from our advertisers, and our consumer care team responds to consumer issues from our user community.
Technology and Infrastructure
Zillow Group is a data- and technology-driven company. Our technical infrastructure, mobile applications and websites are built to provide consumers and real estate, rental and mortgage professionals with access to rich real estate data and powerful online tools to help them accomplish their home-related goals. Our successbusiness depends on our ability to innovateattract and enhance our productsretain leading industry partners to advertise and provide services adapt to changes in technology, and support new devices and operating systems.
Research and development costs are expensed as incurred and are recorded in technology and development expenses. For the years ended December 31, 2017, 2016 and 2015, expenses attributable to research and development for our business totaled $193.0 million, $170.1 million and $116.2 million, respectively. We expect to continue making significant investments in research and development as we explore new ways to deliver greater value to our consumer users and advertiser customers. For information about our research and development costs, see Note 2 of the accompanying notes to our consolidated financial statements included within this annual report.
Many of our services are available through real-timeweb-based application programming interfaces that allow our information to be easily integrated into third-party websites.customer base. We provide HTML and JavaScript-based widgets to allow easy integration of Zillow Group information onto other websites, with little custom programming. Our technology platform is built using industry-leading third-party and internally developed software as well as open source technologies. This combination allowscompete for rapid development and release of high-performance software in a cost-effective and scalable manner. Our mobile applications and websites are designed to have high availability, from the internet connectivity providers we choose, to the servers, databases and networking hardware that we deploy. We design our systems so that the failure of any individual component is not expected to affect the overall availability of our platform. We also leverage content delivery networks and use other third-party cloud computing services, includingmap-related and ad serving services, to ensure fast and local access to content. We employ a host of encryption, antivirus, firewall, monitoring, and patch-management technology to protect and maintain our systems.
Our Zillow technical infrastructure, mobile applications and websites are hosted at a third-party facility located in the Seattle area. We manage our Trulia mobile applications and website from a shared data center in Santa Clara, California. Additionally, we utilize third-party web services for cloud computing and storage to assist in service growth and redundancy.
Intellectual Property
We protect our intellectual property through a combination of trademarks, trade dress, domain names, copyrights, trade secrets and patents, as well as contractual provisions and restrictions on access to our proprietary technology.
Our trademarks registered in the United States and several other jurisdictions include, but are not limited to, “Zillow,” “Trulia,” “Zestimate,” “Premier Agent,” “Make Me Move,” “Mortech,” “Marksman,” “Hotpads,” “StreetEasy,” “dotloop,” “Find Your Way Home,” “Naked Apartments,” “New Home Feed,” “Instant Offers,” the Z in a house logo, the Trulia marker logo, as well as logos that correspond with several of our other trademarks. We also have filed other trademark applications in the United States and certain other jurisdictions and will pursue additional trademark registrations to the extent we believe it will be beneficial and cost-effective.
We are the registered holder of a variety of domestic and international domain names that include, but are not limited to, “Zillowgroup.com,” “Zillow.com,” “Trulia.com,” “RealEstate.com,” “Mortech.com,” “HotPads.com,” “Streeteasy.com,” “DotLoop.com,” “Retsly.com,” “NakedApartments.com,” “BridgeInteractive.com,” “NewHomeFeed.com” and other similar variations. We view the strength of brand awareness and loyalty with respect to both our consumer- and business-facing brands as a key differentiator. As a result, our ability to protect these intellectual property assets is very important to our business.
We have 23 patents of varying lengths issued in the United States and internationally. These patents cover proprietary techniques that relate to determining a current value for a real estate property, performing summarizationpartners based on the perceived transaction readiness of geographic data points in response to zoom selection,customers, return on investment, price and product offerings and the incorporationeffectiveness and relevance of individual aerial images and incorporating visual information into a master planar image, the collection, storage and display of home attribute values, providing for a multi-faceted search, and other proprietary techniques relevant to our products and services. Based on these and other factors, real estate partners could select other companies to work with to provide real estate, rental, new construction and mortgage information and services to real estate professionals, local brokerage sites and major internet portals, general search engines, e-commerce and social media sites. We also compete for a share of our partners’ overall marketing budgets with traditional media as well as word-of-mouth referrals and leads from yard signs and other marketing.
Intellectual Property
We regard our intellectual property as a key differentiator that is critical to our success and rely on a combination of intellectual property laws, trade-secret protection, and contractual agreements to protect our proprietary technology and data.
Our Zestimate,
home valuation, for example, which we consider to be a significant competitive advantage with respect to
consumercustomer engagement,
is currently protected by a patent. Weleverages patented, proprietary, automated valuation models to provide real-time home value estimates. As of December 31, 2022, we have
51102 patents of varying lengths issued and 152 patent applications pending in the
United StatesU.S. and
internationally, which seek tointernationally. These patents cover
a variety of proprietary techniques relevant to our products and
services. We intend to pursue additional patent protection toservices, including determining a current value for real estate property and the
extent we believe it will be beneficialcollection, storage and
cost-effective.display of home attribute values and creating interactive floor plans.
In addition, awareness and loyalty to our brand enables us to effectively attract and retain our customers. To support our brand, we have registered, or applied for the protection provided byregistration of, trademarks, service marks and copyrights in the U.S. and several other jurisdictions, including “Zillow,” “Zestimate,” and the Z in a house logo. We are also the registered holder of a variety of domestic and international domain names. We have licensed in the past, and we may license in the future, certain of our intellectual propertyproprietary rights to third parties.
To further protect our proprietary rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment provisions. We
further control the use of our proprietary technology,
data and intellectual property through provisions in both our general and product-specific terms of use
and other restrictions on our mobile applications and websites.
Competition
Government Regulation
We
face competition to attract consumers to our mobile applicationsoperate in an increasingly complex legal and
websitesregulatory environment. Our business and
to attract advertisers to purchase our advertisingthe products and
services.Competition for Consumers
We compete for the attention of consumers with companiesservices that operate, or could develop, national and local real estate and rental listings search, as well as mortgage lender mobile applications and websites. We compete for consumers primarily on the basis of the quality of the consumer experience, the utility of the data and services we provide, the breadth, depth and accuracy of information, and brand awareness and reputation. We believe we compete favorably on these factors.
Competition for Advertisers
We compete for advertising customers, such as real estate professionals, with media companies, including companies dedicated to providing mobile andweb-based real estate, rental and mortgage information and services to real estate professionals and consumers, local brokerage sites and major internet portals, general search engines and social media sites, as well as other online companies. We also compete for a share of advertisers’ overall marketing budgets with traditional media such as newspapers, television, magazines, and home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate agents, mortgage professionals, property managers or rental agents to advertise their qualifications or listings. We compete for advertising revenue based on perceived return on investment and perceived transaction readiness and overall quality of consumer leads, the effectiveness and relevance of our advertising products, pricing structure and our ability to effectively deliver types of ads to targeted demographics. We believe we compete favorably on these factors.
Government Regulation
Weoffer are affected by laws and regulations that apply to businesses in general, as well as to businesses operating on the internet and through mobile applications. This includes a continually expanding and evolving range of laws, regulationslocal, state, federal, and standards that address information security, data protection, privacy, data collection and advertising, among other things. We are also subject to laws governing marketing and advertising activities conducted by telephone, email, mobile devices, and the internet, including the Telephone Consumer Protection Act, the Telemarketing Sales Rule, theCAN-SPAM Act, and similar state laws. In addition, some of our mortgage advertising products are operated by our wholly owned subsidiary, Zillow Group Mortgages, Inc., a licensed mortgage broker, pursuant to a support services agreement. Though we do not take mortgage
applications or make loans or credit decisions in connection with loans, Zillow Group Mortgages, Inc. is subject to stringent state and federalinternational laws and regulationsregulations. For additional information on government regulation refer to Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K.
22 Source: December 2022 Economic Data published by the National Association of REALTORS®
23 Source: National Association of REALTORS®
24 Source: 2022 Nationwide Mortgage Licensing System Industry Report
25 Source: Real Estate Standards Organization in 2022
Human Capital Resources
At Zillow, we believe that our long-term success is dependent upon attracting, developing and
retaining talented employees, and maintaining a culture that allows each employee to
the scrutiny of statedo their best work. We value integrity, accountability, collaboration, creativity, respect and
federal government agenciestransparency as
a licensed mortgage broker.By providing a medium through which users can post content and communicate with one another, we may also be subjectcentral to laws governing intellectual property ownership, obscenity, libel, and privacy, among other issues. In addition, the real estate agents, mortgage professionals, banks, property managers, rental agents and some of our other customers and advertisers on our mobile applications and websites are subject to various state and federal laws and regulations relating to real estate, rentals and mortgages. We endeavor to ensure that any content created by Zillow Group is consistent with such laws and regulations by obtaining assurances of compliance from our advertisers and consumers for their activities through, and the content they provide on, our mobile applications and websites. The real estate, mortgages, and rentals industries are subject to significant state and federal regulation; though we provide advertising services and technology solutions to real estate, mortgages, and rentals professionals, certain of our activities may be deemed to be covered by these industry regulations. Since the laws and regulations governing real estate, rentals and mortgages are constantly evolving and striving to keep pace with innovations in technology and media, it is possible that we may have to materially alter the way we conduct some parts of our business activities or be prohibited from conducting such activities altogether at some point in the future.
Employees
core values.
As of December 31,
2017,2022, we had
3,181 full-time5,724 employees.
Our internal data shows that 52% of our workforce self-identified as men and 48% self-identified as women, with women representing 40% of our leadership team (defined as director level and above). The ethnicity of our workforce was 59% White, 20% Asian, 8% LatinX, 8% Black and 5% for all other races. For leadership, the breakdown was 73% White, 16% Asian, 5% Black, 4% LatinX and 2% for all other races. The diversity of our workforce and leadership team continues to be an area of focus.
In connection with the wind down of Zillow Offers operations and other cost reduction measures, we reduced our workforce by approximately 25% in 2022, primarily during the first half of the year.
Zillow as a Flexible Workforce
Our focus on employees throughout 2022 has been critically important in light of the unique challenges brought on by evolving working norms and employee preferences. We are redefining the employee experience and the future of flexible work, beginning with our announcement of a permanent move to a flexible workforce in late 2020. In addition, we updated our compensation philosophy to view our roles competitively nationally and not just locally, in support of our flexible work philosophy of employees being able to work from anywhere in the United States and Canada. Our base pay compensation frameworks prioritize performance over geographic location when making pay decisions. As we have transitioned to a flexible workforce, we are also using this opportunity to diversify our workforce, as we are no longer bound by the geographic limits of our physical workspaces.
We expect that our offices will continue to be a place for teams to come together to enable productivity and collaboration, though on a far less frequent basis. Since our permanent move to a flexible workforce, we have redesigned our physical workspaces to provide more space for collaboration and engagement, especially to support team gatherings.
We continue to evolve our flexible work model to more effectively use our time together, provide more opportunities to work asynchronously, and allow all employees to thrive regardless of location. By implementing company-wide core collaboration hours and flexible working hours to enable employees to build their work life around their home life, we are resetting the expectation of availability and providing greater flexibility in how we work. In 2023, our focus will be on balancing flexible work with impactful in-person connections, where cross-functional teams and organizations come together periodically to build connections, trust and collaborate in person.
Equity and Belonging
We are committed to creating a workplace where diversity of gender, gender identity, age, race, ethnicity, sexual orientation, national origin, disability, military status and religion are represented, embraced and respected. Our dedicated Equity and Belonging team empowers Zillow Group employees to build a strong community, amplify underrepresented voices, and foster a company culture where everyone can learn, grow and thrive. We maintain equity and belonging programs that include unconscious bias training, nine employee-led affinity networks for community members and allies, and support diversity in our recruitment practices.
Pay Equity
Zillow Group is committed to ensuring all employees in similar roles with similar qualifications are paid equitably regardless of their identity. In support of this commitment, we complete a comprehensive annual evaluation with the commitment to disclose results publicly on our corporate website. Based on our assessment of compensation in 2022, we have found that women and men with similar skills are paid within approximately 1% of each other when we control for job title and function. At Zillow Group, in 2022, White women, Black men and LatinX women and men had controlled pay of $0.99 and Black women had controlled pay at $0.98. Asian women and men at Zillow Group had pay equity of $1.01.
While intersectionality of gender and ethnicity in our pay equity data is something we began assessing in 2020 and progress has been shown, we cannot ignore the disparities and recognize our work must continue. We will continue our commitment and comprehensive reviews of pay equity and will look to expand our data collection and analysis to include LGBTQ+ data in the future. We were included in the 2022 Bloomberg Gender Equality Index, which measures equality across internal company statistics, employee policies and practices and external community support and engagement.
Career and Leadership Development
At Zillow Group, we believe each of our employees should have the tools and support they need to grow their careers through experiences, resources and connections. We have a dedicated Talent Success team, which creates educational resources and conducts training on a wide range of topics including job-specific onboarding, effective communication, collaboration, as well as sophisticated leadership training programs and experiences with focused learning tracks for both new managers and experienced leaders. In 2022, we offered over 900 online learning opportunities through Zillow University, our internal online training platform. Zillow Group employees have completed nearly 60,000 hours of content in 2022 on Zillow University and LinkedIn Learning.
A key piece in development is cultivating a learning culture where learning is a habit, and learning agility is at the forefront. This means creating the right learning resources for our employees for their current and future roles. We have developed a robust Learning & Development portfolio that includes a number of key career development programs that support our employees to equip them with the knowledge and experience to grow their careers. Below is a summary of certain of these programs:
•Leadership Entrance Experience Program (LEEP) is a self-paced curriculum designed for individual contributors who want to explore people management and develop their leadership skills.
•Career Pathways Program provides employees with access to skills, connections and experiences aimed at creating development opportunities through cross-functional roles.
•Professional skills development through courses like Public Speaking, Insights Discovery® workshops, and access to virtual coaching.
Our people managers play a critical role in moving our business forward by coaching their team, developing their talent and providing strong communication to create team engagement. To help achieve this goal, we utilize our Leadership Blueprint, a leadership development guide that outlines our Leadership Philosophy, our expectations for leaders and the behaviors that are essential to create a consistent leadership experience at Zillow Group. The Blueprint provides the foundation of our leadership development programs.
To ensure an even smoother transition from Senior Director roles to Vice President, we provide new executives with additional support, including an executive coach and access to senior executive leadership roundtable discussions. Externally hired executives are also provided with extra tools and support to ensure their success. We also provide specific programming for Zillow Group women executives, which aims to build better relationships and connections and provide additional professional and leadership development. We are continuing to work to instill strong, consistent leadership that will lead us into the workplace of the future.
Talent Rewards
Talent Rewards includes the strategic oversight of compensation, benefits, and immigration/mobility programs whose purpose is to reinforce talent attraction, retention and development in support of Zillow’s culture. Throughout 2022, the labor market remained highly competitive and as a result, we have continued to refine our rewards program. We have increased transparency and consistency in our candidate offers through a redesign of our total compensation package. We conduct ongoing reviews of employee compensation to ensure that our employees are paid fairly and in alignment with market expectations. In conjunction with these ongoing compensation reviews, in August 2022, upon recommendation of the Compensation Committee, the Board of Directors approved adjustments to the exercise price of certain outstanding vested and unvested option awards for eligible employees. In addition, the Board of Directors approved a supplemental grant of restricted stock units to eligible employees, which were granted in August 2022 and began vesting quarterly over a two-year period beginning in August 2022. For additional information, see Part II, Item 8 in Note 16 in our Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
In addition, our robust benefits are reflected in investments in physical, family, mental and financial wellness programs to meet the needs of our diverse base of employees. These benefits include workplace-location flexibility, competitive health care coverage, fully paid parental leave, a sabbatical program, wellness reimbursements, tuition support and caregiver resources. We have also updated our benefits program through enhanced offerings around mental health, LGBTQ+ provider navigation support, as well as fertility and family planning. Beginning in 2023, we have enhanced our parental leave policy, which now allows for up to 20 weeks of paid parental leave. These ongoing investments continue to reinforce Zillow’s commitment to an equitable, healthy, focused and dedicated workforce.
Where You Can Find More Information
Our filings with the Securities and Exchange Commission, or SEC, including our annual reports on Form
10-K, quarterly reports on Form
10-Q, current reports on Form
8-K, and amendments to those reports, are available on the “Investors” section of our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Annual Report on Form
10-K or any other document we file with the SEC.
Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters and for complying with its disclosure obligations under Regulation FD:
•Zillow Group Investor Relations Webpage (http:(https://investors.zillowgroup.com)
•Zillow Group Investor Relations Blog(http: (https://www.zillowgroup.com/ir-blog)news/)
•Zillow Group Twitter Account (https://twitter.com/zillowgroup)
The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time.time and reflects current updated channels as of the date of this Annual Report on Form 10-K. The information we post through these channels is not a part of this Annual Report on Form10-K or any other document we file with the SEC, and the inclusion of our website addresses and Twitter account are as inactive textual references only.
Risk Factor Summary
Below is a summary of the principal factors that we believe make an investment in Zillow Group speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found after this summary, and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission (“SEC”) before making an investment decision regarding Zillow Group, including investment in our Class A common stock or Class C capital stock.
Risks Related to Our Business and Industry
•Our business has and may continue to be impacted by the current and future health and stability of the economy and United States residential real estate industry, including inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues.
•Our business could be harmed if our real estate partners reduce or end their advertising spending with us or if we are unable to effectively manage advertising inventory or pricing.
•We may not be able to establish or maintain relationships with listing and data providers, which could adversely affect traffic to our mobile applications and websites.
•If we do not comply with MLS rules and requirements, our use of listings data may be restricted.
•Our success depends on our ability to continue to innovate and compete successfully to attract customers and real estate partners.
•Zillow Home Loans depends on United States government-sponsored entities and government agencies, operates in a highly regulated industry, and may be unable to obtain or maintain sufficient financing to fund its origination of mortgages, may not meet customers’ financing needs with its product offerings, may not be able to continue to grow its mortgage origination business, may not be able to resell originated mortgages on the secondary market, and may be impacted by interest rate and general market fluctuations.
•Natural disasters and catastrophic events (including pandemics such as COVID-19) may harm our business.
•If our data integrity suffers harm, our business may suffer and we may be held liable.
•Pending or future litigation and other disputes or enforcement actions may harm our business.
•Our success depends on attracting and retaining a highly skilled workforce.
•Acquisitions, investments, strategic partnerships, capital-raising activities, or other corporate transactions or commitments by us or our competitors could harm our business.
•Our fraud detection processes and information security systems may not be effective.
•We are subject to multiple risks related to accepting credit and debit card payments.
•If our security measures or technology systems, or those of third parties upon which we rely, are compromised or there is any significant disruption in service on our platforms or in our network, we may suffer significant losses and our business may be harmed.
•We rely on third-party services to support critical functions of our business.
•We have and may continue to be subject to outstanding real property or other claims following the wind down of our Zillow Offers operations.
Risks Related to Our Intellectual Property
•We may be unable to adequately protect or continue using our intellectual property or prevent others from copying, infringing upon, or developing similar intellectual property.
•We may be involved in costly intellectual property disputes and may be unable to adequately protect our intellectual property.
•Proprietary rights agreements with employees may not prevent disclosure of our proprietary information.
Risks Related to Regulatory Compliance and Legal Matters
•If we fail to comply with laws and regulations or to obtain or maintain required licenses, our business and operations could be harmed. At the same time, compliance with laws and regulations may be expensive and operationally burdensome.
•We are subject to stringent and evolving United States and Canadian laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, a disruption of our business operations, reputational harm, loss of revenue or profits, loss of customers and other adverse business consequences.
•We may be involved in proceedings that may result in adverse outcomes.
Risks Related to Our Financial Position
•Given current economic and residential housing market conditions and the significant changes to our business since November 2021, financial performance for prior and current periods may not be indicative of future performance.
•We have incurred significant operating losses in the past and may not be profitable over the long term.
•We may not be able to pay our debt, settle conversions of our convertible senior notes, or repurchase our convertible senior notes upon a fundamental change.
•Credit and debt facilities for Zillow Home Loans may subject us to interest rate risk and include provisions that may restrict our operating activities and harm our liquidity.
•We may not be able to raise additional capital or refinance on acceptable terms, or at all.
•Real or perceived inaccuracies in assumptions, estimates and data used to calculate our business metrics may harm our business or reputation.
•We expect our results of operations to fluctuate quarterly and annually.
•We could be subject to additional tax liabilities.
•Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Risks Related to Ownership of Our Common and Capital Stock and Debt Instruments
•Our Class A common stock and Class C capital stock prices may be volatile and their value may decline.
•The structure of our capital stock concentrates voting control with our founders.
•Future sales of our stock could cause our stock price to decline.
•Securities, industry analyst or other third-party research and reports may affect our stock price and trading volume.
•Any additional equity securities or convertible debt we issue may dilute shareholders’ investments.
•Currently outstanding and future use of capped call transactions may affect the value of our outstanding convertible senior notes and our Class C capital stock.
•Anti-takeover provisions could preventan acquisition of us, limit shareholders’ ability to affect management, and affect the price of our stock.
Our business is subject to numerous risks. You should carefully consider the following risk factors, as any of these risks could harm our business, results of operations, and future financial performance. Recovery pursuant to our insurance policies may not be available due to policy definitions of covered losses or other factors, and available insurance may be insufficient to compensate for damages, expenses, fines, penalties, and other losses we may incur as a result of these and other risks. In addition, risks and uncertainties not currently known to us or
that we currently deem to be immaterial may materially and adversely affect our business, financial condition and operating results. If any of these risks occur, the trading price of our common and capital stock could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
Our Business and Operating Results Have and May Continue to Be Impacted by the Health of the United States Residential Real Estate Industry and May Be Negatively Affected by Downturns in This Industry and General Economic Conditions.
The success of our business depends, directly and indirectly, on the health of the United States residential real estate market. The health of the United States residential real estate market is affected, in part, by general economic conditions beyond our control. Recent market factors, including low housing inventory, fewer new for-sale listings, volatility in mortgage interest rates and home price fluctuations, inflationary conditions and high rental occupancy rates have impacted demand for our products and services by consumers and advertisers, which in turn has negatively impacted our financial performance. The extent to which these and additional economic factors, such as those described below, impact our results and financial position will depend on future developments, which are uncertain and difficult to predict:
•downturns in the United States residential real estate market – both seasonal and cyclical – which may be due to one or more factors, whether included in this list or not;
•changes in federal monetary policy or inflationary conditions;
•changes in international, national, regional, or local economic, demographic, or real estate market conditions;
•slow economic growth or recessionary conditions;
•increased levels of unemployment or a decrease in labor availability, and/or slowly growing or declining wages;
•declines in the value of residential real estate and/or the pace of home appreciation, or the lack thereof;
•illiquidity in residential real estate;
•overall conditions in the housing market, including macroeconomic shifts in demand, and increases in costs for homeowners such as property taxes, homeowners association fees and availability and affordability of insurance;
•low levels of customer confidence in the economy and/or the United States residential real estate industry;
•low home and/or rental inventory levels or lack of affordably priced homes and rentals;
•changes in interest rates, mortgage rates or down payment requirements and/or restrictions on mortgage financing availability;
•changes to real estate commissions;
•federal, state, or local legislative or regulatory changes that would negatively impact rental properties or the residential real estate industry, such as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which limited deductions of certain mortgage interest expenses and property taxes;
•volatility and general declines in the stock market; and/or
•natural and man-made disasters and other catastrophic events, such as pandemics, hurricanes, earthquakes, wildfires, terrorist attacks and other events that disrupt local, regional, or national real estate markets.
If Real Estate, Rental and Mortgage Professionals, Home Builders, Property Managers or Other AdvertisersReal Estate Partners Reduce or End Their Advertising Spending With Us or if We Are Unable to Effectively Manage Advertising Inventory or Pricing, Our Business WouldCould Be Harmed. Our
current financial modelbusiness depends
in part on revenue generated
primarily through sales of advertising products and services to real estate agents and brokerages, rental professionals, mortgage professionals, home builders,
property managers, and other
advertisersreal estate partners in categories relevant to real
estate.estate (collectively, “real estate partners”). Our ability to attract and retain
advertisers,real estate partners, and ultimately to generate advertising revenue, depends on a number of factors, including how successfully we can:
•increase the number of consumerscustomers who use one or more of our products and services to effectuate transactions and the frequency of their use, provide them with tools to promote engagement between real estate market participants, and enhance their user experience so we can retain them;
•offer an attractive return on investment to our advertisersreal estate partners for their advertising spending with us;
•continue to develop our advertising products and services to increase adoption by and engagement with advertising customers;our real estate partners;
•keep pace with and anticipate changes in technology to provide industry-leading products and services to advertisersreal estate partners and consumers;customers; and
•compete effectively for advertising dollars with other online media companies.options.
Premier Agent revenue derived from our flagship Premier Agent program and Premier Broker program, accounted for 71%66% of total revenue for the year ended December 31, 2017.2022. This level of revenue concentration suggests that even modest decreases in individual agent advertiser spending across the advertiserreal estate partner population, caused by actual or perceived decreases to return on investment, preference for a competitive service, or other factors, could have a significant negative impact on our ability to use proceeds from our Premier Agent business to invest in our other businesses, which we view as a key competitive advantage. Any such decreases in spending could also adversely affect our results of operations. We do not have long-term contracts with mostmany of our advertisers.real estate partners. Our advertisersreal estate partners could choose to modify or discontinue their relationships with us with little or no advance notice. For example, our self-serveauction-based account interface for Premier Agent advertiserspartners allows agent advertiserspartners to independently control the duration of their advertising commitments. commitments for varying terms.
We may not succeed in retaining existing advertisers’real estate partners’ spending or capturing a greater share of such spending if we are unable to convince advertisersreal estate partners of the effectiveness or superiority of our products as compared to alternatives, including traditional offline advertising media such as television and newspapers.alternatives. In addition, we continually evaluate and utilize various pricing and value delivery strategies in order to better align our revenue opportunities with the growth in usage of our mobile and web platforms. In 2016, forplatforms and customer transactions. For example, we implementedoffer a new auction-basedpay for performance pricing methodmodel called “Flex” for Premier Agent advertising services in certain markets. With the Flex model, Premier Agents are provided with validated leads at no initial cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions and the value of those transactions. To estimate variable consideration and revenue associated with the Flex model, we use a number of assumptions, including estimating the conversion rate of a lead to a real estate transaction, estimating the velocity of conversions and estimating the fee amounts likely to be received. We use similar performance advertising models for our Premier Agent product. rentals pay per lease and StreetEasy Experts products.
Our estimates of variable consideration are primarily developed based on historical data and our future expectations based on current market trends. Our estimation methodology may be inaccurate and some or all of the revenue we recognize when our performance obligations are satisfied may be reversed. Realization of performance advertising revenue is also dependent on accurate reporting and remittance by our partners.
Future changes to our pricing
methodologyor lead delivery methodologies for advertising services or product offerings may cause
advertisersreal estate partners to reduce or end their advertising with us or negatively impact our ability to manage revenue opportunities. If
advertisersreal estate partners reduce or end their advertising spending with us, or if we are unable to effectively manage inventory and pricing, our advertising revenue and business, results of operations and financial condition
wouldcould be harmed.
If We Do Not Innovate or Provide High-Quality Products and Services on Mobile and the Web That Are Attractive to Our Users and to Our Advertisers, Our Business Could Be Harmed.
Our success depends on In addition, we use revenue generated from our continued innovation to provide new, and improve upon existing, products and services that make our mobile applications, websites and other tools useful for consumers and real estate rentalpartners, in part, to fund our operations and mortgage professionals,investments in our five growth pillars: touring, financing, seller solutions, enhancing our partner network, and attractive tointegrating our advertisers. As a result, we must continually invest significant resourcesservices. Significant decreases in research and development to improve the attractiveness and comprehensiveness ofrevenue generated from our products and
services, adapt to changes in technology, and support new devices and operating systems. If we are unable to provide products and services that users, including real estate professionals, want to use, on the devices they prefer, then userspartners may become dissatisfied and use competitors’ mobile applications, websites and tools. If consumers begin to access real estate through other media and we fail to innovate, our business may be negatively impacted. If we are unable to continue offering high-quality, innovative products and services, we may be unable to attract additional users and advertisers or retain our current users and advertisers, which could harm our business, results of operations and financial condition.
We Face Competition for Consumers in the Real Estate Category, Which Could Impair Our Ability to Attract Users of Our Mobile Applications and Websites, Which Would Harm Our Business, Results of Operations and Financial Condition.
Our business model depends onimpact our ability to continue to attract consumers to our mobile applications and websites and enhance their engagement with our products and services in a cost-effective manner. New entrants continue to join the category at an increasingly rapid pace. Our existing and potential competitors include companies that operate, or could develop, national and local real estate, rental, new construction and mortgage mobile applications and websites. Such competitors range from companies offering traditional offline advertising media, like newspapers, to new mobile- orweb-only technology companies. These companies could devote greater financial, technical and other resources than we have available to sales, advertising, or research and development, have a more accelerated time frame for deployment, or leverage their existing user bases and proprietary technologies to provide products and services that consumers might view as superior to our offerings. Any of our future or existing competitors may introduce different solutions that attract consumers or provide solutions similar to our own but with better branding or marketing resources. If we are not able to continue to attract consumers to our mobile applications and websites, our business, results offund operations and financial condition would be harmed.
We May Not Be Able to Compete Successfully Against Our Existing or Future Competitors in Attracting Advertisers, Which Could Harm Our Business, Results of Operations and Financial Condition.
We face intense competition from traditional and online or mobile media sources to attract advertisers. Online and on mobile, we compete against websites dedicated to providing real estate, rental, new construction, and mortgage information and services to real estate professionals and consumers, major internet portals, general search engines,e-commerce, and social media sites, as well as other technology and media companies. We also compete for a share of advertisers’ overall marketing budgets with traditional media such as television, magazines, newspapers and home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate professionals to advertise their qualifications and listings. Large companies with significant brand recognition have large numbers of direct sales personnel and substantial proprietary advertising inventory and web traffic, which may provide a competitive advantage. To compete successfully for advertisers against future and existing competitors, we must continue to invest resources in developing our advertising platform and proving the effectiveness and relevance of our advertising products and services. Pressure from competitors seeking to acquire a greater share of our advertisers’ overall marketing budget could adversely affect our pricing and margins, lower our revenue, and increase our research and development and marketing expenses. If we are unable to compete successfully against our existing or future competitors, our business, results of operations or financial condition would be harmed.
We Compete in a Dynamic Industry, and We May Invest Significant Resources to Pursue Strategies and Develop New Products and Services That Do Not Prove Effective.
The industry for residential real estate technology, information marketplaces, services, and advertising is dynamic, and the expectations and behaviors of consumers and professionals shift constantly and rapidly. We continue to learn a great deal about the behaviors and objectives of residential real estate market participants as the industry evolves and are investing significant resources to develop, test, and launch products and services to
address the needs of the market and improve the homebuying, selling, financing, building, and renting experience. Changes or additions to our products and services may not attract or engage our users, and may reduce confidence in our products and services, negatively impact the quality of our brands, upset other industry participants, expose us to increased market or legal risks, subject us to new laws and regulations, or otherwise harm our business. Our product Zillow Instant Offers, for example, which allows home sellers to receive a comparative market analysis from a Premier Agent alongsidenon-binding offers from institutional buyers, may not engage home sellers as we think it will. Further, if we do not realize the benefits we expect from strategic relationships we enter into, including for example, the generation of additional advertising revenue opportunities, our business could be harmed. We may not successfully anticipate or keep pace with industry changes, and we may invest considerable financial, personnel, and other resources to pursue strategies that do not, ultimately, prove effective such that our results of operations and financial condition may be harmed.
We Depend on the Real Estate Industry, and Changes to That Industry, Including to Supply and Demand in the Real Estate Market or Mortgage Lending Regulation, Could Reduce the Demand for, or Restrict Our Ability to Provide, Our Products and Services.
Our financial results significantly depend on real estate market participants using our products and services. Real estate shopping patterns depend on the overall health of the real estate market. Changes to the regulation of the real estate industry, including mortgage lending, may negatively impact the prevalence of home ownership and the ability of market participants to close transactions.
Changes to the real estate industry, including to supply and demand in the real estate market, regulation of rental unit offerings, or mortgage interest rates, could reduce demand for our services. In addition, real estate, rental, and mortgage professionals are subject to comprehensive, and rapidly evolving, federal, state, and local laws and regulations which may cause them to significantly alter, decrease, or terminate their purchase of our products and services. For example, as described in Part I, Item 3 – Legal Proceedings – the Consumer Financial Protection Bureau (“CFPB”) investigated ourco-marketing program for real estate agent and mortgage advertisers in 2015 through 2017, and settlement discussions with the CFPB are ongoing. Seasonality, micro- and macroeconomic factors, government regulation, tax laws, and other factors may decrease consumer usage as well as sales to our advertisers and other customers, which could harm our results of operations and financial condition.
Certain of our mortgage marketing products are operated by our wholly owned subsidiary, Zillow Group Mortgages, Inc., a licensed mortgage broker. Though we do not take mortgage applications or make loans or credit decisions in connection with loans, Zillow Group Mortgages, Inc. is subject to stringent state and federal laws and regulations and to the scrutiny of state and federal government agencies as a licensed mortgage broker. Further, due to the geographic scope of our operations and the nature of the services we provide, we may be required to obtain and maintain additional real estate brokerage and mortgage broker licenses in certain states in which we operate. In connection with such licenses, we are required to designate individual licensed brokers of record. We cannot assure you that we, or our licensed personnel, are and will remain at all times, in full compliance with state real estate and mortgage broker licensing laws and regulations and we may be subject to fines or penalties in the event of anynon-compliance. If in the future a state agency were to determine that we are required to obtain a real estate or mortgage brokerage license in that state in order to receive payments from real estate or mortgage professionals, or if we lose an existing license or are otherwise found to be in violation of a law or regulation, we may be subject to fines or legal penalties or our business operations in that state may be suspended or prohibited. Any failure to comply with applicable laws and regulations may limit our ability to expand into new markets, offer new products or continue to operate in one or more of our current markets.
Natural Disasters and Catastrophic Events May Disrupt Real Estate Markets and our Business.
The occurrence of a significant natural disaster or other catastrophic event, such as earthquake, hurricane, fire, flood, terrorist attack or other similar event, may damage or disrupt our operations, local and regional real
estate markets or economies, and negatively impact our business, results of operations and financial condition. Our largest offices are located in Seattle, Washington, and San Francisco, California, and an earthquake or natural disaster in either city could disrupt our engineering and sales teams and equipment critical to the operation of our business. Similarly, a significant natural disaster or other catastrophic event in any major U.S. city could negatively impact a large number of our advertisers and users, and cause a decrease in our revenue or traffic. For example, in connection with the hurricanes and wildfires that occurred during the second half of 2017, we worked closely with our Premier Agents and other advertisers in affected areas to help manage their advertising budgets, and we provided relief initiatives, which included billing credits and other forms of advertiser assistance. We also experienced a temporary decline in traffic to our mobile applications and websites from consumers in impacted areas during September 2017. Though our relief initiatives and the temporary decline in traffic did not have a material impact on our results of operations and financial condition for 2017, our results of operations and financial condition may be negatively affected by natural disasters in the future.
growth.
We May Not Be Able to Maintain or Establish Relationships With Real Estate Brokerages, Real Estate Listing Aggregators, Multiple Listing Services, Property Management Companies, Home Builders and Other Third-Party Listing Providers, Which Could Limit the Information We
Are AbleHave to
Provide toPower Our
Users.Products and Services.
Our ability to attract
userscustomers to our mobile applications, websites and other tools depends to some degree on providing timely access to comprehensive and accurate
for-sale, new construction real estate listings and
rental listings.information. To provide these listings
and this information, we maintain relationships with real estate brokerages, real estate listing aggregators, multiple listing services (“MLSs”), property management companies, home builders, other third-party listing providers and homeowners and their real estate agents to include listing data in our services. Many of our agreements with real estate listing providers
are short-term agreements that may be terminated with limited
notice.notice or cause. Many of our competitors and other real estate websites have similar access to MLSs and listing data and may be able to source
certain real estate information faster or more efficiently than we can. Another industry participant or group could create a new listings data service, which could impact the relative quality or quantity of information of our listing providers. The loss of existing relationships with MLSs and other listing providers, whether due to termination of agreements,
loss of MLS memberships, or otherwise, changes to our rights to use or timely access listing data or an inability to continue to add new listing providers or changes to the way real estate information is shared, may negatively impact our listing data quality. This could
reduce user confidence inmarkedly decrease the quantity and quality of the sale and rental data we provide,
reduce customer confidence in our products and
make us less popular with consumers,services and cause customers to go elsewhere for real estate listings and information, which could
severely harm our business, results of operations and financial condition.
We May Not Be Able to Maintain or Establish Relationships With Data Providers, Which Could Limit the Information We Are Able to Provide to Our
UsersCustomers and Impair Our Ability to Attract or Retain
Users.Customers.
We obtain
certain real estate data, such as transaction history, property descriptions,
tax-assessed value and property taxes paid, under licenses from third-party data providers. We use this data to enable the development, maintenance and improvement of our marketplace and information services, including Zestimates, Rent Zestimates and our living database of homes. We have invested significant time and resources to develop proprietary algorithms, valuation models, software and practices to use and improve on this specific data. We may be unable to
access certain of this data from vendors or government agencies if changes in local laws or regulations or other prohibitions on data sharing are implemented or because the quality and quantity of data available to these third parties changes. We may also be unable to renew our licenses with these data providers
or enter into new data license agreements, or we may be able to do so only on terms that are less favorable to us, which could harm our ability to continue to develop, maintain and improve these information services and could harm our business, results of operations and financial condition.
If We Fail to Comply With the Rules and Compliance Requirements of MLSs, Our Access to and Use of Listings Data May Be Restricted or Terminated.
Our subsidiaries that access and use listings data through MLS memberships (the “MLS Members”) must comply with each MLS’s rules and compliance requirements to maintain their access to listings data and remain a member in good standing. Each MLS that the MLS Members belong to has adopted its own rules, policies, and agreement terms governing, among other things, how MLS data may be used and how listings data must be displayed on our websites and mobile applications. The MLS Members are also subject to compliance operations requirements and, as a result, must respond to complaints lodged by the MLS or other MLS participants on required timelines. The MLS rules and compliance requirements may not contemplate multi-jurisdictional licensed brokerage entities. MLS rules vary among markets and are in some cases inconsistent between MLSs, such that we are required to customize our websites, mobile applications, or services to accommodate differences between MLS rules. Handling complaints received by the MLS Members across markets may create heightened operational or financial risks with short response and resolution deadlines. Complying with the rules and compliance requirements of each MLS requires significant investment, including personnel, technology and development resources, and the exercise of considerable judgment. Rules and compliance requirements of MLSs may be changed across markets, including potential for targeted changes in response to our operations. If any of the MLS Members are deemed to be noncompliant with an MLS’s rules or to have provided improper responses to or resolution of complaints, they may face disciplinary sanctions by that MLS, which could include monetary fines, restricting or terminating our access to that MLS’s data, or other disciplinary measures. The loss or
degradation of this listings data could materially and adversely affect traffic to our mobile applications and websites, which could severely harm our business, results of operations and financial condition.
If We Do Not Innovate or Provide High-Quality Products and Services That Deliver Efficient and Integrated Transaction Experiences to Our Customers and Real Estate Partners, Our Business Could Be Harmed.
Our success depends on our continued innovation to provide new, and improve upon existing, products and services that make real estate transactions faster, easier and less stressful for our customers and provide value to real estate, rental and mortgage professionals, home buyers and our other real estate partners. As a result, we must continually invest significant resources in research and development to improve the attractiveness, competitiveness, and comprehensiveness of our products and services, enable smoother and more efficient real estate transactions, adapt to changes in technology and support new devices and operating systems. If we are unable to provide products and services that our customers want to use, on the devices they prefer, then those customers may become dissatisfied and use competitors’ mobile applications, websites, products and services. If our customers begin to access more real estate information and services through other media and we fail to innovate, our business may be negatively impacted. If we are unable to continue offering high-quality, innovative products and services, we may be unable to attract additional customers and real estate partners or retain our current customers and real estate partners, which could harm our business, results of operations and financial condition.
We Face Competition for Customers in the Real Estate Category, Which Could Impair Our Ability to Attract Users of Our Mobile Applications, Websites and Other Products and Services, Which Could Harm Our Business, Results of Operations and Financial Condition.
Our business model depends on our ability to continue to attract customers to our mobile applications, websites, real estate services and other services and enhance their engagement with our products and services in a cost-effective manner. In addition, our ability to be successful depends, in part, on attracting customers who have historically shopped for or bought, sold, rented, or financed their homes through more traditional channels. New entrants continue to join the real estate space at a rapid pace and the tools and services for buying, selling, renting, or financing homes are significantly less developed than in other industries, such as books, music, travel and other customer products. Our existing and potential competitors include companies that operate, or could develop, national and local real estate, rental, new construction, mortgage, and title and escrow businesses. Such competitors range from companies offering traditional offline advertising media, like newspapers, to new mobile- or web-only technology companies and from real estate investors, like institutional investors and iBuyers, to mortgage lenders and title and settlement service providers. These companies could devote greater financial, technical and other resources than we have available to real estate services, sales, advertising or research and development, have a more accelerated time frame for deployment or leverage their existing customer bases and proprietary technologies to provide products and services that customers might view as superior to our offerings. Any of our future or existing competitors may introduce different services or solutions that attract customers or provide services or solutions similar to our own but with better branding or marketing resources. Any of our current or future competitors could merge with each other or a separate entity, which may enable them to compete with us even more vigorously and acquire more share of customer transactions and engagement. In addition, search engines are always evolving and changes to their models or algorithms may negatively impact our placement or require greater investment of resources to optimize our placement and attract customers. If the use of online products and services for shopping, renting, buying, selling, or financing residential real estate does not continue to develop and grow or we are not able to continue to attract customers to our mobile applications, websites, real estate services and other services, our business, results of operations and financial condition could be harmed.
We May Not Be Able to Compete Successfully Against Our Existing or Future Competitors in Attracting Customers for Our Products and Services or Real Estate Partners, Which Could Harm Our Business, Results of Operations and Financial Condition.
We face intense competition in each of our lines of business. We compete with a variety of real estate transaction service providers to attract customers engaging in real estate transactions and we also compete with traditional and online or mobile media sources to attract real estate partners. Please see “Competition” under Part 1, Item 1 of this Annual Report on Form 10-K for a general discussion of the competitive conditions in each of our businesses.
Competitors for our real estate transaction services include rental listing service providers, real estate brokers, real estate investors, mortgage lenders, mortgage brokers, financial institutions, and title and settlement service providers. Many of these competitors may have considerable competitive advantages, including longer operating histories, more extensive financial resources, stronger brand equity, more industry experience and greater knowledge and expertise. As a result, these competitors may have an advantage in attracting customers, recruiting highly skilled personnel, and growing or maintaining their businesses. They may also provide customers with real estate transaction services and experiences superior to or more cost-effective than ours.
We compete against mobile applications and websites dedicated to providing real estate, rental, new construction and mortgage information and services to real estate professionals and customers, major internet portals, general search engines, e-commerce and social media sites as well as other technology and media companies. We also compete for a share of our real estate partners’ overall marketing budgets with traditional media such as television, magazines, newspapers and home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate professionals to advertise their qualifications and listings. Large companies with significant brand recognition have large numbers of direct sales personnel and substantial proprietary advertising inventory and mobile application and website traffic, which may provide a competitive advantage. To compete successfully for real estate transaction partners against future and existing competitors, we must continue to invest resources in developing our advertising platform and proving the effectiveness and relevance of our advertising products and services. Pressure from competitors seeking to acquire a greater share of our real estate partners’ overall marketing budget could adversely affect our pricing and margins, lower our revenue and increase our research and development and marketing expenses.
If we are unable to compete successfully against our existing or future competitors, we could lose or fail to gain customer transaction share and our business, results of operations or financial condition would be harmed.
We Compete in a Dynamic Industry, and We May Invest Significant Resources to Pursue Strategies and Develop New Products and Services That Do Not Prove Effective.
The industry for residential real estate transaction services, technology, information marketplaces and advertising is dynamic, and the expectations and behaviors of customers and professionals shift constantly and rapidly. We continue to learn a great deal about the behaviors and objectives of residential real estate market participants as the industry evolves and invest significant resources to develop, test and launch products and services to address the needs of the market and improve the home buying, selling, financing, building and renting experience. Changes or additions to our products and services may not attract or engage our customers, may reduce confidence in our products and services, may negatively impact the quality of our brands, may upset our partners or other industry participants, may expose us to increased market or legal and regulatory risks, may subject us to new laws and regulations , and may result in reduced investor confidence or otherwise harm our business. Further, if we do not realize the benefits we expect from the strategic relationships we enter into, our business could be harmed. Customers may prefer other service providers because they offer different or superior services or those services are easier to use, faster or more cost effective than our services. We may not successfully anticipate or keep pace with industry changes, and we may invest considerable financial, personnel and other resources to pursue strategies that do not ultimately prove effective such that our results of operations and financial condition may be harmed.
If Zillow Home Loans is Unable to Obtain and Maintain Sufficient Financing to Fund Its Origination of Mortgages or is Unable to Resell Mortgages on the Secondary Market, Our Mortgages Business and the Mortgages Segment Financial Results May Suffer.
Zillow Home Loans funds substantially all of its lending operations using warehouse and loan repurchase facilities, intending to sell all loans and corresponding servicing rights to third-party financial institutions, government-sponsored entities or mortgage servicing rights purchasers after a holding period. A substantial portion of the amounts available under these warehouse and loan repurchase facilities are not committed, meaning the applicable lender is not obligated to, but may in its discretion, advance loan funds beyond the committed amounts up to the maximum borrowing capacity. Zillow Home Loans’ borrowings are then generally repaid with the proceeds it receives from mortgage sales. To maintain and grow its business, Zillow Home Loans depends, in part, on having sufficient borrowing capacity under its current facilities or obtaining additional borrowing capacity under new facilities. If Zillow Home Loans is not able to negotiate with its lenders to advance loan funds beyond the committed amounts under its warehouse and repurchase facilities or to otherwise obtain and maintain debt financing with sufficient capacity or flexibility on acceptable terms, and does not have sufficient available cash on hand, then Zillow Home Loans may be unable to maintain or increase the volume of mortgage loans that it originates, may be limited in the type or quantity of loans it can fund, may lose customers to other mortgage lenders and its business may suffer. If Zillow Home Loans is unable to form or retain relationships with third-party financial institutions to purchase its loans or is unable to comply with any covenant in its agreements with these institutions, or is unable to do so on acceptable terms, it may be unable to sell its loans on the secondary market on favorable terms or at all. If Zillow Home Loans is unable to sell its loans or is required to repurchase the loans from third parties, it may be required to hold the loans for investment or sell them at a discount.
Zillow Home Loans Product Offerings May Not Meet Customers’ Financing Needs, Which Could Cause Them to Use Other Lenders.
Zillow Home Loans currently offers a number of mortgage products to customers including conventional conforming and non-conforming programs and government loan guarantee programs. Such offerings are subject to change based on various factors such as availability, business needs and customer demand. If these programs do not meet the financing needs of our
customers, and we do not adapt to market changes and customer preferences, customers may opt to obtain financing from other lenders who offer different or more competitive rates or loan products. Similarly, if any of the government sponsored entities or government loan guarantee programs amend the terms of an existing loan program, cease offering the program, limit our ability to use the program or revoke the authority of Zillow Home Loans to offer such programs, we may have to make changes to or discontinue the mortgage products that we offer, which may negatively affect our business.
Zillow Home Loans May Not Be Able to Continue to Grow its Mortgage Loan Origination Business, Which Could Negatively Affect Our Mortgages Segment, Financial Condition and Results of Operations.
The Zillow Home Loans mortgage loan origination business consists of providing purchase money loans to homebuyers and refinancing existing loans. The origination of purchase money mortgage loans by Zillow Home Loans is influenced by customers purchasing homes using other Zillow products and services who elect to finance their home through Zillow Home Loans and traditional business clients in the home buying process such as realtors and builders. Changes to the other products and services that Zillow or its real estate partners provide, such as with the prior wind down of Zillow Offers operations, may negatively impact demand for Zillow Home Loans. In addition, our ability to secure relationships with traditional business clients may influence our ability to grow our loan origination business. Our production and customer direct lending operations are also subject to overall market factors that can impact our ability to grow our loan production volume. For example, higher interest rates, increased competition from new and existing market participants, reductions in the overall level of refinancing activity or slow growth in the level of new home purchase activity can impact our ability to continue to grow our loan production volumes, and we may be forced to accept lower margins in our respective businesses in order to continue to compete and keep our volume of activity consistent with past or projected levels. If we are unable to continue to grow our loan origination business, this could adversely affect our business.
Zillow Home Loans Is Dependent on United States Government-Sponsored Entities and Government Agencies, and Any Actions by These Entities or Changes in These Entities or Their Operations Could Adversely Affect Our Mortgage Business, Liquidity, Financial Condition and Results of Operations.
The ability of Zillow Home Loans to generate revenue through loan sales depends, in part, on its participation in programs administered by government agencies such as the United States Department of Housing and Urban Development’s Federal Housing Administration, the United States Department of Veterans Affairs, the United States Department of Agriculture, or government-sponsored entities (“GSEs”) such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Presently, some of the loans Zillow Home Loans originates are sold on a direct basis to a GSE, while others are sold “whole loan” to individual investors on the secondary market. If any of these government agencies or GSEs limit Zillow Home Loans’ ability to participate in any of these programs, or if the operation of any of these government agencies or GSEs or the programs they administer are eliminated or changed, our Mortgages segment, liquidity, financial condition, and results of operations may be adversely affected.
A number of legislative proposals have been introduced in recent years that would wind down or phase out the GSEs, including proposals to end the conservatorship and privatize Fannie Mae and Freddie Mac. It is not possible to predict the scope and nature of the actions that the United States government, including the current administration, will ultimately take with respect to the GSEs. Any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and their regulators or the United States federal government, and any changes in leadership at any of these entities could adversely affect our Mortgages segment and prospects. Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or secondary mortgage markets or underwriting criteria could materially and adversely affect our Mortgages segment, liquidity, financial condition, and results of operations. A discontinuation or reduction in the operations of the GSEs could also affect “whole loan” sales on the secondary market, as there is a potential that this could cause a sharp decline in investor appetite.
Zillow Home Loans Operates in a Highly Regulated Industry, and Federal, State, and Local Laws and Regulations, Including Many That Are Continually Changing, Could Materially and Adversely Affect Our Business, Financial Condition and Results of Operations.
Zillow Home Loans is required to comply with a wide array of federal, state and local laws and regulations that regulate, among other things, the manner in which it conducts its loan origination business. These regulations directly impact the Zillow Home Loans business and require constant compliance, monitoring and internal and external audits.
Zillow Home Loans’ failure to operate effectively and in compliance with these laws, regulations and rules could subject us to lawsuits or governmental actions and damage our reputation, which could materially and adversely affect our business, financial condition and results of operations. For example, Zillow Home Loans’ failure to comply with these laws, regulations and rules may result in increased costs of doing business, changes to the way we operate our business, reduced payments by
borrowers, modification of the original terms of loans, permanent forgiveness of debt, delays in the foreclosure process, forfeiture or refunds on fees collected on loan originations, increased servicing advances, litigation, reputational damage, enforcement actions, and repurchase and indemnification obligations.
In addition, Zillow Homes Loans must ensure that our lending operations serve consumers in accordance with a variety of federal and state fair lending laws and regulations, including without limitation the Fair Housing Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, and the prohibition against engaging in Unfair, Deceptive, or Abusive Acts or Practices pursuant to the Dodd-Frank Act. Our inability to conduct our lending operations in compliance with fair lending laws and regulations may expose Zillow Home Loans to regulatory action, litigation, and reputational damage, among other things.
Our Mortgages Segment is Impacted by Interest Rates. Changes in Prevailing Interest Rates May Have an Adverse Effect on the Financial Results for Our Mortgages Segment.
The financial performance of our Mortgages segment is directly affected by changes in prevailing interest rates and home prices, which in turn, impact the affordability of a home. The financial performance of our Mortgages segment may be adversely affected or be subject to substantial volatility because of changes in prevailing interest rates, which may be impacted by a number of factors. For example, in 2022, due to inflationary pressures, there was an increased degree of uncertainty and unpredictability concerning current interest rates, future interest rates and potential negative interest rates, which had an adverse effect on the results of operations for our Mortgages segment.
Consumer demand for certain mortgage products and loan types are frequently driven by changes in market conditions, interest rates, lender fees, and other transaction costs. If interest rates continue to rise, our business could be adversely affected if we are unable to increase our share of purchase mortgages or if affordability challenges contract the total addressable market. In either case, our mortgage origination business and the financial results for our Mortgages segment could be harmed.
Zillow Home Loans uses derivatives and other instruments to reduce exposure to adverse changes in interest rates. Hedging interest rate risk is a complex process, requiring sophisticated models and constant monitoring. Zillow Home Loans’ hedging activity may fail to provide adequate coverage for interest rate exposure due to market volatility, hedging instruments that do not directly correlate with the interest rate risk exposure being hedged or counterparty defaults on obligations. Certain of our hedges related to newly originated mortgages may be subject to margin calls, which, if made, could adversely impact our liquidity. There may be periods during which Zillow Home Loans elects not to hedge some or all of its interest rate risk.
Natural Disasters and Catastrophic Events May Disrupt Real Estate Markets, Damage or Destroy Our Properties, or Otherwise Harm Our Business.
The occurrence of a significant natural disaster or other catastrophic event such as a pandemic, health crisis, earthquake, hurricane, windstorm, fire, flood, power loss, telecommunications failure, cyber-attack, war, civil unrest, terrorist attack or other similar event, may damage or destroy our properties, disrupt our operations, impair local and regional real estate markets or economies and negatively impact our business, results of operations and financial condition. For example, the COVID-19 pandemic, including the reactions of governments, markets, and the general public to the COVID-19 pandemic, caused adverse consequences for our business and results of operations.
Zillow provides products and services to customers throughout the United States and to a lesser extent, in Canada. In addition, through Zillow Home Loans, we are licensed to originate loans in 48 states and the District of Columbia. The occurrence of a natural disaster or other catastrophic event in any of these localities could have a significant negative impact on those real estate markets and the success of our business in the affected regions.
Although the majority of our workforce has shifted to a distributed work environment, we maintain large employee populations, including those supporting our licensed operations, in Seattle, Washington; New York, New York; Atlanta, Georgia; San Francisco, California; Irvine, California and Denver, Colorado. An earthquake or other natural disaster or catastrophic event in any of these cities could disrupt our engineering, sales, operations and/or mortgage origination teams and equipment critical to the operation of our business. Similarly, a significant natural disaster or other catastrophic event in any major United States city could negatively impact a large number of our real estate partners and customers and cause a decrease in our revenue or traffic.
Business continuity and disaster recovery planning is important, and if we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster or catastrophic event, and successfully execute on those plans in the event of a disaster, catastrophic event, or other emergency, our business and reputation may be harmed.
If Our Data Integrity Suffers Real or Perceived Harm,
ConsumersCustomers and
AdvertisersReal Estate Partners May Decrease Use or Cease Using Our Products and Services, and We May Be Subject to Legal Liability.
Because homes represent significant investments, and many
consumercustomer decisions regarding homes are data-driven, our ability to attract and retain
userscustomers and
advertisersreal estate partners to our
information products and services is dependent upon our ability to publish, and reputation for publishing, accurate and complete residential real estate information,
including the output of proprietary models, through our mobile applications and websites. As discussed above, a significant amount of the data
we publish on our mobile applications and websites are licensedis derived from third parties, and we have limited ability to control the quality of the information we receive from them. We also publish a significant amount of user-generatedcustomer-generated content, and our tools and processes designed to ensure the accuracy, quality and legality of such content may not always be effective. Data we generate independently are subject to error, unauthorized modification by way of third-party viruses and other factors. As the volume of data we publish increases, and potential threats to data quality become more complex, the risk of harm to our data integrity also increases. If our data integrity suffers real or perceived harm, we may be subject to legal liability, reputational damage and consumerscustomers and advertisersreal estate partners may decrease their use or cease using our products and services, which would harm our results of operations and financial condition.
Our Dedication to Making Decisions Based Primarily on the Best Interests of
ConsumersCustomers May Cause Us to Forgo Short-Term Gains.
Our guiding principle is to build our business by making decisions based primarily on the best interests of
consumers,our customers, which we believe has been essential to our success in increasing our
usercustomer growth rate and engagement and has served the long-term interests of our company and our shareholders. In the past, we have forgone, and we will in the future forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of
consumers,customers, even if such decisions negatively impact our short-term results of operations. In addition, our philosophy of putting
consumerscustomers first may negatively impact our relationships with our existing or prospective
advertisers.real estate partners. This could result in a loss of
advertisers,real estate partners, which could harm our revenue and results of operations. For example,
in November 2021, we
believe that some real estate agents have chosen notannounced plans to
purchasewind down Zillow Offers operations, in part, because it served too narrow a portion of our customers, instead opting to develop and offer other products and services primarily focused within our five growth pillars. In addition, we require our Premier Agent
advertising product because we displaypartners to maintain a
Zestimate on theirfor-sale listings. We believe, however, that it is valuableminimum customer experience score and if they fail to
consumers to have access todo so after a
valuation starting point on all homes and so we display a Zestimate on every home in the Zillow database for whichprobation period, we have
sufficient data to produce the Zestimate.canceled advertising from those partners on our platforms. Our
consumercustomer focus may also negatively impact our relationships with real estate brokerages, MLSs, and other industry participants on whom we rely for listings information.
Our product Zillow
Instant Offers,Home Loans and Zillow Closing Services as well as some of our business-to-business products, for example, may be perceived as impinging upon the business models of real estate agents,
brokerages and
brokerages,lenders, which may cause them to terminate
or decrease the scope of their
listings agreements with us or, with respect to brokerages, cease advertisingrelationships with us. Such risks could have a materially negative impact on our results of operations. Our principle of making decisions based primarily on the best interests of
consumerscustomers may not result in the long-term benefits that we expect, in which case our user traffic and engagement, business and results of operations could be harmed.
We Are Subject to Disputes
and Current or Proposed Rules and Regulations Regarding the Accuracy or Display of Our Zestimates and Rent Zestimates.
We provide our
userscustomers with Zestimate and Rent Zestimate home and rental valuations. Zestimates are our estimated current market values of a home based on our proprietary automated valuation models that apply advanced algorithms to analyze our data; they are not appraisals. A Rent Zestimate is our estimated current monthly rental price of a home, using similar automated valuation models that we have designed to address the unique attributes of rental homes. We are, from time to time, involved in disputes with property owners and others who disagree with the accuracy or display of a Zestimate or Rent Zestimate, and such disputes may result in costly litigation in the future. Further, revisions to our automated valuation models, or the algorithms that underlie them, poor data quality, or other factors may cause certain Zestimates or Rent Zestimates to vary from expectations for those Zestimates or Rent Zestimates. Any such dispute or variation in Zestimates or Rent Zestimates could result in distraction from our business or potentially harm our reputation and financial condition.
We Rely on Internet Search Engines and Mobile Application Marketplaces Among other things, we are also subject to Connect with Consumers.
We rely on organic traffic generated from search engines like Google and Bing to attract users toproposed legislation that may impose liability or disclosure of our websites. This organic traffic is dependent in part upon the way inproprietary algorithms, which links to and information from our websites are featured on search engine result pages. The ranking and other display features of links to and information from our websites is impacted by a variety of factors, many of which are not within our control, such
as a change to the search engine ranking algorithm. We devote significant time and resources to digital marketing initiatives, such as search engine optimization, to improve our search result rankings and increase visits to our sites. These marketing efforts may prove unsuccessful due to a variety of factors, including increased costs to use online advertising platforms, ineffective campaigns and increased competition. We also rely on mobile application marketplaces like Apple’s App Store and Google Play to connect users with our mobile applications. These marketplaces may change in a way that negatively affects the prominence of or ease with which users can access our mobile applications. Such changes to Internet search engines or mobile application marketplaces may adverselycould impact our ability to connect with consumers, which could have a material negative effect on our results of operationscompetitive advantage and financial condition.
We May Be Unable to Increase Awareness of the Zillow Group Brands Cost-effectively, Which Could Harm Our Business.
We believe the Zillow Group brands, including Zillow and Trulia, are key assets of our company. Awareness and perceived quality and differentiation of the Zillow Group brands are important aspects of our efforts to attract and expand the number of consumers who use our mobile applications and websites. Should the competition and costs for awareness and brand preference increase among providers of mobile or online real estate information, we may not be able to successfully maintain or enhance the strength of our brand. We expect to continue to invest in our paid advertising to increase brand awareness and grow traffic. Paid advertising may not continue to be successful or cost-effective. If we are unable to maintain or enhance user and advertiser awareness of our brands cost-effectively, or if we are unable to recover our additional marketing and advertising costs through increased usage of our products and services, our business, results of operations and financial condition could be harmed.
If We Fail to Manage Our Growth and Multi-Brand Portfolio Effectively, Our Reputation, Results of Operations and Business Could Be Harmed.
We have experienced rapid and significant growth in our headcount and related operations, including as a result of the February 2015 Trulia acquisition and other acquisitions. We have also acquired or launched several newbusiness-to-consumer andbusiness-to-business brands in recent years, including the 2017 acquisition of New Home Feed, a listing management technology company, and launch of realestate.com, a consumer-facing website for residential real estate. This growth adds complexity to business operations, including internal controls and compliance, and places substantial demand on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture, and successfully manage a diverse portfolio of brands. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer, which couldpotentially harm our brand, resultsfinancial position or business results. This legislation could also result in an increased occurrence of operations and overall business.
enforcement actions or legal disputes as discussed above.
We Rely on the Performance of Highly Skilled Personnel, and if We Are Unable to Attract, Retain and Motivate Well-Qualified Employees, Our Business Could Be Harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our management and our highly skilled team of employees, including our software engineers, operations personnel, loan officers, statisticians, marketing professionals and advertising sales staff. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. The loss of any of our senior management or key employees could materially
adversely affect our ability to build on the efforts they have undertaken and to execute our business plan, and we may not be able to find adequate replacements. The market for highly skilled personnel is very competitive. We cannot ensure that we will be able to retain the services of any members of our
senior management or other key employees. Furthermore, we have in the past and may in the future take measures in order to slow attrition. For example, to support retention of employees, in August 2022, we issued certain equity grants and repriced certain outstanding unvested stock options. If we do not succeed in attracting well-qualified employees, or retaining and motivating existing employees in a cost-effective manner, or engaging in succession planning, our business could be harmed.
We
Have and May
Continue to Make Acquisitions and Investments, Which Could Result in Operating Difficulties, Dilution and Other Harmful Consequences.
We continue to evaluate a wide array of potential strategic opportunities, including acquisitions and investments. For example, we acquired
HREOShowingTime.com, Inc. in September 2021, and
New Home Feed, and purchased an equity interestwe acquired VRX Media Group LLC in
a privately held corporation, in the year ended December
31, 2017.2022. Any transactions that we enter into could be material to our financial condition and results of
operations.operation. The
acquisitionstransactions we pursue may not result in the intended benefits to our business, and we may not successfully evaluate or utilize the acquired products, technology, or personnel, or accurately forecast the financial impact of an acquisition transaction. The process of
closing a transaction and integrating an acquired company, business or technology could create unforeseen operating difficulties and expenditures.
The areas where we facePotential risks include:
diversion of management time and focus from operating our business to acquisition closing and integration challenges;
consumer customer and industry acceptance of products and services offered by the acquired company;
implementation or remediation of controls, procedures and policies at the acquired company;
compliance with differing laws and regulations applicable to international jurisdictions, if applicable; coordination of product, engineering and sales and marketing functions;
retention of employees from the acquired company;
liability for activities of the acquired company before the acquisition;
litigation or other claims arising in connection with the acquired company; and
impairment charges associated with goodwill and other acquired intangible assets.
For example, during the year ended December 31, 2017,March 2020, we recordedrecognized anon-cash impairment for $174.0charge of $72 million related to the $351.0 million indefinite-lived intangible asset that we recorded in connection with our February 2015 acquisition of Trulia for Trulia’s trade names and trademarks. For additional information about thenon-cash impairment, see Note 9 to our consolidated financial statements.
trademarks intangible asset.
Our failure to address these risks or
other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business, results of operations and financial condition.
Our Fraud Detection Processes and Information Security Systems May Not Successfully Detect All Fraudulent Activity by Third Parties Aimed at
Users of Our
Mobile Applications and Websites,Employees or Customers, Which Could Adversely Affect Our Reputation and Business Results.
Third-party actors have attempted in the past, and may attempt in the future, to conduct fraudulent activity by engaging with
users of our
mobile applications and websitescustomers by, for example, posting fake real estate
and rental listings on our sites and attempting to solicit personal information or money from
users.customers, and by engaging with our employees by, for example, making fake requests for transfer of funds or sensitive information. We make a large number of wire transfers in connection with loan and real estate closings and process sensitive personal data in connection with these transactions. We also enable certain rental transactions through our Zillow Rental Manager products, which may be separately subject to a risk of fraudulent activity. Though we have sophisticated fraud detection processes and have taken other measures to identify fraudulent activity on our mobile applications,
websites and
websites,internal systems, we may not be able to detect and prevent all such activity.
Similarly, the third parties we use to effectuate these transactions may fail to maintain adequate controls or systems to detect and prevent fraudulent activity. Persistent or pervasive fraudulent activity may cause
userscustomers and
advertisersreal estate partners to lose trust in us and decrease or terminate their usage of our products and services,
or could result in financial loss, thereby harming our business and results of operations.
We Are Subject to
a Number ofMultiple Risks Related to the Credit Card and Debit Card Payments We Accept.
We accept payments through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could harm our business, financial condition and results of operations.operation
s. We depend on processing vendors to complete credit and debit card
transactions.transactions, both for payments owed to Zillow Group directly and for payments to other third parties, such as payments made between two third-party platform users such as renters and landlords in our rental payments product. If we or our processing vendors fail to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products.
In addition, ifIf these systems fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.
In addition, if we add, eliminate or change any of our processing vendors, we may experience processing disruptions and increased operating expenses, either of which could harm our business, financial condition, or results of operations.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly
more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.
We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We are required to comply with payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Any failure to comply fully also may subject us to fines, penalties, damages and civil liability,
reputational risk and may result in the loss
or impairment of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss, or misuse of data pertaining to credit and debit cards, card holders and transactions.
If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendors may increase our transaction fees or terminate their relationships with us. Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major credit or debit card
wouldcould significantly impair our ability to operate our business.
Risks Related
Some of Our Potential Losses May Not Be Covered by Insurance.We May Not Be Able to Our Intellectual PropertyObtain or Maintain Adequate Insurance Coverage.
We maintain insurance to cover costs and
Technologylosses from certain risk exposures in the ordinary course of our operations, but our insurance may not cover 100% of the costs and losses from all events. We are responsible for certain retentions and deductibles that vary by policy, and we may suffer losses that exceed our insurance coverage by a material amount. We may also incur costs or suffer losses arising from events against which we have no insurance coverage. In addition, large scale insurance market trends or the occurrence of adverse events in our business may raise our cost of procuring insurance or limit the amount or type of insurance we are able to secure. We may not be able to maintain our current coverage, or obtain new coverage in the future, on commercially reasonable terms or at all.
Environmentally Hazardous Conditions May Adversely Affect Us.
Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination, each person covered by applicable environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resources or property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of hazardous or toxic substances on one of our properties, including homes previously held in our inventory in connection with Zillow Offers operations, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties. The cost of defending against environmental claims, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially and adversely affect us.
Compliance with new or more stringent environmental and climate-related laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure you that future laws, ordinances or regulations will not impose any material environmental or other liability to us. In addition, we may be required to comply with various local, state and federal fire, health, life-safety and similar regulations. Failure to comply with applicable laws and regulations could result in fines and/or damages, suspension of personnel, civil liability or other sanctions.
If Our Security Measures or Technology Systems,
or Those of Third Parties Upon Which We Rely, Are Compromised, We May Be Subject to Legal Claims and Suffer Significant Losses, and
ConsumersCustomers May Curtail Use of Our Products and Services and
AdvertisersOur Real Estate Partners May Reduce
or Eliminate Their Advertising on Our Mobile Applications and Websites.
Our products and services involve the transmission, processing, and/or storage of users’ information, some of which may be private or include personally identifiable information such as social security numbers, financial account information, and credit card information. For example, our dotloop real estate transaction management software stores sensitive personal and financial information, and our Mortech mortgage product and pricing software for mortgage professionals processes social security numbers. Security breachesnumbers, our rental applications product allows customers to obtain credit and background checks containing sensitive personal and financial information, and both Zillow Home Loans and Zillow Closing Services, our mortgage origination business and real estate closings business, respectively, receive, handle and transmit highly sensitive personal and financial information about their customers. Cyber-attacks, malicious internet-based activity, online and offline fraud, administrative or technical failures could expose us to a riskand other similar activities threaten the confidentiality, integrity and availability of our information technology systems, including those of the third parties upon which we rely, and our sensitive data, loss or exposure, including both consumercustomer, employee and customerreal estate partner data as well as intellectual property and other confidential business information, which could result in potential significant liability and litigation. Like all mobile applicationSuch threats are prevalent and website providers, our mobile applicationscontinue to rise, are increasingly difficult to detect and websitescome from a variety of sources, including traditional computer “hackers”, threat actors, “hacktivists”, organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states and nation-state-supported actors.
Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to computera heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain and ability to produce, sell and distribute our services.
We and the third parties upon which we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses
break-ins, phishing and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks
(such as credential stuffing), credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other
information technology assets, adware, telecommunications failures, earthquakes, fires, floods and other similar threats. In particular, severe ransomware attacks
any of which couldare becoming increasingly prevalent and can lead to
significant interruptions in our operations, loss of
criticalsensitive data
and income, reputational harm and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or
theunauthorized disclosureunable to make such payments due to, for example, applicable laws or useregulations prohibiting such payments.
Remote work has become more common and has increased risks to our information technology systems and data, as more of
personalour employees utilize network connections, computers and devices outside our premises or
other confidential information. Further, outsidenetwork, including working at home, while in transit and in public locations. Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Outside parties may attempt to fraudulently induce employees,
usersofficers, directors, customers or
advertisersreal estate partners to disclose sensitive information in order to gain access to our information or our
users’customers’ or
advertisers’real estate partners’ information, and our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to
employeeuser error, malfeasance or other disruptions. If we experience compromises to our security that result in the loss or unauthorized disclosure of confidential information, our
userscustomers and
advertisersreal estate partners may lose trust in us,
userscustomers may decrease the use of our mobile applications or websites or stop using our mobile applications,
websites, or
websitesservices in their entirety,
advertisersreal estate partners may decrease or stop advertising on our mobile applications or websites, and we may be subject to legal claims
and liability, government investigation and additional state and federal legal requirements.
If we experience compromises to our security that result in the loss of availability of our data, our mobile applications, websites, or services may be unable to function at a level necessary to meet our customers’ needs.
Our reliance on vendors could introduce new cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations. We engage a variety of vendors to process and store sensitive data, including certain usercustomer information, some of which may be private or include personally identifiable information. We also depend on vendors to host many of the systems and infrastructure used to provide our products and services. If our data storageOur ability to monitor these vendors’ information security practices is limited and these vendors fail to maintainmay not have adequate information security systems andmeasures in place. If our systemsvendors experience a security incident or our users’ information is compromised,other interruption, we could experience adverse consequences, including harm to our business, results of operations and financial condition could be harmed. Acondition. Further, a security breach at our vendor could be perceived by consumers customers
or our
customersreal estate partners as a breach of our systems and could result in damage to our reputation and expose us to other losses.
Further, because While we may be entitled to damages if our vendors fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised.
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of or access to our sensitive data of our information technology systems, or those of the third parties upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our services.
While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address all these techniques or to implement adequate preventative measures. We may be unable in the future to detect vulnerabilities in our information technology systems because such threats and techniques change frequently and are often sophisticated in nature. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly and the disclosure or the failure to comply with such requirements could lead to adverse consequences.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class action claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations including availability of data); financial loss and other similar harms. Any or all of these
issuesconsequences could negatively impact our ability to attract new
userscustomers and increase engagement by existing
users,customers, cause existing
userscustomers to curtail or stop use of our products or services or close their accounts, cause existing
advertisersreal estate partners to cancel their contracts,
cause us to incur significant costs to notify affected individuals and upgrade our technology, or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby harming our business, results of operations and financial condition.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages or claims related to our data privacy and information security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all or that such coverage will pay future claims.
Any Significant Disruption in Service on Our Mobile Applications or Websites or in Our Network Could Damage Our Reputation and Brands, and Result in a Loss of
UsersCustomers of Our Products and Services and of
Advertisers,Our Real Estate Partners, Which Could Harm Our Business, Results of Operations and Financial Condition.
Our brand, reputation and ability to attract userscustomers and advertisersreal estate partners and deliver quality products and services depend on the reliable performance of our network infrastructure and content delivery processes. Our mobile applications and websites are exposed to attempts to overload our servers withdenial-of-service attacks or similar disruptions from unauthorized use of our computer systems. We have experienced minor interruptions in these systems in the past, including server failures that temporarily slowed the performance of our mobile applications and websites, and we may experience interruptions in the future. Interruptions in these systems, whether due to system failures, computer viruses, software errors or physical or electronicbreak-ins, could affect the security or availability of our products and services on our mobile applications and websites and prevent or inhibit the ability of userscustomers to access or effect transactions using our services. Since our userscustomers may rely on our products and services, including our freereal estate transaction services and customer relationship management tools, for important aspects of their personal lives and businesses, problems with the reliability, availability or security of our systems could damage our users’customers’ businesses, harm our reputation, delay or inhibit a customer from completing a real estate transaction, result in a loss of userscustomers of our products and services and of advertisersreal estate partners and result in additional costs, any of which could harm our business, results of operations and financial condition. In October 2016,
To deliver mobile and web Zillow Group brand content while ensuring scalability and redundancy, as well as internal support for
example, traffic to our
websites zillow.com and trulia.com was impacted by a distributed denial of service attack against one of our domain name system providers. This incident did not have a material adverse effect on our business, and there is no indication that our internal controls were compromised. Despite the additional network detection tools and other processes we implemented, and our continual work to install new, and upgrade existing, information technology systems and provide employee awareness training around phishing, malware, and other cyber risks, we cannot ensure that we will not experience similar incidents in the future.Our Zillow technical infrastructure, mobile applications and websites are hosted at a third-party facility located in the Seattle area. We manage our Trulia mobile applications and website from a shared data center in Santa Clara, California. Additionally,enterprise, we utilize both third-party web services for cloud computing and storage to assistand shared data centers in service growthSeattle, Washington, Ashburn, Virginia, and redundancy.
Santa Clara, California.
We do not own or control the operation of certain of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical
break-ins, computer viruses, earthquakes and similar events. The occurrence of any of the foregoing events could result in damage to our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for losses that may occur.
A failure of our systems at one site could result in reduced functionality for our
users,customers, and a total failure of our systems could cause our mobile applications or websites to be
inaccessible.inaccessible or for us to be unable to carry out day-to-day operations. Problems faced by our third-party
web-hosting providers with the telecommunications network providers with which they contract or with the systems by which they allocate capacity among their customers, including us, could adversely affect the experience of our
users.customers. Our third-party
web-hosting providers could decide to close their facilities without adequate notice. Any financial difficulties, such as bankruptcy reorganization, faced by our third-party
web-hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party
web-hosting providers are unable to keep up with our growing needs for capacity, our
customers, real estate partners and business could be harmed. In addition, if distribution channels for our mobile applications experience disruptions, such disruptions could adversely affect the ability of users and potential users to access or update our mobile applications, which could harm our business.
We
domay not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, which may result from interruptions in our service as a result of system failures. Any errors, defects, disruptions or other performance problems with our services could harm our reputation, business, results of operations and financial condition.
We Rely Upon
Amazon WebCertain Third-Party Services to Support
Operation of Certain AspectsCritical Functions of Our
ServicesBusiness and Any Disruption of or Interference with our Use of
the Amazon Webthose Third-Party Services
Operation Could Adversely Impact Our Operations and Our
Business.Business.
A limited number of third-party services support essential functions of our business, including Amazon Web Services (“AWS”) and certain other cloud communications platform-as-a-service (“CPaaS”), Infrastructure-as-a-Service (“IaaS”) and Software-as-a-Service (“SaaS Services”) technologies hosted by third parties (together with CPaaS and IaaS, “Cloud Services”). AWS provides us with a distributed computing infrastructure platform for business operations, which is commonly referred to as a “cloud” computing service. Certain of our computer systems utilize data processing, storage capabilities and other services provided by AWS. Currently,AWS, and we currently run the vast majority of computing to power our mobile applications, websites, and other technology products and services on AWS,AWS. In addition, we use Cloud Services to support important functions of our business, including enterprise resource planning, accounting, including revenue recognition, real estate transaction services, customer communications, and wecustomer relationship management. We store a significant amount of information about our users’ informationcustomers, real estate partners, employees, and business on AWS and in the Cloud Services, and we rely on these third-party service providers to provide services on a timely and effective basis. Their failure to perform as expected or as required by contract could result in significant disruptions and costs to our confidential business information on AWS.operations. In light of this,our reliance on AWS and Cloud Services, coupled with the fact that we cannot easily switch our AWS operations to another cloud provider,complexity of obtaining replacement services, any disruption of or interference with our use of AWSthese third-party services could adversely impact our operations and business.
We Have and May Continue to be Subject to Outstanding Claims Related to Zillow Offers Following the Wind Down of Our Zillow Offers Operations.
Although we concluded the wind down of our business.Zillow Offers operations in 2022, we have and may in the future be subject to, claims, suits, government investigations, enforcement actions and proceedings arising from or related to Zillow Offers, including actions with respect to the purchase, renovation and resale of properties; Zillow Offers operations; and the subsequent wind down of operations. For example, on March 10, 2022, May 5, 2022 and July 20, 2022 shareholder derivative suits were filed in the U.S. District Court for the Western District of Washington and on July 25, 2022, a shareholder derivative suit was filed in the Superior Court of the State of Washington, King County, against us and certain of our executive officers and directors seeking unspecified damages on behalf of us and certain other relief, such as reform to corporate governance practices. The plaintiffs (including us as a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties by failing to maintain an effective system of internal controls, which purportedly caused the losses we incurred when we decided to wind down Zillow Offers operations. Plaintiffs also allege, among other things, violations of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended, insider trading and waste of corporate assets. On June 1, 2022 and September 14, 2022, the U.S. District Court for the Western District of Washington issued orders consolidating the three federal derivative suits and staying the consolidated action until further order of the court. On September 15, 2022, the Superior Court of the State of Washington entered a temporary stay in the state derivative suit, which stay was lifted on January 23, 2023. This and other similar
claims, suits, government investigations, and proceedings are inherently uncertain, and their results cannot be predicted with certainty. Regardless of the outcome, any such legal proceedings can have an adverse impact on us because of legal costs, diversion of management and other personnel, and other factors. In addition, it is possible that a
resolution of one or more such proceedings could result in reputational harm, liability, fines, penalties, or sanctions, as well as judgments, consent decrees, or orders, which could in the future materially and adversely affect our business, operating results and financial condition.
Risks Related to Our Intellectual Property
We May Be Unable to Adequately Protect Our Intellectual Property, Which Could Harm the Value of Our Brands and Our Business.
We regard our intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection and contracts to protect our proprietary rights. If we are not successful in protecting our intellectual property, the value of our brands and our business, results of operations and financial condition could be harmed.
While we believe that our issued patents and pending patent applications help to protect our business, we cannot ensure that our operations do not, or will not, infringe valid, enforceable patents of third parties or that competitors will not devise new methods of competing with us that are not covered by our patents or patent applications. We cannot ensure that our patent applications will be approved, that any patents issued will adequately protect our intellectual property, that such patents will not be challenged by third parties or found to be invalid or unenforceable, or that our patents will be effective in preventing third parties from utilizing a “copycat” business model to offer the same products or services.
OurThe technology underlying our Zestimate home valuation, for example, which we consider to be a
trade secret affording us a key competitive advantage with respect to
consumercustomer engagement, is currently protected by
a patent,patents, the loss of which could benefit comparable services provided by our competitors and result in decreased user traffic and engagement with our mobile applications and websites, thereby harming our results of operations and financial condition.
In addition to our patented technology, our Zestimate home valuation uses a significant amount of proprietary, trade secret methodology. Any accidental disclosure, or disclosure in response to litigation or regulatory inquiries that do not include confidential information protection could harm our competitive advantage.
Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our products and services may be provided. The laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect intellectual property and our proprietary technology adequately against unauthorized third-party copying or use, which could harm our competitive position. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that might diminish the value of our proprietary rights or harm our reputation, even if we have agreements prohibiting such activity. Though certain of these third parties are obligated to indemnify us for breaches of our intellectual property rights, they may be unable to meet these obligations. In addition, we rely on intellectual property and technology developed or licensed by third parties, and we may not be able to obtain licenses and technologies from these third parties on reasonable terms or at all. Any of these events could harm our business, results of operations or financial condition.
In addition, we may actively pursue entities that infringe our intellectual property, including through legal action. Taking such action may be costly, and we cannot ensure that such actions will be successful. Any increase in the unauthorized use of our intellectual property could make it more expensive for us to do business and harm our results of operations or financial condition.
Intellectual Property Disputes Are Costly to Defend and Could Harm Our Business, Results of Operations, Financial Condition and Reputation.
From time to time, we face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties. We are currently subject to intellectual property infringement
claims.claims, including actions brought by International Business Machines Corporation. These claims allege, among other things, that aspects of our technology infringe upon the plaintiffs’ intellectual property. If we are not successful in defending ourselves against these claims, we may be required to pay damages and may be subject to injunctions, each of which could harm our business, results of operations, financial condition and reputation. As we grow our business and expand our operations, we expect that we will continue to be subject to intellectual property claims and allegations. Patent and other intellectual property disputes or litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering certain products, services or features, purchase licenses that may be expensive to procure, or modify our products or services. In addition, patent or other intellectual property disputes or litigation may result in significant settlement costs. Any of these events could harm our business, results of operations, financial condition and reputation.
In addition, we use open source software in our services and will continue to use open source software in the future. From time to time, we may be subject to claims brought against companies that incorporate open source software into their products or services, claiming ownership of, or demanding release of, the source code, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, and we may
be required to purchase a costly license or remove open source software, devote additional research and development resources to changing our products or services, make generally available the source code for our proprietary technology, or waive certain of our intellectual property rights, any of which would have a negative effect on our business and results of operations.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them could harm our business, results of operations, financial condition and reputation.
We May Be Unable to Continue to Use the Domain Names That We Use in Our Business, or Prevent Third Parties From Acquiring and Using Domain Names That Infringe on, Are Similar to, or Otherwise Decrease the Value of Our Brand or Our Trademarks or Service Marks.
We have registered domain names for our websites that we use in our business. If we lose the ability to use a domain name, we may incur significant expenses to market our products and services under a new domain name, which could harm our business. In addition, our competitors could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names and determining the rights of others may require litigation, which could result in substantial costs and diversion of management’s attention.
Confidentiality
Proprietary Rights Agreements With Employees and Others May Not Adequately Prevent Disclosure of Trade Secrets and Other Proprietary Information.
In order to protect our technologies and strategic business and operations information, we rely in part on
confidentialityproprietary rights agreements with our employees, independent contractors, vendors, licensees, and other third parties. These agreements may not
effectively preventbe enough to fully mitigate the possibility of inadvertent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The loss of trade secret protection could make it easier for third parties to compete with our products by copying functionality. Others may independently discover our trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties. Further, if our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting
know-how and inventions. Any changes in, or unfavorable interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation and competitive position.
We May Not Be Able to Halt the Operations of Websites That Aggregate or Misappropriate Our Data.
From time to time, third parties have misappropriated our data through website scraping, robots or other means, and aggregated this data on their websites with data from other companies. In addition, copycat websites have misappropriated data on our network and attempted to imitate our brand or the functionality of our websites. When we have become aware of such websites, we have employed technological or legal measures in an attempt to halt their operations. We may not be able, however, to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the impact of the operation of such websites. In addition, if such activity creates confusion among
consumerscustomers or
advertisers,real estate partners, our brands and business could be harmed.
This misappropriation of data may also harm our relationships with any third party data providers who originally licensed the data to us, including potentially breaching our agreements with these third parties depending on the terms of each license agreement. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition.
Risks Related to Regulatory Compliance and Legal Matters
We Are, and May in the Future Become, Subject
Failure to a Variety of International,Comply with Federal, State and Local Laws, ManyRules and Regulations or to Obtain and Maintain Required Licenses or Authorizations, Could Materially and Adversely Affect our Business, Financial Condition and Results of Which Are UnsettledOperations.
We provide products and
Still Developingservices to customers and
Which Could Subject Us to Claims or Otherwise Harm Our Business.With office locations throughoutreal estate partners in heavily regulated industries through a number of different channels across the United States and Vancouver, British Columbia,to some extent, in Canada. As a result, we are currently subject to a variety of, and may in the future become subject to additional or newly enacted, international, federal, state and local laws thatand regulations in various jurisdictions, which are continuously evolving and developing,subject to change at any time, including laws regarding the real estate, rental, mortgage and mortgageinsurance industries, mobile-mobile and internet-basedinternet based businesses and other businesses that rely on advertising, as well as privacy, data security, and consumer protection laws, including the Telephone Consumer Protection Act, the Telemarketing Sales Rule, theCAN-SPAM Act, the Fair Credit Reporting Act, the Canadian Anti-Spam Law, the Personal Information Protection and Electronic Documents Act, and employment laws, including those governing wage and hour requirements.laws. These laws are complex and can be costly to comply with, require significant management time and effort, and subject us to claims, government enforcement actions, civil and criminal liability or other remedies, including suspension of business operations. These laws may conflict with each other, and if we comply with the laws of one jurisdiction, it may require us to adjust our practices in other jurisdictions. Our distributed workforce may subject us to employment laws, including employment taxes, in many states and localities in the United States, many provinces in Canada and other locations where employees perform work, and may increase the costs and expenses we incur to comply with or seek compliance with these laws. Presence of our employees located in Serbia requires us to conform to employment, tax and other applicable requirements in Serbia and may increase costs and expenses we incur to comply with or seek compliance with these requirements. In addition, our contingent workers throughout the United States, Canada and other current and future global locations may subject us to laws and taxes in those jurisdictions and may increase the costs and expenses we incur to imply with applicable laws and maintain adequate protection of our rights, including intellectual property rights.
In addition, by providing a medium through which users can post content and communicate with one another, we may findalso be subject to laws governing intellectual property ownership, obscenity, libel, and privacy, among other issues. The real estate agents, mortgage professionals, banks, property managers, rental agents and certain of our other customers and advertisers are subject to various state and federal laws and regulations, including, but not limited to those relating to real estate, rentals and mortgages, which may impact their use of our mobile applications and websites. We cannot ensure that these entities will comply with applicable laws and regulations, including any future changes to those laws and regulations, at all times. We endeavor to ensure that any content created by Zillow Group is consistent with such laws and regulations by obtaining assurances of compliance from our advertisers and customers for their activities through, and the content they provide on, our mobile applications and websites.
In connection with the real estate transaction products and services that we
provide, we maintain real estate brokerage, title and escrow, mortgage broker, insurance agent/producer and mortgage lender licenses in the markets in which we operate those regulated products and services. Certain of our mortgage marketing products are
violatingoperated by our wholly owned subsidiary, Zillow Group Marketplace, Inc., a licensed mortgage broker, and we originate residential mortgages through Zillow Home Loans, a licensed mortgage lender. Zillow Group Marketplace, Inc. and Zillow Home Loans are subject to stringent state and federal laws
and regulations and to the scrutiny of
another jurisdiction.state and federal government agencies as a licensed mortgage broker and licensed mortgage lender, respectively. Mortgage products are regulated at the state level by licensing authorities and administrative agencies, and also by the CFPB and other federal agencies. These laws generally regulate the manner in which lending and lending-related activities are marketed or made available, including advertising and other consumer disclosures, payments for services and record keeping requirements; these laws include but are not limited to the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and various federal, state and local laws. The CFPB also has broad authority to enforce prohibitions on practices that it deems to be unfair, deceptive or abusive.
The growing CFPB focus on artificial intelligence/automated underwriting, digital mortgage comparison shopping platforms, property valuation and marketing models, coupled with rapidly changing fair housing enforcement priorities by the CFPB and other regulators may impact our ability to adapt our business and maintain compliance, which may affect our business operations, financial condition or results of operations. State laws may restrict the amount and nature of interest and fees that may be charged by a lender or mortgage broker, or otherwise regulate the manner in which lenders or mortgage brokers operate or advertise.
We hold real estate brokerage licenses through multiple entities in multiple states and may apply for additional real estate brokerage licenses as needed to support our business. To maintain these licenses, we must comply with the requirements governing licensed real estate activities and brokerage-related businesses in the markets where we operate. We may be subject to additional local, state and federal laws and regulations governing residential real estate transactions, including those
administered by the Department of Housing and Urban Development (“HUD”), and the states and municipalities in which we transact. Further, due to the geographic scope of our operations and the nature of the services we provide, certain of our other subsidiaries maintain title and escrow licenses in certain states in which we operate, including in connection with Zillow Closing Services.
A number of our personnel are required to maintain individual real estate agent or broker licenses, title and escrow agent licenses, mortgage broker, mortgage loan originator licenses and mortgage lender licenses. In addition, for certain company licenses that we hold, we are required to designate individual licensed brokers of record, qualified individuals and control persons. We cannot assure you that we, or our licensed personnel, are and will remain at all times, in full compliance with real estate, title and escrow, and mortgage licensing and consumer protection laws and regulations and we may be subject to fines or penalties in the event of any non-compliance. If we, or our licensed personnel, apply for new licenses, we may become subject to additional licensing requirements, which we may not be in compliance with at all times. If in the future a state agency were to determine that we, or our licensed personnel, are required to obtain additional licenses in that state in order to operate our business, or if we or our licensed personnel lose or do not renew an existing license or are otherwise found to be in violation of a law or regulation, we or our licensed personnel may be subject to fines or legal penalties, lawsuits, enforcement actions, void contracts, or our business operations in that state may be suspended or prohibited. Compliance with these laws and regulations is complicated and costly and may inhibit our ability to innovate or grow.
Zillow Home Loans operates its Federal Housing Administration loan program under authority granted by HUD. In the event that HUD determines that Zillow Home Loans has failed or refused to comply with all relevant terms and conditions necessary to maintain its authority active and in good standing, then such authority could be suspended, revoked or materially altered, which would materially and adversely affect the ability of Zillow Home Loans to conduct its business.
If we are unable to comply with these laws or regulations in a cost-effective manner, we may modify impacted products and services, which could require a substantial investment and loss of revenue, or
require that we cease providing the impacted product or service altogether. If we are found to have violated laws or regulations, we may be subject to significant fines, penalties, and other losses.
We Are Subject to Stringent and Evolving Laws, Regulations, Rules, Contractual Obligations, Policies and Other Obligations Related to Data Privacy and Security in the United States and Canada and May Be Subject to Similar Data Privacy and Security Obligations in Other Jurisdictions Where We Have Operations and/or Vendors. Our Actual or Perceived Failure to Comply With Such Obligations Could Lead to Regulatory Investigations or Actions; Litigation; Fines and Penalties; Disruptions of Our Business Operations; Reputational Harm; Loss of Revenue or Profits; Loss of Customers and Other Adverse Business Consequences.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, processing) personal data and other sensitive data, which may include proprietary and confidential business data, trade secrets, intellectual property, sensitive third-party data, business plans, transactions, social security numbers, financial account information, and credit card information.
Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). For example, the California Consumer Privacy Act of 2018 (“CCPA”) requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights. The CCPA provides for civil penalties of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. In addition, the California Privacy Rights Act of 2020 (“CPRA”), which becomes operative January 1, 2023, will expand the CCPA’s requirements, including applying to personal information of business representatives and employees and establishing a new regulatory agency to implement and enforce the law.
Other states, such as Virginia, Colorado, Connecticut and Utah, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels. We also have operations outside of the United States, including in Canada, and Canada’s Personal Information Protection and Electronic Documents Act
(“PIPEDA”) imposes strict requirements for processing personal data and there are also various provincial and territorial privacy laws that govern the protection of personal data. These developments may further complicate compliance efforts and may increase legal risk and compliance costs for us and the third parties upon whom we rely.
Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the internet, may be applicable to our business, such as the Telephone Consumer Protection Act, the Telemarketing Sales Rule, the Controlling the Assault of Non-Solicited Pornography and Marketing Act, and similar state consumer protection laws. We also assist with the processing of customer credit card transactions
and consumer credit report requests,
originate mortgage loans, perform real estate closings and provide other product offerings, which results in us receiving
or facilitating transmission of personally identifiable information.
ThisProcessing of this type of information is increasingly subject to legislation and regulation in the United
States. This legislationStates, including under the Fair Credit Reporting Act and
regulation isthe Gramm-Leach-Bliley Act. These laws and regulations are generally intended to protect the privacy and security of personal information, including credit card information that is collected, processed and transmitted. We could be adversely affected if government regulations require us to significantly change our business practices with respect to this type of information or if the
third-partiesthird parties that we engage with to provide processing and screening services violate applicable laws and regulations.
Further, restrictions implemented on the platforms through which our websites and applications are accessed, such as mobile operating systems, may impede the effectiveness of our marketing efforts and ability to measure the effectiveness of those efforts, reducing our ability to market our products and services and grow our customer base. A number of states have in place laws regulating the interception of electronic communications; if a court were to conclude that our monitoring of user activity violates such laws, our ability to understand our customers, and therefore the effectiveness of our product offerings and marketing efforts, could be reduced.
In addition to data privacy and security laws, we may be contractually subject to industry standards adopted by industry groups and may become subject to such obligations in the future. We may also be bound by other contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful.For example, we may be subject to the Payment Card Industry Data Security Standard (“PCI DSS”) requirements. The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access. Noncompliance with PCI-DSS can result in penalties ranging from $5,000 to $100,000 per month by credit card companies, litigation, damage to our reputation, and revenue losses. We may also rely on vendors to process payment card data; those vendors may be subject to PCI DSS, and our business may be negatively affected if our vendors are fined or suffer other consequences as a result of PCI DSS noncompliance.
We may publish privacy notices, marketing materials, and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, or other adverse consequences.
Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources and may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf.
We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations. If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products and services; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.
We are From Time to Time Involved In, or May
Inin the Future be Subject to, Claims, Suits, Government Investigations, and Other Proceedings That May Result
Inin Adverse Outcomes.
We are from time to time involved in, or may in the future be subject to, claims, suits, government investigations, enforcement actions and proceedings arising from our business, including actions with respect to intellectual property, claims, privacy, consumer protection, information security, mortgage brokering, mortgage origination, real estate, real estate brokerage, environmental, data protection, antitrust, the Real Estate Settlement Procedures Act of 1974 (RESPA), fair housing or fair lending, compliance with securities laws, or law enforcement matters, tax matters, labor and employment, claims,and commercial claims, as well as actions involving content generated by our users,customers, shareholder derivative actions, purported class action lawsuits, and other matters, including those matters described in Part I,II, Item 3.8 in Note 18 under the subsection titled “Legal Proceedings” in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. Such claims, suits, government investigations, and proceedings are inherently uncertain, and their results cannot be predicted with certainty. Regardless of the outcome, any such legal proceedings can have an adverse impact on us because of legal costs, diversion of management and other personnel, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in reputational harm, liability, fines, penalties, or sanctions, as well as judgments, consent decrees, or orders preventing us from offering certain features, functionalities, products, or services, or requiring a change in our business practices, products or technologies, which could in the future materially and adversely affect our business, operating results and financial condition.The Requirements of Being a Public Company May Strain Our Resources
In some instances, third parties may have an obligation to indemnify us for liabilities related to litigation or governmental investigations, and
Distract Our Management, Which Could Make It Difficultthey may be unable to,
Manage Our Business.We are requiredor fail to, comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements canfulfill such obligations. If such third parties failed to indemnify us, we may be time-consuming and results in increased costs to us and could harm our business, results of operations and financial condition.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These requirements could strain our systems and resources. The Exchange Act also requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Exchange Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have committed significant resources, hired additional staff and provided additional management oversight. We have implemented additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. For example, new revenue recognition guidance was issued by the Financial Accounting Standards Board (“FASB”), which we adopted on January 1, 2018, requiring additional personnel time and other costs to implement. In addition, we expect to invest additional personnel time and other costs to implement new guidance on leases, which we plan to adopt on January 1, 2019. Sustaining our growth will require us to commit additional management, operational and financial resources to identify new professionals to join us and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns and could make it difficult to manage our business,financially responsible, which could harmadversely affect our business, results of operations, financial condition and cash flows. In addition, if we identify any material weaknesses in our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the market price of our capital stock to decline.
flow.
Risks Related to Our Financial
StatementsPosition
We Incurred Significant Operating Losses in the Past and We May Not Be Able to Generate Sufficient Revenue to Be Profitable Over the Long Term.
We have incurred significant net operating losses in the past and, as of December 31, 2017,2022, we had an accumulated deficit of $592.2 million. Although we have experienced significant growth in revenue, $1.6 billion. It is possible that our revenue growth rate may decline in the future as the result of a variety of factors, including the maturation of our business.business or if we are unable to successfully execute on our growth strategy. At the same time, we also expect certain of our costs to increase in future periods as we continue to expend substantial financial resources to develop and expand our business, including on:with respect to:
•expansion of Zillow Home Loans;
•product and services development;
•sales and marketing;
•technology infrastructure;
•strategic opportunities, including commercial relationships and acquisitions; and
•general and administrative expenses, including legal and accounting expenses related to being a public company.
These investments may not result in increased revenue or growth in our business. If we fail to continue to grow our revenue and overall business and to manage our expenses, we may incur significant losses in the future and not be able to achieve or maintain profitability.
A failure by Zillow Home Loans to operate at a profit could also place its Federal Housing Administration Title II lender authorization in jeopardy, adversely impact our relationship with Fannie Mae and Freddie Mac, limit our ability to sell loans to third party financial institutions and may adversely impact our ability to utilize our loan repurchase facilities and warehouse lines of credit. Any such adverse impacts could threaten Zillow Home Loans’ ability to continue operations.
Servicing Our Debt Requires a Significant Amount of Cash, and We May Not Have Sufficient Cash Flow From Our Business to Pay Our Substantial
Debt.Debt, Settle Conversions of Our Convertible Senior Notes, or Repurchase Our Convertible Senior Notes Upon a Fundamental Change.
We utilize several forms of debt to provide capital for the continued growth and operation of our business, such as tranches of convertible senior notes and warehouse and repurchase facilities for Zillow Home Loans. Our indebtedness includes the $608 million aggregate principal amount under our Convertible Senior Notes due in 2024 (the “2024 Notes”), the $565 million aggregate principal amount under our Convertible Senior Notes due in 2025 (the “2025 Notes”), the $499 million
aggregate principal amount under our Convertible Senior Notes due in 2026 (the “2026 Notes”), and mortgage debt facilities (aggregate maximum borrowing capacity of $250 million as of December 31, 2022). Our ability to make
scheduled payments
ofon the principal of, to pay interest on or to refinance our indebtedness
including the remaining outstanding $10.1 million aggregate principal under Trulia’s Convertible Senior Notes due in 2020 (the “2020 Notes”) and our Convertible Senior Notes due in 2021 (the “2021 Notes”), depends on our future performance
and, if applicable, the value of collateral, which is subject to economic, industry, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to
extend or refinance our indebtedness will
depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
obligations, including our convertible senior notes, credit facilities, or otherwise.
Holders of our convertible senior notes have the right to require us to repurchase their notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest. Holders of our convertible senior notes may elect to convert their notes at various times and pursuant to specific circumstances, as provided in the corresponding indenture. When such an election is made, we may opt to settle any such conversion by delivering solely shares of our Class C capital stock, solely cash payments, or a combination of Class C capital stock and cash payments after consideration of various factors, including the price of our Class C capital stock, market factors, liquidity, and the needs of our business. Upon conversion of our convertible senior notes, unless we elect to deliver solely shares of our Class C capital stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the notes surrendered therefore or at the time the notes are being converted. Our failure to repurchase our convertible senior notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the notes would constitute an event of default. If the repayment of any indebtedness were to be accelerated because of such event of default (whether under the notes or otherwise), we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof. An event of default under the indenture may lead to an acceleration of our convertible senior notes. Any such acceleration could result in our bankruptcy. In a bankruptcy, the holders of our convertible senior notes would have a claim to our assets that is senior to the claims of our equity holders.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
•make us more vulnerable to adverse changes in general United States and worldwide economic, industry and competitive conditions and adverse changes in government regulation;
•limit our flexibility in planning for, or reacting to, changes in our business and our industry;
•place us at a disadvantage compared to our competitors who have less debt; and
•limit our ability to borrow additional amounts for working capital and other general corporate purposes, including to fund possible acquisitions of, or investments in, complementary businesses, products, services and technologies.
Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.
The Credit and Debt Facilities that Provide Capital for Zillow Home Loans Include Covenants and Other Provisions that May Restrict Our Operating Activities, and Have a Material Effect on Our Liquidity. They Also Incorporate Variable Interest Rates that May Subject Us to Interest Rate Risk, Which Could Cause Our Debt Service Obligations to Increase Significantly.
Zillow Home Loans has entered into warehouse financing agreements, including credit and repurchase agreements, to provide capital for the growth and operation of our mortgage origination businesses. The terms of these warehouse financing agreements and related financing documents require Zillow Home Loans to comply with a number of customary financial and other covenants, such as maintaining certain levels of liquidity, tangible net worth, leverage ratios, net income and adequate insurance coverage. These covenants may limit our operational flexibility and may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our shareholders. Additionally, undrawn amounts are not committed, meaning the applicable lender is not obligated to advance loan funds in excess of outstanding borrowings. Refer to Note 13 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on our Zillow Home Loans warehouse financing facilities. Upon the occurrence of any event of default under these warehouse financing agreements, the lenders could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable, even in the absence of a payment default. A default under one of
our warehouse financing agreements could result in a cross-default under other warehouse financing agreements and our lenders could elect to declare outstanding amounts due and payable or terminate their commitments. If we fail to repay the amounts due under our warehouse financing agreements, the lenders of such warehouse financing agreements may proceed against the collateral granted to secure the credit facilities. The majority of loans originated by Zillow Home Loans are pledged as collateral to secure such indebtedness. As a result, a default under applicable debt covenants could have an adverse effect on our financial condition or results of operations.
Certain of our debt agreements are subject to margin calls based on the lender’s opinion of the value of the collateral securing such financing. A margin call would require the borrower to repay a portion of the outstanding borrowings. A large, unanticipated margin call could have a material effect on our liquidity.
At December 31, 2022, $37 million of our borrowings under our warehouse financing agreements was at variable rates of interest, thereby exposing us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net loss would increase.
We May Need to Raise Additional Capital to Grow Our Business and We May Not Be Able to Raise Additional Capital on Terms Acceptable to Us, or At All.
Growing and operating our business, including through the development of new and enhanced products and services, may require significant cash outlays, liquidity reserves and capital expenditures. If cash on hand, cash generated from operations and cash equivalents and investment balances are not sufficient to meet our cash and liquidity needs or fund future growth and development, we may need to seek additional capital and we may not be able to raise the necessary cash on terms acceptable to us, or at all. Refer to Note 13 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on our warehouse and loan repurchase facilities. In addition, in February 2021, we entered into an Equity Distribution Agreement pursuant to which we may offer and sell from time to time, through certain financial institutions, shares of our Class C capital stock having an aggregate gross sales price of up to $1 billion, and as of November 2022, our board of directors has authorized the repurchase of up to a total of $1.8 billion of our Class A common stock, Class C capital stock, a combination thereof, or our outstanding convertible senior notes. We may decide to raise additional capital or repurchase outstanding stock or debt through these arrangements at levels or under terms that prove to be unfavorable or at times and share prices that prove to be disadvantageous based on changes in market conditions. Such decisions may negatively impact our financial position and/or future ability to raise capital. Financing arrangements we maintain, pursue or assume may require us to grant certain rights, take certain actions, or agree to certain restrictions, that could negatively impact our business. If additional capital is not available to us on terms acceptable to us or at all, we may need to modify our business plans, which would harm our ability to grow our operations.
We Rely on Assumptions, Estimates, and Business Data to Calculate our Key Performance Indicators and Other Business Metrics, and Real or Perceived Inaccuracies in These Metrics May Harm our Reputation and Negatively Affect our Business.
Certain of our performance metrics are calculated using third party applications or internal company data that have not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring such information. For example, our measurement of
visits and unique users
and visits may be affected by applications that automatically contact our servers to access our mobile applications and websites with no user action involved, and this activity can cause our system to count the user associated with such a device as a unique user or as a visit on the day such contact occurs.
We regularly review and may adjust our processes for calculating our performance metrics to improve accuracy. Our measure of certain metrics may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If real estate professionals,
advertisersour real estate partners or investors do not perceive our
visits or unique users
or visits to be an accurate representation of our user engagement, or if we discover material inaccuracies in our
visits or unique users,
or visits, our reputation may be harmed, and real estate professionals and advertisers may be less willing to allocate their resources to our products and services, which could negatively affect our business and operating results.
We Expect Our Results of Operations to Fluctuate on a Quarterly and Annual Basis.
Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside our control. The other risk factors discussed in this “Risk Factors” section may contribute to the variability of our quarterly and annual results. In addition, our results may fluctuate as a result of fluctuations in the quantity of, and the price at which we are able to sell, our remnant advertising, seasonal variances of home sales, which historically peak in the spring and summer seasons, fluctuations in the quantity of
homes available, our remnant advertising, and the size and seasonal variability of our
advertisers’real estate partners’ marketing budgets.
The seasonal variance and cyclical nature of home sales may contribute to the variability of our revenue and results of operations for our Mortgages segment, in particular, which seasonality may be masked by segment growth. As a result of the potential variations in our revenue and results of operations,
period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price.
We Could Be Subject to Additional
Income Tax
Liabilities and Our Ability to Use Our Net Operating Loss Carryforwards and Certain Other Tax Attributes May Be Limited.Liabilities.
We are subject to federal and state income taxes in the United States (federal and in Canada.state), Canada, and Serbia. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions,conditions. New tax laws, regulations and significantadministrative practices could be enacted or adopted at any time, and existing tax laws, regulations and administrative practices could be interpreted, modified or applied adversely to us, possibly with retroactive effect. These changes could require us to pay additional taxes, penalties, interest and other related costs, and also could increase our compliance, operating and other costs. For instance, the recently enacted Inflation Reduction Act imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases.
Significant judgment is required in evaluating and estimating these taxes.the taxes imposed under such tax laws. Our effective tax rates could be affected by numerous factors, such as entry into new businesses and geographies, changes to our existing business and operations, acquisitions and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations. For example, On December 22, 2017,We are required to take positions regarding the U.S. government enacted comprehensiveinterpretation of complex statutory and regulatory tax legislation underrules and on valuation matters that are subject to uncertainty, and the Internal Revenue Service or other tax authorities may challenge the positions we take.
Our Ability to Use Our Net Operating Loss Carryforwards and Certain Other Tax Attributes May Be Limited.
We have incurred losses during our history. To the extent that we continue to generate losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire, if at all. Under the Tax
CutsAct, as modified by the Coronavirus Aid, Relief, and
JobsEconomic Security Act,
(the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S.United States federal
corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay aone-time transition tax on certain untaxed earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreignsubsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and how AMT credits are utilized; and (5) changing rules related to uses and limitations of net operating loss carryforwards createdgenerated in taxtaxable years beginning after December 31, 2017.
The Tax Act significantly changes how2017, may be carried forward indefinitely, but the U.S. taxes corporations. The Tax Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretationdeductibility of the provisions of the Tax Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies have not implemented all relevant regulations or issued substantive guidanceto-date and could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our current interpretation. As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made.
As of December 31, 2017, we had federalsuch net operating loss carryforwards in taxable years beginning after December 31, 2020 is limited to 80% of approximately $1,014.0 million, state net operating loss carryforwards of approximately $21.4 million (tax effected), and net tax credit carryforwards of approximately $35.8 million. Undertaxable income.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended
(the “Code”), if a corporation undergoes an “ownership
change,”change”, the corporation’s ability to use its
pre-change net operating loss carryforwards and other
pre-change tax attributes, such as research
taxand development credits, to offset its post-change
taxable income or income tax liability may be limited.
In general, anAn “ownership change”
will occuroccurs for these purposes if
there is a cumulative change in ourone or more shareholders (including certain groups of shareholders) that each owns at least 5% of the corporation’s stock by value increase their aggregate ownership by
certain“5-percent shareholders” that exceedsmore than 50 percentage points over
their lowest ownership percentages within a rolling three-year period.
In connection with Zillow’s August 2013 public offering of Zillow Class A Common stock, Zillow experienced anSimilar rules may apply under state tax laws. We have undergone ownership
change that triggered Section 382changes in the past, and
383, whichwe may
limit our ability to utilize net operating loss and tax credit carryforwards. In connection with Zillow Group’s February 2015 acquisition of Trulia, Trulia experienced an ownership change that triggered Section 382 and 383, which may limit Zillow Group’s ability to utilize Trulia’s net operating loss and tax credit carryforwards. If we experience
one or more ownership changes in the future
as a resultbecause of
future transactionsshifts in our stock
ownership, many of which are outside of our
ability to utilize net operating loss carryforwards could be limited. Furthermore, our ability to utilize net operating loss carryforwards of any companies that we have acquired or may acquire in the future may be limited.control. As a result, if we
earn net taxable income,achieve profitability, our ability to use our
pre-change net operating loss carryforwards
and other
pre-change tax attributes
or net operating loss carryforwards of any acquired companies to offset
ourfuture United States federal taxable income or
reduce our federal income tax
liabilityliabilities may be,
or may become, subject to
limitation.limitations, which could result in increased future tax liability to us.
Risks Related to Ownership of Our Common and Capital Stock and Debt Instruments
Our Class A Common Stock and Class C Capital Stock Prices May Be Volatile, and the Value of an Investment in Our Class A Common Stock and Class C Capital Stock May Decline.
An active, liquid and orderly market for our Class A common stock and Class C capital stock may not be sustained, which could depress the trading price of our Class A common stock and Class C capital stock. The trading price of our Class A common stock and Class C capital stock has at times experienced price volatility and may continue to be volatile. For example, since shares of our Class A common stock began trading in February 2015,during the last three fiscal years ending December 31, 2022, the closing price of our Class A common stock has ranged from $17.06$23.51 per share to $50.69$203.79 per share (adjusted forshare. During the August 2015 stock split effected in the form of a dividend) through December 31, 2017. Since shares of our Class C capital stock began trading in August 2015,same time period, the closing price of our Class C capital stock has ranged from $16.01$25.01 per share to $51.04$199.90 per share through December 31, 2017.share. The market price of our Class A common stock and Class C capital stock could be
subject to wide fluctuations in response to many of the risk factors discussed in this Annual Report on Form
10-K and others beyond our control, including:
•actual or anticipated fluctuations in our financial condition and results of operations;
•changes in projected operational and financial results;
•addition or loss of significant customers;
•actual or anticipated changes in our growth rate relative to that of our competitors;
•announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;
•announcements of technological innovations or new offerings by us or our competitors;
•additions or departures of key personnel;
•changes in laws or regulations applicable to our services;
•fluctuations in the valuation of companies perceived by investors to be comparable to us;
•the inclusion, exclusion, or deletion of our Class A common stock and Class C capital stock from any trading indices, such as the S&P 500 Index;
•issuance of new or updated research or reports by securities analysts;
•sales of our Class A common stock and Class C capital stock by us or our shareholders;
issuances•repurchases of our Class A common stock upon conversion of the 2020 Notes and Class C capital stock by us or our shareholders;
•issuances of our Class C capital stock upon conversion of our 20212024 Notes, 2025 Notes or 2026 Notes;
•stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and
•general economic and market conditions.
Furthermore, the stock markets in recent years have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of the equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions,
changes to federal monetary policy, interest
rate changesrates or international currency fluctuations, may negatively impact the market price of our Class A common stock and Class C capital stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have in the past been and are currently the target of this type of litigation, and we may continue to be the target of this type of litigation in the future. Past, current, and future securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could harm our business, results of operations or financial condition.
The Structure of Our Capital Stock as Contained in Our Charter Documents Has the Effect of Concentrating Voting Control With Our Founders, and Limits Your Ability to Influence Corporate Matters.
Since Zillow Group’s inception, our capital structure has included authorized Class A common stock and authorized Class B common stock. Our Class A common stock entitles its holder to one vote per share, and our Class B common stock entitles its holder to 10 votes per share. All shares of Class B common stock have been and are held or controlled by our founders, Richard Barton and Lloyd Frink. As of December 31,
2017,2022, Mr. Barton’s holdings and Mr. Frink’s holdings represented approximately
31.8%31.6% and
20.7%20.5%, respectively, of the voting power of our outstanding capital stock.
For the foreseeable future, Mr. Barton and Mr. Frink will therefore have significant control over our management and affairs and will be able to control most matters requiring shareholder approval, including the election or removal (with or without cause) of directors and the approval of any significant corporate transaction, such as a merger or other sale of us or our assets. In addition, because our Class C capital stock carries no voting rights (except as required by applicable law or as expressly provided in our amended and restated articles of incorporation), the issuance of Class C capital stock (instead of Class A common stock) could prolong the duration of Mr. Barton’s and Mr. Frink’s relative ownership of our voting power. This concentrated control could delay, defer or prevent a change of control, merger, consolidation, takeover, or other business combination involving us that you, as a shareholder, may otherwise support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock or Class C capital stock due to the limited voting power of such stock relative to the Class B common stock and might harm the market price of our Class A common stock and Class C capital stock.
Future Sales of Our Stock in the Public Market Could Cause Our Stock Price to Decline.
Our Class A common stock began trading on The Nasdaq Global Select Market on February 18, 2015, and our Class C capital stock began trading on The Nasdaq Global Select Market on August 17, 2015.
We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the prevailing trading price of our Class A common stock and Class C capital stock from time to time. There is currently no contractual restriction on our ability to issue additional shares, and all of our outstanding shares are generally freely tradable,
except for shares held by our “affiliates” as defined in Rule 144 under the Securities Act
of 1933, as amended, which may be sold in compliance with the volume restrictions of Rule 144. Sales of a substantial number of shares of our Class A common stock and Class C capital stock could cause our stock price to decline. In addition, we may in the future issue shares of Class C capital stock for financings, acquisitions,
equity incentives, including under our Equity Distribution Agreement or
equity incentives.to settle our outstanding convertible notes. If we issue shares of Class C capital stock in the future, such issuances would have a dilutive effect on the economic interest of our Class A common stock.
If Securities or Industry Analysts
or Other Third Parties Do Not Publish Research or Publish Inaccurate or Unfavorable Research About Our Business, Our Class A Common Stock and Class C Capital Stock Price and Trading Volume Could Decline.
The trading market for our Class A common stock and Class C capital stock depends in part on the research and reports that securities or industry analysts
or other third parties publish about our company. If few or no securities or industry analysts
or other third parties cover our company, the market price of our publicly-traded stock could be negatively impacted. If securities or industry analysts
or other third parties cover us and if one or more of such analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of the analysts covering us fail to publish reports on us regularly, demand for our stock could decline, which could cause our stock price and trading volume to decline.
If We Issue Additional Equity Securities or
Issue Additional Convertible Debt to Raise Capital
or Elect to Settle Conversions of Our Convertible Senior Notes in Stock, It May Have a Dilutive Effect on Shareholders’ Investment.
If we raise additional capital through further issuances of equity or convertible debt securities
or elect to settle conversions of our convertible senior notes in shares of our Class C capital stock, our existing shareholders could suffer significant dilution in their percentage ownership of us. Moreover, any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.
The Capped Call Transactions May Affect the Value of Our
20212024 Notes, 2026 Notes and Our Class C Capital Stock.
In connection with the pricing of
each of the
20212024 Notes and 2026 Notes, we entered into capped call transactions with
Citigroup Global Markets Inc. and certain
other financial institutions (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution
uponin connection with the conversion of the
20212024 Notes or 2026 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be. In
addition,connection with our Convertible Senior Notes due in 2021 (“2021 Notes”) and 2023 (“2023 Notes”), the balance of which we redeemed in late 2020 and mid-2021 respectively, we exercised our right to keep the associated capped call confirmations open through the expiration of the 2021 Notes and 2023 Notes, which caused short term dilution. We may pursue similar options with the capped call
transactions provide for us to elect, subject to certain conditions, forconfirmations associated with each of the
capped call transactions to remain outstanding (with certain modifications) following our election to redeem2024 Notes and 2026 Notes in the
2021 Notes, notwithstanding any conversions of notes in connection with such redemption.In addition, thefuture.
The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our Class C capital stock and/or purchasing or selling our Class C capital stock or other securities of ours in secondary market transactions prior to the maturity of
each of the
20212024 Notes and 2026 Notes (and are likely to do so during any observation period related to a conversion of
20212024 Notes or 2026 Notes or in connection with any repurchase of
20212024 Notes or 2026 Notes by us). This activity could cause or avoid an increase or a decrease in the market price of our Class C capital stock,
the 2024 Notes or the
20212026 Notes.
Anti-Takeover Provisions in Our Charter Documents and Under Washington Law Could Make an Acquisition of Us More Difficult, Limit Attempts by Shareholders to Replace or Remove Our Management and Affect the Market Price of Our Stock.
Provisions in our articles of incorporation and bylaws, as amended and restated, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated articles of incorporation or amended and restated bylaws include provisions, some of which will become effective only after the date, which we refer to as the threshold date, on which the Class B common stock controlled by our founders represents less than 7% of the aggregate number of shares of our outstanding Class A common stock and Class B common stock, that:
•set forth the structure of our capital stock, which concentrates voting control of matters submitted to a vote of our shareholders with the holders of our Class B common stock, which is held or controlled by our founders;
•authorize our board of directors to issue, without further action by our shareholders, up to 30,000,000 shares of undesignated preferred stock, subject, prior to the threshold date, to the approval rights of the holders of our Class B common stock;
•establish that our board of directors will be divided into three classes, Class I, Class II and Class III, with each class serving three-year staggered terms;
•prohibit cumulative voting in the election of directors;
•provide that, after the threshold date, our directors may be removed only for cause;
•provide that, after the threshold date, vacancies on our board of directors may be filled only by the affirmative vote of a majority of directors then in office or by the sole remaining director;
•provide that only our board of directors may change the board’s size;
•specify that special meetings of our shareholders can be called only by the chair of our board of directors, our board of directors, our chief executive officer, our president or, prior to the threshold date, holders of at least 25% of all the votes entitled to be cast on any issue proposed to be considered at any such special meeting;
•establish an advance notice procedure for shareholder proposals to be brought before a meeting of shareholders, including proposed nominations of persons for election to our board of directors;
•require the approval of our board of directors or the holders of at leasttwo-thirds of all the votes entitled to be cast by shareholders generally in the election of directors, voting together as a single group, to amend or repeal our bylaws; and
•require the approval of not less thantwo-thirds of all the votes entitled to be cast on a proposed amendment, voting together as a single group, to amend certain provisions of our articles of incorporation.
Prior to the threshold date, our directors can be removed with or without cause by holders of our Class A common stock and Class B common stock, voting together as a single group, and vacancies on the board of directors may be filled by such shareholders, voting together as a single group. Given the structure of our capital stock, our founders, Richard Barton and Lloyd Frink, who hold or control our Class B common stock, will have the ability for the foreseeable future to control these shareholder actions. See the risk factor above titled “The Structure of Our Capital Stock as Contained in Our Charter Documents Has the Effect of Concentrating Voting Control With our Founders, and Limits Your Ability to Influence Corporate Matters.”
The provisions described above, after the threshold date, may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which board is responsible for appointing our management. In
addition, because we are incorporated in the State of Washington, we are governed by the provisions of Chapter 23B.19 of the Washington Business Corporation Act, which prohibits certain business combinations between us and certain significant shareholders unless specified conditions are met. These provisions may also have the effect of delaying or preventing a change of control of our company, even if this change of control would benefit our shareholders.
Item 1B. Unresolved Staff Comments.
Not applicable.
We have various operating leases for office space which are summarized as of December 31, 20172022 in the table below. Given the permanent move to a flexible workforce, our operating leases no longer support specific reportable segments. We believe that our facilities are adequate for our current needs. | | | | | | | | | | |
Location | | Purpose | | Approximate Square
Feet | | | Principal Lease
Expiration Dates | |
Seattle, Washington | | Corporate headquarters for Zillow Group | | | 307,237 | | | | 2024 | |
San Francisco, California | | General office space | | | 105,897 | | | | 2023 | |
Denver, Colorado | | General office space | | | 64,908 | | | | 2021 | |
Irvine, California | | General office space | | | 60,074 | | | | 2022 | |
New York, New York | | General office space | | | 53,200 | | | | 2024 | |
San Francisco, California | | Subleased office space | | | 26,664 | | | | 2018 | |
We
| | | | | | | | | | | | | | | | | | | | |
| Location | | Purpose | | Approximate
Square Feet (1) | | Principal Lease
Expiration Dates |
| Seattle, Washington | | Corporate headquarters for Zillow Group | | 264,745 | | | 2032 |
| San Francisco, California | | General office space | | 92,562 | | | 2032 |
| Irvine, California | | General office space | | 80,952 | | | 2027 |
| New York, New York | | General office space | | 76,199 | | | 2030 |
| Overland Park, Kansas | | General office space | | 70,373 | | | 2024 |
| Atlanta, Georgia | | General office space | | 51,822 | | | 2025 |
(1) Excludes square footage of subleased space.
In addition, we lease additional office space in Chicago, Illinois, Cincinnati, Ohio, Lincoln, Nebraska, Atlanta, Georgiaseveral other locations in the United States and Vancouver, British Columbia.Canada. See Note 162 and Note 12 of Part II, Item 8 of this Annual Report on Form10-K for more information about our lease commitments.
Item 3. Legal Proceedings.
For information regarding legal proceedings in which we are involved, see Note 1618 under the subsection titled “Legal Proceedings” in our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report onForm 10-K.
Item 4. Mine Safety Disclosures.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders
Our Class A common stock has traded on The Nasdaq Global Select Market under the symbol “ZG” since August 17, 2015 and under the symbol “Z” from July 20, 2011 through August 14, 2015.
The following table sets forth, for each quarterly period indicated, the high and low sales prices per share for our Class A common stock as quoted on The Nasdaq Global Select Market: | | | | | | | | |
| | | High | | | Low | |
Year Ended December 31, 2017: | | | | | | | | |
First Quarter | | $ | 38.25 | | | $ | 32.63 | |
Second Quarter | | | 50.91 | | | | 33.37 | |
Third Quarter | | | 49.03 | | | | 37.96 | |
Fourth Quarter | | | 43.16 | | | | 38.76 | |
| | | | | | | | |
| | | High | | | Low | |
Year Ended December 31, 2016: | | | | | | | | |
First Quarter | | $ | 25.96 | | | $ | 16.45 | |
Second Quarter | | | 36.65 | | | | 20.87 | |
Third Quarter | | | 39.99 | | | | 32.55 | |
Fourth Quarter | | | 39.19 | | | | 31.17 | |
Our Class B common stock is not listed and there is no established public trading market.
Our Class C capital stock has traded on The Nasdaq Global Select Market under the symbol “Z” since August 17, 2015. Prior to that time, there was no public market for our Class C capital stock.
The following table sets forth, for each quarterly period indicated, the high and low sales prices per share for our Class C capital stock as quoted on The Nasdaq Global Select Market: | | | | | | | | |
| | | High | | | Low | |
Year Ended December 31, 2017: | | | | | | | | |
First Quarter | | $ | 38.05 | | | $ | 32.56 | |
Second Quarter | | | 51.23 | | | | 33.30 | |
Third Quarter | | | 49.36 | | | | 37.68 | |
Fourth Quarter | | | 43.43 | | | | 38.63 | |
| | | | | | | | |
| | | High | | | Low | |
Year Ended December 31, 2016: | | | | | | | | |
First Quarter | | $ | 24.64 | | | $ | 15.36 | |
Second Quarter | | | 36.28 | | | | 19.63 | |
Third Quarter | | | 39.88 | | | | 32.65 | |
Fourth Quarter | | | 39.05 | | | | 31.22 | |
As of February
8, 2018,9, 2023, there were
102,316, three, and
145131 holders of record of our Class A common stock, our Class B common stock, and our Class C capital stock, respectively.
We have never declared or paid a cash dividend on our common or capital stock and we intend to retain all available funds and any future earnings to fund the development and growth of our business. We therefore do not anticipate paying any cash dividends on our common or capital stock in the foreseeable future. Any future
determinations to pay dividends on our common or capital stock would depend on our results of operations, our financial condition and liquidity requirements, restrictions that may be imposed by applicable law or our contracts and any other factors that our board of directors may consider relevant.
Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the
yearthree months ended December 31,
2017.2022.
Purchases of Equity Securities by the Issuer
None.
The following table summarizes our Class A common stock and Class C capital stock repurchases during the three months ended December 31, 2022 (in millions, except share data which are presented in thousands, and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
| Period | | Class A common stock | | Class C capital stock | | Class A common stock | | Class C capital stock | | |
| October 1 - October 31, 2022 | | — | | | — | | $ | — | | | $ | — | | | — | | | $ | 674 | |
| November 1 - November 30, 2022 | | 592 | | | 3,530 | | 34.23 | | | 34.93 | | | 4,122 | | | 531 | |
| December 1 - December 31, 2022 | | 111 | | | 688 | | 37.11 | | | 37.57 | | | 799 | | | 500 | |
| Total | | 703 | | | 4,218 | | | | | | 4,921 | | | |
|
| (1) On December 2, 2021, the Board of Directors authorized a stock repurchase program granting the authority to repurchase up to $750 million of our Class A common stock, Class C capital stock or a combination of both. On May 4, 2022, the Board of Directors authorized the repurchase of up to an additional $1 billion (together the “Repurchase Authorizations”) of our Class A common stock, Class C capital stock or a combination thereof. On November 1, 2022, the Board of Directors further expanded the Repurchase Authorizations to allow for the repurchase of a portion of our outstanding convertible senior notes. There were no repurchases of convertible senior notes during the year ended December 31, 2022. The Repurchase Authorizations do not have an expiration date. |
The following graph compares our cumulative total shareholder return on Zillow Group’s common and capital stock with the Nasdaq Composite Index and the RDG Internet Composite Index.
For our Class A common stock, this graph covers the period from December 31, 2012 through December 31, 2017. This graph assumes that the value of the investment in Zillow Group’s Class A common stock and each index (including reinvestment of dividends) was $100 on December 31, 2012.
For our Class C capital stock, this graph covers the period from August 3, 2015, using the closing price for the first day of trading during the when-issued trading period prior to the August 2015 stock split effected in the form of a dividend through December 31, 2017. This graph assumes that the value of the investment in Zillow Group’s Class C capital stock (including reinvestment of dividends) was $100 on August 3, 2015.
The information contained in the graph is based on historical data and is not intended to forecast possible future performance.
Item 6.
Selected Financial Data.The selected financial data set forth below should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form10-K and our previously audited financial statements that are not included herein. We have included Trulia, Inc. in Zillow Group’s results of operations prospectively after February 17, 2015, the date of acquisition. We have given retroactive effect to prior period share and per share amounts in our consolidated statements of operations for the August 2015 stock split effected in the form of a dividend so that prior periods are comparable to current period presentation. Our historical results are not necessarily indicative of our results to be expected in any future period.
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | (in thousands, except per share data) | |
Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 1,076,794 | | | $ | 846,589 | | | $ | 644,677 | | | $ | 325,893 | | | $ | 197,545 | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | |
Cost of revenue (exclusive of amortization) (1)(2) | | | 85,203 | | | | 69,262 | | | | 60,127 | | | | 29,461 | | | | 18,810 | |
Sales and marketing (1) | | | 448,201 | | | | 382,419 | | | | 308,125 | | | | 169,462 | | | | 108,891 | |
Technology and development (1) | | | 319,985 | | | | 255,583 | | | | 184,477 | | | | 84,669 | | | | 48,498 | |
General and administrative (1) | | | 210,816 | | | | 332,007 | | | | 184,984 | | | | 65,503 | | | | 37,919 | |
Impairment and restructuring costs (1) | | | 174,000 | | | | — | | | | 35,551 | | | | — | | | | — | |
Acquisition-related costs | | | 463 | | | | 1,423 | | | | 16,576 | | | | 21,493 | | | | 376 | |
Loss (gain) on divestiture of businesses | | | — | | | | (1,251 | ) | | | 4,368 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total costs and expenses | | | 1,238,668 | | | | 1,039,443 | | | | 794,208 | | | | 370,588 | | | | 214,494 | |
| | | | | | | | | | | | | | | | | | | | |
Loss from operations | | | (161,874 | ) | | | (192,854 | ) | | | (149,531 | ) | | | (44,695 | ) | | | (16,949 | ) |
Loss on debt extinguishment | | | — | | | | (22,757 | ) | | | — | | | | — | | | | — | |
Other income | | | 5,385 | | | | 2,711 | | | | 1,501 | | | | 1,085 | | | | 385 | |
Interest expense | | | (27,517 | ) | | | (7,408 | ) | | | (5,489 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (184,006 | ) | | | (220,308 | ) | | | (153,519 | ) | | | (43,610 | ) | | | (16,564 | ) |
Income tax benefit (expense) | | | 89,586 | | | | (130 | ) | | | 4,645 | | | | — | | | | 4,111 | |
| | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (148,874 | ) | | $ | (43,610 | ) | | $ | (12,453 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net loss per share—basic and diluted | | $ | (0.51 | ) | | $ | (1.22 | ) | | $ | (0.88 | ) | | $ | (0.36 | ) | | $ | (0.12 | ) |
Weighted average shares outstanding—basic and diluted | | | 186,453 | | | | 180,149 | | | | 169,767 | | | | 120,027 | | | | 108,087 | |
(1) Includes share-based compensation as follows: | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | $ | 3,884 | | | $ | 3,550 | | | $ | 2,384 | | | $ | 1,844 | | | $ | 737 | |
Sales and marketing | | | 22,735 | | | | 23,320 | | | | 25,391 | | | | 7,320 | | | | 10,969 | |
Technology and development | | | 39,938 | | | | 31,466 | | | | 26,849 | | | | 11,681 | | | | 4,660 | |
General and administrative | | | 47,014 | | | | 48,582 | | | | 50,590 | | | | 13,240 | | | | 7,070 | |
Impairment and restructuring costs | | | — | | | | — | | | | 14,859 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 113,571 | | | $ | 106,918 | | | $ | 120,073 | | | $ | 34,085 | | | $ | 23,436 | |
| | | | | | | | | | | | | | | | | | | | |
(2) Amortization of website development costs and intangible assets included in technology and development | | $ | 94,349 | | | $ | 87,060 | | | $ | 63,189 | | | $ | 29,487 | | | $ | 19,791 | |
| | | | | | | | | | | | | | | | | | | | |
| | | At December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | (in thousands) | |
Balance Sheet Data: | | | | | | | | | | | | | |
Cash, cash equivalents and investments | | $ | 762,539 | | | $ | 507,515 | | | $ | 520,289 | | | $ | 455,920 | | | $ | 437,726 | |
Working capital | | | 723,138 | | | | 485,617 | | | | 493,672 | | | | 352,141 | | | | 282,903 | |
Property and equipment, net | | | 112,271 | | | | 98,288 | | | | 85,523 | | | | 41,600 | | | | 27,408 | |
Total assets | | | 3,230,517 | | | | 3,149,677 | | | | 3,135,700 | | | | 649,730 | | | | 608,063 | |
Long-term debt | | | 385,416 | | | | 367,404 | | | | 230,000 | | | | — | | | | — | |
Deferred tax liabilities and other long-term liabilities | | | 44,561 | | | | 136,146 | | | | 132,482 | | | | — | | | | — | |
Total shareholders’ equity | | | 2,660,823 | | | | 2,533,587 | | | | 2,679,053 | | | | 588,779 | | | | 567,796 | |
Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form10-K. In the fourth quarter of 2021, we began to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in certain markets across the country. The wind down of Zillow Offers operations was completed in the third quarter of 2022, and we have presented the financial results of Zillow Offers as discontinued operations in our consolidated financial statements for all periods presented. The discussion of 2021 and 2020 financial condition, results of operations and year-to-year comparisons within the sections below have been revised to conform with this current period presentation.
In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those
containeddescribed in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form
10-K, particularly in
the section titled “Risk Factors”.
Zillow Group Inc. operates the leadingis reimagining real estate to make it easier to unlock life’s next chapter. As the most visited real estate website in the United States, Zillow and home-related information marketplaces on mobileits affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and the web, with a complementary portfolio of brands and products to help consumers find vital information about homes and connect with local professionals. Zillow Group’s brands focus on all stages of the home lifecycle: renting, buying, selling and financing. The Zillow Groupease.
Our portfolio of consumer brands includes
real estate and rental marketplaces Zillow
Premier Agent, Zillow Home Loans, our affiliate lender, Zillow Closing Services, Zillow Rentals, Trulia, StreetEasy, HotPads
Naked Apartments, RealEstate.com and
OutEast.com.Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions
to helpfor the real estate
rentalindustry which include Mortech, New Home Feed and
mortgage professionals maximize business opportunities and connect with millions of consumers. We also own and operate a number of business brands for real estate, rental and mortgage professionals, including Mortech, dotloop,ShowingTime+, which houses ShowingTime, Bridge Interactive,
dotloop and
New Home Feed.Our living databaseinteractive floor plans.
Discontinued Operations
In the fourth quarter of more than 110 million U.S. homes—including2021, the Board of Directors (the “Board”) of Zillow Group made the determination to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in certain markets across the United States. The wind down was completed in the third quarter of 2022 and resulted in approximately a 25% reduction of Zillow Group’s workforce. The financial results of Zillow Offers have been presented in the accompanying consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations. In addition, the discussion of 2021 and 2020 financial condition, results of operations and year-to-year comparisons within the sections below have been revised to conform with this current period presentation. Given the wind down of Zillow Offers and corresponding shift in our strategic plans, financial performance for sale, homes for rent and homes not currently on the market—attracts an active and vibrant community of users. Individuals and businesses that use Zillow’s mobile applications and websites have updated information on more than 75 millionhomes, creating exclusive home profiles not available anywhere else. These profiles include detailed information about homes, including property facts, listing information and purchase and sale data. We provide this information to our users where, when and how they want it, through our industry-leading mobile applications and websites. Using complex, proprietary automated valuation models, we provide current home value estimates, or Zestimates,prior and current rentalperiods may not be indicative of future performance. For additional information regarding discontinued operations, see Note 3 in our Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
August 2022 Equity Award Actions
On August 3, 2022, upon the recommendation of the Compensation Committee of the Board, the Board approved adjustments to the exercise price
estimates, or Rent Zestimates,of certain outstanding vested and unvested option awards for eligible employees. The exercise price of eligible option awards was reduced to $38.78, which was the closing market price of our Class C capital stock on
August 8, 2022. No other changes were made to the terms and conditions of the eligible option awards. In addition, the Board approved a supplemental grant of restricted stock units to eligible employees that was granted on August 8, 2022 and vests quarterly over a two-year period beginning in August 2022. The repricing of eligible option awards and the issuance of supplemental restricted stock units (collectively the “August 2022 Equity Award Actions”) is expected to result in total incremental share-based compensation expense of approximately
100 millionU.S. homes.We generate$189 million, $77 million of which was recognized during the year ended December 31, 2022. The remaining expense will be recognized over the remaining requisite service period, which is largely over the next two years. For additional information regarding the August 2022 Equity Award, see Note 16 in our Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Reportable Segments and Revenue Overview
Zillow Group has three reportable segments: the Internet, Media & Technology (“IMT”) segment, the Mortgages segment and the Homes segment.
The IMT segment includes the financial results for the Premier Agent and rentals marketplaces (including StreetEasy rentals product offerings) as well as Other IMT, which includes our new construction marketplace and revenue from the sale of
other advertising
services and
our suite of marketing software andbusiness technology solutions
to businesses and professionals primarily associated with the residentialfor real estate
rentalprofessionals, including display, StreetEasy for-sale product offerings and
ShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and interactive floor plans. In the fourth quarter of 2021, we began to include the financial results of ShowingTime in the IMT segment. For additional information regarding the September 2021 acquisition of ShowingTime, see Note 9 in our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. The Mortgages segment primarily includes financial results for mortgage
industries. These professionals include real estate, rentaloriginations through Zillow Home Loans and
advertising sold to mortgage
professionalslenders and
brand advertisers. Our two primary revenue categories are marketplace revenueother mortgage professionals. The Homes segment includes the financial results from title and
display revenue.Marketplace revenue consists primarilyescrow services performed by Zillow Closing Services and certain indirect costs of Premier Agent revenue, other real estate revenue and mortgages revenue. the Homes segment which do not qualify as discontinued operations.
Premier Agent revenue is generated by the sale of advertising under our Premier Agent and Premier Broker programs, which offer a suite ofservices, as well as marketing and business technology products and services, to help real estate agents and brokers grow and manage their businesses and brands.businesses. We offer these products and services through our flagship Premier Agent program. Premier Agent products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Connections are distributed to Premier Agent partners in proportion to their share of voice, or an agent advertiser’s share of total advertising productpurchased in a particular zip code. Connections are delivered when customer contact information is provided to Premier Agent partners. Connections are provided as part of our suite of advertising services for Premier Agent partners; we do not charge a separate fee for these customer leads.
We also offer a pay for performance pricing model called “Flex” for Premier Agent services in certain markets to select partners. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and our Premier Brokerpay a performance fee only when a real estate transaction is closed with one of the leads within two years.
Rentals revenue includes advertising productsold to property managers, landlords and other rental professionals on a cost per lead, click, lease, listing or impression basis. Impressions are delivered whenbasis or for a sold advertisement appears on pages viewed by users offixed fee for certain advertising packages through both Zillow and StreetEasy. Rentals revenue also includes revenue generated from our mobilerental applications and websites. product, through which potential renters can submit applications to multiple properties for a flat service fee.
Other
real estateIMT revenue primarily includes revenue generated by
Zillow Group Rentals, through which we offer advertising products in our
rentalsnew construction marketplace and
a suite of tools for rental professionals, New Construction, which includes advertising services for home builders, as well as revenue from the sale of
various other advertising and business
software solutions and services and technology solutions for real estate
professionals. Mortgagesprofessionals, including display, StreetEasy for-sale product offerings and ShowingTime+. New construction revenue primarily includes advertising
services sold to
mortgage lenders and other mortgage professionals, as well as revenue generated by Mortech, which provides subscription-based mortgage software solutions, includinghome builders on a
product and pricing engine and leadcost per residential community or cost per impression basis. Our dotloop real estate transaction management
platform.software-as-a-service solution is a monthly subscription service allowing real estate partners to efficiently manage their transactions. Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressionsimpression or cost per click basis to advertisers promoting their brands on our mobile applications and websiteswebsites. StreetEasy revenue includes advertising services sold to real estate professionals serving the New York City for-sale market primarily on a cost per listing or performance fee basis. ShowingTime revenue is primarily generated by Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center services also include call center specialists who provide scheduling support to customers. Appointment Center revenue is primarily billed in advance on a monthly basis.
In our partner websites. Impressions are delivered whenMortgages segment, we primarily generate revenue through mortgage originations and the related sale of mortgages on the secondary market through Zillow Home Loans and from advertising sold to mortgage lenders and other mortgage professionals on a sold advertisement appears on pages viewed by userscost per lead basis, including our Custom Quote and Connect services.
Homes segment revenue relates to revenue associated with title and escrow services provided through Zillow Closing Services and was not material for the periods presented.
For additional information regarding our revenue recognition policies, see Note 2 of our
mobile applications and websites.Effective February 17, 2015, Zillow Group acquired Trulia, Inc. (“Trulia”), and eachNotes to Consolidated Financial Statements in Part II, Item 8 of Zillow and Trulia became wholly owned subsidiaries of Zillow Group. The total purchase price of Trulia was approximately $2.0 billion. We have included Trulia in Zillow Group’s results of operations prospectively after February 17, 2015, the date of acquisition. Because the Trulia acquisition occurred during the year ended December 31, 2015, the information presented in this report with respect to the year ended December 31, 2015 relates to ZillowAnnual Report on a standalone basis prior to February 17, 2015 and to Zillow Group after February 17, 2015, whereas the information presented in this section with respect toForm 10-K.
Financial Overview
For the years ended December 31, 20172022 and 2016 relates2021, we generated revenue of $2.0 billion and $2.1 billion, respectively, representing a year-over-year decrease of 8%. The decrease in total revenue was primarily attributable to Zillow Group. Results of operations, including marketplacethe following:
•Mortgages segment revenue decreased by $127 million to $119 million for the year ended December 31, 2015 include Market Leader revenue from February 17, 2015 through September 30, 2015, the date we divested the Market Leader business, whereas the information presented in this report with respect2022 compared to the years ended December 31, 2017 and 2016 does not include Market Leader revenue. For additional information regarding the transaction with Trulia, see Note 7 to our consolidated financial statements.Overview of Significant Milestones and Results
The following is a summary of certain of our significant milestones$246 million for the year ended December 31, 2017:
In January, we completed the acquisition of Hamptons Real Estate Online (“HREO”),2021, driven primarily by a Hamptons-focused real estate portal that provides buyers and renters withdecrease in revenue generated by Zillow Home Loans, as total loan origination volumes decreased 62% primarily resulting from a specialized search experience and accessdecrease in demand for refinance mortgages attributable to the area’s most comprehensivefor-sale,for-rentrising and vacant land listings. For additional information about the acquisition of HREO, see Note 7 to our consolidated financial statements.volatile interest rate environment. The decrease in Mortgages segment revenue was also impacted by a decrease in revenue from Custom Quote and Connect advertising services.
•Premier Agent on StreetEasy, New York City’s leading real estate marketplace. By integrating StreetEasy with Zillow and Trulia, real estate professionals can now reach the largest audience of New York City home shoppers through one platform. In June, we implemented paid inclusion advertising for rental listings featured on StreetEasy, which significantly improved the quality of rental listings.
In March, we launched a new Dotloop application program interface platform for developers. The update makes it easier for developers to more seamlessly create new integrations for external real estate technology and transaction services with Dotloop’s platform.
In April, we launched a new national advertising campaign, “Finding Home”, with several national TV spots featuring different stories that illustrate the diversity of home buyers today and their unique and varied challenges.
In May, we launched RealEstate.com, a new consumer real estate brand tailored to first-time home buyers. On RealEstate.com, buyers can search for homes in a completely new way—revenue decreased by the monthly payment and down payment they can afford.
In May, we announced our testing of the Zillow Instant Offers marketplace, a way for homeowners to sell their homes quickly by providing them with offers from investors and a comparative market analysis from a local real estate agent, as an estimate for what the home might fetch on the open market. In addition to investors being required to use an agent, should a homeowner select an investor’s offer, Zillow will also offer to connect them with a local agent to represent them throughout the transaction.
In May, we launched Zillow Prize, a machine learning competition to improve Zestimate accuracy, with a grand prize of up to $1$105 million to the person or team who submits the most improved Zestimate algorithm model.
In June, we launched Builder Inform, a cloud-based data dashboard that provides robust anonymized consumer insight data from Zillow Group to residential builders to help them make decisions about future projects. Builder Inform allows builders to view and compare currently listed homes by type and location to help them understand what they should build based on consumer demand in a given zip code.
In June, we purchased an equity interest in a privately held corporation$1.3 billion for approximately $10.0 million. For additional information regarding the equity interest, see Note 7 to our consolidated financial statements.
In September, we completed the acquisition of New Home Feed, a streamlined listing management technology that allows builders to input, manage and syndicate their listings across the web. For additional information about the acquisition of New Home Feed, see Note 7 to our consolidated financial statements.
In October, we announced new products to help Premier Agents deepen their connections with clients and build their own personal brands through new technologies in the Premier Agent App, including My Agent. Zillow Group’s evolving tech features will streamline agent-client communication and allow agents to appear as a client’s only buyer’s agent for listings they view on Zillow or Trulia.
In October, we announced the beta launch of Rental Inform, a cloud-based data dashboard of Zillow Group’s exclusive real-time, robust rental market and aggregated, anonymized consumer insight data, which helps property management companies make more informed decisions about operations, marketing and investments.
| • | | In October, we announced plans to bring 3D Homes imaging technology tofor-sale andfor-rent listings. With the launch of the Zillow Group Home Capture App, homeowners and real estate professionals can capture 3D tours of their homes from their iPhones® and post to listings on Zillow and Trulia at no cost, providing home searchers with a new and more immersive way to envision themselves in a home. We plan to roll the feature out nationwide in the latter half of 2018. |
The year ended December 31, 2017 represents2022 compared to $1.4 billion for the first full year ended December 31, 2021. The decrease in which we implemented our new auction-based pricing method for our Premier Agent productrevenue was primarily due to macro housing market factors including interest rate and home price increases and volatility, as well as tight housing inventory levels. These factors resulted in a 10% decrease in Premier Agent revenue per visit.
•The decreases noted above were partially offset by which we determinea $48 million increase in Other IMT revenue to $274 million for the cost per impression delivered in each zip code based uponyear ended December 31, 2022 compared to $226 million for the total amount spent by Premier Agentsyear ended December 31, 2021, primarily due to purchase impressionsthe addition of ShowingTime revenue beginning in the zip code during the month.
We have experienced significant revenue growth over the past three years. In 2015, 2016 and 2017, we focused on growing our marketplace revenue, which accounted for the majorityfourth quarter of our revenue growth over that period. The increase in marketplace revenue resulted primarily from growth in our Premier Agent program. Our Premier Agent program represents the primary source of our revenue, and we believe it is more predictable than our other revenue sources.
2021.
For the years ended December 31, 2017, 2016,2022 and 2015,2021, we generated revenuetotal gross profit of $1,076.8 million, $846.6 million$1.6 billion and $644.7 million,$1.8 billion, respectively, representing a year-over-year growthdecrease of 27%12%, 31%due to the combined factors discussed below.
Health of Housing Market
Our financial performance is impacted by changes in the health of the housing market, which is impacted, in turn, by general economic conditions. Current market factors, including low housing inventory, fewer new for-sale listings, increases and 98%, respectively. We believe achieving these levels of revenue growth was primarily the result of significant growthvolatility in traffic to our ownedmortgage interest rates as well as home price fluctuations, inflationary conditions and operated mobile applications and websites—indicated by the average number of monthly unique users for the three months ended December 31, 2017, 2016 and 2015 of 151.6 million, 140.1 million and 123.7 million, respectively, representing year-over-year growth of 8%, 13% and 61%, respectively. This increase in unique users increaseschanging rental occupancy rates may have a negative impact on the number of impressionstransactions that consumers complete using our products and clicks we can monetize in our marketplaceservices and display revenue categories. In addition, we experienced a significant increase in our marketplace revenue, due primarily to growth in our Premier Agent program, which was positively impacted by an increase in visits. Visits for the years ended December 31, 2017, 2016 and 2015 were 6,314.4 million, 5,323.2 million and 3,991.5 million, respectively, representing year-over-year growth of 19%, 33% and 61%, respectively. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit for the years ended December 31, 2017, 2016 and 2015 was $0.121, $0.114 and $0.112, respectively, representing year-over-year growth of 6%, 1% and 24%, respectively. We believe Premier Agent revenue was also positively impacted by the full implementation of the new pricing method for our Premier Agent product, which we believe increased theon demand for our advertising platformservices. The extent to which these factors impact our results and financial position will depend on future developments, which are uncertain and difficult to predict.
COVID-19 Impact
The effect and extent of the impact of the COVID-19 pandemic on our business continues to be uncertain and difficult to predict. While we have seen recovery in our business and the businesses of our customers and real estate partners from
both existingthe initial economic effects of the pandemic, the duration and
new advertisers. Duringimpact of the
year ended December 31, 2016, we began meaningful testingCOVID-19 pandemic (including variants) may continue to affect our financial results. The extent to which COVID-19 (including any variants) continues to impact our results and
implementation of a new auction-based pricing method for our Premier Agent product, our flagship advertisingproduct, byfinancial position will depend on future developments, which we determine the cost per impression delivered in each zip code in a dynamic way based on demand for impressions in that zip code. In the fourth quarter of 2016, we implemented this method broadly for all existingare uncertain and new agent advertisers, including brokerages and other teams. We believe the increase in Premier Agent revenue was also due in partdifficult to increased advertising sales to current Premier Agents, including brokerages and other teams.
As of December 31, 2017, we had 3,181 full-time employees compared to 2,776 full-time employees as of December 31, 2016.
predict.
Management has identified
visits, unique users and
visitsthe volume of loans originated through Zillow Home Loans as relevant to investors’ and others’ assessment of our financial condition and results of operations.
We no longer consider the number of homes sold as a key metric given the wind down of Zillow Offers operations.
Visits
The number of visits is an important metric because it is an indicator of consumers’ level of engagement with our mobile applications, websites and other services. We believe highly engaged consumers are more likely to use our products and services, including Zillow Homes Loans, or be transaction-ready real estate market participants and therefore are more sought-after by our Premier Agent partners.
We define a visit as a group of interactions by users with the Zillow, Trulia and StreetEasy mobile applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months.
Zillow and StreetEasy measure visits with Google Analytics, and Trulia measures visits with Adobe Analytics. Visits to Trulia end after thirty minutes of user inactivity. Visits to Zillow and StreetEasy end either: (i) after thirty minutes of user inactivity or at midnight; or (ii) through a campaign change. A visit ends through a campaign change if a visitor arrives via one campaign or source (for example, via a search engine or referring link on a third-party website), leaves the mobile application or website, and then returns via another campaign or source.
The following table presents the number of visits to our mobile applications and websites for the periods presented (in millions, except percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 to 2022
% Change | | 2020 to 2021 % Change |
| 2022 | | 2021 | | 2020 | | |
| Visits | 10,470 | | | 10,207 | | | 9,627 | | | 3 | % | | 6 | % |
Measuring unique users is important to us because
much of our
marketplace revenue depends in part on our ability to
enableconnect home buyers and sellers, renters and individuals with or looking for a mortgage to real estate, rental and mortgage professionals,
to connect with our users,products and
our display revenue depends in part on the number of impressions delivered to our users.services. Growth in consumer traffic to our mobile applications and websites increases the number of impressions,
clicks, connections, leads and
clicksother events we can monetize
to generate revenue. For example, our revenue depends in
part, on users accessing our
marketplacemobile applications and websites to engage in the sale, purchase and financing of homes, including with Zillow Home Loans, and our Premier Agent revenue, rentals revenue and display revenue
categories. In addition, our community ofdepend on advertisements being served to users
improves the quality of our
living database of homes with their contributions, which in turn attracts more users.mobile applications and websites.
We count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses more than one of our mobile applications within a given month, the first access to each mobile application is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Zillow, StreetEasy HotPads, Naked Apartments (as of March 2016) and RealEstate.com (as of June 2017)HotPads measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.
Due to third-party technological limitations, user software settings, or user behavior, Google Analytics
(formerly called Omniture analytical tools). | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31, | | | 2016 to 2017
% Change | | | 2015 to 2016
% Change | |
| | | 2017 | | | 2016 | �� | | 2015 | | | |
| | | (in millions) | | | | | | | |
Average Monthly Unique Users | | | 151.6 | | | | 140.1 | | | | 123.7 | | | | 8 | % | | | 13 | % |
Visits
The numbermay assign a unique cookie to different instances of visits is an important metric because it is an indicator of consumers’ level of engagement withaccess by the same individual to our mobile applications and websites. We believe highly engaged consumers are more likely to be transaction-ready real estate market participants and therefore more sought-afterIn such instances, Google Analytics would count different instances of access by our agent and other real estate professional advertisers.
We define a visitthe same individual as a groupseparate unique users. Accordingly, reliance on the number of interactionsunique users counted by Google Analytics may overstate the actual number of unique users with the Zillow, Trulia (as of February 17, 2015), StreetEasy (as of March 2017) and RealEstate.com (as of June 2017)who access our mobile applications and websites during the period.
The following table presents our average monthly unique users for the periods presented (in millions, except percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 to 2022
% Change | | 2020 to 2021 % Change |
| 2022 | | 2021 | | 2020 | | |
| Average monthly unique users | 220 | | | 218 | | | 212 | | | 1 | % | | 3 | % |
Loan Origination Volume
Loan origination volume is an important metric as it is a measure of how successful we monetizeare at the origination and subsequent sale of mortgage loan products through our mortgage origination business, Zillow Home Loans, which directly impacts our Mortgages segment revenue. Loan origination volume represents the total value of mortgage loan originations closed through Zillow Home Loans during the period.
The following table presents loan origination volume by purpose and in total for Zillow Home Loans for the periods presented (in millions, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 to 2022
% Change | | 2020 to 2021 % Change |
| 2022 | | 2021 | | 2020 | | |
| Purchase loan origination volume | $ | 794 | | | $ | 1,035 | | | $ | 540 | | | (23) | % | | 92 | % |
| Refinance loan origination volume | 750 | | | 3,023 | | | 1,213 | | | (75) | % | | 149 | % |
| Total loan origination volume | $ | 1,544 | | | $ | 4,058 | | | $ | 1,753 | | | (62) | % | | 131 | % |
During the year ended December 31, 2022, total loan origination volume decreased 62% compared to the year ended December 31, 2021, driven primarily by higher interest rates which decreased demand for refinance mortgages. During the year ended December 31, 2021, total loan origination volume increased 131% compared to the year ended December 31, 2020, driven primarily by low interest rates coupled with growth of our mortgage originations business.
Results of Operations
Given continued uncertainty surrounding the health of the housing market, interest rate environment, inflationary conditions and the COVID-19 pandemic, financial performance for current and prior periods may not be indicative of future performance.
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Total Revenue |
| | Year Ended December 31, | | 2021 to 2022 | | 2020 to 2021 | | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 | | $ Change | | % Change | | $ Change | | % Change | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | | | | | | | | |
| (in millions, except percentages) |
| Revenue: | | | | | | | | | | | | | | | | | | | |
| IMT segment: | | | | | | | | | | | | | | | | | | | |
| Premier Agent | $ | 1,291 | | | $ | 1,396 | | | $ | 1,047 | | | $ | (105) | | | (8) | % | | $ | 349 | | | 33 | % | | 66 | % | | 65 | % | | 64 | % |
| Rentals | 274 | | | 264 | | | 222 | | | 10 | | | 4 | | | 42 | | | 19 | | | 14 | | | 12 | | | 14 | |
| Other | 274 | | | 226 | | | 181 | | | 48 | | | 21 | | | 45 | | | 25 | | | 14 | | | 11 | | | 11 | |
| Total IMT segment revenue | 1,839 | | | 1,886 | | | 1,450 | | | (47) | | | (2) | | | 436 | | | 30 | | | 94 | | | 88 | | | 89 | |
| Mortgages segment | 119 | | | 246 | | | 174 | | | (127) | | | (52) | | | 72 | | | 41 | | | 6 | | | 12 | | | 11 | |
| Total revenue | $ | 1,958 | | | $ | 2,132 | | | $ | 1,624 | | | $ | (174) | | | (8) | % | | $ | 508 | | | 31 | % | | 100 | % | | 100 | % | | 100 | % |
Year Ended December 31, 2022 compared to year ended December 31, 2021
Total revenue decreased $174 million, or 8%, to $2.0 billion:
•Mortgages segment revenue decreased 52% to $119 million primarily due to a decline in mortgage originations revenue which drove 72% of the decrease in Mortgages segment revenue, and a decline in our Custom Quote and Connect advertising services revenue which drove 28% of the decrease in Mortgages segment revenue. The decrease in mortgage originations revenue was primarily due to a 62% decrease in loan origination volume from $4.1 billion to $1.5 billion, primarily resulting from a decrease in demand for refinance mortgages attributable to the rising and volatile interest rate environment. The decrease in mortgage originations revenue was also attributable to a 25% decrease in gain on sale margin driven by industry margin compression. Gain on sale margin represents the net gain on sale of mortgage loans divided by total loan origination volume for the period. Net gain on sale of mortgage loans includes all components related to the origination and sale of mortgage loans, including the net gain on sale of loans into the secondary market, loan origination fees, unrealized gains and losses associated with changes in fair value of interest rate lock commitments and mortgage loans held for sale, realized and unrealized gains or losses from derivative financial instruments and the provision for losses relating to representations and warranties. The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 37% decrease in leads generated from marketing products sold to mortgage professionals. This decrease was driven by a decrease in demand for mortgages attributable to the rising and volatile interest rate environment, as well as an increase in leads consumed by Zillow Home Loans.
•IMT segment revenue decreased 2% to $1.8 billion, primarily due to a decrease of $105 million, or 8%, in Premier Agent revenue, partially offset by a $48 million, or 21%, increase in Other IMT revenue. The decrease in Premier Agent revenue was driven by macro housing market factors including interest rate and home price increases and volatility, as well as tight housing inventory levels. These factors resulted in a decrease in Premier Agent revenue per visit, which decreased by 10% to $0.123 for the year ended December 31, 2022 from $0.137 for the year ended December 31, 2021. We calculate Premier Agent revenue per visit by dividing the revenue generated by our Premier Agent programs by the number of visits in the period. Other IMT revenue increased primarily as a result of the addition of ShowingTime revenue beginning in the fourth quarter of 2021.
Beginning in the first quarter of 2023, we plan to report our financial results as a single reportable segment and plan to report revenue categories of Residential, Rentals, Mortgages and Other. The Residential revenue category will primarily include revenue for our Premier Agent and
Premier Broker products on these mobile applicationsnew construction marketplaces, as well as StreetEasy for-sale product offerings, Zillow Closing Services and
websites. A single visit can contain multiple page viewsShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and
actions,interactive floor plans. Our Rentals and
a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months.Zillow, StreetEasy and RealEstate.com measure visitsMortgages revenue categories will remain consistent with Google Analytics, and Trulia measures visits with Adobe Analytics. Visits to Trulia end after thirty minutes of user inactivity. Visits to Zillow, StreetEasy and RealEstate.com end either: (i) after thirty minutes of user inactivity or at midnight; or (ii) through a campaign change. A visit ends through a campaign change if a visitor arrives via one campaign or source (for example, via a search engine or referring link on a third-party website), leaves the mobile application or website, and then returns via another campaign or source.
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | 2016 to 2017
% Change | | | 2015 to 2016
% Change | |
| | | 2017 | | | 2016 | | | 2015 | | | |
| | | (in millions) | | | | | | | |
Visits | | | 6,314.4 | | | | 5,323.2 | | | | 3,991.5 | | | | 19 | % | | | 33 | % |
Basis of Presentation
Revenue
We generate revenue from the sale of advertising servicesour historical presentation, and our suiteOther revenue category will primarily include revenue generated from display advertising.
Year Ended December 31, 2021 compared to year ended December 31, 2020
Total revenue increased $508 million, or 31%, to $2.1 billion:
•IMT segment revenue increased 30% to $1.9 billion, due to increases of marketing software$349 million, or 33%, in Premier Agent revenue, $45 million, or 25%, in Other IMT revenue, and technology solutions$42 million, or 19%, in rentals revenue.
◦Premier Agent revenue increased 33% to businesses and professionals$1.4 billion, primarily associated withdriven by an increase in Premier Agent revenue per visit, which increased by 26% to $0.137 for the year ended December 31, 2021 from $0.109 for the year ended December 31, 2020, driven primarily by continued strong demand across the residential real estate mortgageindustry and rental industries. These professionals include real estate, mortgagegrowth in monetization of customer connections. The increase in visits increased the number of impressions and rental professionals and brand advertisers. Our two primary revenue categories are marketplace revenue and display revenue.Marketplace Revenue.Marketplace revenue consists primarily ofleads we could monetize in our Premier Agent revenue, other real estate revenue and mortgages revenue. Marketplacemarketplace. Additionally, Premier Agent revenue for the year ended December 31, 2015 also includes Market Leader revenue from February 17, 2015 through the date of divestiture of September 30, 2015.
Premier Agent revenue is derived from2020 was negatively impacted by temporary discounts offered to our Premier Agent and Premier Broker programs. Our Premier Agent and Premier Broker programs offer a suite of marketing and business technology products and servicespartners in response to help real estate agents and brokers achieve their advertising needs, while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive accessthe COVID-19 pandemic.
◦Other IMT increased 25% to $226 million, primarily due to a dashboard portal on our mobile application or website that provides individualized program performance analytics, self-service ad buying tools126% increase in StreetEasy for-sale revenue due to growth in StreetEasy Experts, a 58% increase in display revenue due to increased discretionary marketing spend after lower spend in 2020 as a result of the COVID-19 pandemic, and our free customer relationship management, or CRM, tool that captures detailed information about each contact made withas a Premier Agent or Premier Broker through our mobile and web platforms.We offer our flagship Premier Agent advertising product and our Premier Broker advertising product on a cost per impression basis. Impressions are delivered when a sold advertisement appears on pages viewed by usersresult of our mobile applications and websites. In 2016, we began testing and implementationthe addition of a new auction-based pricing method for our Premier Agent product by which we determine the cost per impression deliveredShowingTime revenue beginning in each zip code based upon the total amount spent by Premier Agents to purchase impressions in the zip code during the month. The cost per impression that we charge is dynamic – as demand for impressions in a zip code increases or decreases, the cost per impression in that zip code may be increased or decreased. This new auction-based pricing method complements our self-serve account interface, which we introduced to Premier Agents over the course of 2016. The interface includes account management tools that allow agent advertisers to independently control their budgets, impression buys, and the duration of their advertising commitment. We began testing this auction-based pricing method for our Premier Agent product to better align our revenue opportunities with increasing traffic levels to our mobile and web platforms and leveraging increasing demand by real estate agents for access to home shoppers who use our mobile applications and websites. In the fourth quarter of 2016, we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. With this auction-based pricing method, we recognize2021.
◦Rentals revenue relatedincreased 19% to our dynamic impression-based Premier Agent and Premier Broker products based on the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered. Our Premier Agent and Premier Broker products include multiple deliverables which are accounted for as a single unit of accounting, as the delivery or performance of the undelivered elements is based on traffic$264 million, primarily due to our mobile applications and websites. In our history of building our real estate and other information marketplaces and product offerings, we have continually evaluated and utilized various pricing and value delivery strategiesan increase in order to better align our revenue opportunities with the growth in usage of our mobile and web platforms.From 2012 through the end of the third quarter of 2016, we had primarily charged customers for our Premier Agent product based on the number of impressions delivered on our buyer’s agent list in zip codes purchased and a contracted maximum cost per impression. With this pricing method, we recognized revenue related to our impression-based Premier Agent product based on the lesser of (i) the actual number of impressions delivered on our buyer’s agent list during the period multiplied by the contracted maximum cost per impression, or (ii) the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered, typically over a period of six months or twelve months and thenmonth-to-month thereafter.
We continue to support some legacy Trulia Premier Agent products, which are primarily sold on a fixed fee subscription basis for periods that generally range from six months to 12 months. Subscription advertising revenue for Trulia’s products included in Premier Agent revenue is recognized on a straight-line basis during the contractual period over which the services are delivered.
Other real estate revenue primarily includes revenue generated by Zillow Group Rentals, as well as revenue from the sale of various other marketing and business products and services to real estate professionals, including our new construction marketing solutions. Zillow Group Rentals includes our rentals marketplaceflat fee, pay per listing and suite of tools for rental professionals. Rentalsapplications products. The increase in rentals revenue primarily includes revenue generatedwas also impacted by advertising sold to property managers and other rental professionals on a cost per lead, cost per lease and cost per click generated basis whereby we recognize revenue as leads are delivered to rental professionals or as qualified leases are confirmed. Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby revenue is recognized based on the contractual spend on a straight-line basisCOVID-19 related discounts offered during the contractual period overfirst half of 2020.
•Mortgages segment revenue increased 41% to $246 million, primarily due to growth in mortgage originations revenue, which drove 57% of the services are delivered. increase in Mortgages segment revenue, primarily includes marketing products sold to mortgage professionals on a cost per lead basis, includingand growth in our Long Form and Custom Quote services.and Connect advertising services revenue, which accounted for 41% of the increase in Mortgages segment revenue. The increase in mortgage originations revenue also includes revenue generatedwas primarily driven by Mortech, which provides subscription-basedan increase in loan origination volume from $1.8 billion to $4.1 billion, or 131%, as we continued to grow our mortgage software solutions, including a product and pricing engine and lead management platform, for which we recognize revenue on a straight-line basis during the contractual period over which the services are delivered. Fororiginations business. We believe low interest rates coupled with growth of our Long Form and Custom Quote cost per lead mortgage marketing products, generally, participating qualified mortgage professionals make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Inoriginations business, driven by purchase origination growth from Zillow Group’s Long Form platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. We only charge mortgage professionals a fee when users contact mortgage professionals through Long Form or Custom Quotes. Mortgage professionals who exhaust their initial prepayment can then prepay additional funds to continue to participate in the marketplace. We recognize revenue when a user contacts a mortgage professional through Zillow Group’s mortgages platform.
Market Leader revenue primarily includes revenue from the sale of a comprehensive premiumsoftware-as-a-service based marketing product typically sold to real estate professionals as a bundle of products under a fixed fee subscription. Market Leader became part of Zillow Group through Zillow Group’s February 2015 acquisition of Trulia and was divested as of September 30, 2015.
Display Revenue. Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites and our partner websites and mobile applications, primarily in the real estate industry, including real estate brokerages, multi-family rental professionals, mortgage professionalsOffers, supported strong refinance and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. Impressions are the number of times an advertisement is loaded on a web page and clicks are the number of times users click on an advertisement. Pricing is primarily based on advertisement size and position on our mobile applications and websites or on our partner websites and mobile applications, and fees are generally billed monthly. We recognize display revenue as clicks occur or as impressions are delivered to users interacting
with our mobile applications or websites. Growth in display revenue depends on continuing growth in traffic to our mobile applications and websites, continuing growth in traffic to our partner websites and mobile applications, migration of advertising spend online from traditional broadcast and print media, and effectiveness of display advertising versus other methods of online advertising.
We will begin reporting rentals revenue as a separate revenue category beginning with quarterly reporting for the three months ending March 31, 2018. In addition, display revenue will be included in our other revenue category and not reported separately. Going forward, other real estate revenue will be redefined as other revenue and will include revenue from new construction, dotloop, display, as well as from the sale of various other advertising and business software solutions.
Costs and Expenses
Cost of Revenue. Our cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount expenses, such as salaries, benefits, share-based compensation expense and bonuses, as well as credit card fees, ad serving costs paid to third parties, revenue-sharing costs related to our commercial business relationships, depreciation expense and costs associated with the operation of our data center and mobile applications and websites.
Sales and Marketing.Sales and marketing expenses consist of advertising costs and other sales expenses related to promotional and marketing activities, as well as headcount expenses, including salaries, commissions, benefits, share-based compensation expense and bonuses for sales, sales support, customer support, marketing and public relations employees, and depreciation expense.
Technology and Development.Technology and development expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development and testing of our mobile applications and websites, and equipment and maintenance costs. Technology and development expenses also include amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangibles and other data agreement costs related to the purchase of data used to populate our mobile applications and websites, and amortization of intangible assets recorded in connection with acquisitions, including developed technology and customer relationships, amongst others. Technology and development expenses also include depreciation expense.
General and Administrative.General and administrative expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for executive, finance, accounting, legal, human resources, recruiting, corporate information technology costs and other administrative support. General and administrative expenses also include legal settlement costs, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.
Impairment and Restructuring Costs.Impairment costs for the year ended December 31, 2017 consists of the $174.0 millionnon-cash impairment related to the $351.0 million indefinite-lived intangible asset that we recorded in connection with our February 2015 acquisition of Trulia for Trulia’s trade names and trademarks. For additional information about the impairment, see Note 9 to our consolidated financial statements. Restructuring costs for the year ended December 31, 2015 consist of workforce reduction expenses in connection with a restructuring plan and related contract termination costs related to operating leases as a result of our February 2015 acquisition of Trulia.
Acquisition-related Costs.Acquisition-related costs consist of investment banking, legal, accounting, tax, and regulatory filing fees associated with acquisitions.
Loss (Gain) on Divestiture of Businesses. The gain on divestiture of business recorded for the year ended December 31, 2016 consists of the gain recognized in connection with our August 2016 sale of our Diverse
Solutions business. The loss on divestiture of business recorded for the year ended December 31, 2015 consists of the loss recognized in connection with our September 2015 sale of the Market Leader business.
Loss on Debt Extinguishment
The loss on debt extinguishment recorded for the year ended December 31, 2016 relates to the partial repurchase of Trulia’s Convertible Senior Notes due in 2020 (the “2020 Notes”) in December 2016.
Other Income
Other income consists primarily of interest income earned on our cash, cash equivalents and short-term investments.
Interest Expense
Interest expense consists of interest on the 2020 Notes we guaranteed in connection with our February 2015 acquisition of Trulia and interest on the Convertible Senior Notes due in 2021 (the “2021 Notes”) we issued in December 2016. Interest is payable on the 2020 Notes at the rate of 2.75%semi-annually on June 15 and December 15 of each year. Interest is payable on the 2021 Notes at the rate of 2.00% semi-annually on June 1 and December 1 of each year.
Income Taxes
We are subject to federal and state income taxes in the United States and in Canada. During the years ended December 31, 2017, 2016 and 2015, we did not have a material amount of current taxable income. We have provided a full valuation allowance against our deferred tax assets as of December 31, 2017 and 2016 because, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized. We have accumulated federal tax losses of approximately $1,014.0 million as of December 31, 2017, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $21.4 million (tax effected) as of December 31, 2017.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay aone-time transition tax on certain untaxed earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and how AMT credits are utilized; and (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Shortly after enactment, implementation guidance was released by the Securities and Exchange Commission that requires a company to reflect the income tax effects of those aspects of the Tax Act for which the accounting under the accounting rules is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but the company is able to determine a reasonable estimate, it should record a provisional estimate in the financial statements. Further, the implementation guidance also provides for a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete their accounting pursuant to the accounting rules.
We recorded an income tax benefit of $89.6 million for the year ended December 31, 2017. Approximately $66.0 million of the income tax benefit relates to a $174.0 millionnon-cash impairment we recordedactivity during the year ended December 31, 2017 related2021. This was partially offset by a 36% decrease in gain on sale margin driven by industry margin compression. The increase in our Custom Quote and Connect advertising revenue was primarily due to a 20% increase in leads generated from marketing products sold to mortgage professionals.
Income (Loss) from Continuing Operations Before Income Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Revenue |
| | Year Ended December 31, | | 2021 to 2022 | | 2020 to 2021 | | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 | | $ Change | | % Change | | $ Change | | % Change | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | | | | | | | | |
| (in millions, except percentages) |
| Income (loss) from continuing operations before income taxes: | | | | | | | | | | | | | | | | | | | |
| IMT segment | $ | 160 | | | $ | 545 | | | $ | 262 | | | $ | (385) | | | (71) | % | | $ | 283 | | | 108 | % | | 9 | % | | 29 | % | | 18 | % |
| Mortgages segment | (167) | | | (52) | | | 5 | | | (115) | | | (221) | | | (57) | | | (1140) | | | (140) | | | (21) | | | 3 | % |
| Homes segment | (93) | | | (254) | | | (153) | | | 161 | | | 63 | | | (101) | | | (66) | | | N/A | | N/A | | N/A |
| Corporate items (1) | 15 | | | (138) | | | (117) | | | 153 | | | 111 | | | (21) | | | (18) | | | N/A | | N/A | | N/A |
| Total income (loss) from continuing operations before income taxes | $ | (85) | | | $ | 101 | | | $ | (3) | | | $ | (186) | | | (184) | % | | $ | 104 | | | 3467 | % | | (4) | % | | 5 | % | | — | % |
(1) Certain corporate items are not directly attributable to any of our segments, including the $351.0 million indefinite-lived intangible asset that we recordedgain (loss) on extinguishment of debt, interest income earned on our short-term investments included in connection withother income, net and interest costs on our February 2015 acquisition of Trulia for Trulia’s trade names and trademarks. For additional information about thenon-cash impairment, see Note 9 to our consolidated financial statements. convertible senior notes included in interest expense.
Adjusted EBITDA
The
remaining $23.6 million of the income tax benefit primarily relates to our initial analysis offollowing table summarizes net loss, which includes the impact of
the rate decreaseincludeddiscontinued operations, and Adjusted EBITDA in the Tax Acttotal and for each segment, both of which exclude the impact of the reduction in our net deferred tax liability related to our indefinite-lived intangible asset. As of December 31, 2017, we have not completed our accounting for the income tax effects of certain elements of the Tax Act and we have recorded provisional adjustments where we were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, including as related to the deduction limitations on compensation.
In the absence of the changes in the Tax Act, our tax benefit for the year ended December 31, 2017 would have been approximately $66.0 million. For the year ending December 31, 2018, we expect an overall statutory tax rate (including federal, state and foreign taxes) of approximately 24%, but in the absence of the Tax Act we would have expected an overall tax rate of approximately 38%.
Income tax expense was not material for the year ended December 31, 2016. We recorded an income tax benefit of $4.6 million for the year ended December 31, 2015 due to a deferred tax liability generated in connection with Zillow’s August 20, 2015 acquisition of DotLoop, Inc. that can be used to realize certain deferred tax assets for which we had previously provided a full allowance.
Results of Operations
The following tables present our results ofdiscontinued operations for the periods indicated and as a percentage of total revenue:
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | (in thousands, except per share data) | |
Statements of Operations Data: | | | | | | | | | | | | |
Revenue | | $ | 1,076,794 | | | $ | 846,589 | | | $ | 644,677 | |
Costs and expenses: | | | | | | | | | | | | |
Cost of revenue (exclusive of amortization) (1)(2) | | | 85,203 | | | | 69,262 | | | | 60,127 | |
Sales and marketing (1) | | | 448,201 | | | | 382,419 | | | | 308,125 | |
Technology and development (1) | | | 319,985 | | | | 255,583 | | | | 184,477 | |
General and administrative (1) | | | 210,816 | | | | 332,007 | | | | 184,984 | |
Impairment and restructuring costs (1) | | | 174,000 | | | | — | | | | 35,551 | |
Acquisition-related costs | | | 463 | | | | 1,423 | | | | 16,576 | |
Loss (gain) on divestiture of businesses | | | — | | | | (1,251 | ) | | | 4,368 | |
| | | | | | | | | | | | |
Total costs and expenses | | | 1,238,668 | | | | 1,039,443 | | | | 794,208 | |
| | | | | | | | | | | | |
Loss from operations | | | (161,874 | ) | | | (192,854 | ) | | | (149,531 | ) |
Loss on debt extinguishment | | | — | | | | (22,757 | ) | | | — | |
Other income | | | 5,385 | | | | 2,711 | | | | 1,501 | |
Interest expense | | | (27,517 | ) | | | (7,408 | ) | | | (5,489 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (184,006 | ) | | | (220,308 | ) | | | (153,519 | ) |
Income tax benefit (expense) | | | 89,586 | | | | (130 | ) | | | 4,645 | |
| | | | | | | | | | | | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (148,874 | ) |
| | | | | | | | | | | | |
Net loss per share—basic and diluted | | $ | (0.51 | ) | | $ | (1.22 | ) | | $ | (0.88 | ) |
Weighted-average shares outstanding—basic and diluted | | | 186,453 | | | | 180,149 | | | | 169,767 | |
Other Financial Data: | | | | | | | | | | | | |
Adjusted EBITDA (unaudited) (3) | | $ | 236,315 | | | $ | 14,826 | | | $ | 87,564 | |
| | | | | | | | | | | | |
(1) Includes share-based compensation as follows: | | | | | | | | | | | | |
Cost of revenue | | $ | 3,884 | | | $ | 3,550 | | | $ | 2,384 | |
Sales and marketing | | | 22,735 | | | | 23,320 | | | | 25,391 | |
Technology and development | | | 39,938 | | | | 31,466 | | | | 26,849 | |
General and administrative | | | 47,014 | | | | 48,582 | | | | 50,590 | |
Impairment and restructuring costs | | | — | | | | — | | | | 14,859 | |
| | | | | | | | | | | | |
Total | | $ | 113,571 | | | $ | 106,918 | | | $ | 120,073 | |
| | | | | | | | | | | | |
(2) Amortization of website development costs and intangible assets included in technology and development | | $ | 94,349 | | | $ | 87,060 | | | $ | 63,189 | |
(3) | See “Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP. Adjusted EBITDA for the year ended December 31, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims. |
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Percentage of Revenue: | | | | | | | | | | | | |
Revenue | | | 100 | % | | | 100 | % | | | 100 | % |
Costs and expenses: | | | | | | | | | | | | |
Cost of revenue (exclusive of amortization) | | | 8 | | | | 8 | | | | 9 | |
Sales and marketing | | | 42 | | | | 45 | | | | 48 | |
Technology and development | | | 30 | | | | 30 | | | | 29 | |
General and administrative | | | 20 | | | | 39 | | | | 29 | |
Impairment and restructuring costs | | | 16 | | | | 0 | | | | 6 | |
Acquisition-related costs | | | — | | | | — | | | | 3 | |
Loss (gain) on divestiture of businesses | | | 0 | | | | — | | | | 1 | |
| | | | | | | | | | | | |
Total costs and expenses | | | 115 | | | | 123 | | | | 123 | |
Loss from operations | | | (15 | ) | | | (23 | ) | | | (23 | ) |
Loss on debt extinguishment | | | 0 | | | | (3 | ) | | | 0 | |
Other income | | | 1 | | | | — | | | | — | |
Interest expense | | | (3 | ) | | | (1 | ) | | | (1 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (17 | ) | | | (26 | ) | | | (24 | ) |
Income tax benefit (expense) | | | 8 | | | | — | | | | 1 | |
| | | | | | | | | | | | |
Net loss | | | (9 | )% | | | (26 | )% | | | (23 | )% |
| | | | | | | | | | | | |
Adjusted EBITDA
(in millions, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Revenue |
| | Year Ended December 31, | | 2021 to 2022 | | 2020 to 2021 | | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 | | $ Change | | % Change | | $ Change | | % Change | | 2022 | | 2021 | | 2020 |
| Net loss: | $ | (101) | | | $ | (528) | | | $ | (162) | | | $ | 427 | | | 81 | % | | $ | (366) | | | (226) | % | | (5) | % | | (25) | % | | (10) | % |
| Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | |
| IMT segment | 672 | | | 854 | | | 556 | | | (182) | | | (21) | | | 298 | | | 54 | | | 37 | | | 45 | | | 38 | |
| Mortgages segment | (92) | | | (9) | | | 30 | | | (83) | | | (922) | | | (39) | | | (130) | | | (77) | | | (4) | | | 17 | |
| Homes segment | (66) | | | (191) | | | (125) | | | 125 | | | 65 | | | (66) | | | (53) | | | N/A | | N/A | | N/A |
| Total Adjusted EBITDA | $ | 514 | | | $ | 654 | | | $ | 461 | | | $ | (140) | | | (21) | % | | $ | 193 | | | 42 | % | | 26 | % | | 31 | % | | 28 | % |
To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA
in total and for each segment, each a non-GAAP financial measure, within this Annual Report on Form
10-K, anon-GAAP financial measure. 10-K. We have provided a reconciliation below of Adjusted EBITDA
in total to net loss
and Adjusted EBITDA by segment to income (loss) from continuing operations before income taxes for each segment, the most directly comparable
GAAPU.S. generally accepted accounting principles (“GAAP”) financial
measure.measures.
We have included Adjusted EBITDA in
total and for each segment in this Annual Report on Form
10-K as
it is athey are key
metricmetrics used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a
period-to-period basis.
Our use of Adjusted EBITDA
in total and for each segment has limitations as an analytical tool, and you should not consider
itthese measures in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect the results of discontinued operations;
•Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
•Although depreciation and amortization arenon-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;expenditures or contractual commitments;
•Adjusted EBITDA does not reflect impairment and restructuring costs;
•Adjusted EBITDA does not reflect acquisition-related costs;
•Adjusted EBITDA does not reflect the loss (gain)gain (loss) on divestitureextinguishment of businesses;debt;
•Adjusted EBITDA does not reflect interest expense or other income;income (expense), net;
Adjusted EBITDA does not reflect the loss on debt extinguishment;
•Adjusted EBITDA does not reflect income tax benefit (expense);taxes; and
•Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently thanfrom the way we do, limiting its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA
in total and for each segment alongside other financial performance measures, including various cash flow metrics, net loss,
income (loss) from continuing operations before income taxes for each segment and our other GAAP results.
The following
table presentstables present a reconciliation of Adjusted EBITDA to
the most directly comparable GAAP financial measure, which is net loss
on a consolidated basis and income (loss) from continuing operations before income taxes for each segment, for each of the periods
presented: | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | (in thousands, unaudited) | |
Reconciliation of Adjusted EBITDA to Net Loss: | | | | | | | | | | | | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (148,874 | ) |
Other income | | | (5,385 | ) | | | (2,711 | ) | | | (1,501 | ) |
Depreciation and amortization expense | | | 110,155 | | | | 100,590 | | | | 75,386 | |
Share-based compensation expense | | | 113,571 | | | | 106,918 | | | | 105,214 | |
Impairment and restructuring costs | | | 174,000 | | | | — | | | | 35,551 | |
Acquisition-related costs | | | 463 | | | | 1,423 | | | | 16,576 | |
Loss (gain) on divestiture of businesses | | | — | | | | (1,251 | ) | | | 4,368 | |
Interest expense | | | 27,517 | | | | 7,408 | | | | 5,489 | |
Loss on debt extinguishment | | | — | | | | 22,757 | | | | — | |
Income tax (benefit) expense | | | (89,586 | ) | | | 130 | | | | (4,645 | ) |
| | | | | | | | | | | | |
Adjusted EBITDA (1) | | $ | 236,315 | | | $ | 14,826 | | | $ | 87,564 | |
| | | | | | | | | | | | |
(1) | Adjusted EBITDA for the year ended December 31, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims. |
Year Ended December 31, 2017 Comparedpresented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| IMT | | Mortgages | | Homes | | Corporate Items (2) | | Consolidated |
| Reconciliation of Adjusted EBITDA to Net Loss and Income (Loss) From Continuing Operations Before Income Taxes: | | | | | | | | | |
| Net loss (1) | N/A | | N/A | | N/A | | N/A | | $ | (101) | |
| Loss from discontinued operations, net of income taxes | N/A | | N/A | | N/A | | N/A | | 13 | |
| Income taxes | N/A | | N/A | | N/A | | N/A | | 3 | |
| Income (loss) from continuing operations before income taxes | $ | 160 | | | $ | (167) | | | $ | (93) | | | $ | 15 | | | $ | (85) | |
| Other expense (income), net | 7 | | | (3) | | | — | | | (47) | | | (43) | |
| Depreciation and amortization | 137 | | | 11 | | | 2 | | | — | | | 150 | |
| Share-based compensation | 356 | | | 60 | | | 17 | | | — | | | 433 | |
| Restructuring costs | 12 | | | 4 | | | 8 | | | — | | | 24 | |
| Interest expense | — | | | 3 | | | — | | | 32 | | | 35 | |
| Adjusted EBITDA | $ | 672 | | | $ | (92) | | | $ | (66) | | | $ | — | | | $ | 514 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 |
| IMT | | Mortgages | | Homes | | Corporate Items (2) | | Consolidated |
| Reconciliation of Adjusted EBITDA to Net Loss and Income (Loss) From Continuing Operations Before Income Taxes: | | | | | | | | | |
| Net loss (1) | N/A | | N/A | | N/A | | N/A | | $ | (528) | |
| Loss from discontinued operations, net of income taxes | N/A | | N/A | | N/A | | N/A | | 630 | |
| Income taxes | N/A | | N/A | | N/A | | N/A | | (1) | |
| Income (loss) from continuing operations before income taxes | $ | 545 | | | $ | (52) | | | $ | (254) | | | $ | (138) | | | $ | 101 | |
| Other income, net | — | | | (5) | | | — | | | (2) | | | (7) | |
| Depreciation and amortization | 99 | | | 8 | | | 13 | | | — | | | 120 | |
| Share-based compensation | 201 | | | 34 | | | 41 | | | — | | | 276 | |
| Acquisition-related costs | 9 | | | — | | | — | | | — | | | 9 | |
| Loss on extinguishment of debt | — | | | — | | | — | | | 17 | | | 17 | |
| Restructuring costs | — | | | 1 | | | 9 | | | — | | | 10 | |
| Interest expense | — | | | 5 | | | — | | | 123 | | | 128 | |
| Adjusted EBITDA | $ | 854 | | | $ | (9) | | | $ | (191) | | | $ | — | | | $ | 654 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| IMT | | Mortgages | | Homes | | Corporate Items (2) | | Consolidated |
| Reconciliation of Adjusted EBITDA to Net Loss and Income (Loss) From Continuing Operations Before Income Taxes: | | | | | | | | | |
| Net loss (1) | N/A | | N/A | | N/A | | N/A | | $ | (162) | |
| Loss from discontinued operations, net of income taxes | N/A | | N/A | | N/A | | N/A | | 167 | |
| Income taxes | N/A | | N/A | | N/A | | N/A | | (8) | |
| Income (loss) from continuing operations before income taxes | $ | 262 | | | $ | 5 | | | $ | (153) | | | $ | (117) | | | $ | (3) | |
| Other income, net | (5) | | | (2) | | | — | | | (18) | | | (25) | |
| Depreciation and amortization | 90 | | | 7 | | | 8 | | | — | | | 105 | |
| Share-based compensation | 135 | | | 15 | | | 20 | | | — | | | 170 | |
| Gain (loss) on extinguishment of debt | — | | | — | | | — | | | (1) | | | (1) | |
| Impairment and restructuring costs | 74 | | | 3 | | | — | | | — | | | 77 | |
| Interest expense | — | | | 2 | | | — | | | 136 | | | 138 | |
| Adjusted EBITDA | $ | 556 | | | $ | 30 | | | $ | (125) | | | $ | — | | | $ | 461 | |
(1) We use income (loss) from continuing operations before income taxes as our profitability measure in making operating decisions and assessing the performance of our segments; therefore, net loss and income taxes are calculated and presented only on a consolidated basis within our financial statements.
(2) Certain corporate items are not directly attributable to
Year Ended December 31, 2016any of our segments, including the gain (loss) on extinguishment of debt, interest income earned on our short-term investments included in other income, net and interest costs on our convertible senior notes included in interest expense.
Costs and Expenses, Gross Profit and Other Items | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % of Total Revenue |
| | Year Ended December 31, | | 2021 to 2022 | | 2020 to 2021 | | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 | | $ Change | | % Change | | $ Change | | % Change | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | | | | | | | | |
| (in millions, except percentages) |
| Cost of revenue | $ | 367 | | | $ | 323 | | | $ | 255 | | | $ | 44 | | | 14 | % | | $ | 68 | | | 27 | % | | 19 | % | | 15 | % | | 16 | % |
| Gross profit | 1,591 | | | 1,809 | | | 1,369 | | | (218) | | | (12) | | | 440 | | | 32 | | | 81 | | | 85 | | | 84 | |
| Operating expenses: | | | | | | | | | | | | | | | | | | | |
| Sales and marketing | 664 | | | 715 | | | 535 | | | (51) | | | (7) | | | 180 | | | 34 | | | 34 | | | 34 | | | 33 | |
| Technology and development | 498 | | | 421 | | | 324 | | | 77 | | | 18 | | | 97 | | | 30 | | | 25 | | | 20 | | | 20 | |
| General and administrative | 498 | | | 414 | | | 324 | | | 84 | | | 20 | | | 90 | | | 28 | | | 25 | | | 19 | | | 20 | |
| Restructuring costs | 24 | | | 10 | | | 77 | | | 14 | | | 140 | | | (67) | | | (87) | | | 1 | | | — | | | 5 | |
| Acquisition-related costs | — | | | 9 | | | — | | | (9) | | | N/A | | 9 | | | N/A | | — | | | — | | | — | |
| Integration costs | — | | | 1 | | | — | | | (1) | | | N/A | | 1 | | | N/A | | — | | | — | | | — | |
| Total operating expenses | 1,684 | | | 1,570 | | | 1,260 | | | 114 | | | 7 | | | 310 | | | 25 | | | 86 | | | 74 | | | 78 | |
| Gain (loss) on extinguishment of debt | — | | | (17) | | | 1 | | | 17 | | | 100 | | | (18) | | | (1800) | | | — | | | (1) | | | — | |
| Other income, net | 43 | | | 7 | | | 25 | | | 36 | | | 514 | | | (18) | | | (72) | | | 2 | | | — | | | 2 | |
| Interest expense | (35) | | | (128) | | | (138) | | | 93 | | | 73 | | | 10 | | | (7) | | | (2) | | | (6) | | | (8) | |
| Income tax benefit (expense) | (3) | | | 1 | | | 8 | | | (4) | | | (400) | | | (7) | | | (88) | | | — | | | — | | | — | |
Cost of Revenue
| | | | | | | | | | | | |
| | | Year Ended December 31, | | | 2016 to 2017
% Change | |
| | | 2017 | | | 2016 | | |
| | | (in thousands) | | | | |
Revenue: | | | | | | | | | | | | |
Marketplace revenue: | | | | | | | | | | | | |
Premier Agent | | $ | 761,594 | | | $ | 604,292 | | | | 26 | % |
Other real estate | | | 164,991 | | | | 102,635 | | | | 61 | % |
Mortgages | | | 80,591 | | | | 71,133 | | | | 13 | % |
| | | | | | | | | | | | |
Total Marketplace revenue | | | 1,007,176 | | | | 778,060 | | | | 29 | % |
Display revenue | | | 69,618 | | | | 68,529 | | | | 2 | % |
| | | | | | | | | | | | |
Total revenue | | $ | 1,076,794 | | | $ | 846,589 | | | | 27 | % |
| | | | | | | | | | | | |
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | |
Percentage of Total Revenue: | | | | | | | | |
Marketplace revenue: | | | | | | | | |
Premier Agent | | | 71 | % | | | 71 | % |
Other real estate | | | 15 | | | | 12 | |
Mortgages | | | 7 | | | | 8 | |
| | | | | | | | |
Total Marketplace revenue | | | 94 | | | | 92 | |
Display revenue | | | 6 | | | | 8 | |
| | | | | | | | |
Total revenue | | | 100 | % | | | 100 | % |
| | | | | | | | |
Overall
Cost of revenue increased by $230.2 million, or 27%, for the year ended December 31, 2017 comparedconsists of expenses related to the year ended December 31, 2016. Marketplace revenue increased by 29%, and display revenue increased by 2%. There were approximately 151.6 million average monthly unique users ofoperating our mobile applications and websites, for the three months ended December 31, 2017 compared to 140.1 million average monthly unique users for the three months ended December 31, 2016, representing year-over-year growth of 8%. This increase in unique users increased the number of impressionsincluding associated headcount-related expenses, such as salaries, benefits, bonuses and clicks we monetized in our marketplace and display revenue categories. In connection with the hurricanes that occurred during the summer of 2017, we worked closely with our Premier Agents and other advertisers in affected areas to help manage their advertising budgets. We estimate that relief initiatives, which included billing credits and other forms of advertiser assistance,share-based compensation expense, as well as lost sales, impacted Premier Agentrevenue-sharing costs related to our commercial business relationships, depreciation expense, and costs associated with hosting our mobile applications and websites. Cost of revenue by approximately $2.0 million for the year ended December 31, 2017. We also experienced a temporary decline in trafficincludes amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangible assets and other costs to obtain data used to populate our mobile applications and websites, from consumersand amortization of certain intangible assets recorded in impacted areas, which may have impacted the numberconnection with acquisitions, including developed technology. For our IMT and Mortgages segments, cost of unique usersrevenue also includes credit card fees and visits for thead serving costs paid to third parties. For our Mortgages segment, cost of revenue also consists of direct costs to originate loans, including underwriting and processing costs.
Year Ended December 31, 2022 compared to year ended December 31,
2017.Marketplace2021
Cost of revenue
grewincreased $44 million, or 14%, due primarily to
$1,007.2 million for the year ended December 31, 2017 from $778.1 millionfor the year ended December 31, 2016, an increase of
$229.1 million. Marketplace revenue represented 94% of total revenue for the year ended December 31, 2017 compared to 92% of total revenue for the year ended December 31, 2016. The increase in marketplace revenue was primarily attributable to the $157.3$72 million
or 26%, increase in Premier Agent revenue. Premier Agent revenue was positively impacted by an increase in visits. Visits increased 19% to 6,314.4 million for the year ended December 31, 2017 from 5,323.2 million for the year ended December 31, 2016. This increase in visits increased the number of impressions we could monetize in our
Premier Agent marketplace. Premier Agent revenue per visit increasedIMT segment, partially offset by
6% to $0.121 for the year ended December 31, 2017 from $0.114 for the year ended December 31, 2016. We calculate Premier Agent revenue per visit by dividing the revenue generated by our Premier Agent and Premier Broker programs in the period by the numberdecreases of
visits in the period. We believe Premier Agent revenue was also positively impacted by the full implementation of the new pricing method for our Premier Agent product, which may have increased the demand for our advertising platform. As discussed above, during the year ended December 31, 2016, we began meaningful testing and implementation of a new auction-based pricing method for our Premier Agent product, our flagship advertising product, by which we determine the cost per impression delivered in each zip code in a dynamic way based on demand for impressions in that zip code. We continue to evaluate this pricing method, and in the fourth quarter of 2016, we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. We believe the increase in Premier Agent revenue was also due in part to increased advertising sales to current Premier Agents, including brokerages and other teams.The increase in marketplace revenue was also attributable to growth in other real estate revenue, which increased by $62.4$16 million or 61%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in other real estate revenue was primarily a result of a 66% increase in revenue generated by Zillow Group Rentals. Growth in Zillow Group Rentals revenue was primarily attributable to increases in consumer adoption of our rentals information marketplaces, which in turn increased the likelihood of a lead, lease, or click that we monetize, and advertiser adoption of our cost per lead, cost per lease and cost per
click advertising products, as well as enhancements to our marketing products that improve the ways in which consumers and advertisers connect through the Zillow Group Rentals marketplace. Other real estate revenue was also positively impacted by increased advertising sales to new home builders through our New Construction platform.
The increase in marketplace revenue was also attributable to growth in mortgages revenue, which increased by $9.5 million, or 13%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in mortgages revenue was primarily a result of a 54% increase in our average revenue per loan information request for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in average revenue per loan information request was primarily a result of our flagship mortgage advertising platform, Long Form, which yields higher revenue than our other mortgage advertising products,Mortgages segment and increased consumer adoption of Long Form, which was driven by product enhancements that allow us to monetize our mortgages products more efficiently. There were approximately 22.7$12 million mortgage loan information requests submitted on Zillow Group platforms by consumers for the year ended December 31, 2017 compared to 30.8 million mortgage loan information requests submitted on Zillow Group platforms by consumers for the year ended December 31, 2016, a decrease of 26%. We believe the decrease in the number of loan information requests submitted by consumers is due to our strategic decision to improve loan information request quality by requiring consumers to provide more information before a loan information request is submitted. We believe our mortgage product feature change creates a better experience for consumers and more valuable loan information requests for our lender advertisers.
Display revenue was $69.6 million for the year ended December 31, 2017 compared to $68.5 million for the year ended December 31, 2016, an increase of $1.1 million. Display revenue represented 6% of total revenue for the year ended December 31, 2017 compared to 8% of total revenue for the year ended December 31, 2016. The increase in display revenue was primarily a result of the increase in unique users, which resulted in a greater number of impressions and clicks we monetized. We continue to deemphasize display advertising in the user experience and instead focus on growth in marketplace revenue.
We will begin reporting rentals revenue as a separate revenue category beginning with quarterly reporting for the three months ending March 31, 2018. In addition, display revenue will be included in our other revenue category and not reported separately. Going forward, other real estate revenue will be redefined as other revenue and will include revenue from new construction, dotloop, display, as well as from the sale of various other advertising and business software solutions.
Cost of Revenue
Cost of revenue was $85.2 millionfor the year ended December 31, 2017 compared to $69.3 million for the year ended December 31, 2016, an increase of $15.9 million, or 23%. Homes segment.
•The increase in cost of revenue in our IMT segment was primarily attributable to a $7.9 millionincrease in revenue share costs, a $4.8 millionincrease in data center and connectivity costs, a $1.0$41 million increase in headcount- relateddepreciation and amortization expense driven by an increase in capitalized website and development activities, a $16 million increase in headcount-related expenses, including share-based compensation expense, a $0.8 millionincrease in credit card and ad serving feeswhich was impacted by the August 2022 Equity Award Actions, and a $1.4 millionincrease$9 million increase in various miscellaneous expenses. data acquisition costs.
•The decrease in cost of revenue in our Mortgages segment was primarily attributable to a $13 million decrease in lead acquisition costs due to a decrease in volume associated with the macro housing market environment and a $3 million decrease in headcount-related expenses, including share-based compensation expense, partially offset by a $2 million increase in depreciation and amortization expense.
•The decrease in cost of revenue in our Homes segment was primarily attributable to a $7 million decrease in depreciation and amortization expense, a $5 million decrease in data acquisition costs and a $2 million decrease in software and hardware costs, resulting from the wind down of Zillow Offers and the reduction in indirect costs related to the Homes segment. The decrease was partially offset by an increase of $3 million in headcount-related expenses, including share-based compensation expense, which was impacted by the August 2022 Equity Award Actions.
We expect our cost of revenue to increase in absolute dollars in future yearsfor the three months ending March 31, 2023 due to increased headcount-related spend as we continue to incur moreinvest to support the growth of our business.
Year Ended December 31, 2021 compared to year ended December 31, 2020
Cost of revenue increased $68 million, or 27%, due primarily to increases of $45 million in our Mortgages segment, $13 million in our Homes segment and $10 million in our IMT segment.
•The increase in cost of revenue in our Mortgages segment was primarily attributable to an increase in headcount-related expenses, that areincluding share-based compensation expense, of $18 million, an increase in lead acquisition costs of $18 million associated with growth in revenue.Salesour Zillow Home Loans business, and Marketing
Salesan increase in mortgage loan processing costs of $4 million corresponding with the increase in loan origination volume.
•The increase in cost of revenue in our Homes segment was primarily attributable to an increase in headcount-related expenses, including share-based compensation expense, of $7 million, and marketingan increase in depreciation and amortization expense of $3 million.
•The increase in cost of revenue in our IMT segment was primarily attributable to an increase of $13 million in depreciation and amortization expense, an increase of $9 million in direct product costs, an increase of $7 million in lead acquisition costs, and an increase of $7 million in headcount-related expenses, were $448.2 millionforincluding share-based compensation expense, partially offset by a decrease of $28 million in data acquisition costs.
Gross Profit
Gross profit is calculated as revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross profit has and will continue to be affected by a number of factors, including the mix of revenue from our segments.
Year Ended December 31, 2022 compared to year ended December 31, 2021
Gross profit decreased by $218 million, or 12%, primarily due to decreases in gross profit of $119 million in our IMT segment and $111 million in our Mortgages segment, partially offset by an increase of $12 million in our Homes segment. Total gross margin decreased from 85% to 81%.
•The decrease in IMT segment gross profit was driven by a decrease in revenue due to macro housing market factors, including rising interest rates and housing prices and volatility, which have reduced our Premier Agent revenue per visit compared to the year ended December 31, 2017 compared to $382.4 millionfor2021, coupled with the increase in cost of revenue, discussed above. Gross margin decreased from 89% for the year ended December 31, 2016,2021 to 85% for the year ended December 31, 2022.
•The decrease in Mortgages segment gross profit was driven by decreases in mortgage originations and Custom Quote and Connect advertising services revenue, discussed above. Gross margin decreased from 66% for the year ended December 31, 2021 to 43% for the year ended December 31, 2022.
Year Ended December 31, 2021 compared to year ended December 31, 2020
Gross profit increased by $440 million, or 32%, primarily due to increases of gross profit of $426 million in our IMT segment and $27 million in our Mortgages segment, partially offset by a decrease of $13 million in our Homes segment. Total gross margin increased from 84% to 85%.
•The increase in IMT segment gross profit was driven by an improvement in gross margin from 87% to 89%, primarily associated with increased revenue, discussed above.
•The increase in Mortgages segment gross profit was driven by an increase in revenue, discussed above. However, gross margin declined from 78% to 66%, driven by increases in cost of revenue, primarily associated with additional lead acquisition costs and headcount-related expenses as a result of increased origination volume, which outpaced the growth in revenue, primarily due to industry margin compression.
Sales and Marketing
Sales and marketing expenses consist of advertising costs and other sales expenses related to promotional and marketing activities, headcount-related expenses, including salaries, commissions, benefits, bonuses and share-based compensation expense for sales, sales support, customer support, including the customer connections team, marketing and public relations employees, depreciation expense and amortization of certain intangible assets recorded in connection with acquisitions, including trade names and trademarks and customer relationships. For our Mortgages segment, sales and marketing expenses include headcount-related expenses for loan officers and specialists supporting Zillow Home Loans.
Year Ended December 31, 2022 compared to year ended December 31, 2021
Sales and marketing expenses decreased $51 million, or 7%, due to decreases of $41 million in our Homes segment and $30 million in our Mortgages segment, partially offset by an increase of $65.8$20 million or 17%. in our IMT segment.
•The decrease in sales and marketing expenses in the Homes segment was primarily attributable to a $20 million decrease in marketing and advertising costs and a $17 million decrease in headcount-related expenses, including share-based compensation expense. The decreases resulted from the wind down of Zillow Offers and the reduction in indirect costs related to the Homes segment.
•The decrease in sales and marketing expenses in the Mortgages segment was primarily attributable to a $19 million decrease in headcount-related expenses, including share-based compensation expense, and a $12 million decrease in marketing and advertising costs driven by active cost management.
•The increase in sales and marketing expenses in the IMT segment was primarily attributable to increased marketinga $45 million increase in headcount-related expenses, including share-based compensation expense, primarily driven by the impact of the August 2022 Equity Award Actions, an $8 million increase in both travel expenses and advertisingtrade shows and events expenses, of $34.2and a $4 million primarily related to advertising spend to attract consumers across onlineincrease in software and offline channels, which supports our growth initiatives.In addition to thehardware costs. These increases were partially offset by a $32 million decrease in marketing and advertising headcount-relatedcosts, a $9 million decrease in professional services, both driven by active cost management, and a $4 million decrease in depreciation and amortization expenses.
Year Ended December 31, 2021 compared to year ended December 31, 2020
Sales and marketing expenses increased $20.5$180 million, including share-based compensation expense,or 34%, due primarily to significant growthincreases of $111 million in the size of our sales team. IMT segment, $49 million in our Mortgages segment and $20 million in our Homes segment.
•The increase in sales and marketing expenses in the IMT segment was alsoprimarily attributable to a $6.0 millionincrease in tradeshows and conferences expense and related travel costs, a $2.5 millionincrease in consulting costs to support our advertising initiatives, a $1.1 millionincrease in software, hardware and connectivity costs, and a $1.5 millionincrease in various miscellaneous expenses. We expect our sales and marketing expenses to$69 million increase in absolute dollars in future years as we continue to expand our sales team and invest more resources in extending our audience through marketing and advertising initiatives.Technologycosts and Development
Technology and development expenses, which include research and development costs, were $320.0 millionfor the year ended December 31, 2017 compared to $255.6 millionfor the year ended December 31, 2016, an increase of $64.4 million, or 25%. Approximately $44.3 millionof the increase related to growth in headcount-related expenses, including share-based compensation expense, as we continue to grow our engineering teams to support currentof $46 million. Marketing and future product initiatives. In addition, there was a $10.0 millionincrease in othernon-capitalizable data content expense, a $5.4 millionincrease in the amortization of purchased data content intangible assets, a $1.3 millionincrease in amortization of acquired intangible assets, a $1.1 millionincrease in software and hardwareadvertising costs and a $2.3 millionincrease in various miscellaneous expenses.
Amortization expense included in technology and development for capitalized website development costs and software was $44.4 millionand $43.8 million, respectively, for the year ended December 31, 2017 and 2016. Amortization expense included2021 were higher than the comparable prior year period due to our pause in technology and development relatedmost discretionary spending associated with liquidity preservation in response to intangible assets recordedthe COVID-19 pandemic in connection with acquisitions was $40.0 millionand $38.7 million, respectively, for the year ended December 31, 20172020.
•The increase in sales and 2016. Other data contentmarketing expenses in the Mortgages segment was primarily attributable to an increase in headcount-related expenses, including share-based compensation expense, was $35.4of $32 million, and $25.5a $15 million respectively,increase in marketing and advertising expenses associated with growth of our Zillow Home Loans business.
•The increase in sales and marketing expenses in the Homes segment was primarily attributable to an $11 million increase in marketing and advertising costs and an increase in headcount-related expenses, including share-based compensation expense, of $7 million.
Technology and Development
Technology and development expenses consist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for individuals engaged in the design, development and testing of our products, mobile applications and websites and the tools and applications that support our products. Technology and development expenses also include equipment and maintenance costs and depreciation expense.
Year Ended December 31, 2022 compared to year ended December 31, 20172021
Technology and 2016. Amortization expense includeddevelopment expenses increased $77 million, or 18%, primarily due to increases of $120 million in our IMT segment and $18 million in our Mortgages segment, partially offset by a decrease of $61 million in our Homes segment.
•The increase in technology and development for purchased data content intangible assetsexpenses in the IMT segment was $10.0 millionand $4.6primarily attributable to a $96 million respectively, forincrease in headcount related costs, including share-based compensation expense, primarily driven by the year ended December 31, 2017August 2022 Equity Award Actions, and 2016. a $14 million increase in professional services.
•The increase in technology and development expenses in the Mortgages segment was primarily attributable to an $11 million increase in headcount-related costs, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions, and a $6 million increase in professional services.
•The decrease in technology and development expenses in the Homes segment was primarily attributable to a $55 million decrease in headcount-related costs, including share-based compensation expense, which was primarily driven by the wind down of Zillow Offers and the reduction in indirect costs related to the Homes segment.
We expect our technology and development expenses to increase in absolute dollars over timefor the three months ending March 31, 2023 due to increased headcount-related spend as we continue to build new mobileinvest to support the growth of our business.
Year Ended December 31, 2021 compared to year ended December 31, 2020
Technology and
website functionality.development expenses increased $97 million, or 30%, primarily due to increases of $58 million in our IMT segment, $30 million in our Homes segment and $9 million in our Mortgages segment.
•The increase in technology and development expenses for each of our segments was primarily attributable to increases in headcount-related expenses, including share-based compensation expense, of $54 million, $28 million and $5 million for our IMT, Homes and Mortgages segments, respectively.
General and Administrative
General and administrative expenses were $210.8 millionfor theconsist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for executive, finance, accounting, legal, human resources, recruiting, corporate information technology costs and other administrative support. General and administrative expenses also include legal settlement costs and estimated legal liabilities, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.
Year Ended December 31, 2022 compared to year ended December 31, 2017 compared2021
General and administrative expenses increased $84 million, or 20%, due to $332.0 millionfor the year ended December 31, 2016,increases of $117 million in our IMT segment and $13 million in our Mortgages segment, partially offset by a decrease of $121.2$46 million or 37%. in our Homes segment.
•The increase in general and administrative expenses for our IMT segment was primarily attributable to a $94 million increase in headcount-related expenses, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions, a $9 million increase in professional services and a $6 million increase in software and hardware costs.
•The increase in general and administrative expenses for our Mortgages segment was primarily attributable to an $11 million increase in headcount-related expenses, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions.
•The decrease in general and administrative expenses for our Homes segment was primarily attributable to a result of the settlement of a lawsuit with Move, Inc. and certain related entities (collectively, “Move”) in June 2016 whereby the Company paid $130.0 millionin connection with a release of all claims. In addition, there was a $31.1 milliondecrease in professional services fees, primarily as a result of our settlement of litigation with Move, as we incurred $28.8 millionin legal costs related to our litigation with Move for the year ended December 31, 2016. These decreases were partially offset by a $10.9 millionincrease$28 million decrease in headcount-related expenses, including share-based compensation expense, and $6 million decreases in both facilities costs and software and hardware costs, which were primarily driven by the wind down of Zillow Offers and the reduction in indirect costs related to the Homes segment.
Year Ended December 31, 2021 compared to year ended December 31, 2020
General and administrative expenses increased $90 million, or 28%, due to increases of $33 million in our IMT segment, $29 million in our Homes segment and $28 million in our Mortgages segment.
•The increase in general and administrative expenses for our IMT and Mortgages segments was primarily by growthattributable to increases in headcount in shared corporate services to support our engineering and other teams, a $7.5 millionincrease in building lease-relatedheadcount-related expenses, including rent, utilitiesshare-based compensation expense, of $40 million and insurance,$20 million for our IMT and Mortgages segments, respectively, as we continued to invest in human capital to grow our businesses.
•The increase in general and administrative expenses for our Homes segment was primarily attributable to an increase in headcount-related expenses, including share-based compensation expense, of $21 million, a $6.0 millionincrease in estimated legal liabilities, a $4.7 millionincrease in bad debt expense, a $3.7$3 million increase in cityprofessional services and state taxes, a $2.9 millionincrease$3 million increase in software and hardware costs.
Impairment and Restructuring Costs
Restructuring costs a $2.0 millionincrease inof $24 million and $10 million for the loss on disposalyears ended December 31, 2022 and 2021, respectively,were attributable to the wind down of assets, a $1.0Zillow Offers operations and additional cost actions to streamline our operations and prioritize investments. Restructuring costs within our IMT and Mortgages segments and certain indirect costs of the Homes segment which do not qualify as discontinued operations related to employee termination costs and totaled $12 million, increase in travel expenses,$4 million, and a $1.2 millionincrease in miscellaneous general and administrative expenses. We expect general and administrative expenses to increase over time in absolute dollars as we continue to expand our business.Impairment Costs
Impairment costs$8 million, respectively, for the year ended December 31, 2017 consist of2022, and $9 million and $1 million for the $174.0 millionnon-cash impairment related to the $351.0 million indefinite-lived intangible asset that we recorded in connection with our February
2015 acquisition of Trulia for Trulia’s trade namesHomes and trademarks. For additional information about the impairment, see Note 9 to our consolidated financial statements. There were no impairment costsMortgages segments, respectively, for the year ended December 31, 2016.
Acquisition-Related Costs
Acquisition-related costs were $0.5 millionfor2021. For additional information regarding the year ended December 31, 2017, primarily as a resultrestructuring, see Note 3 of our January 2017 acquisitionNotes to Consolidated Financial Statements in Part II, Item 8 of HREO and our September 2017 acquisitionthis Annual Report on Form 10-K.
Impairment costs of
New Home Feed, including legal and accounting fees. Acquisition-related costs were $1.4 millionfor the year ended December 31, 2016 as a result of our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive, including legal, accounting and tax fees.Loss (Gain) on Divestiture of Businesses
There was no loss (gain) on divestiture of business for the year ended December 31, 2017. The gain on divestiture of business of $1.3$77 million for the year ended December 31, 20162020 consist of a $72 million non-cash impairment related to the August 2016 saleTrulia trade names and trademarks intangible asset, of which $69 million was recorded to the IMT segment and $3 million was recorded to the Mortgages segment. Refer to Note 10 of our Diverse Solutions business.
LossNotes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Debt Extinguishment
ThereForm 10-K for additional information on the impairment costs related to the Trulia trade names and trademarks intangible asset. Additionally, impairment costs include a $5 million non-cash impairment related to our October 2016 equity investment, the entirety of which was no loss on debt extinguishmentrecorded to the IMT segment.
Acquisition-Related Costs
Acquisition-related costs consist of investment banking, legal, accounting and tax costs associated with effecting acquisitions. We did not record any material acquisition-related costs for the
yearyears ended December 31,
2017. The loss on debt extinguishment was $22.82022 or December 31, 2020. Acquisition-related costs were $9 million for the year ended December 31,
2016 and related to the partial repurchase2021, primarily as a result of
the 2020 Notes in December 2016.Interest Expense
Interest expense was $27.5 millionforour September 2021 acquisition of ShowingTime.
Gain (Loss) on Extinguishment of Debt
We recorded a $17 million loss on extinguishment of debt during the year ended December 31, 2017, compared2021 associated with conversions of the convertible senior notes maturing in 2023 (“2023 Notes”), 2024 (“2024 Notes”) and 2026 (“2026 Notes”). For additional information on the loss on extinguishment of debt, see Note 13 of our Notes to $7.4 millionforConsolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Other Income, net
Other income, net consists primarily of interest income earned on our cash, cash equivalents and investments and fair value adjustments on an outstanding warrant.
Other income, net increased $36 million, for the year ended December 31, 2016. For2022 as compared to the year ended December 31, 2017,2021. The increase was primarily driven by increases in returns on corporate investments due to rising interest expense primarily related to the 2021 Notes that were issuedrates, partially offset by a $7 million fair value adjustment on December 12, 2016. Foran outstanding warrant recorded within our IMT segment.
Other income, net decreased $18 million, for the year ended December 31, 2016, interest expense2021 as compared to the year ended December 31, 2020. The decrease was primarily due to a decrease of $16 million in corporate other income not directly attributable to our segments driven by lower cash and investment balances during the second half of the year ended December 31, 2021. There was also a decrease of $5 million of other income, net in our IMT segment related to the 2020gain recognized on the sale of our October 2016 equity investment during the year ended December 31, 2020.
Interest Expense
Our corporate interest expense consists of interest and deferred issuance costs associated with our convertible senior notes. On January 1, 2022, we adopted guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Upon adoption, we de-recognized the remaining debt discounts on the convertible senior notes and no longer recognize amortization of debt discounts to interest expense. Refer to Note 13 of our Notes that we guaranteedto Consolidated Financial Statements in connection withPart II, Item 8 of this Annual Report on Form 10-K for stated interest rates and interest payment dates for each of our convertible senior notes.
For our Mortgages segment, interest expense includes interest on the February 2015 acquisitionwarehouse line of Trulia.credit and interest on the master repurchase agreements related to our Zillow Home Loans business. For additional information regardingdetails related to our credit facilities, see Note 13 to our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Year Ended December 31, 2022 compared to year ended December 31, 2021
Interest expense decreased $93 million, or 73%, primarily due to a $91 million decrease in corporate interest expense not attributable to any of our segments. The decrease in corporate interest expense not attributable to any of our segments was primarily due to the adoption of guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, which, as discussed above, eliminated the debt discounts on the convertible senior notes that were previously amortized to interest expense prior to adoption. Additionally, the settlement of conversions and redemptions of the 2023 Notes, 2024 Notes and 2026 Notes during the year ended December 31, 2021 decreased the outstanding principal balances of our convertible senior notes upon which interest was incurred.
Year Ended December 31, 2021 compared to year ended December 31, 2020
Interest expense decreased $10 million, or 7%, due to a $13 million decrease in corporate interest expense not attributable to any of our segments, partially offset by a $3 million increase related to our Mortgages segment.
The decrease in corporate interest expense not attributable to any of our segments was primarily attributable to the settlement of the convertible senior notes due in 2020 Notes(the “2020 Notes”) and the 2021 Notes see Note 11during the year ended December 31, 2020 and the settlement of 2023 Notes, 2024 Notes and 2026 Notes during the year ended December 31, 2021, which decreased the outstanding principal balances of our convertible senior notes upon which interest was incurred. The decrease in
corporate interest expense was partially offset by the impact of additional interest for the May 2020 issuance of the convertible senior notes due in 2025 (the “2025 Notes”).
The increase in Mortgages segment interest expense was due to
increased borrowings on our
consolidated financial statements.repurchase agreements and warehouse line of credit.
Income Tax Benefit (Expense)Taxes
We are subject to income taxes in the United States (federal and state), Canada, and Serbia. As of December 31, 2022 and December 31, 2021, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. There is a reasonable possibility that within the next several years, sufficient positive evidence will become available to demonstrate that a significant portion of the valuation allowance against our U.S. net deferred tax assets will no longer be required. We have accumulated federal tax losses of approximately $1.8 billion as of December 31, 2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $63 million (tax effected) as of December 31, 2022.
We recorded income tax expense of $3 million for the year ended December 31, 2022, primarily driven by state taxes. We recorded an income tax benefit of
$89.6$1 million for the year ended December 31,
2017. Approximately $66.02021 that was comprised of a $3 million
of the income tax benefit
relatesfrom a decrease in the valuation allowance associated with our September 2021 acquisition of ShowingTime, partially offset by the recognition of $2 million of tax expense related to
state and foreign income taxes. We recorded an income tax benefit of $8 million for the year ended December 31, 2020, primarily driven by a
$174.0$10 million
income tax benefit associated with the $72 million non-cash impairment we recorded during the year ended December 31,
2017 related2020. Refer to
the $351.0 million indefinite-lived intangible asset that we recordedNote 10 of our Notes to Consolidated Financial Statements in
connection with our February 2015 acquisitionPart II, Item 8 of
Truliathis Annual Report on Form 10-K for
Trulia’s trade names and trademarks. For additional information
about theon this non-cash impairment
see Note 9 to our consolidated financial statements. The remaining $23.6 million of the income tax benefit primarily relates to our initial analysis of the impact of the rate decrease included in the Tax Act for the impact of the reduction in our net deferred tax liability related to our indefinite-lived intangible asset. Income tax expense was not material for the year ended December 31, 2016.Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenue
| | | | | | | | | | | | |
| | | Year Ended December 31, | | | 2015 to 2016
% Change | |
| | | 2016 | | | 2015 | | |
| | | (in thousands) | | | | |
Revenue: | | | | | | | | | | | | |
Marketplace revenue: | | | | | | | | | | | | |
Premier Agent | | $ | 604,292 | | | $ | 446,921 | | | | 35 | % |
Other real estate | | | 102,635 | | | | 35,171 | | | | 192 | % |
Mortgages | | | 71,133 | | | | 44,263 | | | | 61 | % |
Market Leader | | | — | | | | 29,549 | | | | N/A | |
| | | | | | | | | | | | |
Total Marketplace revenue | | | 778,060 | | | | 555,904 | | | | 40 | % |
Display revenue | | | 68,529 | | | | 88,773 | | | | (23 | %) |
| | | | | | | | | | | | |
Total revenue | | $ | 846,589 | | | $ | 644,677 | | | | 31 | % |
| | | | | | | | | | | | |
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
Percentage of Total Revenue: | | | | | | | | |
Marketplace revenue: | | | | | | | | |
Premier Agent | | | 71 | % | | | 69 | % |
Other real estate | | | 12 | | | | 5 | |
Mortgages | | | 8 | | | | 7 | |
Market Leader | | | 0 | | | | 5 | |
| | | | | | | | |
Total Marketplace revenue | | | 92 | | | | 86 | |
Display revenue | | | 8 | | | | 14 | |
| | | | | | | | |
Total revenue | | | 100 | % | | | 100 | % |
| | | | | | | | |
Overall revenue increased by $201.9 million, or 31%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. Marketplace revenue increased by 40%, and display revenue decreased by 23%. There were approximately 140.1 million average monthly unique users of our mobile applications and websites for the three months ended December 31, 2016 compared to 123.7 million average monthly unique users for the three months ended December 31, 2015, representing year-over-year growth of 13%. This increase in unique users increased the number of impressions and clicks we monetized in our marketplace and display revenue categories.
Marketplace revenue grew to $778.1 millionfor the year ended December 31, 2016 from $555.9 millionfor the year ended December 31, 2015, an increase of $222.2 million. Marketplace revenue represented 92%of total revenue for the year ended December 31, 2016 compared to 86%of total revenue for the year ended December 31, 2015. The increase in marketplace revenue was primarily attributable to the $157.4 million, or 35%, increase in Premier Agent revenue. Premier Agent revenue was positively impacted by an increase in visits. Visits increased 33%to 5,323.2 million for the year ended December 31, 2016 from 3,991.5 millionfor the year ended December 31, 2015. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit increased by 1%to $0.114for the year ended December 31, 2016 from $0.112for the year ended December 31, 2015. Beginning on February 17, 2015, the reported visits reflect the effect of Zillow Group’s February 17, 2015 acquisition of Trulia.
The increase in marketplace revenue was also attributable to growth in other real estate revenue, which increased by $67.5 million, or 192%, for the year ended December 31, 2016 compared to the year ended
December 31, 2015. The increase in other real estate revenue was primarily a result of a 124% increase in revenue generated by Zillow Group Rentals. Growth in Zillow Group Rentals revenue was primarily attributable to increases in consumer adoption of our rentals information marketplaces, which in turn increased the likelihood of a lead or lease that we monetize, and advertiser adoption of our cost per lead and cost per lease advertising products, as well as enhancements to our marketing products that improve the ways in which consumers and advertisers connect through the Zillow Group Rentals marketplace.
The increase in marketplace revenue was also attributable to growth in mortgages revenue, which increased by $26.9 million, or 61%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase in mortgages revenue was primarily a result of a 153%increase in our average revenue per loan information request for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase in average revenue per loan information request was primarily a result of our flagship mortgage advertising platform, Long Form, which yields higher revenue than our other mortgage advertising products, and increased consumer adoption of Long Form, which was driven by product enhancements that allow us to monetize our mortgages products more efficiently. There were approximately 30.8 million mortgage loan information requests submitted on Zillow Group platforms by consumers for the year ended December 31, 2016 compared to 46.8 millionmortgage loan information requests submitted on Zillow Group platforms by consumers for the year ended December 31, 2015, a decrease of approximately 34%. We believe the decrease in the number of loan information requests submitted by consumers is due to our strategic decision to improve loan information request quality by requiring consumers to provide more information before a loan information request is submitted. We believe our mortgage product feature change creates a better experience for consumers and more valuable loan information requests for our lender advertisers. During the first half of 2015 we changed the pricing model for our mortgage advertising products from cost per click to cost per lead, which also may have contributed to growth in mortgages revenue.
Display revenue was $68.5 million for the year ended December 31, 2016 compared to $88.8 million for the year ended December 31, 2015, a decrease of $20.2 million. Display revenue represented 8% of total revenue for the year ended December 31, 2016 compared to 14% of total revenue for the year ended December 31, 2015. The decrease in display revenue is primarily a result of our strategy to deemphasize display advertising in the user experience and instead focus on growth in marketplace revenue.
Cost of Revenue
Cost of revenue was $69.3 million for the year ended December 31, 2016 compared to $60.1 million for the year ended December 31, 2015, an increase of $9.1 million, or 15%. The increase in cost of revenue was primarily attributable to a $6.5 million increase in data center and connectivity costs, increased headcount-related expenses of $3.8 million, including share-based compensation expense, driven by growth in headcount, and a $3.6 million increase in credit card and ad serving fees, which were partially offset by a $4.2 milliondecrease in printing costs and costs to generate leads for customers related to the Market Leader business that we divested on September 30, 2015 and a $0.7 million decrease in multiple listing services fees.
Sales and Marketing
Sales and marketing expenses were $382.4 million for the year ended December 31, 2016 compared to $308.1 million for the year ended December 31, 2015, an increase of $74.3 million, or 24%. The increase in sales and marketing expenses was primarily attributable to increased headcount-related expenses of $45.9 million, including share-based compensation expense, due primarily to significant growth in the size of our sales team. In addition to the increase in headcount-related expenses, marketing and advertising expenses increased by $30.1 million, primarily related to advertising spend to acquire shoppers across online and offline channels, which supports our growth initiatives. These costs were partially offset by a $1.7 million decrease in various miscellaneous expenses.
Technology and Development
Technology and development expenses, which include research and development costs, were $255.6 millionfor the year ended December 31, 2016 compared to $184.5 millionfor the year ended December 31, 2015, an increase of $71.1 million, or 39%. Approximately $36.9 millionof the increase related to growth in headcount-related expenses, including share-based compensation expense, as we continue to grow our engineering headcount to support current and future product initiatives. Approximately $19.9 millionof the increase related to an increase in amortization of website development costs and software. The increase in technology and development expenses was also attributable to a $9.4 millionincrease in othernon-capitalizable data content expense, a $5.3 millionincrease in amortization of acquired intangible assets, and a $2.5 million increase in loss on disposal of property and equipment, which were partially offset by a $1.3 milliondecrease in amortization of purchased content and a $1.6 million decrease in various miscellaneous expenses.
Amortization expense included in technology and development for capitalized website development costs and software was $43.8 millionand $23.9 million, respectively, the year ended December 31, 2016 and 2015. Amortization expense included in technology and development related to intangible assets recorded in connection with acquisitions was $38.7 millionand $33.4 million, respectively, for the year ended December 31, 2016 and 2015. Other data content expense was $25.5 million and $16.2 million, respectively, for the year ended December 31, 2016 and 2015. Amortization expense included in technology and development for purchased data content intangible assets was $4.6 million and $5.9 million, respectively, for the year ended December 31, 2016 and 2015.
General and Administrative
General and administrative expenses were $332.0 million for the year ended December 31, 2016 compared to $185.0 million for the year ended December 31, 2015, an increase of $147.0 million, or 79%. The increase in general and administrative expenses was primarily a result of the settlement of a lawsuit with Move, Inc. and certain other parties in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims.
The increase in general and administrative expenses was also a result of a $11.6 million increase in headcount-related expenses, including share-based compensation expense, including the impact of growth in headcount as a result of our February 2015 acquisition of Trulia, a $4.3 million increase in building lease-related expenses including rent, utilities and insurance, and a $1.1 millionincrease in various miscellaneous expenses.
Acquisition-Related Costs
Acquisition-related costs were $1.4 million for the year ended December 31, 2016 as a result of our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive, including legal, accounting and tax fees. Acquisition-related costs were $16.6 million for the year ended December 31, 2015, primarily as a result of our February 2015 acquisition of Trulia, including investment banking, legal, accounting, tax, and regulatory filing fees.
Restructuring Costs
There were no restructuring costs for the year ended December 31, 2016. Restructuring costs for the year ended December 31, 2015 were $35.6 million. On February 17, 2015, in connection with the February 2015 acquisition of Trulia, Zillow Group undertook a restructuring plan that resulted in a total workforce reduction of nearly 350 employees, primarily to eliminate overlapping positions in the sales and marketing functions related to Trulia’s workforce at its Bellevue, Denver, New York and San Francisco locations. The restructuring plan was a result of the integration of Trulia’s business and operations with and into Zillow Group’s business. Employees directly affected by the restructuring plan were provided with severance payments, stock vesting acceleration and outplacement assistance. As of December 31, 2015, the restructuring plan was complete.
Loss (Gain) on Divestiture of Businesses
The gain on divestiture of business was $1.3 million for the year ended December 31, 2016 and relates to the August 2016 sale of our Diverse Solutions business. The loss on divestiture of business was $4.4 million for the year ended December 31, 2015 and relates to the September 2015 sale of our Market Leader business.
Loss on Debt Extinguishment
The loss on debt extinguishment was $22.8 million for the year ended December 31, 2016 and relates to the partial repurchase of the 2020 Notes in December 2016.
Interest Expense
Interest expense was $7.4 million for the year ended December 31, 2016, compared to $5.5 million for the year ended December 31, 2015. The interest expense for each year primarily relates to the 2020 Notes that we guaranteed in connection with the February 2015 acquisition of Trulia, which accrue interest at 2.75% annually.
On December 12, 2016, Zillow Group issued the 2021 Notes. The 2021 Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017. As a result of the issuance of the 2021 Notes, our interest expense increased in future periods related to the contractual coupon interest and amortization of debt discount and debt issuance costs that will be recognized in interest expense.
For additional information regarding the 2020 Notes and the 2021 Notes, see Note 11 to our consolidated financial statements.
Income Taxes
During the years ended December 31, 2016 and 2015, we did not have a material amount of current taxable income. Therefore, no material tax liability or expense has been recorded in the consolidated financial statements for the years ended December 31, 2016 and 2015.
We recorded an income tax benefit of $4.6 million for the year ended December 31, 2015 due to a deferred tax liability generated in connection with Zillow’s August 20, 2015 acquisition of DotLoop, Inc. that can be used to realize certain deferred tax assets for which we had previously provided a full allowance.
charge.
Quarterly Results of Operations
The following tables set forth our unaudited quarterly statements of operations data for each of the periods presented below. In the opinion of management, the data has been prepared on the same basis as the audited consolidated financial statements included in this Annual Report on Form
10-K, and reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the data. The results of historical periods are not necessarily indicative of the results of operations of any future
period.period, particularly given continued uncertainty surrounding the health of the housing market, interest rate environment and the COVID-19 pandemic. You should read the data together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form
10-K. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
| | | (in thousands, except per share data, unaudited) | |
Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 282,330 | | | $ | 281,839 | | | $ | 266,850 | | | $ | 245,775 | | | $ | 227,612 | | | $ | 224,592 | | | $ | 208,403 | | | $ | 185,982 | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue (exclusive of
amortization) (1)(2) | | | 22,559 | | | | 22,152 | | | | 20,260 | | | | 20,232 | | | | 18,706 | | | | 17,608 | | | | 16,745 | | | | 16,203 | |
Sales and marketing (1) | | | 103,935 | | | | 107,108 | | | | 131,218 | | | | 105,940 | | | | 90,509 | | | | 93,180 | | | | 99,629 | | | | 99,101 | |
Technology and
development (1) | | | 85,187 | | | | 83,389 | | | | 78,541 | | | | 72,868 | | | | 67,320 | | | | 64,496 | | | | 63,396 | | | | 60,371 | |
General and administrative
(1) | | | 57,778 | | | | 54,226 | | | | 53,346 | | | | 45,466 | | | | 47,832 | | | | 42,625 | | | | 183,759 | | | | 57,791 | |
Impairment costs | | | 174,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Acquisition-related costs | | | 97 | | | | 218 | | | | 43 | | | | 105 | | | | 533 | | | | 93 | | | | 204 | | | | 593 | |
Gain on divestiture of business | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,251 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total costs and expenses | | | 443,556 | | | | 267,093 | | | | 283,408 | | | | 244,611 | | | | 224,900 | | | | 216,751 | | | | 363,733 | | | | 234,059 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (161,226 | ) | | | 14,746 | | | | (16,558 | ) | | | 1,164 | | | | 2,712 | | | | 7,841 | | | | (155,330 | ) | | | (48,077 | ) |
Loss on debt extinguishment | | | — | | | | — | | | | — | | | | — | | | | (22,757 | ) | | | — | | | | — | | | | — | |
Other income | | | 1,415 | | | | 1,407 | | | | 1,610 | | | | 953 | | | | 716 | | | | 561 | | | | 753 | | | | 681 | |
Interest expense | | | (6,991 | ) | | | (6,906 | ) | | | (6,897 | ) | | | (6,723 | ) | | | (2,668 | ) | | | (1,595 | ) | | | (1,572 | ) | | | (1,573 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (166,802 | ) | | | 9,247 | | | | (21,845 | ) | | | (4,606 | ) | | | (21,997 | ) | | | 6,807 | | | | (156,149 | ) | | | (48,969 | ) |
Income tax benefit (expense) | | | 89,627 | | | | (41 | ) | | | — | | | | — | | | | (1,494 | ) | | | — | | | | — | | | | 1,364 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (77,175 | ) | | $ | 9,206 | | | $ | (21,845 | ) | | $ | (4,606 | ) | | $ | (23,491 | ) | | $ | 6,807 | | | $ | (156,149 | ) | | $ | (47,605 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) per share—basic and diluted | | $ | (0.41 | ) | | $ | 0.05 | | | $ | (0.12 | ) | | $ | (0.03 | ) | | $ | (0.13 | ) | | $ | 0.04 | | | $ | (0.87 | ) | | $ | (0.27 | ) |
Weighted-average shares outstanding—basic | | | 189,439 | | | | 187,692 | | | | 185,439 | | | | 183,158 | | | | 181,852 | | | | 180,583 | | | | 179,451 | | | | 178,686 | |
Weighted-average shares outstanding—diluted | | | 189,439 | | | | 196,425 | | | | 185,439 | | | | 183,158 | | | | 181,852 | | | | 189,661 | | | | 179,451 | | | | 178,686 | |
Other Financial Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA (3) | | $ | 70,859 | | | $ | 70,957 | | | $ | 39,700 | | | $ | 54,799 | | | $ | 54,749 | | | $ | 59,463 | | | $ | (101,260 | ) | | $ | 1,874 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
| | | (in thousands) | |
(1) Includes share-based compensation as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | $ | 942 | | | $ | 1,014 | | | $ | 1,025 | | | $ | 903 | | | $ | 888 | | | $ | 894 | | | $ | 982 | | | $ | 786 | |
Sales and marketing | | | 5,041 | | | | 5,914 | | | | 6,250 | | | | 5,530 | | | | 5,754 | | | | 5,968 | | | | 6,395 | | | | 5,203 | |
Technology and development | | | 10,609 | | | | 10,438 | | | | 10,400 | | | | 8,491 | | | | 8,306 | | | | 8,035 | | | | 8,366 | | | | 6,759 | |
General and administrative | | | 12,817 | | | | 11,208 | | | | 11,518 | | | | 11,471 | | | | 10,818 | | | | 12,388 | | | | 12,573 | | | | 12,803 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 29,409 | | | $ | 28,574 | | | $ | 29,193 | | | $ | 26,395 | | | $ | 25,766 | | | $ | 27,285 | | | $ | 28,316 | | | $ | 25,551 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) Amortization of website development costs and intangible assets included in technology and development | | $ | 24,392 | | | $ | 23,537 | | | $ | 23,159 | | | $ | 23,261 | | | $ | 22,130 | | | $ | 22,006 | | | $ | 22,252 | | | $ | 20,672 | |
(3) | See “Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA for the three months ended June 30, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims. |
Amounts are in millions, except per share data which are presented in thousands, unaudited, and we have presented the financial results of Zillow Offers as discontinued operations (see Note 3 in our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional details regarding discontinued operations).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | December 31, 2022 | | September 30, 2022 | | June 30, 2022 | | March 31, 2022 | | December 31, 2021 | | September 30, 2021 | | June 30, 2021 | | March 31, 2021 |
| Revenue | $ | 435 | | | $ | 483 | | | $ | 504 | | | $ | 536 | | | $ | 535 | | | $ | 550 | | | $ | 533 | | | $ | 514 | |
| Gross profit | 346 | | | 394 | | | 407 | | | 444 | | | 440 | | | 468 | | | 460 | | | 441 | |
| Income (loss) from continuing operations | (83) | | | (51) | | | 5 | | | 36 | | | 32 | | | 55 | | | 55 | | | 97 | |
| Net income (loss) from continuing operations | (72) | | | (51) | | | 10 | | | 25 | | | 6 | | | 18 | | | 19 | | | 59 | |
| Net income (loss) | (72) | | | (53) | | | 8 | | | 16 | | | (261) | | | (329) | | | 10 | | | 52 | |
| Net income (loss) from continuing operations per share: | | | | | | | | | | | | | | | |
| Basic | $ | (0.31) | | | $ | (0.21) | | | $ | 0.04 | | | $ | 0.10 | | | $ | 0.02 | | | $ | 0.07 | | | $ | 0.08 | | | $ | 0.24 | |
| Diluted | $ | (0.31) | | | $ | (0.21) | | | $ | 0.04 | | | $ | 0.10 | | | $ | 0.02 | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.23 | |
| Net income (loss) per share: | | | | | | | | | | | | | | | |
| Basic | $ | (0.31) | | | $ | (0.22) | | | $ | 0.03 | | | $ | 0.06 | | | $ | (1.03) | | | $ | (1.29) | | | $ | 0.04 | | | $ | 0.21 | |
| Diluted | $ | (0.31) | | | $ | (0.22) | | | $ | 0.03 | | | $ | 0.06 | | | $ | (1.00) | | | $ | (1.24) | | | $ | 0.04 | | | $ | 0.20 | |
| Weighted-average shares outstanding: | | | | | | | | | | | | | | | |
| Basic | 236,246 | | | 240,080 | | | 243,942 | | | 248,542 | | | 254,013 | | | 254,074 | | | 248,152 | | | 243,234 | |
| Diluted | 236,246 | | | 240,080 | | | 245,163 | | | 265,945 | | | 261,181 | | | 265,112 | | | 261,495 | | | 259,346 | |
Total revenue decreased in all quarters presented with the exception of the three months ended March 31, 2022, which remained flat with the preceding quarter. The
following tables present oursequential decreases in revenue
by typethroughout 2022 were attributable to the ongoing macro housing market factors, including interest rate and
home price increases, as
a percentage of total revenue for the periods presented: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
| | | (in thousands) | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marketplace revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premier Agent | | $ | 199,514 | | | $ | 197,054 | | | $ | 189,725 | | | $ | 175,301 | | | $ | 164,335 | | | $ | 158,322 | | | $ | 147,106 | | | $ | 134,529 | |
Other real estate | | | 47,564 | | | | 44,778 | | | | 37,894 | | | | 34,755 | | | | 29,788 | | | | 28,799 | | | | 26,070 | | | | 17,978 | |
Mortgages | | | 18,516 | | | | 20,869 | | | | 20,936 | | | | 20,270 | | | | 16,512 | | | | 19,775 | | | | 18,392 | | | | 16,454 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Marketplace revenue | | | 265,594 | | | | 262,701 | | | | 248,555 | | | | 230,326 | | | | 210,635 | | | | 206,896 | | | | 191,568 | | | | 168,961 | |
Display revenue | | | 16,736 | | | | 19,138 | | | | 18,295 | | | | 15,449 | | | | 16,977 | | | | 17,696 | | | | 16,835 | | | | 17,021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 282,330 | | | $ | 281,839 | | | $ | 266,850 | | | $ | 245,775 | | | $ | 227,612 | | | $ | 224,592 | | | $ | 208,403 | | | $ | 185,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
Percentage of Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marketplace revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premier Agent | | | 71 | % | | | 70 | % | | | 71 | % | | | 71 | % | | | 72 | % | | | 70 | % | | | 71 | % | | | 72 | % |
Other real estate | | | 17 | | | | 16 | | | | 14 | | | | 14 | | | | 13 | | | | 13 | | | | 13 | | | | 10 | |
Mortgages | | | 7 | | | | 7 | | | | 8 | | | | 8 | | | | 7 | | | | 9 | | | | 9 | | | | 9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Marketplace revenue | | | 94 | | | | 93 | | | | 93 | | | | 94 | | | | 93 | | | | 92 | | | | 92 | | | | 91 | |
Display revenue | | | 6 | | | | 7 | | | | 7 | | | | 6 | | | | 7 | | | | 8 | | | | 8 | | | | 9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
well as tight housing inventory levels. Total revenue increased sequentially in all quarters presented. In general,in 2021 with the strong increase in consumer adoptionexception of our mobile applications and websites in the yearsthree months ended December 31, 2017 and December 31, 2016
was reflected2021. The sequential decrease in revenue for the significant growth in unique users, which resulted in increased impression inventory, leads, and graphical display impressions we could monetize through our advertising products.
Premier Agent revenue also increased sequentially in all quarters presented. As discussed above, during the yearthree months ended December 31, 2016, we began meaningful testing and implementation2021 was attributable to a decrease in visits driven by seasonality related to the normal cycles of the residential real estate market coupled with tighter inventory due to a new auction-based pricing method for our Premier Agent product, our flagship advertising product, by which we determine the cost per impression deliveredCOVID-19 variant. Total revenue increased in each zip code in a dynamic way based on demand for impressions in that zip code. We believe Premier Agent revenue was also positively impacted by the full implementation of the new pricing method for our Premier Agent product, which may have increased the demand for our advertising platform. We believe the increase in Premier Agent revenue was alsoall other quarters throughout 2021 due in part to increased advertising sales to current Premier Agents, including brokerages and other teams.
The year-over-year quarterly increases in revenue were also attributable to year-over-year growth in other real estate revenue, which was primarily a result increases in revenue generated by Zillow Group Rentals. Growth in Zillow Group Rentals revenue was primarily attributable to increases in consumer adoption of our rentals information marketplaces, which in turn increased the likelihood of a lead, lease, or click that we monetize,visits and advertiser adoption of our cost per lead, cost per leaseunique users and cost per click advertising products, as well as enhancements to our marketing products that improve the ways in which consumers and advertisers connect through the Zillow Group Rentals marketplace. Other real estate revenue was also positively impacted by increased advertising sales to new home builders through our New Construction platform.
The composition of revenue continues to shift from display revenue to marketplace revenue, as we continue to dedicate more of our advertising placements on search, map and home detail pages to our information marketplace products, which provide consumers with services that are directly relevant to home-related searches.
persistent low interest rates throughout 2021.
Seasonality
Portions of our business
may beare affected by seasonal fluctuations in the residential real estate market, advertising spending and other factors. We believe
our rapid growththat customers’ responses to macro housing market factors including interest rate and home price increases and volatility as well as tight housing inventory levels may
be maskingmask seasonality in revenue. Although the
underlyingimpact of macroeconomic factors in 2022 and the COVID-19 pandemic impact during 2021 and 2022 may have masked seasonality
of our business. As ourduring the last two years, we would generally expect Premier Agent and rentals revenue
growth rate slows, we expect seasonal variances may become more pronounced, causing our operating results to
fluctuate. For example, in the years ended December 31, 2017 and 2016, costs and expenses peakedpeak in the three months ended June
30th, primarily attributable to increases in sales and marketing expenses which were, in turn, primarily attributable to increased investment in marketing and advertising initiatives to attract consumers across online and offline channels during peak seasons for home sales activity. In addition,30th or September 30th, consistent with the average number of
visits and unique users
and visitswhich have historically peaked during the three months ended June
30th30th or September
30th, also consistent30th, aligning with peak residential real estate activity in the spring and summer months. Because the number of
visits and unique users
and visits may impactimpacts impression inventory, leads
and connections to real estate professionals,
clicks and
graphical display inventory whichother events we monetize,
we believe this trend in the average number of
unique usersvisits and
visits may result in seasonality of revenue.Adjusted EBITDA
The following table sets forth a reconciliation of Adjusted EBITDA to net income (loss) for each of the periods presented below. See “Adjusted EBITDA” under “Results of Operations” above in this Item 7 for additional information about why we have included Adjusted EBITDA in this Annual Report on Form10-K and how we use Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
| | | (in thousands) | |
Reconciliation of Adjusted EBITDA to Net Income (Loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (77,175 | ) | | $ | 9,206 | | | $ | (21,845 | ) | | $ | (4,606 | ) | | $ | (23,491 | ) | | $ | 6,807 | | | $ | (156,149 | ) | | $ | (47,605 | ) |
Other income | | | (1,415 | ) | | | (1,407 | ) | | | (1,610 | ) | | | (953 | ) | | | (716 | ) | | | (561 | ) | | | (753 | ) | | | (681 | ) |
Depreciation and amortization expense | | | 28,579 | | | | 27,419 | | | | 27,022 | | | | 27,135 | | | | 25,738 | | | | 25,495 | | | | 25,550 | | | | 23,807 | |
Share-based compensation expense | | | 29,409 | | | | 28,574 | | | | 29,193 | | | | 26,395 | | | | 25,766 | | | | 27,285 | | | | 28,316 | | | | 25,551 | |
Impairment costs | | | 174,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Acquisition-related costs | | | 97 | | | | 218 | | | | 43 | | | | 105 | | | | 533 | | | | 93 | | | | 204 | | | | 593 | |
Gain on divestiture of business | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,251 | ) | | | — | | | | — | |
Interest expense | | | 6,991 | | | | 6,906 | | | | 6,897 | | | | 6,723 | | | | 2,668 | | | | 1,595 | | | | 1,572 | | | | 1,573 | |
Loss on debt extinguishment | | | — | | | | — | | | | — | | | | — | | | | 22,757 | | | | — | | | | — | | | | — | |
Income tax (benefit) expense | | | (89,627 | ) | | | 41 | | | | — | | | | — | | | | 1,494 | | | | — | | | | — | | | | (1,364 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA (1) | | $ | 70,859 | | | $ | 70,957 | | | $ | 39,700 | | | $ | 54,799 | | | $ | 54,749 | | | $ | 59,463 | | | $ | (101,260 | ) | | $ | 1,874 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Adjusted EBITDA for the three months ended June 30, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims. |
Unique Users
The following tables set forth our unique users for each of the periods presented below. Refer to “Unique Users” above in this Item 7 for information about how we measure unique users. The average number of unique users has historically peaked duringgenerally resulted in seasonal fluctuations in revenue in corresponding periods. Within the three months ended June 30 or September 30, consistent with seasonal variances of home sales which generally peakMortgages segment, we believe that seasonality would result in higher purchase origination volumes in the spring and summer months. Because the number of unique users may impact impression inventory, leads to real estate professionals,high seasons. Our Connect and graphicalCustom Quote mortgage marketing products display inventory which we monetize, this trend in the average number of unique users may result in seasonality of revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Average for the Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
| | | (in millions) | |
Unique Users | | | 151.6 | | | | 175.2 | | | | 178.1 | | | | 166.6 | | | | 140.1 | | | | 164.5 | | | | 168.7 | | | | 156.2 | |
Visits
The following tables set forth our visits for each of the periods presented below. Refer to “Visits” above in this Item 7 for information about how we measure visits. Consistent with the trend in our unique users discussed
above, the number of visits has historically peaked during the three months ended June 30 or September 30, consistent withsimilar seasonal variances of home sales which generally peak in the spring and summer months. Because the number of visits may increase the number of impressions we could monetize in our Premier Agent marketplace, this trend in the number of visits may result in seasonality of revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | December 31,
2017 | | | September 30,
2017 | | | June 30,
2017 | | | March 31,
2017 | | | December 31,
2016 | | | September 30,
2016 | | | June 30,
2016 | | | March 31,
2016 | |
| | | (in millions) | |
Visits | | | 1,435.6 | | | | 1,667.1 | | | | 1,678.7 | | | | 1,533.0 | | | | 1,189.7 | | | | 1,403.8 | | | | 1,431.4 | | | | 1,298.3 | |
fluctuations.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash flows from operations, debt financing and equity offerings. Our cash requirements consist principally of working capital, general corporate needs and mortgage loan originations. We generally reinvest available cash flows from operations into our business and to service our debt obligations.
Sources of Liquidity
As of December 31, 20172022 and December 31, 2016,2021, we had cash and cash equivalents, investments and investmentsrestricted cash of $762.5 million$3.4 billion and $507.5 million,$2.8 billion, respectively. Cash and cash equivalents balances consist of operating cash on deposit with financial institutions and money market funds, corporate notes and bonds, commercial paper, U.S. government agency securities and certificates of deposit with original maturities of three months or less.funds. Investments as of December 31, 2017 and December 31, 2016 consist of fixed income securities, which include U.S. government treasury securities, U.S. government agency securities, investment grade corporate notessecurities, and bonds, commercial paper, municipal securities, certificatespaper. Restricted cash primarily consists of deposit and foreign government securities.amounts held in escrow related to funding customer home purchases in our mortgage origination business. Amounts on deposit with third-party financial institutions exceed the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation insurance limits, as applicable. As of December 31, 2022, Zillow Group and its subsidiaries were in compliance with all debt covenants specified in the facilities described below.
We believe that cash from operations and cash
and cash equivalents and investment balances will be sufficient to meet our ongoing operating activities, working capital, capital expenditures and other capital requirements for at least the next 12 months.
On February 17, 2015, We believe we acquired Trulia in astock-for-stock transaction. The total purchase price of Trulia was approximately $2.0 billion. We have included Trulia’s results of operations prospectively after February 17, 2015, the date of acquisition. Our February 2015 acquisition of Trulia had a significant impact on our liquidity, financial positionwill meet longer-term expected future cash requirements and results of operations.
Further, as a result of the acquisition, Zillow Group entered into a supplemental indenture in respect of the 2020 Notes in the aggregate principal amount of $230.0 million, which supplemental indenture provides, among other things, that, at the effective time of the Trulia acquisition, (i) each outstanding 2020 Note is no longer convertible into shares of Trulia common stock and is convertible solely into shares of Zillow Group Class A common stock, pursuant to, and in accordance with, the terms of the indenture governing the 2020 Notes, and (ii) Zillow Group guaranteed all of the obligations of Trulia under the 2020 Notes and related indenture. The aggregate principal amount of the 2020 Notes is due on December 15, 2020 if not earlier converted or redeemed. Interest is payable on the 2020 Notes at the rate of 2.75%semi-annually on June 15 and December 15 of each year. In December 2016, the Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notes discussed below to repurchase $219.9 million aggregate principal of the 2020 Notes in privately negotiated transactions.
Holders of the 2020 Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. In connection with the supplemental indenture in respect of the 2020 Notes, the conversion ratio immediately prior to the effective time of the Trulia Merger of 27.8303 shares of Trulia common stock per $1,000principal amount of notes was adjusted to 12.3567 shares of our Class A common stock per $1,000 principal amount of notes based on the exchange ratio of 0.444 per the Merger Agreement. This was equivalent to an initial conversion price of approximately $80.93 per share of our Class A common stock. In connection with the August 2015 distribution of shares of our Class C capital stock as a dividend to our Class A and Class B common shareholders, the conversion ratio has been further adjusted to 41.4550 shares of Class A common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $24.12 per
share of our Class A common stock. The conversion ratio will be adjusted for certain dilutive events and will be increased in the case of corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture governing the notes). The conversion option of the 2020 Notes has no cash settlement provisions. The conversion option does not meet the criteria for separate accounting as a derivative as it is indexed to our own stock.
The 2020 Notes are redeemable, at our option, in whole or in part on or after December 20, 2018, if the last reported sale price per share of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
For additional information regarding the 2020 Notes, see Note 11 to our consolidated financial statements.
In December 2016, Zillow Group issued $460.0 million aggregate principal amount of 2021 Notes, which amount includes the exercise in full of the $60.0 million over-allotment option, to Citigroup Global Markets Inc. as the initial purchaser of the 2021 Notes in a private offering to the initial purchaser in reliance on the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for resale to qualified institutional buyers as defined in, and pursuant to, Rule 144A under the Securities Act. The 2021 Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017. The 2021 Notes are convertible into cash, shares of our Class C capital stock or a combination thereof, at the Company’s election. The 2021 Notes will mature on December 1, 2021, unless earlier repurchased, redeemed, or converted in accordance with their terms. The Company incurred transaction costs of approximately $12.2 millionrelated to the issuance of the 2021 Notes, including approximately $11.5 million in fees to the initial purchaser, which amount was paid out of the gross proceeds from the note offering.
The net proceeds from the issuance of the 2021 Notes were approximately $447.8 million, after deducting fees and expenses. The Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notes to repurchase a portion of the outstanding 2020 Notes in privately negotiated transactions. In addition, the Company used approximately $36.6 million of the net proceeds from the issuance of the 2021 Notes to pay the cost of Capped Call Confirmations as discussed in Note 11 to our consolidated financial statements. The Company used the remainder of the net proceeds for general corporate purposes.
Prior to the close of business on the business day immediately preceding September 1, 2021, the 2021 Notes are convertible at the option of the holders of the 2021 Notes only under certain conditions, none of which conditions have been satisfied as of December 31, 2017. On or after September 1, 2021, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2021 Notes may convert their 2021 Notes at their option at the conversion rate then in effect, irrespective of these conditions. The Company will settle conversions of the 2021 Notes by paying or delivering, as the case may be, cash, shares of Class C capital stock, orthrough a combination of cash flows from operations, debt financing and sharesequity offerings, as applicable.
The cash flows related to discontinued operations have not been separated. Accordingly, the consolidated statements of Class C capital stock, at its election. The conversion rate will initially be 19.0985 sharescash flows and the following discussions include the results of Class C capital stock per $1,000 principal amount of 2021 Notes (equivalent to an initial conversion price of approximately $52.36 per share of Class C capital stock). The conversion rate is subject to customary adjustments upon the occurrence of certain events. The Company may redeem for cash all or part of the 2021 Notes, at its option, on or after December 6, 2019, under certain circumstances at a redemption price equal to 100% of the principal amount of the 2021continuing and discontinued operations. See Note 3 in our Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as definedConsolidated Financial Statements in the indenture governing the 2021 Notes).We may not redeem the 2021 Notes prior to December 6, 2019. We may redeem the 2021 NotesPart II, Item 8 of this Annual Report on Form 10-K for cash, at our option, in whole or in part on or after December 6, 2019, if the last reported sale price per share of our Class C capital stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
For additional information regarding the 2021 Notes, see Note 11 to our consolidated financial statements.
In January 2017, we acquired HREO for an immaterial amount. A substantial majority of the purchase price for HREO has been allocated to goodwill and intangible assets.
In June 2017, we purchased an equity interest in a privately held corporation for approximately $10.0 million. For additional information regarding the equity interest, see Note 7 to our consolidated financial statements.
In September 2017, we acquired New Home Feed for an immaterial amount. A substantial majority of the purchase price for New Home Feed has been allocated to goodwill and an intangible asset.
on discontinued operations, including supplemental cash flow information. The following table presents selected cash flow data for the periods presented:
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | (in thousands) | |
Cash Flow Data: | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 258,191 | | | $ | 8,645 | | | $ | 22,659 | |
Net cash provided by (used in) investing activities | | | (247,394 | ) | | | (65,719 | ) | | | 64,441 | |
Net cash provided by financing activities | | | 97,706 | | | | 71,528 | | | | 16,273 | |
Net presented (in millions):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cash Flow Data: | | | | | |
| Net cash provided by (used in) operating activities | $ | 4,504 | | | $ | (3,177) | | | $ | 423 | |
| Net cash provided by (used in) investing activities | (1,533) | | | 1,088 | | | (1,038) | |
| Net cash provided by (used in) financing activities | (4,341) | | | 3,148 | | | 1,163 | |
Cash
Flows Provided By
(Used In) Operating Activities
Our operating cash flows result primarily from cash received from real estate professionals,
rental professionals, mortgage professionals,
rental professionalsbuilders and brand
advertisers.advertisers, as well as cash received from sales of mortgages originated by Zillow Home Loans and, prior to September 30, 2022, from customers for sales of homes through Zillow Offers. Our primary uses of cash from operating activities include
payments for marketing and advertising activities,
mortgages funded through Zillow Home Loans and employee
benefitscompensation and
compensation.benefits. Additionally, uses of cash from operating activities include costs associated with operating our mobile applications and websites and other general corporate expenditures.
Prior to the wind down of Zillow Offers operations, our primary uses of cash from operating activities also included payments for homes purchased through Zillow Offers.
For the year ended December 31, 2017,2022, net cash provided by operating activities was $258.2$4.5 billion. This was primarily driven by a net loss of $101 million, adjusted by share-based compensation expense of $451 million, depreciation and amortization expense of $157 million, amortization of contract cost assets of $30 million, amortization of debt discount and debt issuance costs of $26 million, amortization of right of use assets of $23 million, a loss on extinguishment of debt of $21 million and an inventory valuation adjustment of $9 million. This was partially offset by $3 million in other adjustments to reconcile net loss to net cash provided by operating activities. Changes in operating assets and liabilities increased cash provided by operating activities by $3.9 billion. The changes in operating assets and liabilities are primarily related to a $3.9 billion decrease in inventory and an $82 million decrease in accounts receivable as we wound down Zillow Offers operations, a $66 million decrease in mortgage loans held for sale driven by increased interest rates which decreased demand for mortgages, a $6 million decrease in prepaid expenses and other current assets due to the timing of payments and a $7 million increase in other long-term liabilities primarily due to our outstanding warrant agreement. These changes were partially offset by a $71 million decrease in accrued expenses and other liabilities and a $60 million decrease in accrued compensation and benefits driven primarily by the wind down of Zillow Offers operations, a $21 million decrease in lease liabilities primarily due to lease payments, an $18 million increase in contract cost assets and a $7 million decrease in deferred revenue.
For the year ended December 31, 2021, net cash used in operating activities was $3.2 billion. This was primarily driven by a net loss of $528 million, adjusted by an inventory valuation adjustment of $408 million, share-based compensation expense of $312 million, depreciation and amortization expense of $130 million, amortization of debt discount and debt issuance costs of $104 million, impairment and restructuring costs of $57 million, amortization of contract cost assets of $42 million, amortization of right of use assets of $23 million, a loss on extinguishment of debt of $17 million and $12 million in other adjustments to reconcile net loss to cash used in operating activities, including deferred income taxes. Changes in operating assets and liabilities offset these adjustments by $3.8 billion. The changes in operating assets and liabilities are primarily related to a $3.8 billion increase in inventory due to home purchases outpacing the sale of homes through Zillow Offers for the year ended December 31, 2021, an $82 million increase in accounts receivable due primarily to an increase in revenue from products and services billed in arrears, an $82 million increase in prepaid expenses and other current assets due to the timing of payments, a $29 million decrease in lease liabilities, a $26 million increase in contract cost assets due primarily to capitalized sales commissions and an $12 million decrease in other long-term liabilities. These changes were partially offset by a $224 million decrease in mortgage loans held for sale, a $61 million increase in accrued expenses and other liabilities driven by the timing of payments, $13 million in accrued compensation and benefits and a $5 million change in accounts payable.
For the year ended December 31, 2020, net cash provided by operating activities was $423 million. This was primarily driven by a net loss of
$94.4$162 million, adjusted by
anon-cash impairment chargeshare-based compensation expense of
$174.0$197 million, depreciation and amortization expense of
$110.2$111 million,
share-based compensation expense of $113.6 million, an $89.6 millionnon-cash change in our net deferred tax asset and valuation allowance as a result of thenon-cash impairment charge and the rate decrease included in the Tax Cuts and Jobs Act, amortization of
thedebt discount and
debt issuance costs
of $102 million, non-cash impairment costs of $77 million, amortization of contract cost assets of $37 million, amortization of right of use assets of $24 million and $3 million in other adjustments to reconcile net loss to cash provided by operating activities. This was partially offset by a gain on
the 2021 Notesextinguishment of
$18.0 million, an increase in bad debt
expense of
$7.3 million, a change in deferred rent of $7.1 millionand a loss on disposal of property and equipment of $5.7$1 million. Changes in operating assets and liabilities increased cash provided by operating activities by
$5.9$41 million. The changes in operating assets and liabilities are primarily
related to a $345 million decrease in inventory due to
the sale of homes and a
$21.2 millionincreasedecrease in
accounts receivable driven by an increasehome purchases through Zillow Offers during the year ended December 31, 2020 associated with our temporary pause in
revenue,Zillow Offers home buying activity to preserve liquidity in response to COVID-19, a
$19.0$15 million increase in accrued expenses and other
current liabilities
due to growth in our business, partially offset by a $10.8 million decrease in prepaid expenses and other assets driven primarily by the timing of payments.For the year ended December 31, 2016, net cash provided by operating activities was $8.6 million. This was driven by a net loss of $220.4 million, including the impact of the settlement of a lawsuit for $130.0 million in June 2016, adjusted by share-based compensation expense of $106.9 million, depreciation and amortization expense of $100.6 million, a loss on debt extinguishment of $22.8 million, a loss on disposal of property and equipment of $3.7 million, an increase in bad debt expense of $2.7 million, an increase in the balance of deferred rent of $1.7 million, amortization of bond premium of $1.5 million, a $1.4 million gain on the divestiture of a business, a $1.4 millionnon-cash change in the valuation allowance related to a deferred tax liability generated in connection with our February 2016 acquisition of Naked Apartments, and amortization of the discount and issuance costs on the 2021 Notes of $0.9 million. Changes in operating assets and liabilities decreased cash
provided by operating activities by $8.9 million. The decrease in operating assets and liabilities is primarily due to a $13.3 million decrease in accounts receivable driven by the timing of payments, received, a $13.3$13 million decreaseincrease in prepaid expenses andaccounts payable, a $10 million increase in other assets driven by the timing of payments made, andlong-term liabilities, a $12.5$10 million increase in accrued compensation and benefits and a $9 million increase in deferred revenue. These changes were partially offset by a $294 million increase in mortgage loans held for sale, a $42 million increase in contract cost assets due primarily to the capitalization of sales commissions, a $16 million increase in prepaid expenses and other current assets due primarily to timing of payments and growth in our contract assets, a $7 million increase in accounts receivable due to an increase in sales commissions driven by increased sales as well as the timing of payroll.
For the year ended December 31, 2015, net cash provided by operating activities was $22.7 million. This was driven by a net loss of $148.9 million, adjusted by share-based compensation expense of $105.2 million, depreciationrevenue from products and amortization expense of $75.4 million,non-cash restructuring costs of $19.0 million, a $3.9 millionnon-cash loss on divestiture of businesses, net, bad debt expense of $3.2 million, a $2.9 millionnon-cash changeservices billed in the valuation allowance related to a deferred tax liability generated in connection with our acquisition of DotLoop, Inc., an increase in the balance of deferred rent of $2.6 million, amortization of bond premium of $2.5 million,arrears and a loss on disposal of property and equipment of $1.4 million. Changes$2 million decrease in operating assets andlease liabilities decreased cash provided by operating activities by $38.8 million.
Net due to scheduled lease payments.
Cash
Flows Provided By (Used In) Investing Activities
Our primary investing activities include the purchase and sale or maturity of investments, the purchase of property and equipment and intangible assets
the purchase of cost method investments, netand cash paid in connection with
acquisitions and proceeds from divestiture of businesses.acquisitions.
For the year ended December 31, 2017,2022, net cash used in investing activities was $247.4 million.$1.5 billion. This was primarily the result of $147.8$1.4 billion of net purchases of investments and $140 million of purchases of property and equipment and intangible assets.
For the year ended December 31, 2021, net cash provided by investing activities was $1.1 billion. This was the result of $1.7 billion of net proceeds from the maturity of investments, partially offset by $497 million of net cash paid for our September 2021 acquisition of ShowingTime, and $105 million of purchases of property and equipment and intangible assets.
For the year ended December 31, 2020, net cash used in investing activities was $1.0 billion. This was the result of $939 million of net purchases of investments $78.6in connection with investment of a portion of the net proceeds from our May 2020 issuance of the 2025 Notes and offering of our Class C capital stock, and $109 million of purchases for property and equipment and intangible assets, $11.5 million paid in connection with acquisitions, and approximately $10.0 million related to the purchase of a cost method investment, partially offset by $0.6 millionin$10 million in proceeds from the sale of an equity investment.
Cash Flows Provided By (Used In) Financing Activities
Net cash provided by (used in) financing activities has primarily resulted from repurchases of Class A common stock and Class C capital stock, settlement of long term debt including our securitization term loans, net proceeds from equity offerings, the exercise of employee option awards, proceeds from our
August 2016 salesecuritization transaction, proceeds from and repayments of
borrowings on our
Diverse Solutions business.credit facilities related to Zillow Offers and repayments of borrowings on the warehouse lines of credit and master repurchase agreements related to Zillow Home Loans.
For the year ended December 31,
2016, net2022, cash used in
investingfinancing activities was
$65.7 million. This$4.3 billion, which was primarily
related to $2.2 billion of repayments on borrowings of our credit facilities and 1.2 billion for the
resultrepayment of
$71.7the term loans associated with the wind down of Zillow Offers operations, $947 million of
purchasescash paid for
propertyshare repurchases and
equipment$76 million of net repayments on our warehouse line of credit and
intangible assets, $16.3 million paid in connection with our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive, $10.0 millionmaster repurchase agreements related to
the purchase of a cost method investment,Zillow Home Loans. These cash outflows were partially offset by
$29.1 millionof net maturities and sales$46 million of
investments and $3.2 million in proceeds from the
divestitureexercise of
a business.option awards.
For the year ended December 31,
2015, net2021, cash provided by
investingfinancing activities was
$64.4 million. This$3.1 billion, which was primarily
the result of $173.4 millionrelated to $1.8 billion of net
cash acquiredborrowings on our credit facilities related to Zillow Offers, $1.1 billion in
connection with our February 2015 acquisition of Trulia, $36.0 million of net proceeds from
maturitiesthe issuance of the 2021-1 and
sales2021-2 term loans, net of
investments, and $23.4issuance costs, $545 million in proceeds from the
divestituresale of
businesses,3 million shares of Class C capital stock under our equity distribution agreement and $127 million of proceeds from the exercise of option awards. These cash inflows were partially offset by
$104.2 million paid in connection with our acquisition of DotLoop, Inc., $68.1$302 million of
purchasescash paid for
propertyshare repurchases pursuant to our stock buyback program and
equipment$197 million of net repayments on our warehouse line of credit and
intangible assets and a $3.9 million decrease in restricted cash.The increases in capital expenditures and intangible assets during all three periods reflect our continued investments in support of business growth. We expectmaster repurchase agreements related to continue to make significant investments in our business to provide for the continued innovation in our products and services in 2018 and thereafter.
Net Cash Provided By Financing Activities
Zillow Home Loans.
For the year ended December 31, 2017, our2020, cash provided by financing activities was $1.2 billion, which was primarily related to net proceeds from the exerciseissuance of employee option awards. Thethe 2025 Notes of $553 million, $444 million of proceeds from the exercise of option awards, net proceeds from the public offering of our Class C capital stock of $412 million, and $279 million of net borrowings on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans. These cash inflows were partially offset by $330 million of net repayments of borrowings on our credit facilities related to Zillow Offers and $195 million of cash paid for the extinguishment of our 2021 Notes.
Capital Resources
We continue to invest in the development and expansion of our continuing operations. Ongoing investments include, but are not limited to, improvements in our technology platforms, infrastructure and continued investments in sales and marketing. To finance these investments and ongoing operations, and in the event that we require additional funding to support strategic business opportunities, we have issued convertible senior notes. As of December 31, 2022, we have a total of $1.7 billion aggregate principal of convertible senior notes outstanding. The convertible notes are senior unsecured obligations, and interest on the convertible notes is paid semi-annually. The following table summarizes our convertible senior notes as of the periods presented (in millions, except interest rates):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2022 | | December 31, 2021 |
| Maturity Date | | Aggregate Principal Amount | | Stated Interest Rate | | Carrying Value | | Carrying Value |
| September 1, 2026 | | $ | 499 | | | 1.375 | % | | $ | 495 | | | $ | 369 | |
| May 15, 2025 | | 565 | | | 2.75 | % | | 560 | | | 443 | |
| September 1, 2024 | | 608 | | | 0.75 | % | | 605 | | | 507 | |
| Total | | $ | 1,672 | | | | | $ | 1,660 | | | $ | 1,319 | |
Refer to Note 13 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding our convertible senior notes, including conversion rates, conversion and redemption dates and the related capped call transactions.
On February 17, 2021, we entered into an equity distribution agreement with certain sales agents and/or principals (the “Managers”), pursuant to which we may offer and sell from time to time, through the Managers, shares of our Class C capital stock, having an aggregate gross sales price of up to $1 billion, in such share amounts as we may specify by notice to the Managers, in accordance with the terms and conditions set forth in the equity distribution agreement. During the year ended December 31,
2017 were $98.1 million.For2022, we did not sell any shares under the equity distribution agreement. During the year ended December 31, 2016, the2021, we issued and sold 3 million shares of our Class C capital stock for total proceeds from the issuance of the 2021 Notes,$551 million and net proceeds of issuance costs, were $447.8 million. The Company also paid approximately $36.6$545 million, in premiums for certain Capped Call Confirmations in December 2016. The Company used approximately $370.2after deducting $6 million of commissions and other offering expenses incurred. For additional information regarding the net proceeds
from the issuance of the 2021equity distribution agreement, see Note 15 in our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
On December 2, 2021, Zillow Group’s Board of Directors authorized the repurchase
$219.9of up to $750 million
aggregate principal of
our Class A common stock, Class C capital stock or a combination thereof. On May 4, 2022, the
2020 Notes in privately negotiated transactions. The proceeds fromBoard of Directors authorized the
exerciserepurchase of
option awards forup to an additional $1 billion (together the “Repurchase Authorizations”) of our Class A common stock, Class C capital stock or a combination thereof. During the year ended December 31,
2016 were $31.2 million.For2022, we repurchased 4.1 million shares of Class A common stock and 18.2 million shares of Class C capital stock at an average price of $44.14 and $42.30 per share, respectively, for an aggregate purchase price of $179 million and $768 million, respectively. During the year ended December 31, 2015,2021, we repurchased 4.9 million shares of Class C capital stock at an average price of $61.12 per share for an aggregate purchase price of $302 million. As of December 31, 2022, $500 million remained available for future repurchases pursuant to the proceeds fromRepurchase Authorizations, which repurchases decrease our liquidity and capital resources when effected. On November 1, 2022, the exerciseBoard of option awardsDirectors further expanded the Repurchase Authorizations to allow for the repurchase of a portion of our outstanding convertible senior notes. There were $24.4 million. In addition, forno repurchases of convertible senior notes during the year ended December 31, 2015, approximately $8.22022. For additional information on our Repurchase Authorizations, see Note 15 in our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
IMT
Our principal sources of liquidity for the IMT segment are cash flows from operations within the segment.
Mortgages
Zillow Home Loans impacts our liquidity and capital resources as a cash intensive business that funds mortgage loans originated for resale in the secondary market. We primarily use debt financing to fund mortgage loan originations. The following table summarizes our warehouse line of credit and master repurchase agreements as of the periods presented (in millions, except interest rates): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lender | | Maturity Date | | Maximum Borrowing Capacity | | Outstanding Borrowings at
December 31, 2022 | | Outstanding Borrowings at
December 31, 2021 | | Weighted Average Interest Rate |
| Credit Suisse AG, Cayman Islands | | March 17, 2023 | | $ | 100 | | | $ | 23 | | | $ | 77 | | | 6.16 | % |
| Citibank, N.A. | | June 9, 2023 | | 100 | | | 3 | | | 17 | | | 6.18 | % |
| Comerica Bank | | June 24, 2023 | | 50 | | | 11 | | | 19 | | | 6.22 | % |
| | Total | | $ | 250 | | | $ | 37 | | | $ | 113 | | | |
Refer to Note 13 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on Zillow Group’s warehouse line of credit and master repurchase agreements.
Homes
Prior to its wind down, Zillow Group’s purchase of homes through the Zillow Offers program had a significant impact on our liquidity and capital resources as a cash and inventory intensive business. We previously used credit facilities, and beginning in the third quarter of 2021, asset-backed securitizations, to fund a portion of the purchase price of homes and certain related costs. On November 2, 2021, the Board of Directors of Zillow Group made the determination to wind down Zillow Offers operations and as of September 30, 2022, the wind down was complete. As a result of the wind down, during the first half of 2022, certain wholly owned subsidiaries of Zillow Group repaid all amounts drawn on the Zillow Offers credit facilities and all principal on the securitization term loans. We incurred prepayment penalties of $6 million
associated with the pay-down of
equity awards were withheldour credit facilities and $8 million in connection with the pay-down of the securitizations. Refer to Note 3 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for
tax liabilities.Off-Balance Sheet Arrangements
We did notadditional information on the Zillow Offers wind down.
Contractual Obligations and Other Commitments
Convertible Senior Notes - Includes the aggregate principal amounts of the 2024 Notes, 2025 Notes and 2026 Notes due on their contractual maturity dates, as well as the associated coupon interest. As of December 31, 2022, we have anyoff-balance sheet arrangements other thanan outstanding surety bonds issuedaggregate principal amount of $1.7 billion, none of which is payable within 12 months. Future interest payments associated with the convertible senior notes total $75 million, with $27 million payable within 12 months. Refer to Note 13 of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for maturity dates, stated interest rates and additional information on our convertible senior notes.
Mortgages Segment Credit Facilities - Includes principal amounts due for amounts borrowed under the warehouse line of credit and master repurchase agreements to finance mortgages originated through Zillow Home Loans. As of December 31, 2022, we have outstanding principal amounts of $37 million. Amounts exclude an immaterial amount of estimated interest payments.
Operating Lease Obligations - Our lease portfolio primarily comprises operating leases for our benefitoffice space. As of approximately $3.7December 31, 2022, we have operating lease obligations totaling $229 million, and $3.6with $42 million respectively,payable within 12 months. For additional information regarding our operating leases, see Note 12 to our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. Additionally, as of December 31, 20172022 and 2016.2021, we had outstanding letters of credit of approximately $16 million, which secure our lease obligations in connection with certain of the operating leases of our office spaces.
Purchase Obligations - We do not believe that the surety bonds will have a material effect onnon-cancellable purchase obligations for content related to our liquidity, capital resources, market risk support or credit risk support.mobile applications and websites and certain cloud computing costs. As of December 31, 2022, we have purchase obligations totaling $111 million, with $79 million payable within 12 months. For additional information regarding the surety bonds,our purchase obligations, seeNote 1618 to our consolidated financial statements under the subsection titled “Surety Bonds”.Contractual Obligations and Other Commitments
The following table provides a summaryNotes to Consolidated Financial Statements in Part II, Item 8 of our contractual obligations as of December 31, 2017:
| | | | | | | | | | | | | | | | | | | | |
| | | Payment Due By Period | |
| | | Total | | | Less Than
1 Year | | | 1-3 Years | | | 3-5 Years | | | More Than
5 Years | |
| | | (in thousands, unaudited) | |
2021 Notes (1) | | $ | 460,000 | | | $ | — | | | $ | — | | | $ | 460,000 | | | $ | — | |
Interest on 2021 Notes (2) | | | 36,033 | | | | 9,200 | | | | 18,400 | | | | 8,433 | | | | — | |
2020 Notes (3) | | | 10,137 | | | | — | | | | — | | | | 10,137 | | | | — | |
Interest on 2020 Notes (4) | | | 837 | | | | 279 | | | | 558 | | | | — | | | | — | |
Operating lease obligations (5) | | | 162,171 | | | | 25,510 | | | | 49,585 | | | | 48,354 | | | | 38,722 | |
Purchase obligations (6) | | | 216,822 | | | | 57,822 | | | | 127,000 | | | | 32,000 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 886,000 | | | $ | 92,811 | | | $ | 195,543 | | | $ | 558,924 | | | $ | 38,722 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | The aggregate principal amount of the 2021 Notes is due on December 1, 2021 if not earlier converted or redeemed. |
(2) | The stated interest rate on the 2021 Notes is 2.00%. |
(3) | The aggregate principal amount of the 2020 Notes is due on December 15, 2020 if not earlier converted or redeemed. |
(4) | The stated interest rate on the 2020 Notes is 2.75%. |
(5) | Our operating lease obligations consist of various operating leases for office space under noncancelable operating lease agreements. For additional information regarding our operating leases, see Note 16 to our consolidated financial statements. |
(6) | We have noncancelable purchase obligations for content related to our mobile applications and websites. For additional information regarding our purchase obligations, see Note 16 to our consolidated financial statements. |
We have excluded unrecognized tax benefits from the contractual obligations table above because we cannot make a reasonably reliable estimate of the amount and period of payment due primarily to our significant net operating loss carryforwards.
In the course of business, we are required to provide financial commitments in the form of surety bonds to third parties as a guarantee of our performancethis Annual Report on and our compliance with certain obligations. If we were to fail to perform or comply with these obligations, any draws upon surety bonds issued on our behalf would then trigger our payment obligation to the surety bond issuer. We have outstanding surety bonds issued for our benefit of approximately $3.7 million and $3.6 million, respectively, as of December 31, 2017 and 2016.
Form 10-K.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates,
judgments and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses and related disclosures. We evaluate our estimates,
judgments and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these
estimates, and the health of the real estate market, the broader economy and the COVID-19 pandemic (including variants) have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact our estimates.
We believe that the
assumptionsestimates, judgments and
estimatesassumptions associated with
accounting for certain revenue
recognition,offerings, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of
long-lived assets and intangible assets with definite lives
share-based compensation, income taxes, business combinations, and
theother long-lived assets, recoverability of goodwill, and
indefinite-lived intangible assets,share-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Accounting for Certain Revenue
Recognition Accrued Revenue. We recognizeaccrue revenue for certain of our products, primarily our Premier Agent Flex, rentals pay per lease (“Zillow Lease Connect”) and StreetEasy Experts offerings. With Premier Agent Flex, Premier Agents are provided validated leads at no initial cost and pay a performance advertising fee only when (i) persuasive evidencea real estate transaction is closed with one of an arrangement exists, (ii) delivery has occurred or services have been renderedthe leads within two years. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions and the value of those transactions. The transaction prices for leases generated through Zillow Lease Connect and real estate transactions executed through our StreetEasy Experts product also represent variable consideration. We estimate the amount of variable consideration for Zillow Lease Connect based on the expected number of qualified leases to be secured and the expected price per closed lease. We estimate the amount of variable consideration for StreetEasy Experts based on the number of validated leads that convert to real estate transactions and the value of those transactions. As of December 31, 2022, we had accrued $71 million in revenue associated with these products.
Although we do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the customer, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. We consider a signed agreement, a binding insertion order or other similar documentation reflecting the terms and conditions under which products or services will be providednumber of real estate transactions to be persuasive evidenceclosed and qualified leases to be secured is resolved, judgment is required to determine the quantity and value of an arrangement. Collectabilitytransactions and leases that are expected to be realized in a future period based on the number of leads delivered during the current period. Our estimated revenue is assessed based on a number of factors, including payment historyassumptions, which include estimating the conversion rate of a lead to a real estate transaction or qualified lease, estimating the velocity of conversions and estimating the fee amounts likely to be received. Estimates are primarily developed based on historical data and our future expectations based on current market trends.
Mortgage Origination Revenue. Mortgage origination revenue generated by Zillow Home Loans reflects origination fees on purchase or refinance mortgages and the creditworthinesscorresponding sale, or expected future sale, of a customer. If itloan. When an interest rate lock commitment is determinedmade to a customer, we record the expected gain on sale of the mortgage, plus the estimated earnings from the expected sale of the associated servicing rights, adjusted for a pull-through percentage (which represents the probability that collectionan interest rate lock commitment will ultimately result in a closed loan), as revenue. Judgment is not reasonably assured, revenue is not recognized until collection becomes reasonably assured,required to determine the appropriate pull-through rate, which is generallyestimated based on expected changes in market conditions, loan stage and historical borrower behavior. Revenue from loan origination fees is recognized at the time the related purchase or refinance transactions are completed, usually upon receiptthe close of cash.escrow and when we fund the purchase or refinance mortgage loans.
Contract Cost Assets
We
generate revenue from the salecapitalize certain incremental costs of
advertising services and our suite of marketing software and technology solutionsobtaining contracts with customers which we expect to
businesses and professionalsrecover. These costs relate to commissions paid to sales personnel, primarily
associated with the residential real estate, mortgage and rental industries. These professionals include real estate, mortgage and rental professionals and brand advertisers. Our two primary revenue categories are marketplace revenue and display revenue. Incremental direct costs incurred related to the acquisition or origination of a customer contract in a transaction that results in the deferral of revenue are expensed as incurred.Marketplace Revenue. Marketplace revenue consists primarily of Premier Agent revenue, other real estate revenue and mortgages revenue. In addition, Market Leader revenue is included in our results of operations in Marketplace revenue from February 17, 2015 through the date of divestiture of September 30, 2015.
Premier Agent revenue is derived from our Premier Agent and Premier Broker programs. Our Premier Agent and Premier Broker programs offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising needs, while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive access to a dashboard portal on our mobile application or website that provides individualized program performance analytics, self-service ad buying tools and our free customer relationship management, or CRM, tool that captures detailed information about each contact made with a Premier Agent or Premier Broker through our mobile and web platforms.
We offer our flagship Premier Agent advertising product and our Premier Broker advertising product on a cost per impression basis. Impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites. In 2016, we began testing and implementation of a new auction-based pricing method for our Premier Agent product by which we determine theprogram. Contract cost per impression delivered in each zip code based upon the total amount spent by Premier Agents to purchase impressions in the zip code during the month. The cost per impression that we charge is dynamic – as demand for impressions in a zip code increases or decreases, the cost per impression in that zip code may be increased or decreased. This new auction-based pricing method complements our self-serve account interface, which we introduced to Premier Agents over the course of 2016. The interface includes account management tools that allow agent advertisers to independently control
their budgets, impression buys, and the duration of their advertising commitment. We began testing this auction-based pricing method for our Premier Agent product to better align our revenue opportunities with increasing traffic levels to our mobile and web platforms and leveraging increasing demand by real estate agents for access to home shoppers who use our mobile applications and websites. In the fourth quarter of 2016, we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. With this auction-based pricing method, we recognize revenue related to our dynamic impression-based Premier Agent and Premier Broker products based on the contractual maximum spendassets are amortized on a straight-line basis during the contractual period over which the services are delivered. Our Premier Agent and Premier Broker products include multiple deliverables which are accounted for as a single unit of accounting, as the delivery or performance of the undelivered elements is based on traffic to our mobile applications and websites. In our history of building our real estate and other information marketplaces and product offerings, we have continually evaluated and utilized various pricing and value delivery strategies in order to better align our revenue opportunities with the growth in usage of our mobile and web platforms.
From 2012 through the end of the third quarter of 2016, we had primarily charged customers for our Premier Agent product based on the number of impressions delivered on our buyer’s agent list in zip codes purchased and a contracted maximum cost per impression. With this pricing method, we recognized revenue related to our impression-based Premier Agent product based on the lesser of (i) the actual number of impressions delivered on our buyer’s agent list during the period multiplied by the contracted maximum cost per impression, or (ii) the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered, typically over a period that is consistent with the transfer to the customer of six monthsthe products or twelve months and thenmonth-to-month thereafter.
We continueservices to support some legacy Trulia Premier Agent products, which are primarily sold on a fixed fee subscription basis for periods that generally range from six months to 12 months. Subscription advertising revenue for Trulia’s products included in Premier Agent revenue is recognized on a straight-line basis during the contractual period over which the services are delivered.
Other real estate revenue primarily includes revenue generated by Zillow Group Rentals, as well as revenue fromasset relates, generally the sale of various other marketing and business products and services to real estate professionals, including our new construction marketing solutions. Zillow Group Rentals includes our rentals marketplace and suite of tools for rental professionals. Rentals revenue primarily includes revenue generated by advertising sold to property managers and other rental professionals on a cost per lead, cost per lease and cost per click generated basis whereby we recognize revenue as leads are delivered to rental professionals or as qualified leases are confirmed. Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby revenue is recognized based on the contractual spend on a straight-line basis during the contractual period over which the services are delivered.
Mortgages revenue primarily includes marketing products sold to mortgage professionals on a cost per lead basis, including our Long Form and Custom Quote services. Mortgages revenue also includes revenue generated by Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform, for which we recognize revenue on a straight-line basis during the contractual period over which the services are delivered. For our Long Form and Custom Quote cost per lead mortgage marketing products, generally, participating qualified mortgage professionals make a prepayment to gain access to consumers interested in connecting with mortgage professionals. In Zillow Group’s Long Form platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. We only charge mortgage professionals a fee when users contact mortgage professionals through Long Form or Custom Quotes. Mortgage professionals who exhaust their initial prepayment can then prepay additional funds to continue to participate in the marketplace. We recognize revenue when a user contacts a mortgage professional through Zillow Group’s mortgages platform.
Market Leader revenue primarily includes revenue from the sale of a comprehensive premiumsoftware-as-a-service based marketing product typically sold to real estate professionals as a bundle of products under a fixed fee subscription. Market Leader became part of Zillow Group through Zillow Group’s February 2015 acquisition of Trulia and was divested as of September 30, 2015.
Display Revenue. Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites and our partner websites and mobile applications, primarily in the real estate industry, including real estate brokerages, multi-family rental professionals, mortgage professionals and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. Impressions are the number of times an advertisement is loaded on a web page and clicks are the number of times users click on an advertisement. Pricing is primarily based on advertisement size and position on our mobile applications and websites or on our partner websites and mobile applications, and fees are generally billed monthly. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites.
Upon our January 1, 2018 adoptionestimated life of the new guidance issued bycustomer relationship. Our determination of the FASB on revenue from contracts with customers,estimated life of the customer relationship involves significant judgment. In determining the estimated life of our customer relationships, we expect that the number of estimatesconsider quantitative and assumptions we make will increase related to revenue recognition and the incremental costs of obtaining a contract with a customer,qualitative data, including, but not limited to, estimateshistorical customer data, recent changes or expected changes in product or service offerings, and assumptionschanges in how we monetize our products and services. The amortization period for capitalized contract costs related to variableour Premier Agent program are approximately three years.
We monitor our contract cost assets for impairment and recognize an impairment loss in the statement of operations to the extent the carrying amount of the asset recognized exceeds the amount of consideration
practical expedients applied,we expect to receive in the future and
that we have received but have not recognized in revenue less the
period over which commission costs
will be recognized. that relate directly to providing those goods or services that have not yet been recognized as expenses.
Website and Software Development Costs
The costs incurred in the preliminary stages of website and software development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized in property and equipment and amortized on a straight-line basis over their estimated useful lives. Maintenance and enhancement costs,
(includingincluding those costs in the post-implementation
stages)stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the
websites (or software)website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful lives.
Capitalized development activities placed in service are amortized over the expected useful lives of those releases, currently estimated at one to
twofive years.
EstimatedThe estimated useful lives of website and software development activities are reviewed frequently and adjusted as appropriate to reflect upcoming development activities that may include significant upgrades and/or enhancements to the existing functionality.
We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that we change the manner in which we develop and test new features and functionalities related to our mobile applications and websites, assess the ongoing value of capitalized assets, or determine the estimated useful lives over which the costs are amortized, the amount of website and software development costs we capitalize and amortize could change in future periods.
Recoverability of Intangible Assets with Definite Lives and Other Long-Lived Assets
We evaluate intangible assets and other long-lived assets for impairment whenever events or circumstances indicate that they may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated. We group assets for purposes of such review at the lowest level for which identifiable cash flows of the asset group are largely independent of the cash flows of the other groups of assets and liabilities.
If this comparison indicates impairment, the amount of impairment to be recognized is calculated as the difference between the carrying value and the fair value of the asset group.Unforeseen events, changes in circumstances and market conditions and material differences in estimates of future cash flows could adversely affect the fair value of our assets and could result in an impairment charge. Fair value can be estimated utilizing a number of techniques including quoted market prices, prices for comparable assets, or other valuation processes involving estimates of cash flows, multiples of earnings or revenues, and we may make various assumptions and estimates when performing our impairment assessments, particularly as it relates to cash flow projections. Cash flow estimates are by their nature subjective and include assumptions regarding factors such as recent and forecasted operating performance, revenue
trends and operating margins. These estimates could also be adversely impacted by changes in federal, state, or local regulations, economic downturns or developments,
pandemics such as COVID-19, or other market conditions affecting our industry.
Recoverability of Goodwill
Goodwill is measured as the excess of consideration transferred for an acquired business over the net of the acquisition date fair value of the assets acquired and liabilities assumed, and is not amortized. We assess the impairment of goodwill at the reporting unit level on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. In our evaluation of goodwill, we first perform a qualitative assessment to determine whether the carrying value of each reporting unit is greater than its fair value. If it is more likely than not that the carrying value of a reporting unit is greater than its fair value, we perform a quantitative assessment and an impairment charge is recorded in our statements of operations for the excess of carrying value of the reporting unit over its fair value.
We exercise judgment in determining whether it is more likely than not that the carrying value of each reporting unit is greater than its fair value. The following events and circumstances are considered when performing the qualitative assessment:
•Macroeconomic conditions, industry and market considerations, and entity-specific conditions, such as changes in cost factors and financial performance;
•The amount by which the fair values of each reporting unit exceeded their carrying values as of the date of the most recent quantitative assessment;
•Changes in interest rates since the most recent quantitative assessment;
•Changes in our business or strategy since our most recent quantitative assessment;
•The current reporting unit forecasts as compared to the forecasts included in the most recent quantitative assessment;
•Changes in our market capitalization and overall enterprise value.
The examples noted above are not all-inclusive, and we consider other relevant events and circumstances that affect the fair value of a reporting unit in determining whether to perform a quantitative assessment.
Commencing in the first quarter of 2023, our operating structure will be realigned into one reportable segment. This change may result in the identification of new reporting units, which may require us to perform a goodwill impairment test for each reporting unit immediately before and after the segment change. While we believe the assumptions used in our 2022 impairment analysis are reasonable and representative of expected results for our 2022 reporting unit structure, we may recognize a goodwill impairment charge immediately after the segment change as the reassigned carrying values of the reporting units may exceed their respective estimated fair values. At December 31, 2022, our total goodwill balance was $2.4 billion.
We measure compensation expense for all share-based awards at fair value on the date of grant and recognize compensation expense over the service period for awards expected to vest. We use the Black-Scholes-Merton option-pricing model to determine the fair value for option awards and recognize compensation expense on a straight-line basis over the option awards’ vesting period.
For restricted stock units and restricted units, we use the market value of our Class A common stock and Class C capital stock, as applicable, on the date of grant to determine the fair value of the award, and we recognize compensation expense on a straight-line basis over the awards’ vesting period.Determining the fair value of option awards at the grant date requires judgment. If any of the assumptions used in the Black-Scholes-Merton model changes significantly, share-based compensation expense for future option awards may differ materially compared with the awards granted previously. In valuing our option awards, we make assumptions about risk-free interest rates, dividend yields, volatility, and weighted-average expected lives.
In addition, through December 31, 2016, we made assumptions about estimated forfeiture rates. Beginning on January 1, 2017, we electedWhen determining the grant date fair value of share-based awards, management considers whether an adjustment is required to
account for forfeituresthe observable market price or volatility of our Class C capital stock used in the valuation as
they occur.a result of material non-public information.
Risk-free interest rate. Risk-free interest rates are derived from U.S. Treasury securities as of the option award’s grant date.
Expected dividend yields. Expected dividend yields are based on our historical dividend payments, which have been zero to date.
Volatility. The expected volatility for our Class A common stock and Class C capital stock is estimated using our historical volatility.
Expected term. The weighted-average expected life of the option awards is estimated based on our historical exercise data.Forfeiture rate. Prior to January 1, 2017, forfeiture rates were estimated using historical actual forfeiture trends as well as our judgment of future forfeitures. These rates were evaluated at least quarterly and any change in share-based compensation expense was recognized in the period of the change. We considered many factors when estimating expected forfeitures, including employee class and historical experience.
We will continue to use judgment in evaluating the expected volatility
and expected terms utilized for our share-based compensation expense calculations on a prospective basis.
We will also continue to use judgment when determining whether an adjustment is required to the observable market price or volatility as a result of material non-public information. Actual results, and future changes in estimates, may differ substantially from management’s current estimates. As we continue to accumulate additional data related to our
Class A common stock and Class C capital stock, we may have refinements to the estimates of our expected volatility and expected terms, which could materially impact our future share-based compensation expense. In future periods, we expect our share-based compensation expense to increase as a result of our existing, unrecognized share-based compensation that will be recognized as the awards vest, and as we grant additional share-based awards to attract and retain employees.
Income Taxes
We use the asset and liability approach for accounting and reporting income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized.
Our assumptions, judgments, and estimates relative to the value of our deferred tax assets take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments, and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments, and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.
Since inception, we have typically incurred annual operating losses, and accordingly, we have generally not recorded a material current provision for income taxes, though we have historically in certain instances recorded income tax benefits in connection with acquisitions. We generally do not expect any significant changes in the amount of our income tax provision until we are not routinely incurring operating losses.
We establish reserves fortax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation or the change of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay aone-time transition tax on certain untaxed earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and how AMT credits are utilized; and (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Shortly after enactment, implementation guidance was released by the Securities and Exchange Commission that requires a company to reflect the income tax effects of those aspects of the Tax Act for which the accounting under the accounting rules is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but the company is able to determine a reasonable estimate, it should record a provisional estimate in the financial statements. Further, the implementation guidance also provides for a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete their accounting pursuant to the accounting rules.
In the absence of the changes in the Tax Act, our tax benefit for the year ended December 31, 2017 would have been approximately $66.0 million. For the year ending December 31, 2018, we expect an overall statutory tax rate (including federal, state and foreign taxes) of approximately 24%, but in the absence of the Tax Act we would have expected an overall tax rate of approximately 38%. In 2018, we expect to record income tax benefits to the extent we generate additional operating loss carryforwards.
Business Combinations
We recognize identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the
acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions for the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that we identify adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. We recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the cost of an acquired business over the fair value of the assets acquired at the date of acquisition, and is not amortized. We assess the impairment of goodwill on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. Typically, we choose to forgo the initial qualitative assessment and perform quantitative analysis to assist in our annual evaluation. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our statements of operations.
For our most recent goodwill impairment assessment performed as of October 1, 2017, we chose to forgo the initial qualitative assessment and performed a quantitative analysis whereby we determined that our market capitalization is well in excess of the book value of our common stock, and therefore, we concluded that the fair value of goodwill exceeds its carrying value.
Our indefinite-lived intangible asset is not amortized, and we assess the asset for impairment on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that the asset may be impaired. On an interim basis we consider if there are any events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset, including, but not limited to, costs that could have a negative effect on future expected earnings and cash flows, changes in certain key performance metrics, and changes in management, key personnel, strategy or customers. In our evaluation of our trade names and trademarks indefinite-lived intangible asset, we typically first perform a qualitative assessment to determine whether the fair value of the indefinite-lived intangible asset is more likely than not impaired. If so, we perform a quantitative assessment and an impairment charge is recorded in our statements of operations for the excess of the carrying value of the indefinite-lived intangible assets over their fair value.
During the year ended December 31, 2017, we recognized anon-cash impairment charge of $174.0 million related to our indefinite-lived Trulia trade names and trademarks intangible asset. In connection with our qualitative assessment of the recoverability of this asset during our annual impairment test as of October 1, 2017, we identified factors that led us to conclude it was more likely than not that the $351.0 million carrying value of the asset exceeded its fair value. The most significant of such factors was a shortfall in projected revenue related to the Trulia brand compared to projections at the time the intangible asset was initially recorded in February 2015. Accordingly, with the assistance of a third-party valuation specialist, we performed a quantitative analysis to determine the fair value of the intangible asset and concluded that our best estimate of its fair value was $177.0 million. The valuation was prepared using an income approach based on the relief-from-royalty method and relied on inputs with unobservable market prices including the assumed revenue growth rates, royalty rate, discount rate and estimated tax rate. In connection with this impairment analysis, we evaluated our planned future use of the Trulia trade names and trademarks intangible asset and concluded that it remains appropriate to consider this asset to have an indefinite life.
To the extent there is a shortfall in actual estimated revenue attributable to the Trulia brand as compared to our estimated projections as of October 1, 2017, the date of our most recent annual impairment test, additional impairment could be recorded in future periods.
Recently Adopted Accounting Standards and Recently Issued Accounting Standards Not Yet Adopted
For information about our recently adopted accounting standards and recently issued accounting standards not yet adopted, see Note 2 of the accompanying notesNotes to our consolidated financial statements included withinConsolidated Financial Statements in Part II, Item 8 of this annual report.Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily consist of fluctuations in interest rates.
Under our current investment policy, we invest our excess cash in money market funds,
certificates of deposit,U.S. government treasury securities, U.S. government agency securities,
commercial paper, foreign government securities, municipalinvestment grade corporate securities and
corporate notes and bonds.commercial paper. Our current investment policy seeks first to preserve
principal,capital, second to provide
sufficient liquidity for our operating and capital needs and third to maximize yield without putting our principal at risk.
Our
short-term investments are exposed to market risk due to the fluctuation of prevailing interest rates that may reduce the yield on our investments or their fair value.
AsFor our investment portfolio,
is short-term in nature, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio.
As of December 31,
2017,2022, we
have outstanding $460.0 millionhad approximately $1.7 billion aggregate principal
Convertible Senior Notes due in 2021 (the “2021 Notes”). The 2021 Notes were issued in December 2016 and carry a fixed interest rateamount of
2.00% per year. As of December 31, 2017, we also haveconvertible senior notes outstanding
$10.1 million aggregate principal Convertible Senior Notes due in 2020 (the “2020 Notes”). The 2020 Notes were guaranteed by Zillow Group in connection with
our February 2015 acquisition of Trulia, Inc. The 2020 Notes carry a fixed interest rate of 2.75% per year. Since the 2020 Notes and 2021 Notesmaturities ranging from September 2024 through September 2026. All outstanding convertible senior notes bear
interest at fixed rates
we have noof interest and, therefore, do not expose us to financial statement risk associated with changes in interest rates.
However, theThe fair values of the
2020 Notes and 2021 Notesconvertible senior notes change primarily when the market price of our stock fluctuates or interest rates change.
For these reasons,
We are also subject to market risk which may impact our mortgage loan origination volume and associated revenue and the net interest margin derived from borrowings under our warehouse line of credit and master repurchase agreements that provide capital for Zillow Home Loans. Market risk occurs in periods where changes in short-term interest rates result in mortgage loans being originated with terms that provide a smaller interest rate spread above the financing terms of our warehouse line of credit and master repurchase agreements, which can negatively impact our net income (loss). This risk is primarily mitigated through expedited sale of our loans. As of December 31, 2022 and December 31, 2021, we
do not expecthad $37 million and $113 million, respectively, of outstanding borrowings on our
resultswarehouse line of
operationscredit and master repurchase agreements which bear interest either at a floating rate based on Secured Overnight Financing Rate (“SOFR”) plus an applicable margin, as defined by the governing agreements, or
cash flows would be materially affectedBloomberg Short-Term Bank Yield Index Rate (“BSBY”) plus an applicable margin, as defined by
a suddenthe governing agreements. We manage the interest rate risk associated with our mortgage loan origination services through the use of forward sales of mortgage-backed securities. Assuming no change in
market interest rates.Inflation Risk
We dothe outstanding borrowings on the warehouse line of credit and master repurchase agreements, we estimate that a one percentage point increase in SOFR or BSBY, as applicable, would not believe that inflation has hadhave a material effect on our annual interest expense associated with the warehouse line of credit and master repurchase agreements as of December 31, 2022 and December 31, 2021.
For additional details related to our credit facilities and convertible senior notes, see Note 13 to our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Inflation Risk
The macroeconomic environment in the United States has experienced, and continues to experience, significant inflationary pressures, including the highest levels of inflation in nearly four decades. While it is difficult to accurately measure the impact of these inflationary pressures on our business, we believe these effects have been pervasive throughout our business during the year ended December 31, 2022. In response to ongoing inflationary pressures in the United States, the Federal Reserve has implemented a number of increases to the federal funds rate during 2022. These increases have impacted other market rates derived from this benchmark rate, including mortgage interest rates. The increase in mortgage interest rates across the industry has decreased demand for mortgages overall and, in turn, had an adverse impact on the results of operations or financial condition. for our Mortgages segment during 2022.
If
the inflation rate continues to increase, our costs,
werein particular labor, marketing and hosting costs, will continue to
becomebe subject to significant inflationary pressures
and we may not be able to fully offset such higher costs through price increases.
In addition, uncertain or changing economic and market conditions, including inflation or deflation, may continue to affect demand for our products and services and the housing markets in which we operate. Our inability or failure to
do soquickly respond to inflation could harm our business, results of operations and financial condition.
We cannot predict the duration or magnitude of these inflationary pressures, or how they may change over time, but we expect to see continued impacts on the residential real estate industry, our customers and our company. Despite these near-term effects, we do not expect these inflationary pressures to have a material impact on our ability to execute our long-term business strategy.
Foreign Currency Exchange Risk
We do not believe that foreign currency exchange risk has had a material effect on our business, results of operations or financial condition. As we do not maintain a significant balance of foreign currency, we do not believe an immediate 10% increase or decrease in foreign currency exchange rates relative to the U.S. dollar would have a material effect on our business, results of operations or financial condition.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of
Operations.”Operations” in this Annual Report on Form 10-K.
REPORT OF
DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
To the shareholders and the Board of Directors
and Shareholders of Zillow Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheetsheets of Zillow Group, Inc. (the “Company”) as of December 31,
2017,2022 and
2021, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows, for
each of the
year thenthree years in the period ended
December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2017,2022 and 2021, and the results of its operations and its cash flows for
each of the
year thenthree years in the period ended
December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2022, based on the criteria established in Internal Control—Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 20182023 expressed an unqualified opinion on the Company’s internal control over financial reporting. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
thesethe Company’s financial statements based on our
audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
lawlaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our
auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
auditaudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue – Highly Automated Revenue Systems in the Internet, Media and Technology Segment — Refer to Note 2 and Note 20 to the Financial Statements
Critical Audit Matter Description
The Company’s Internet, Media & Technology (IMT) segment, which includes the financial results for the Premier Agent and rentals marketplaces, as well as Other IMT, which includes the new construction marketplace and revenue from the sale of other advertising and business technology solutions for real estate professionals, including display, StreetEasy for-sale product offerings and ShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and interactive floor plans, derives substantially all of its revenue from the sale of advertising services and a suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, rental and residential construction industries. Total revenue for the IMT segment for the year ended December 31, 2022 was approximately $1.8 billion. The Company operates multiple mobile applications and websites to deliver each of its products to end users, and the revenue for each product consists of a significant volume of transactions utilizing multiple systems.
The process to calculate, aggregate, and record revenue across the IMT segment product offerings is highly automated, relies on multiple internally developed tools and systems, and involves interfacing significant volumes of data across the systems. Given
the complexity of the information technology (IT) environment, the required involvement of professionals with expertise in IT to identify, test, and evaluate the revenue data flows, systems, and automated controls, we considered the audit of the Company’s revenue-generating transactions within the IMT segment to be a critical audit matter.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s relevant revenue transactions within the IMT segment included the following, among others:
•With the assistance of our IT specialists, we:
◦Identified the relevant systems used to calculate and record revenue transactions.
◦Tested the general IT controls over the relevant systems, including testing of user access controls, change management controls, and IT operations controls.
◦Performed testing of system interface controls and automated controls within the relevant revenue streams.
•We tested controls within the relevant business processes, including those in place to reconcile the various systems to the Company’s general ledgers and to reconcile transactional data to relevant revenue systems.
•For a sample of revenue transactions, we performed detail testing of transactions by agreeing the amounts recognized to source documents and testing the mathematical accuracy of the recorded revenue.
/s/ DELOITTEDELOITTE & TOUCHETOUCHE LLP We have served as the Company’s auditor since 2016.
Table oREPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders of Zillow Group, Inc.
We have audited the accompanying consolidated balance sheet of Zillow Group, Inc. as of December 31, 2016, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zillow Group, Inc. at December 31, 2016, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
February 7, 2017
fContents
CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except share data) | | | | | | | | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 352,095 | | | $ | 243,592 | |
Short-term investments | | | 410,444 | | | | 263,923 | |
Accounts receivable, net of allowance for doubtful accounts of $5,341 and $1,337 at December 31, 2017 and 2016, respectively | | | 54,396 | | | | 40,527 | |
Prepaid expenses and other current assets | | | 24,590 | | | | 34,817 | |
| | | | | | | | |
Total current assets | | | 841,525 | | | | 582,859 | |
Property and equipment, net | | | 112,271 | | | | 98,288 | |
Goodwill | | | 1,931,076 | | | | 1,923,480 | |
Intangible assets, net | | | 319,711 | | | | 527,464 | |
Other assets | | | 25,934 | | | | 17,586 | |
| | | | | | | | |
Total assets | | $ | 3,230,517 | | | $ | 3,149,677 | |
| | | | | | | | |
Liabilities and shareholders’ equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 3,587 | | | $ | 4,257 | |
Accrued expenses and other current liabilities | | | 61,373 | | | | 38,427 | |
Accrued compensation and benefits | | | 19,109 | | | | 24,057 | |
Deferred revenue | | | 31,918 | | | | 29,154 | |
Deferred rent, current portion | | | 2,400 | | | | 1,347 | |
| | | | | | | | |
Total current liabilities | | | 118,387 | | | | 97,242 | |
Deferred rent, net of current portion | | | 21,330 | | | | 15,298 | |
Long-term debt | | | 385,416 | | | | 367,404 | |
Deferred tax liabilities and other long-term liabilities | | | 44,561 | | | | 136,146 | |
| | | | | | | | |
Total liabilities | | | 569,694 | | | | 616,090 | |
Commitments and contingencies (Note 16) | | | | | | | | |
Shareholders’ equity: | | | | | | | | |
Preferred stock, $0.0001 par value; 30,000,000 shares authorized; no shares issued and outstanding | | | — | | | | — | |
Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized; 56,629,103 and 54,402,809shares issued and outstanding as of December 31, 2017 and 2016, respectively | | | 6 | | | | 5 | |
Class B common stock, $0.0001 par value; 15,000,000 shares authorized; 6,217,447 shares issued and outstanding as of December 31, 2017 and 2016 | | | 1 | | | | 1 | |
Class C capital stock, $0.0001 par value; 600,000,000 shares authorized; 127,268,598 and 121,838,462 shares issued and outstanding as of December 31, 2017 and 2016, respectively | | | 13 | | | | 12 | |
Additionalpaid-in capital | | | 3,254,146 | | | | 3,030,854 | |
Accumulated other comprehensive loss | | | (1,100 | ) | | | (242 | ) |
Accumulated deficit | | | (592,243 | ) | | | (497,043 | ) |
| | | | | | | | |
Total shareholders’ equity | | | 2,660,823 | | | | 2,533,587 | |
| | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 3,230,517 | | | $ | 3,149,677 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 1,466 | | | $ | 2,315 | |
| Short-term investments | 1,896 | | | 514 | |
| Accounts receivable, net of allowance for doubtful accounts | 72 | | | 77 | |
| Mortgage loans held for sale | 41 | | | 107 | |
| Prepaid expenses and other current assets | 126 | | | 140 | |
| Restricted cash | 2 | | | 1 | |
| Current assets of discontinued operations | — | | | 4,526 | |
| Total current assets | 3,603 | | | 7,680 | |
| Contract cost assets | 23 | | | 35 | |
| Property and equipment, net | 271 | | | 215 | |
| Right of use assets | 126 | | | 130 | |
| Goodwill | 2,374 | | | 2,374 | |
| Intangible assets, net | 154 | | | 176 | |
| Other assets | 12 | | | 3 | |
| Noncurrent assets of discontinued operations | — | | | 82 | |
| Total assets | $ | 6,563 | | | $ | 10,695 | |
| Liabilities and shareholders’ equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 20 | | | $ | 11 | |
| Accrued expenses and other current liabilities | 90 | | | 89 | |
| Accrued compensation and benefits | 48 | | | 61 | |
| Borrowings under credit facilities | 37 | | | 113 | |
| Deferred revenue | 44 | | | 51 | |
| Lease liabilities, current portion | 31 | | | 24 | |
| Current liabilities of discontinued operations | — | | | 3,533 | |
| Total current liabilities | 270 | | | 3,882 | |
| Lease liabilities, net of current portion | 139 | | | 148 | |
| Convertible senior notes | 1,660 | | | 1,319 | |
| Other long-term liabilities | 12 | | | 5 | |
| Total liabilities | 2,081 | | | 5,354 | |
| Commitments and contingencies (Note 18) | | | |
| Shareholders’ equity: | | | |
| Preferred stock, $0.0001 par value; authorized — 30,000,000 shares; no shares issued and outstanding | — | | | — | |
| Class A common stock, $0.0001 par value; authorized — 1,245,000,000 shares; issued and outstanding — 57,494,698 and 61,513,634 shares, respectively | — | | | — | |
| Class B common stock, $0.0001 par value; authorized — 15,000,000 shares; issued and outstanding — 6,217,447 shares | — | | | — | |
| Class C capital stock, $0.0001 par value; authorized — 600,000,000 shares; issued and outstanding — 170,555,565 and 182,898,987 shares, respectively | — | | | — | |
| Additional paid-in capital | 6,109 | | | 7,001 | |
| Accumulated other comprehensive income (loss) | (15) | | | 7 | |
| Accumulated deficit | (1,612) | | | (1,667) | |
| Total shareholders’ equity | 4,482 | | | 5,341 | |
| Total liabilities and shareholders’ equity | $ | 6,563 | | | $ | 10,695 | |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share data, which are presented in thousands, exceptand per share data) | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Revenue | | $ | 1,076,794 | | | $ | 846,589 | | | $ | 644,677 | |
Costs and expenses: | | | | | | | | | | | | |
Cost of revenue (exclusive of amortization) (1) | | | 85,203 | | | | 69,262 | | | | 60,127 | |
Sales and marketing | | | 448,201 | | | | 382,419 | | | | 308,125 | |
Technology and development | | | 319,985 | | | | 255,583 | | | | 184,477 | |
General and administrative | | | 210,816 | | | | 332,007 | | | | 184,984 | |
Impairment and restructuring costs | | | 174,000 | | | | — | | | | 35,551 | |
Acquisition-related costs | | | 463 | | | | 1,423 | | | | 16,576 | |
Loss (gain) on divestiture of businesses | | | — | | | | (1,251 | ) | | | 4,368 | |
| | | | | | | | | | | | |
Total costs and expenses | | | 1,238,668 | | | | 1,039,443 | | | | 794,208 | |
| | | | | | | | | | | | |
Loss from operations | | | (161,874 | ) | | | (192,854 | ) | | | (149,531 | ) |
Loss on debt extinguishment | | | — | | | | (22,757 | ) | | | — | |
Other income | | | 5,385 | | | | 2,711 | | | | 1,501 | |
Interest expense | | | (27,517 | ) | | | (7,408 | ) | | | (5,489 | ) |
| | | | | | | | | | | | |
Loss before income taxes | | | (184,006 | ) | | | (220,308 | ) | | | (153,519 | ) |
Income tax benefit (expense) | | | 89,586 | | | | (130 | ) | | | 4,645 | |
| | | | | | | | | | | | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (148,874 | ) |
| | | | | | | | | | | | |
Net loss per share—basic and diluted | | $ | (0.51 | ) | | $ | (1.22 | ) | | $ | (0.88 | ) |
Weighted-average shares outstanding—basic and diluted | | | 186,453 | | | | 180,149 | | | | 169,767 | |
(1) Amortization of website development costs and intangible assets included in technology and development | | $ | 94,349 | | | $ | 87,060 | | | $ | 63,189 | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Revenue | $ | 1,958 | | | $ | 2,132 | | | $ | 1,624 | |
| Cost of revenue | 367 | | | 323 | | | 255 | |
| Gross profit | 1,591 | | | 1,809 | | | 1,369 | |
| Operating expenses: | | | | | |
| Sales and marketing | 664 | | | 715 | | | 535 | |
| Technology and development | 498 | | | 421 | | | 324 | |
| General and administrative | 498 | | | 414 | | | 324 | |
| Impairment and restructuring costs | 24 | | | 10 | | | 77 | |
| Acquisition-related costs | — | | | 9 | | | — | |
| Integration costs | — | | | 1 | | | — | |
| Total operating expenses | 1,684 | | | 1,570 | | | 1,260 | |
| Income (loss) from continuing operations | (93) | | | 239 | | | 109 | |
| Gain (loss) on extinguishment of debt | — | | | (17) | | | 1 | |
| Other income, net | 43 | | | 7 | | | 25 | |
| Interest expense | (35) | | | (128) | | | (138) | |
| Income (loss) from continuing operations before income taxes | (85) | | | 101 | | | (3) | |
| Income tax benefit (expense) | (3) | | | 1 | | | 8 | |
| Net income (loss) from continuing operations | (88) | | | 102 | | | 5 | |
| Net loss from discontinued operations, net of income taxes | (13) | | | (630) | | | (167) | |
| Net loss | $ | (101) | | | $ | (528) | | | $ | (162) | |
| Net income (loss) from continuing operations per share: | | | | | |
| Basic | $ | (0.36) | | | $ | 0.41 | | | $ | 0.02 | |
| Diluted | $ | (0.36) | | | $ | 0.39 | | | $ | 0.02 | |
| Net loss per share: | | | | | |
| Basic | $ | (0.42) | | | $ | (2.11) | | | $ | (0.72) | |
| Diluted | $ | (0.42) | | | $ | (2.02) | | | $ | (0.70) | |
| Weighted-average shares outstanding: | | | | | |
| Basic | 242,163 | | | 249,937 | | | 223,848 | |
| Diluted | 242,163 | | | 261,826 | | | 231,435 | |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands) | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (148,874 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | |
Unrealized gains (losses) on investments | | | (858 | ) | | | 210 | | | | (448 | ) |
Reclassification adjustment for net (gains) losses from investments included in net loss | | | — | | | | 19 | | | | (23 | ) |
| | | | | | | | | | | | |
Net unrealized gains (losses) on investments | | | (858 | ) | | | 229 | | | | (471 | ) |
| | | | | | | | | | | | |
Total other comprehensive income (loss) | | | (858 | ) | | | 229 | | | | (471 | ) |
| | | | | | | | | | | | |
Comprehensive loss | | $ | (95,278 | ) | | $ | (220,209 | ) | | $ | (149,345 | ) |
| | | | | | | | | | | | |
millions)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net loss | $ | (101) | | | $ | (528) | | | $ | (162) | |
| Other comprehensive income (loss): | | | | | |
| Unrealized gains (losses) on investments | (22) | | | 7 | | | — | |
| Total other comprehensive income (loss) | (22) | | | 7 | | | — | |
| Comprehensive loss | $ | (123) | | | $ | (521) | | | $ | (162) | |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in
thousands,millions, except share
data) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock | | | Additional
Paid-In
Capital | | | Accumulated
Deficit | | | Accumulated
Other
Comprehensive
Loss | | | Total
Shareholders’
Equity | |
| | | | | |
| | Shares | | | Amount | | | | | |
Balance at December 31, 2014 | | | 122,387,520 | | | $ | 12 | | | $ | 716,498 | | | $ | (127,731 | ) | | $ | — | | | $ | 588,779 | |
Issuance of common and capital stock in connection with an acquisition | | | 51,779,112 | | | | 5 | | | | 1,883,723 | | | | — | | | | — | | | | 1,883,728 | |
Equity award vesting acceleration in connection with restructuring | | | — | | | | — | | | | 14,859 | | | | — | | | | — | | | | 14,859 | |
Fair value of equity awards assumed in connection with acquisitions | | | — | | | | — | | | | 82,840 | | | | — | | | | — | | | | 82,840 | |
Debt premium recorded in additionalpaid-in capital in connection with an acquisition | | | — | | | | — | | | | 126,386 | | | | — | | | | — | | | | 126,386 | |
Issuance of common and capital stock upon exercise of stock options | | | 2,732,767 | | | | 1 | | | | 24,422 | | | | — | | | | — | | | | 24,423 | |
Vesting of restricted stock units | | | 1,899,531 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Shares and value of restricted stock units withheld for tax liability | | | (324,013 | ) | | | — | | | | (8,150 | ) | | | — | | | | — | | | | (8,150 | ) |
Share-based compensation expense | | | — | | | | — | | | | 115,533 | | | | — | | | | — | | | | 115,533 | |
Net loss | | | — | | | | — | | | | — | | | | (148,874 | ) | | | — | | | | (148,874 | ) |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (471 | ) | | | (471 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 | | | 178,474,917 | | | | 18 | | | | 2,956,111 | | | | (276,605 | ) | | | (471 | ) | | | 2,679,053 | |
Issuance of common and capital stock upon exercise of stock options | | | 2,518,172 | | | | — | | | | 31,211 | | | | — | | | | — | | | | 31,211 | |
Vesting of restricted stock units | | | 1,487,263 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Shares and value of restricted stock units withheld for tax liability | | | (21,634 | ) | | | — | | | | (616 | ) | | | — | | | | — | | | | (616 | ) |
Share-based compensation expense | | | — | | | | — | | | | 116,979 | | | | — | | | | — | | | | 116,979 | |
Portion of repurchase price recorded in additionalpaid-in capital in connection with partial repurchase of 2020 | | | — | | | | — | | | | (127,615 | ) | | | — | | | | — | | | | (127,615 | ) |
Equity component of issuance of 2021 Notes, net of issuance costs of $2,494 | | | — | | | | — | | | | 91,400 | | | | — | | | | — | | | | 91,400 | |
Premiums paid for Capped Call Confirmations | | | — | | | | — | | | | (36,616 | ) | | | — | | | | — | | | | (36,616 | ) |
Net loss | | | — | | | | — | | | | — | | | | (220,438 | ) | | | — | | | | (220,438 | ) |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 229 | | | | 229 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | | 182,458,718 | | | | 18 | | | | 3,030,854 | | | | (497,043 | ) | | | (242 | ) | | | 2,533,587 | |
Cumulative-effect adjustment from adoption of guidance on accounting for share-based payment transactions | | | — | | | | — | | | | 780 | | | | (780 | ) | | | — | | | | — | |
Issuance of common and capital stock upon exercise of stock options | | | 6,202,421 | | | | 2 | | | | 98,070 | | | | — | | | | — | | | | 98,072 | |
Vesting of restricted stock units | | | 1,463,825 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Shares and value of restricted stock units withheld for tax liability | | | (9,816 | ) | | | — | | | | (365 | ) | | | — | | | | — | | | | (365 | ) |
Share-based compensation expense | | | — | | | | — | | | | 124,807 | | | | — | | | | — | | | | 124,807 | |
Net loss | | | — | | | | — | | | | — | | | | (94,420 | ) | | | — | | | | (94,420 | ) |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (858 | ) | | | (858 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | | 190,115,148 | | | $ | 20 | | | $ | 3,254,146 | | | $ | (592,243 | ) | | $ | (1,100 | ) | | $ | 2,660,823 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
data, which are presented in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common
Stock, Class B
Common Stock and
Class C Capital Stock | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Shareholders’
Equity |
|
| Shares | | Amount | |
| Balance at January 1, 2020 | 209,067 | | | $ | — | | | $ | 4,412 | | | $ | (977) | | | $ | — | | | $ | 3,435 | |
| Issuance of common and capital stock upon exercise of stock options | 13,745 | | | — | | | 444 | | | — | | | — | | | 444 | |
| Vesting of restricted stock units | 3,013 | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation expense | — | | | — | | | 214 | | | — | | | — | | | 214 | |
| Issuance of Class C capital stock in connection with equity offering, net of issuance costs | 8,800 | | | — | | | 412 | | | — | | | — | | | 412 | |
| Equity component of issuance of convertible senior notes maturing in 2025, net of issuance costs | — | | | — | | | 155 | | | — | | | — | | | 155 | |
| Settlement of convertible senior notes | 6,219 | | | — | | | 244 | | | — | | | — | | | 244 | |
| Unwind of capped call transactions | (318) | | | — | | | — | | | — | | | — | | | — | |
| Net loss | — | | | — | | | — | | | (162) | | | — | | | (162) | |
| | | | | | | | | | | |
| Balance at December 31, 2020 | 240,526 | | | — | | | 5,881 | | | (1,139) | | | — | | | 4,742 | |
| Issuance of common and capital stock upon exercise of stock options | 3,304 | | | — | | | 127 | | | — | | | — | | | 127 | |
| Vesting of restricted stock units | 2,982 | | | — | | | — | | | — | | | — | | | — | |
| Restricted stock units withheld for tax liability | (1) | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation expense | — | | | — | | | 347 | | | — | | | — | | | 347 | |
| Issuance of Class C capital stock in connection with equity offering, net of issuance costs | 3,164 | | | — | | | 545 | | | — | | | — | | | 545 | |
| Settlement of convertible senior notes | 6,265 | | | — | | | 403 | | | — | | | — | | | 403 | |
| Unwind of capped call transactions | (666) | | | — | | | — | | | — | | | — | | | — | |
| Repurchases of Class C capital stock | (4,944) | | | — | | | (302) | | | — | | | — | | | (302) | |
| Net loss | — | | | — | | | — | | | (528) | | | — | | | (528) | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 7 | | | 7 | |
| Balance at December 31, 2021 | 250,630 | | | — | | | 7,001 | | | (1,667) | | | 7 | | | 5,341 | |
| Cumulative-effect adjustment from adoption of guidance on accounting for convertible instruments and contracts in an entity’s own equity | — | | | — | | | (492) | | | 156 | | | — | | | (336) | |
| Issuance of common and capital stock upon exercise of stock options | 1,129 | | | — | | | 45 | | | — | | | — | | | 45 | |
| Vesting of restricted stock units | 4,722 | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation expense | — | | | — | | | 502 | | | — | | | — | | | 502 | |
| Repurchases of Class A common stock and Class C capital stock | (22,213) | | | — | | | (947) | | | — | | | — | | | (947) | |
| Net loss | — | | | — | | | — | | | (101) | | | — | | | (101) | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | (22) | | | (22) | |
| Balance at December 31, 2022 | 234,268 | | | $ | — | | | $ | 6,109 | | | $ | (1,612) | | | $ | (15) | | | $ | 4,482 | |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Operating activities | | | | | | | | | | | | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (148,874 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities, net of amounts assumed in connection with acquisitions: | | | | | | | | | | | | |
Depreciation and amortization | | | 110,155 | | | | 100,590 | | | | 75,386 | |
Share-based compensation expense | | | 113,571 | | | | 106,918 | | | | 105,214 | |
Loss on debt extinguishment | | | — | | | | 22,757 | | | | — | |
Amortization of discount and issuance costs on 2021 Notes | | | 18,012 | | | | 883 | | | | — | |
Impairment costs and restructuring costs | | | 174,000 | | | | — | | | | 19,001 | |
Deferred income taxes | | | (89,586 | ) | | | (1,370 | ) | | | (2,853 | ) |
Loss on disposal of property and equipment | | | 5,678 | | | | 3,689 | | | | 1,384 | |
Loss (gain) on divestiture of businesses, net | | | — | | | | (1,360 | ) | | | 3,899 | |
Bad debt expense | | | 7,349 | | | | 2,681 | | | | 3,235 | |
Deferred rent | | | 7,085 | | | | 1,730 | | | | 2,553 | |
Amortization of bond premium | | | 431 | | | | 1,489 | | | | 2,487 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | (21,203 | ) | | | (13,324 | ) | | | (1,051 | ) |
Prepaid expenses and other assets | | | 10,807 | | | | (13,260 | ) | | | (761 | ) |
Accounts payable | | | (373 | ) | | | 856 | | | | (11,158 | ) |
Accrued expenses and other current liabilities | | | 19,000 | | | | (5,065 | ) | | | (18,384 | ) |
Accrued compensation and benefits | | | (4,948 | ) | | | 12,463 | | | | (4,020 | ) |
Deferred revenue | | | 2,633 | | | | 7,794 | | | | (2,434 | ) |
Other long-term liabilities | | | — | | | | 1,612 | | | | (965 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 258,191 | | | | 8,645 | | | | 22,659 | |
| | | |
Investing activities | | | | | | | | | | | | |
Proceeds from maturities of investments | | | 259,227 | | | | 199,369 | | | | 335,443 | |
Purchases of investments | | | (407,032 | ) | | | (175,210 | ) | | | (307,658 | ) |
Proceeds from sales of investments | | | — | | | | 4,963 | | | | 8,260 | |
Decrease in restricted cash, net of amounts assumed in connection with an acquisition | | | — | | | | — | | | | 3,931 | |
Purchases of property and equipment | | | (66,728 | ) | | | (62,060 | ) | | | (52,685 | ) |
Purchases of intangible assets | | | (11,907 | ) | | | (9,662 | ) | | | (15,423 | ) |
Purchases of cost method investments | | | (10,000 | ) | | | (10,000 | ) | | | — | |
Proceeds from divestiture of businesses | | | 579 | | | | 3,200 | | | | 23,359 | |
Cash acquired in acquisition, net | | | — | | | | — | | | | 173,406 | |
Cash paid for acquisitions, net | | | (11,533 | ) | | | (16,319 | ) | | | (104,192 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (247,394 | ) | | | (65,719 | ) | | | 64,441 | |
| | | |
Financing activities | | | | | | | | | | | | |
Proceeds from issuance of 2021 Notes, net of issuance costs | | | — | | | | 447,784 | | | | — | |
Premiums paid for Capped Call Confirmations | | | — | | | | (36,616 | ) | | | — | |
Partial repurchase of 2020 Notes | | | — | | | | (370,235 | ) | | | — | |
Proceeds from exercise of stock options | | | 98,071 | | | | 31,211 | | | | 24,423 | |
Value of equity awards withheld for tax liability | | | (365 | ) | | | (616 | ) | | | (8,150 | ) |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 97,706 | | | | 71,528 | | | | 16,273 | |
Net increase in cash and cash equivalents during period | | | 108,503 | | | | 14,454 | | | | 103,373 | |
Cash and cash equivalents at beginning of period | | | 243,592 | | | | 229,138 | | | | 125,765 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 352,095 | | | $ | 243,592 | | | $ | 229,138 | |
| | | | | | | | | | | | |
| | | |
Supplemental disclosures of cash flow information | | | | | | | | | | | | |
Cash paid for interest | | $ | 9,198 | | | $ | 6,325 | | | $ | 6,325 | |
Noncash transactions: | | | | | | | | | | | | |
Value of Class A common stock issued in connection with an acquisition | | $ | — | | | $ | — | | | $ | 1,883,728 | |
Capitalized share-based compensation | | $ | 11,236 | | | $ | 10,061 | | | $ | 10,319 | |
Write-off of fully depreciated property and equipment | | $ | 15,004 | | | $ | 14,564 | | | $ | 26,242 | |
Write-off of fully amortized intangible assets | | $ | 5,473 | | | $ | 9,293 | | | $ | — | |
millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Operating activities | | | | | |
| Net loss | $ | (101) | | | $ | (528) | | | $ | (162) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | |
| Depreciation and amortization | 157 | | | 130 | | | 111 | |
| Share-based compensation | 451 | | | 312 | | | 197 | |
| Amortization of right of use assets | 23 | | | 23 | | | 24 | |
| Amortization of contract cost assets | 30 | | | 42 | | | 37 | |
| Amortization of debt discount and debt issuance costs | 26 | | | 104 | | | 102 | |
| Loss (gain) on extinguishment of debt | 21 | | | 17 | | | (1) | |
| Impairment and restructuring costs | — | | | 57 | | | 77 | |
| Inventory valuation adjustment | 9 | | | 408 | | | — | |
| Other adjustments to reconcile net loss to net cash provided by (used in) operating activities | (3) | | | 12 | | | (3) | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | 82 | | | (82) | | | (7) | |
| Mortgage loans held for sale | 66 | | | 224 | | | (294) | |
| Inventory | 3,904 | | | (3,827) | | | 345 | |
| Prepaid expenses and other assets | 6 | | | (82) | | | (16) | |
| Contract cost assets | (18) | | | (26) | | | (42) | |
| Lease liabilities | (21) | | | (29) | | | (2) | |
| Accounts payable | 3 | | | 5 | | | 13 | |
| Accrued expenses and other current liabilities | (71) | | | 61 | | | 15 | |
| Accrued compensation and benefits | (60) | | | 13 | | | 10 | |
| Deferred revenue | (7) | | | 1 | | | 9 | |
| Other long-term liabilities | 7 | | | (12) | | | 10 | |
| Net cash provided by (used in) operating activities | 4,504 | | | (3,177) | | | 423 | |
| Investing activities | | | | | |
| Proceeds from maturities of investments | 802 | | | 2,206 | | | 2,232 | |
| Proceeds from sales of investments | — | | | — | | | 116 | |
| Purchases of investments | (2,191) | | | (516) | | | (3,287) | |
| Purchases of property and equipment | (115) | | | (74) | | | (85) | |
| Purchases of intangible assets | (25) | | | (31) | | | (24) | |
| Proceeds from sale of equity investment | — | | | — | | | 10 | |
| Cash paid for acquisitions, net | (4) | | | (497) | | | — | |
| Net cash provided by (used in) investing activities | (1,533) | | | 1,088 | | | (1,038) | |
| Financing activities | | | | | |
| Proceeds from issuance of convertible senior notes, net of issuance costs | — | | | — | | | 553 | |
| Proceeds from issuance of Class C capital stock, net of issuance costs | — | | | 545 | | | 412 | |
| Proceeds from issuance of term loan, net of issuance costs | — | | | 1,138 | | | — | |
| Proceeds from borrowings on credit facilities | — | | | 3,618 | | | 349 | |
| Repayments of borrowings on credit facilities | (2,206) | | | (1,780) | | | (679) | |
| Net borrowings (repayments) on warehouse line of credit and repurchase agreements | (76) | | | (197) | | | 279 | |
| Repurchases of Class A common stock and Class C capital stock | (947) | | | (302) | | | — | |
| Settlement of long-term debt | (1,158) | | | (1) | | | (195) | |
| Proceeds from exercise of stock options | 46 | | | 127 | | | 444 | |
| Net cash provided by (used in) financing activities | (4,341) | | | 3,148 | | | 1,163 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash during period | (1,370) | | | 1,059 | | | 548 | |
| Cash, cash equivalents and restricted cash at beginning of period | 2,838 | | | 1,779 | | | 1,231 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 1,468 | | | $ | 2,838 | | | $ | 1,779 | |
| Supplemental disclosures of cash flow information | | | | | |
| Cash paid for interest | $ | 50 | | | $ | 109 | | | $ | 51 | |
| Cash paid for taxes | 6 | | | — | | | — | |
| Noncash transactions: | | | | | |
| Write-off of fully amortized intangible assets | $ | 203 | | | $ | 58 | | | $ | 63 | |
| Write-off of fully depreciated property and equipment | 53 | | | 49 | | | 115 | |
| Capitalized share-based compensation | 51 | | | 30 | | | 17 | |
| Issuance (settlement) of beneficial interests in securitizations | (79) | | | 63 | | | — | |
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Description of Business
Zillow Group Inc. operates the leadingis reimagining real estate to make it easier to unlock life’s next chapter. As the most visited real estate website in the United States, Zillow and home-related information marketplaces on mobileits affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and the web, with a complementary portfolio of brands and products to help consumers find vital information about homes and connect with local professionals. Zillow Group’s brands focus on all stages of the home lifecycle: renting, buying, selling and financing. The Zillow Groupease.
Our portfolio of consumer brands includes real estate and rental marketplaces Zillow Premier Agent, Zillow Home Loans, our affiliate lender, Zillow Closing Services, Zillow Rentals, Trulia, StreetEasy, HotPads Naked Apartments and RealEstate.com.Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to helpfor the real estate rentalindustry which include Mortech, New Home Feed and mortgage professionals maximize business opportunities and connect with millions of consumers. We also own and operate a number of business brands for real estate, rental and mortgage professionals, including Mortech, dotloop,ShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and New Home Feed.interactive floor plans.
In the fourth quarter of 2021, we began to wind down the operations of Zillow
Inc.Offers, our iBuying business which purchased and sold homes directly in markets across the country. The wind down was
incorporated as a Washington corporationcompleted in
December 2004,the third quarter of 2022, and we
launchedhave presented the
initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia, Inc. (“Trulia”). Upon the closing of the Trulia acquisition in February 2015, eachfinancial results of Zillow
Inc. and Trulia became wholly owned subsidiaries of Zillow Group.Offers as discontinued operations in our consolidated financial statements for all periods presented. See Note 3 for additional information.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, we believe that changes in any of the following areas could have a significant negative effect on us in terms of our future financial position, results of operations or cash flows: current and future health and stability of the economy, financial conditions, and residential housing market; changes in general economic and financial conditions (including federal monetary policy, interest rates, inflation, home price fluctuations, housing inventory, labor shortages and supply chain issues); our investment of revenue growth;resources to pursue strategies and develop new products and services that may not prove effective or that are not attractive for customers and real estate partners or that do not allow us to compete successfully; our compliance with multiple listing service rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers; our ability to obtain or maintain licenses and permits to support our current and future businesses; our ability to operate and grow our mortgage origination business, including the ability to obtain sufficient financing and resell originated mortgages on the secondary market; the duration and impact of natural disasters and other catastrophic events (including public health crises) on our ability to operate, demand for our products or services or general economic conditions; our ability to realize the benefits of our past or future strategic partnerships, acquisitions, joint ventures, capital-raising activities, investments or other corporate transactions or commitments; our ability to manage advertising inventory or pricing; engagement and usageeffectivity of our products; our investmenttechnology and information security systems, or those of resources to pursue strategies that may not prove effective; competitionthird parties on which we rely; changes in our market; changes inlaws or government regulation affecting our business; outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; management of our growth; our ability to attract and retain qualified employees and key personnel; our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; protection of customers’ information and other privacy concerns; protection of our brand and intellectual property; and intellectual property infringement and other claims, among other things.
Note 2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include Zillow Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with
U.S.United States generally accepted accounting principles (“GAAP”).
Effective February 17, 2015, Zillow Group acquired Trulia, and each We have presented the financial results of Zillow Inc. and Trulia became wholly owned subsidiaries of Zillow Group. For financial reporting and accounting purposes, Zillow was the acquirer of Trulia. The results presented in the Consolidated Financial Statements and the Notes to Consolidated Financial Statements reflect those of Zillow prior to the completion of the acquisition of Trulia on February 17, 2015, and Trulia’s results ofOffers as discontinued operations have been included prospectively after February 17, 2015. Market Leader revenue is included in our results of operations from February 17, 2015 through the date of divestiture of September 30, 2015.
consolidated financial statements for all periods presented. See Note 3 for additional information.
The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related
disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to the accounting for certain revenue offerings, restructuring costs, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets, with definite lives, share-based compensation, income taxes, the presentation of discontinued and continuing operations, business combinations and the recoverability of goodwill, and indefinite-lived intangible assets, among others. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.
Reclassifications
Certain immaterial reclassifications The health of the residential housing market, interest rate environment and the COVID-19 pandemic (including variants) have been made inintroduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the consolidated statements of operations to conform data for prior periods to the current format. The Company reclassified certain technology-related costs and expenses between expense categories. Amountsestimates previously reported in the consolidated statement of operations for the year ended December 31, 2016 were revised herein as shown below (in thousands):
| | | | | | | | | | | | |
| | | As Reported | | | As Revised | | | Effect of Change | |
Cost of revenue (exclusive of amortization) | | $ | 71,591 | | | $ | 69,262 | | | $ | (2,329 | ) |
Sales and marketing | | | 380,919 | | | | 382,419 | | | | 1,500 | |
Technology and development | | | 273,066 | | | | 255,583 | | | | (17,483 | ) |
General and administrative | | | 313,695 | | | | 332,007 | | | | 18,312 | |
Amounts previously reported in the consolidated statement of operations for the year ended December 31, 2015 were revised herein as shown below (in thousands):
| | | | | | | | | | | | |
| | | As Reported | | | As Revised | | | Effect of Change | |
Cost of revenue (exclusive of amortization) | | $ | 61,614 | | | $ | 60,127 | | | $ | (1,487 | ) |
Sales and marketing | | | 307,089 | | | | 308,125 | | | | 1,036 | |
Technology and development | | | 198,565 | | | | 184,477 | | | | (14,088 | ) |
General and administrative | | | 170,445 | | | | 184,984 | | | | 14,539 | |
Certain immaterial reclassifications have been made in the consolidated balance sheets and statements of cash flows to conform data for prior periods to the current format.
listed, among others.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents, investments,
accounts receivable and
accounts receivable.mortgage loans held for sale. We place cash and cash equivalents and investments with major financial institutions, which management assesses to be of high credit quality, in order to limit exposure of our investments.
Credit risk with respect to accounts receivable is dispersed due to the large number of customers. There were no customers that comprised 10% or more of our total accounts receivable as of December 31,
20172022 and
2016.2021. Further, our credit risk on accounts receivable is mitigated by the relatively short payment terms that we offer. Collateral is not required for accounts receivable. We maintain an allowance for doubtful accounts such that receivables are stated at net realizable value.
Similarly, our credit risk on mortgage loans held for sale is dispersed due to a large number of customers and is mitigated by the fact that we typically sell mortgages on the secondary market within a relatively short period of time after the loan is originated.
Cash and Cash Equivalents
Cash includes demand deposits with banks or financial institutions. Cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Our cash equivalents include only investments with original maturities of three months or less. We regularly maintain cash in excess of federally insured limits at financial institutions.
Our investments consist of fixed income securities, which include U.S. and foreigngovernment treasury securities, U.S. government agency securities, investment grade corporate notes and bonds, commercial paper, municipal securities, and certificates of deposit, and are classified asavailable-for-sale securities. As thecommercial paper. The investments are available to support current operations ouravailable-for-sale securitiesand are classified as short-term investments.Available-for-saleinvestments measured at fair value. Our investment policy only allows for purchases of investment-grade securities and provides guidelines on concentrations to ensure minimum risk of loss. We evaluate whether unrealized losses on available-for-sale debt securities are carriedthe result of credit worthiness of the securities held or other non-credit related factors. If an unrealized loss is the result of credit quality factors, we recognize an allowance reflective of our current estimate of credit losses expected to be incurred over the life of the financial instrument on a specific identification basis upon initial recognition and at each reporting period. If a reduction in value is a result of other factors, we continue to classify the losses as a reduction of comprehensive loss unless either we intend to sell the security or it is more likely than not we will be required to sell the security. We did not identify any unrealized loss positions in our available-for-sale securities that were the result of credit losses as of December 31, 2022 or 2021. Additionally, we have the ability to hold to maturity and more likely than not will not be required to sell the securities before a recovery of the amortized cost basis has occurred.
Restricted Cash
Restricted cash primarily consists of amounts held in escrow related to funding customer home purchases in our mortgage origination business.
Mortgage Loans Held for Sale
Mortgage loans held for sale include residential mortgages originated for sale in the secondary market in connection with Zillow Home Loans. We have elected the fair value option for all mortgage loans held for sale as election of this option allows for a better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Mortgage loans held for sale are initially recorded at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive loss in shareholders’ equity, while realized gains and losses and other-than-temporary impairments are reported as a component of net loss based on specific identification. An impairment chargeeither sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loans are sold. Net origination costs and fees associated with mortgage loans are recognized as incurred. We sell substantially all of the mortgages we originate and the related servicing rights to third-party purchasers. Interest income is recordedearned from the date a mortgage loan is originated until the loan is sold and is classified within other income, net in the consolidated statements of operationsoperations.
Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, which limits exposure to nonperformance by loan buyer counterparties. However, we remain liable for declinescertain limited representations and warranties related to loan sales, such as non-compliance with defined loan origination or documentation standards, including misstatement in the loan documents, early payoff or default on early payments. Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We record a reserve for probable losses in connection with the sale of mortgage loans within other long-term liabilities in the consolidated balance sheet.
Loan Commitments and Related Derivatives
We are party to interest rate lock commitments (“IRLCs”), which are extended to borrowers who have applied for loan funding and meet defined credit and underwriting criteria in connection with our Zillow Home Loans mortgage origination business. IRLCs are accounted for as derivative instruments recorded at fair value belowwith gains and losses recognized in revenue in the costconsolidated statements of operations. We manage our interest rate risk related to IRLCs and mortgage loans held for sale through the use of derivative instruments, generally forward contracts on mortgage-backed securities (“MBSs”), which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price, and mandatory loan commitments, which are an individual investment thatobligation by an investor to buy loans at a specified price within a specified time period. We do not enter into or hold derivatives for trading or speculative purposes, and our derivatives are deemed to be other than temporary. We assess whether a declinenot designated as hedging instruments. Changes in value is temporary based on the length of time that the fair market value has been below cost, the severity of the declineour derivative financial instruments are recognized in revenue in our consolidated statements of operations, and the intentfair values are reflected in other current assets or other current liabilities, as applicable. Refer to Note 4 to our consolidated financial statements for additional information regarding IRLCs and abilityrelated derivatives.
There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on IRLCs are substantially offset by corresponding gains or losses on forward contracts on MBSs and mandatory loan commitments. We are generally not exposed to
hold or sell the investment. We did not identify any investments as other-than-temporarily impaired asvariability in cash flows of
December 31, 2017 or 2016.derivative instruments for more than approximately 90 days.
Contract Balances
Accounts
Receivable and Allowance for Doubtful Accountsreceivable represent our unconditional right to consideration. Accounts receivable are generally due within 30 days and are recorded net of the allowance for doubtful accounts. We considerhave an allowance for doubtful accounts outstanding longer thanfor our accounts receivable balances, which represents our estimate of expected credit losses over the contractual terms past due. We reviewlife of the accounts receivable. To evaluate the adequacy of our allowance for doubtful accounts each reporting period, we analyze the accounts receivable balances with similar risk characteristics on a regularcollective basis, considering factors such as the aging of receivable balances, payment terms, historical loss experience, current information and estimate an amount of losses for uncollectible accounts based on our historical collections experience, age of the receivable, knowledge of the customer and the condition of the general economy and industry as a whole. We record changes in our estimatefuture expectations. Changes to the allowance for doubtful accounts are adjusted through bad debtcredit loss expense, and relieve the allowance when accounts are ultimately determined to be uncollectible. Bad debt expensewhich is included in general and administrative expenses in the consolidated statements of operations.
Contract assets represent our right to consideration in exchange for goods and services that we have transferred to the customer when that right is conditional on something other than the passage of time. Contract assets are primarily related to our Premier Agent Flex, Zillow Lease Connect and StreetEasy Experts offerings, whereby we estimate variable consideration based on the expected number of real estate transactions to be closed for Premier Agent Flex and StreetEasy Experts, and qualified leases to be secured for Zillow Lease Connect. We recognize revenue when we satisfy our performance obligations under the corresponding contracts. The current portion of contract assets are recorded within prepaid expenses and other current assets and the long-term portion of contract assets are recorded within other assets in our consolidated balance sheets.
Contract liabilities consist of deferred revenue, which relates to payments received in advance of performance under a revenue contract. Deferred revenue is primarily related to prepaid advertising fees received or billed in advance of satisfying our performance obligations and prepaid but unrecognized subscription revenue. Deferred revenue is recognized when or as we satisfy our obligations under contracts with customers.
Contract Cost Assets
We capitalize certain incremental costs of obtaining contracts with customers which we expect to recover. These costs relate to commissions paid to sales personnel, primarily for our Premier Agent program. As a practical expedient, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less. Capitalized commission costs are recorded as contract cost assets in our consolidated balance sheets. Contract cost assets are amortized to expense on a straight-line basis over a period that is consistent with the transfer to the customer of the products or services to which the asset relates, generally the estimated life of the customer relationship. Amortization expense related to contract cost assets is included in sales and marketing expenses in our consolidated statements of operations. In determining the estimated life of our customer relationships, we consider quantitative and qualitative data, including, but not limited to, historical customer data, recent changes or expected changes in product or service offerings and changes in how we monetize our products and services. The amortization period for capitalized contract costs related to our Premier Agent program is approximately three years.
We monitor our contract cost assets for impairment and recognize an impairment loss in the consolidated statements of operations to the extent the carrying amount of the asset recognized exceeds the amount of consideration that we expect to receive in the future and that we have received but have not recognized in revenue less the costs that relate directly to providing those goods or services that have not yet been recognized as expenses.
Refer to Note 7 of our consolidated financial statements for more information regarding contract cost assets.
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. The useful lives are as follows:
| | | | | | | | |
Computer equipment | | 2 to 3 years |
Office equipment, furniture and fixtures | | 5 to 7 years |
Leasehold improvements | | Shorter of expected useful life or lease term |
Maintenance and repair costs are charged to expense as incurred. Major improvements, which extend the useful life of the related asset, are capitalized. Upon disposal of a fixed asset, we record a gain or loss based on the
differencesdifference between the proceeds received and the net book value of the disposed asset.
We remove fully depreciated property and equipment from the cost and accumulated depreciation amounts disclosed.
Website and Software Development Costs
The costs incurred in the preliminary stages of
website and software development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized in property and equipment and amortized on a straight-line basis over their estimated useful lives. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful lives. Amortization expense related to capitalized website and software development costs is included in
technology and development expense.cost of revenue in our consolidated statements of operations.
Capitalized development activities placed in service are amortized over the expected useful lives of those releases, currently estimated at one to twofive years. The estimated useful lives of website and software development activities are reviewed frequently and adjusted as appropriate to reflect upcoming development activities that may include significant upgrades and/or enhancements to the existing functionality. We remove fully amortized website and software development costs from the cost and accumulated amortization amounts disclosed.
Construction-in-progress primarily consists of website development costs that are capitalizable, but for which the associated applications have not been placed in service.
Leases
Our lease portfolio is primarily composed of operating leases for our office space. We determine whether a contract is or contains a lease at inception of the contract. Our operating leases are included in right of use assets and lease liabilities on our consolidated balance sheets. We do not have any material financing leases.
We have lease agreements that include both lease components (e.g., fixed rent) and non-lease components (e.g., common area maintenance). For such leases, we account for the lease and non-lease components as a single component. For leases with an initial term of 12 months or less, we recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.
Right of use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments. Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of the total lease payments not yet paid, including lease incentives not yet received, with the right of use assets further adjusted for any prepaid or accrued lease payments, lease incentives received and/or initial direct costs incurred. Certain lease arrangements also include variable payments for costs such as common-area maintenance, utilities, taxes or other operating costs, which are based on a percentage of actual expenses incurred or a fluctuating rate which is unknown at the inception of the contract. These variable lease payments are excluded from the measurement of the right of use assets and lease liabilities.
Our leases have remaining lease terms ranging from less than one year to ten years, most of which include one or more options to extend the lease term. The renewal options can generally extend the lease term for up to an additional five to ten years. When determining if a renewal option is reasonably certain of being exercised at lease commencement, we consider several factors, including but not limited to, contract-based, asset-based and entity-based factors. We reassess the term of existing leases if there is a significant event or change in circumstances within our control that affects whether we are reasonably certain to exercise an option to extend a lease. Examples of such events or changes include construction of significant leasehold improvements or other modifications or customizations to the underlying asset, relevant business decisions or subleases. As of December 31, 2022, we have concluded that our renewal options are not reasonably certain of being exercised, therefore, renewals are not included in the right of use assets and lease liabilities.
As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. We apply a portfolio approach for determining the incremental borrowing rate based on the applicable lease terms and the current economic environment.
We recognize lease expense for operating leases on a straight-line basis over the lease term. Variable lease payments are generally recognized when incurred. These expenses are included in general and administrative expenses in the consolidated statements of operations.
From time to time, we may enter into sublease agreements with third parties. Our subleases generally do not relieve us of our primary obligations under the corresponding head lease. As a result, we account for the head lease based on the original assessment at lease inception. We determine if the sublease arrangement is either a sales-type, direct financing, or operating lease at inception of the sublease. If the total remaining lease cost on the head lease for the term of the sublease is greater than the anticipated sublease income, the right of use asset is assessed for impairment. Our subleases are generally operating leases and we recognize sublease income on a straight-line basis over the sublease term.
Recoverability of Goodwill
and Indefinite-Lived Intangible AssetsGoodwill
representsis measured as the excess of
the cost ofconsideration transferred for an acquired business over the
net of the acquisition date fair
valuevalues of the assets acquired
atand the
date of acquisition,liabilities assumed, and is not amortized. We assess the impairment of goodwill
at the reporting unit level on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired.
Typically, we choose to forgo the initial qualitative assessment and perform a quantitative analysis to assist in our annual evaluation. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our statements of operations.Our indefinite-lived intangible asset is not amortized, and we assess the asset for impairment on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that the asset may be impaired. On an interim basis we consider if there are any events and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset, including, but not limited to, costs that could have a negative effect on future expected earnings and cash flows, changes in certain key performance metrics, and changes in management, key personnel, strategy or customers. In our evaluation of our trade names and trademarks indefinite-lived intangible asset,goodwill, we typically firstinitially perform a qualitative assessment to determine whether the fair valueexistence of the indefinite-lived intangible assetevents or circumstances indicates that it is more likely than not impaired.that the carrying value of each reporting unit is greater than its fair value. If so,it is more likely than not that the carrying value of a reporting unit is greater than its fair value, we perform a quantitative assessment and an impairment charge is recorded in our statements of operations for the excess of the carrying value of the indefinite-lived intangible assetsreporting unit over theirits fair value.
During the yearyears ended December 31, 2017,2022, 2021 and 2020, we recorded anon-cash impairment for $174.0 milliondid not record any impairments related to the $351.0 million indefinite-lived intangible asset that we recorded in connection with our February 2015 acquisition of Truliagoodwill. Refer to Note 10 for Trulia’s trade names and trademarks. For additional information about thenon-cash impairment, see Note 9related to our consolidated financial statements.
goodwill.
We purchase and license data content from multiple data providers. This data content consists of
U.S.United States county data about home details
(e.g., the number of bedrooms, bathrooms, square footage) and other information relating to the purchase price of homes, both current and historical, as well as imagery, mapping and parcel data that is displayed on our mobile applications and websites.
Our home details data not only provides information about a home and its related transactions which is displayed on our mobile applications and websites, but is also used in our proprietary valuation algorithms to produce Zestimates, Rent Zestimates and Zillow Home Value Indexes. License agreement terms vary by vendor. In some instances, we retain perpetual rights to this information after
theour contract
with a vendor ends; in other instances, the information and data are licensed only during the fixed term of the agreement. Additionally, certain data license agreements provide for uneven payment amounts throughout the
life of the contract term.
We capitalize payments made to third parties for data licenses that we expect to provide future economic benefitrecover through the recovery of the costs of these arrangements via the generation of our revenue and margins. For data license contracts that include uneven payment amounts, we capitalize the payments as they are made as an intangible asset and the total contract value is typically amortized on a straight-line basis over the term of the contract, which is equivalent to the estimated useful life of the asset. We evaluate data content contracts for potential capitalization at the inception of the arrangement as well as each time periodic payments to third parties are made.The amortization period for the capitalized purchased content is based on our best estimate of the useful life of the asset, which is approximately fiveranges from three to seven years. The determination of the useful life includes consideration of a variety of factors including, but not limited to, our assessment of the expected use of the asset and contractual provisions that may limit the useful life, as well as an assessment of when the data is expected to become obsolete based on our estimates of the diminishing value of the data over time. We evaluate the useful life of the capitalized purchased data content each reporting period to determine whether events and circumstances warrant
a revision to the remaining useful life. If we determine the estimate of the asset’s useful life requires modification, the carrying amount of the asset is amortized prospectively over the revised useful life. The capitalized purchased data content is amortized on a straight-line basis as the pattern of delivery of the economic benefits of the data cannot reliably be determined because we do not have the ability to reliably predict future traffic to our mobile applications and websites.
Under certain other data agreements, the underlying data is obtained on a subscription basis with consistent monthly or quarterly recurring payment terms over the contractual period. Upon the expiration of such arrangements, we no longer have the right to access the related data, and therefore, the costs incurred under such contracts are not capitalized and are expensed as payments are made.
We would immediately lose rights to data under these arrangements if we were to cancel the subscription and/or cease making payments under the subscription arrangements.We also capitalize costs related to the license of certaininternal-use software from third parties, including certain licenses of software in cloud computing arrangements. Additionally, we capitalize costs incurred during the application development stage related to the development ofinternal-use software and enterprise cloud computing services. We expense costs as incurred related to the planning and post-implementation phases of development. Capitalizedinternal-use software costs are amortized on a straight-line basis over the estimated useful life of the asset, which is currently three years, on a straight-line basis.one to five years.
Intangibles-in-progress consist of purchased content and software that are capitalizable but have not been placed in service.
We also have intangible assets for developed technology, customer relationships,
and trade names and trademarks
and advertising relationships which we recorded in connection with acquisitions. Purchased intangible assets with a determinable economic life are carried at cost less accumulated amortization. These intangible assets are amortized over the estimated useful life of the asset on a straight-line basis.
For each of the intangible assets described above, we have removed fully amortized assets from the cost and accumulated amortization amounts disclosed.
Recoverability of Intangible Assets with Definite Lives and Other Long-Lived Assets
We evaluate intangible assets and other long-lived assets for impairment whenever events or circumstances indicate that they may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated. We group assets for purposes of such review at the lowest level for which identifiable cash flows of the asset group are largely independent of the cash flows of the other groups of assets and liabilities. If this comparison indicates impairment, the amount of impairment to be recognized is calculated as the difference between the carrying value and the fair value of the asset group.
Deferred Revenue
Deferred revenue consists of prepaid advertising fees received or billed in advance of the delivery or completion of the services, prepaid but unrecognized subscription revenue, and for amounts received in instances when revenue recognition criteria have not been met. Deferred revenue is recognized when the services are provided and all revenue recognition criteria have been met.
Deferred Rent
For our operating leases, we recognize rent expense on a straight-line basis over the terms of the leases and, accordingly, we record the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. For office space under an operating lease that is subleased to a third party for which we intend to reoccupy the space at a future date, rent expense is recognized net of sublease income. Landlord-funded leasehold improvements are also recorded as deferred rent liabilities and are amortized as a reduction of rent expense over thenon-cancelable term of the related operating lease.
We recognize identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions for the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that we identify adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. We recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
We recognize revenue when (i) persuasive evidenceor as we satisfy our performance obligations by transferring control of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. We consider a signed agreement, a binding insertion order or other similar documentation reflecting the terms and conditions under whichpromised products or services will be providedto our customers in an amount that reflects the consideration to which we expect to be persuasive evidenceentitled in exchange for those products or services.
As a practical expedient, we do not adjust the promised amount of
an arrangement. Collectability is assessed based on a number of factors, including payment history andconsideration for the
creditworthinesseffects of a
customer. If it is determinedsignificant financing component as the period between our transfer of a promised product or service to a customer and when the customer pays for that
collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, whichproduct or service is generally
upon receipt of cash.one year or less.
We
generate revenue fromdo not disclose the
sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, mortgage and rental industries. These professionals include real estate, mortgage and rental professionals and brand advertisers. Our two primary revenue categories are marketplace revenue and display revenue. Incremental direct costs incurredtransaction price related to
remaining performance obligations for (i) contracts with an original expected duration of one year or less or (ii) contracts for which we recognize revenue at the
acquisition or origination of a customer contract in a transaction that results inamount to which we have the
deferral of revenue are expensed as incurred.Marketplace Revenue. Marketplace revenue consists primarily of right to invoice for performance completed to date. The remaining duration over which we satisfy our performance obligations is generally less than one year.
IMT Segment
Premier Agent revenue, other real estate revenue and mortgages revenue. In addition, Market Leader revenue is included in our results of operations in Marketplace revenue from February 17, 2015 through the date of divestiture of September 30, 2015.Revenue.
Premier Agent revenue is derived from our Premier Agent and Premier Broker programs.program. Our Premier Agent and Premier Broker programs offerprogram offers a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising needs,goals while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive access to a dashboard portal on our mobile application orand website that provides individualized program performance analytics, self-service ad buying tools and our free customer relationship management, or CRM, tool that captures detailed information about each contact made with a Premier Agent or Premier Broker through our mobile and web platforms.We offerplatforms and our flagship account management tools. The marketing and business technology products and services promised to Premier Agents are delivered over time, as the customer simultaneously receives and consumes the benefit of the performance obligations.
Premier Agent advertising product and our Premier Broker advertising productproducts, which include the delivery of validated consumer connections, or leads, are primarily offered on a cost per impressionshare of voice basis. ImpressionsPayment is received prior to the delivery of connections. Connections are delivered when consumer contact information is provided to Premier Agents. We do not promise any minimum or maximum number of connections to customers, but instead control when and how many connections to deliver based on a sold advertisement appears on pages viewed by userscustomer’s share of our mobile applications and websites. In 2016, we began testing and implementation of a new auction-based pricing method for our Premier Agent product by which wevoice. We determine the cost per impression deliverednumber of connections to deliver to Premier Agents in each zip code based uponusing a market-based pricing method in consideration of the total amount spent by Premier Agents to purchase impressionsconnections in the zip code during the month. This results in the delivery of connections over time in proportion to each Premier Agent’s share of voice. A Premier Agent’s share of voice in a zip code is determined by their proportional monthly prepaid spend in that zip code as a percentage of the total monthly prepaid spend of all Premier Agents in that zip code, and determines the proportion of consumer connections a Premier Agent receives. The cost per impression that we chargenumber of connections delivered for a given spend level is dynamic –- as demand for impressionsadvertising in a zip code increases or decreases, the cost per impressionnumber of connections delivered to a Premier Agent in that zip code may be increaseddecreases or decreased.increases accordingly.
We primarily recognize revenue related to the Premier Agent products and services based on the monthly prepaid spend recognized on a straight-line basis during the monthly billing period over which the products and services are provided. This
new auction-based pricing method complementsmethodology best depicts how we satisfy our
self-serve account interface, whichperformance obligations to customers, as we
introducedcontinuously transfer control of the performance obligations to
the customer over time. Given a Premier
Agents over the course of2016. The interface includes account management tools that allow agent advertisers to independently controlAgent typically prepays their budgets, impression buys,monthly spend and the durationmonthly spend is refunded on a pro-rata basis upon cancellation of their advertising commitment.the contract by a customer, we have determined that Premier Agent contracts are effectively daily contracts, and each performance obligation is satisfied over time as each day lapses. We began testing this auction-based pricing method forhave not allocated the transaction price to each performance obligation within our Premier Agent productarrangements, as the amounts recognized would be the same irrespective of any allocation.
We also offer a pay for performance pricing model called “Flex” for Premier Agent advertising services in certain markets. Flex is available to better alignselect partners alongside our revenue opportunitieslegacy market-based pricing model. With the Flex model, Premier Agents are provided with increasing traffic levels to our mobilevalidated leads at no initial cost and web platforms and leveraging increasing demand bypay a performance advertising fee only when a real estate agentstransaction is closed with one of the leads within two years. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration and record revenue as performance obligations, or validated leads, are transferred. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a corresponding contract asset for accessthe estimate of variable consideration for Flex when the right to home shoppers who usethe consideration is conditional. When the right to consideration becomes unconditional, we reclassify amounts to accounts receivable.
Rentals Revenue. Rentals revenue includes the sale of advertising and a suite of tools to rental professionals, landlords and other market participants under the Zillow and StreetEasy brands. Rentals revenue includes revenue generated by advertising sold to property managers, landlords and other rental professionals on a cost per lead, click, lease, listing or impression basis or for a fixed fee for certain advertising packages. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee. We recognize revenue as leads, clicks and impressions are provided to rental professionals, or as rental listings are published on our mobile applications and websites. Inwebsites, which is the fourth quarter of 2016,amount for which we implemented this method broadly for all existing and new agent advertisers, including brokerages and other teams. With this auction-based pricing method, wehave the right to invoice. We recognize revenue related to our dynamic impression-based Premier Agentfixed fee rentals product on a straight-line basis over the contract term as the performance obligations, rental listings on our mobile applications and Premier Broker productswebsites, are satisfied over time based on time elapsed. The number of leases generated through our rentals pay per lease product, Zillow Lease Connect, during the period is accounted for as variable consideration, and we estimate the amount of variable consideration based on the contractual maximum spendexpected number of qualified leases secured during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of leases secured is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for Zillow Lease Connect when the right to the consideration is conditional. When the right to consideration becomes unconditional, we reclassify amounts to accounts receivable.
Rentals revenue also includes revenue generated from our rental applications product through which potential renters can submit applications to multiple rental properties over a 30-day period for a flat service fee. We recognize revenue for the rental applications product on a straight-line basis during the contractual period over which the
services are delivered. Our Premier Agentcustomer has the right to access and
Premier Broker products include multiple deliverables which are accounted for as a single unit of accounting, assubmit the
delivery or performance of the undelivered elements is based on traffic to our mobile applications and websites. In our history of building our real estate and other information marketplaces and product offerings, we have continually evaluated and utilized various pricing and value delivery strategies in order to better align our revenue opportunities with the growth in usage of our mobile and web platforms.From 2012 through the end of the third quarter of 2016, we had primarily charged customers for our Premier Agent product based on the number of impressions delivered on our buyer’s agent list in zip codes purchased and a contracted maximum cost per impression. With this pricing method, we recognized revenue related to our impression-based Premier Agent product based on the lesser of (i) the actual number of impressions delivered on our buyer’s agent list during the period multiplied by the contracted maximum cost per impression, or (ii) the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered, typically over a period of six months or twelve months and thenmonth-to-month thereafter.
We continue to support some legacy Trulia Premier Agent products, which are primarily sold on a fixed fee subscription basis for periods that generally range from six months to 12 months. Subscription advertising revenue for Trulia’s products included in Premier Agent revenue is recognized on a straight-line basis during the contractual period over which the services are delivered.
rental application.
Other real estateRevenue. Other IMT revenue primarily includes revenue generated by Zillow Group Rentals, as well asour new construction marketplace and revenue from the sale of various other marketingadvertising and business products and services totechnology solutions for real estate professionals, including our new construction marketing solutions. Zillow Group Rentals includes our rentals marketplacedisplay, StreetEasy for-sale product offerings and suite of tools for rental professionals. Rentals revenue primarily includes revenue generated by advertising sold to property managersShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and other rental professionals on a cost per lead, cost per lease and cost per click generated basis whereby we recognize revenue as leads are delivered to rental professionals or as qualified leases are confirmed. interactive floor plans.
Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby
revenue is recognized based on the contractual spend on a straight-line basis during the contractual period over which the services are delivered. Mortgages revenue primarily includes marketing products sold to mortgage professionals on a cost per lead basis, including our Long Form and Custom Quote services. Mortgages revenue also includes revenue generated by Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform, for which we recognize revenue on a straight-line basis during the contractual period over which the servicescommunities are delivered. Foradvertised on our Long Formmobile applications and Custom Quotewebsites. New construction revenue also includes revenue generated on a cost per lead mortgage marketingimpression basis whereby we recognize revenue as impressions are delivered to users interacting with our mobile applications and websites, which is the amount for which we have the right to invoice. Consideration for new construction products generally, participating qualified mortgage professionals makeis billed in arrears.
ShowingTime revenue is primarily generated by Appointment Center, a prepaymentsoftware-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to gain accessefficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center revenue is primarily billed in advance on a monthly basis and recognized ratably over the contract period which aligns to consumers interested in connecting with mortgage professionals. In Zillow Group’s Long Form platform, consumers answer a seriesour satisfaction of questions to find a local lender, and mortgage professionals receive consumer contact information. Consumers who request ratesperformance obligations.
StreetEasy for-sale revenue primarily consists of our pay for
mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. We only charge mortgage professionals a fee when users contact mortgage professionals through Long Form or Custom Quotes. Mortgage professionals who exhaust their initial prepayment can then prepay additional funds to continue to participateperformance pricing model available in the
marketplace. We recognize revenueNew York City market for which agents and brokers are provided with leads at no initial cost and pay a performance referral fee only when a
user contacts a mortgage professional through Zillow Group’s mortgages platform.Market Leader revenue primarily includes revenue from the sale of a comprehensive premiumsoftware-as-a-service based marketing product typically sold to real estate professionalspurchase transaction is closed with one of the leads. Under the StreetEasy pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration based on the expected number of closed transactions during the period. We do not believe that a bundlesignificant reversal in the amount of products undercumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a fixed fee subscription. Market Leader became partcorresponding contract asset for the estimate of Zillow Group through Zillow Group’s February 2015 acquisitionvariable consideration for StreetEasy Experts when the right to the consideration is conditional. When the right to consideration becomes unconditional, we reclassify amounts to accounts receivable.
Our dotloop real estate transaction management software-as-a-service solution is primarily billed in advance on a monthly basis and revenue is recognized ratably over the contract period which aligns to our satisfaction of
Trulia and was divested as of September 30, 2015.Display Revenue.performance obligations.
Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and
websites and our partner websites and mobile applications, primarily in the real estate industry, including real estate brokerages, multi-family rental professionals, mortgage professionals and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. Impressions are the number of times an advertisement is loaded on a web page and clicks are the number of times users click on an advertisement. Pricing is primarily based on advertisement size and position on our mobile applications and websites or on our partner websites and mobile applications, and fees are generally billed monthly.websites. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or
websites.websites, which is the amount for which we have the right to invoice.
Mortgages Segment
Mortgages Revenue. Mortgages revenue primarily includes revenue generated by Zillow Home Loans, our affiliated mortgage lender, and marketing products sold to mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.
Mortgage origination revenue recorded within our Mortgages segment reflects origination fees on purchase or refinance mortgages and the corresponding sale, or expected future sale, of a loan. When an IRLC is made to a customer, we record the expected gain on sale of the mortgage, plus the estimated earnings from the expected sale of the associated servicing rights, adjusted for a pull-through percentage (which is defined as the likelihood that an interest rate lock commitment will be originated), as revenue. Revenue from loan origination fees is recognized at the time the related purchase or refinance transactions are completed, usually upon the close of escrow and when we fund the purchase or refinance mortgage loans. Once funded, mortgage loans held for sale are recorded at fair value based on either sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loan is sold. Origination costs associated with originating mortgage loans are recognized as incurred. We sell substantially all of the mortgages we originate and the related servicing rights to third-party purchasers.
Mortgage loans are sold with limited recourse provisions, which can result in repurchases of loans previously sold to investors or payments to reimburse investors for loan losses. Based on historical experience, discussions with our mortgage purchasers, analysis of the volume of mortgages we originated and current housing and credit market conditions, we estimate and record a loss reserve for mortgage loans held in our portfolio and mortgage loans held for sale, as well as known and projected mortgage loan repurchase requests. These have historically not been significant to our financial statements.
Zillow Group operates Custom Quote and Connect through its wholly owned subsidiary, Zillow Group Marketplace, Inc., a licensed mortgage broker. For our Connect and Custom Quote cost per lead marketing products, participating qualified mortgage professionals typically make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Mortgage professionals who exhaust their initial prepayment prepay additional funds to continue to participate in the marketplace. In Zillow Group’s Connect platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information, or leads, when the consumer chooses to share their information with a lender. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. For our cost per lead mortgages products, we recognize revenue when a user contacts a mortgage professional through our mortgages platform, which is the amount for which we have the right to invoice.
Homes Segment
Zillow Closing Services. Zillow Closing Services offers title and escrow services to home buyers and sellers, including title search procedures for title insurance policies, escrow and other closing services. Title insurance, which is recorded net of amounts remitted to third-party underwriters, and title and escrow closing fees, are recognized as revenue upon closing of the underlying real estate transaction.
There were no customers that generated 10% or more of our total revenue in the years ended December 31,
2017, 20162022, 2021 or
2015.2020.
Cost of RevenueOur costRevenue.
Cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcountheadcount-related expenses, such as salaries, and benefits, bonuses and share-based compensation expense, and bonuses, as well as credit card fees, ad serving costs paid to third parties, revenue-sharing costs related to our commercial business relationships, depreciation expense, and costs associated with the operation ofhosting our data center and mobile applications and websites.Technology and Development
Technology and development expenses consist Cost of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development and testing of our mobile applications and websites, and equipment and maintenance costs. Technology and development expensesrevenue also includeincludes amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangiblesintangible assets and other data agreement costs related to the purchase ofobtain data used to populate our mobile applications and websites, and amortization of certain intangible assets recorded in connection with acquisitions, including developed technologytechnology. For our IMT and Mortgages segments, cost of revenue also includes credit card fees and ad serving costs paid to third parties. For our Mortgages segment, cost of revenue also consists of direct costs to originate loans, including underwriting and processing costs.
Sales and Marketing. Sales and marketing expenses consist of advertising costs and other sales expenses related to promotional and marketing activities, headcount-related expenses, including salaries, commissions, benefits, bonuses and share-based compensation expense for sales, sales support, customer support, including the customer connections team, marketing and public relations employees, depreciation expense and amortization of certain intangible assets recorded in connection with acquisitions, including trade names and trademarks and customer relationships, amongst others,relationships. For our Mortgages segment, sales and marketing expenses include headcount-related expenses for loan officers and specialists supporting Zillow Home Loans.
Advertising costs are expensed as incurred. For the years ended December 31, 2022, 2021 and 2020, expenses attributable to advertising totaled $144 million, $206 million and $112 million, respectively.
Technology and Development. Technology and development expenses consist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for individuals engaged in the design, development and testing of our products, mobile applications and websites and the tools and applications that support our products. Technology and development expenses also include equipment and maintenance costs and depreciation expense. Research and development costs are expensed as incurred and are recorded in technology and development expenses. For the years ended December 31,
2017, 20162022, 2021 and
2015,2020, expenses attributable to research and development for our business totaled
$193.0$495 million,
$170.1$358 million and
$116.2$283 million, respectively.
Share-Based CompensationCompensation.
We measure compensation expense for all share-based awards at fair value on the date of grant and recognize compensation expense over the service period on a straight-line basis for awards expected to vest. We use the Black-Scholes-Merton option-pricing model to determine the fair value for option awards. In valuing our option awards, we make assumptions about risk-free interest rates, dividend yields, volatility and weighted-average expected lives.
In addition, through December 31, 2016, we made assumptions about estimated forfeiture rates. Beginning on January 1, 2017, we elected toWe account for forfeitures as they occur. Risk-free interest rates are derived from U.S. Treasury securities as of the option award grant date. Expected dividend yield
is based on our historical cash dividend payments, which have been zero to date. The expected volatility for our Class A common stock and Class C capital stock is estimated using our historical volatility. The weighted-average expected life of the option awards is estimated based on our historical exercise data. Prior
When determining the grant date fair value of share-based awards, management considers whether an adjustment is required to
January 1, 2017, forfeiture rates were estimated using historical actual forfeiture trends as well as our judgmentthe observable market price or volatility of
future forfeitures. These rates were evaluated at least quarterly and any change in share-based compensation expense was recognizedthe Company’s Class C capital stock used in the
periodvaluation as a result of
the change. We considered many factors when estimating expected forfeitures, including employee class and historical experience.material non-public information.
For issuances of restricted stock
units and restricted units, we determine the fair value of the award based on the market value of our Class
A common stock or Class C capital stock, as applicable, at the date of grant.
Advertising Costs
Advertising
Restructuring Costs. The main components of our restructuring costs recorded within impairment and restructuring costs in our consolidated statement of operations relate to employee termination costs, contract termination costs, and charges attributable to the wind down of Zillow Offers operations and additional cost actions to streamline our operations and prioritize investments. One-time employee termination benefits are recognized when the plan of termination has been communicated to employees and certain other criteria are met. Other severance and employee costs, primarily pertaining to ongoing employee benefit arrangements, are recognized when it is probable that the employees are entitled to the severance benefits and the amounts can be reasonably estimated. Contract termination costs are expensedrecognized when a contract is terminated in accordance with its terms or at the cease-use date. Asset write-offs are recognized upon their cease-use date. The cumulative effect of a change resulting from a revision to either the timing or the amount of estimated cash flows for restructuring is recognized as incurred. Foran adjustment to the years ended December 31, 2017, 2016 and 2015, expenses attributable to advertising totaled $156.5 million, $120.2 million and $103.4 million, respectively. Advertising costs are recordedliability in sales and marketing expenses.the period of the change.
We use the asset and liability approach for accounting and reporting income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. A valuation allowance against deferred tax assets would be established if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets are not expected to be realized.
We establish reserves for
tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation or the change of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. Interest and penalties related to unrecognized tax benefits are recorded as income tax expense.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay aone-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and how AMT credits are utilized; and (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Shortly after enactment, implementation guidance was released by the Securities and Exchange Commission that requires a company to reflect the income tax effects of those aspects of the Tax Act for which the accounting under the accounting rules is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but the company is able to determine a reasonable estimate, it should record a provisional estimate in the financial statements. Further, the implementation guidance also provides for a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete their accounting pursuant to the accounting rules.
Recently Adopted Accounting Standards
In January 2017,August 2020, the Financial Accounting Standards Board (“FASB”) issued guidance simplifyingwhich simplifies the testaccounting for goodwill impairment. This standard eliminates Step 2certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, the guidance removes the liability and equity separation models for convertible instruments. Instead, entities must account for convertible debt instruments wholly as debt unless convertible instruments contain features that require bifurcation as a derivative or that result in substantial premiums accounted for as paid-in capital. The guidance also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The guidance was effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and could be adopted on either a retrospective or modified retrospective basis. We adopted this guidance on January 1, 2022 using the modified retrospective approach whereby amounts previously reported have not been revised. Upon adoption we recognized a decrease to additional paid-in capital of $492 million, an increase to long-term debt of $336 million and a cumulative-effect adjustment to accumulated deficit of $156 million.
In October 2021, the FASB issued guidance requiring contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with guidance governing revenue from
contracts with customers. Prior to the
goodwill impairment test, instead requiringadoption of this guidance, we recognized contract assets and contract liabilities at the acquisition date based on fair value estimates, which resulted in a reduction to unearned revenue on the balance sheet, and therefore, a reduction to revenue that would have otherwise been recorded as an
entity independent entity. The guidance was effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted. We adopted this guidance effective April 1, 2022, and it will be applied to recognizeall business combinations after that date. We did not enter into any material business combinations during the year ended December 31, 2022.
Recently Issued Accounting Standards Not Yet Adopted
In June 2022, the FASB issued guidance to improve existing measurement and disclosure requirements for equity securities that are subject to a
goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value.contractual sale restriction. This guidance is effective for interim and annual
goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted. This guidance must be applied on a prospective basis. We adopted this guidance for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and2023 on a prospective basis, with early adoption is permitted. The adoption of this guidance requires a retrospective transition method to each period presented. We adopted this guidance in the interim period ending on September 30, 2016. The adoption of this guidance did not have any impact on our statements of cash flows. In connection with the December 2016 partial repurchase of the 2020 Notes (see Note 11), payments related to the debt extinguishment costs have been classified as a cash outflow for financing activities.
In March 2016, the FASB issued guidance on several aspects of the accounting for share-based payment transactions, including the income tax consequences, impact of forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. We adopted this guidance on January 1, 2017 and elected to account for forfeitures as they occur using the modified retrospective approach through a cumulative-effect adjustment of approximately $0.8 million to beginning accumulated deficit. We also recognized our previously unrecognized excess tax benefits related to share-based payment awards using the modified retrospective approach, which resulted in no net impact to beginning accumulated deficit. The previously unrecognized excess tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance. Without the valuation allowance, our deferred tax asset would have increased by $126.0 million. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.
Recently Issued Accounting Standards Not Yet Adopted
In March 2017, the FASB issued guidance related to the premium amortization on purchased callable debt securities. This guidance shortens the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. This guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We expect to adopt this guidance on January 1, 2019.2024. We have not yet determined the impact the adoption of this guidance will have on our financial position, results of operations orand cash flows.
Note 3. Discontinued Operations
Zillow Offers Wind Down
In December 2016,November 2021, the FASB issued guidanceBoard of Directors of Zillow Group made the determination to narrowwind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment, all of which led us to conclude that, despite its initial promise in earlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals going forward.
Historically Zillow Offers has been reported within our Homes segment. The wind down of Zillow Offers was completed in the
definitionthird quarter of
a business. This guidance assists entities with evaluating when a set of transferred2022, at which time Zillow Offers met the criteria for discontinued operations. Accordingly, we have presented the assets and
activities is a business. This guidance is effective for interimliabilities and
annual reporting periods beginning after December 15, 2017, and early adoption is permitted. This guidance must be applied prospectively to transactions occurring within the period of adoption. We adopted this guidance on January 1, 2018. The adoption of this guidance is not expected to have any impact on our financial position, results of operations,
excluding allocation of any general corporate expenses, of Zillow Offers for all periods presented as discontinued operations in our consolidated financial statements. No assets or
cash flows.In June 2016, the FASB issued guidance on the measurement of credit losses on financial instruments. This guidance requires the use of an expected loss impairment model for instruments measured at amortized cost. Foravailable-for-sale debt securities, an entity is required to recognize credit losses through an allowance for credit losses rather thanliabilities were classified as a write-down. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The adoption of this guidance requires a cumulative-effect adjustment to retained earnings
discontinued operations as of December 31, 2022.
The following table presents the beginningmajor classes of assets and liabilities of discontinued operations as of December 31, 2021 (in millions):
| | | | | |
| Assets | |
| Current assets: | |
| Cash and cash equivalents | $ | 296 | |
| Accounts receivable, net | 78 | |
| Inventory | 3,913 | |
| Prepaid expenses and other current assets | 13 | |
| Restricted cash | 226 | |
| Total current assets of discontinued operations | 4,526 | |
| Intangible assets, net | 4 | |
| Other assets | 78 | |
| Total assets of discontinued operations | $ | 4,608 | |
| Liabilities | |
| Current liabilities: | |
| Accounts payable | $ | 6 | |
| Accrued expenses and other current liabilities | 72 | |
| Accrued compensation and benefits | 47 | |
| Borrowings under credit facilities | 2,199 | |
| Securitization term loans | 1,209 | |
| Total current liabilities of discontinued operations | $ | 3,533 | |
The following table presents the major classes of line items of the
first reporting perioddiscontinued operations included in
which the
guidance is effective. We expect to adopt this guidance on January 1, 2020. We have not yet determined the impact the adoption of this guidance will have on our financial position, resultsconsolidated statements of operations
or cash flows.In February 2016,for the FASB issued guidance on leases. This guidance requires the recognition of aright-of-use assetperiods presented (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Revenue | $ | 4,249 | | | $ | 6,015 | | | $ | 1,716 | |
| Cost of revenue | 4,023 | | | 6,071 | | | 1,611 | |
| Gross profit (loss) | 226 | | | (56) | | | 105 | |
| Operating expenses: | | | | | |
| Sales and marketing | 153 | | | 361 | | | 156 | |
| Technology and development | 6 | | | 53 | | | 66 | |
| General and administrative | 10 | | | 35 | | | 33 | |
| Impairment and restructuring costs | 25 | | | 62 | | | — | |
| Total operating expenses | 194 | | | 511 | | | 255 | |
| Income (loss) from discontinued operations | 32 | | | (567) | | | (150) | |
| Loss on extinguishment of debt | (21) | | | — | | | — | |
| Other income, net | 13 | | | 3 | | | — | |
| Interest expense | (36) | | | (64) | | | (17) | |
| Loss from discontinued operations before income taxes | (12) | | | (628) | | | (167) | |
| Income tax benefit (expense) | (1) | | | (2) | | | — | |
| Net loss from discontinued operations | $ | (13) | | | $ | (630) | | | $ | (167) | |
| Net loss from discontinued operations per share: | | | | | |
| Basic | $ | (0.05) | | | $ | (2.52) | | | $ | (0.75) | |
| Diluted | $ | (0.05) | | | $ | (2.41) | | | $ | (0.72) | |
The following table presents significant non-cash items and lease liability on the balance sheet for all leases. This guidance also requires more detailed disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginningcapital expenditures of the earliest comparative perioddiscontinued operations for the periods presented in(in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Amortization of debt discount and debt issuance costs | $ | 21 | | | $ | 11 | | | $ | — | |
| Loss on debt extinguishment | 21 | | | — | | | — | |
| Share-based compensation | 16 | | | 40 | | | 27 | |
| Inventory valuation adjustment | 9 | | | 408 | | | — | |
| Depreciation and amortization | 7 | | | 10 | | | 6 | |
| Capital expenditures | 1 | | | 6 | | | 8 | |
| Issuance (settlement) of beneficial interests in securitizations | (79) | | | 63 | | | — | |
Restructuring
The following table presents a summary of restructuring charges attributable to discontinued operations for the financial statements,periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| Line Item of Discontinued Operations | | 2022 | | 2021 | | Cumulative Amount Recognized |
| Inventory write-down | Cost of revenue | | $ | 9 | | | $ | 408 | | | N/A |
| Other charges: | | | | | | | |
| Employee termination costs | Impairment and restructuring costs | | $ | 20 | | | $ | 52 | | | $ | 72 | |
| Financing-related charges | Interest expense and Loss on debt extinguishment | | 37 | | | 6 | | | 43 | |
| Contract termination costs | Impairment and restructuring costs | | 4 | | | 10 | | | 14 | |
| Accelerated depreciation and amortization | Cost of revenue | | 14 | | | 5 | | | 19 | |
| Asset write-offs | Impairment and restructuring costs | | — | | | 1 | | | 1 | |
| Other charges | Impairment and restructuring costs | | 1 | | | — | | | 1 | |
| Total other charges | | | 76 | | | 74 | | | 150 | |
| Total | | | $ | 85 | | | $ | 482 | | | $ | 567 | |
Restructuring charges attributable to continued operations relate to employee termination costs within our IMT and
early adoption is permitted. We expect to adopt this guidance on January 1, 2019. We anticipate this guidance will have a material impact on our financial position, primarily due to our office space operating leases, as we will be required to recognize lease assetsMortgages segments and
lease liabilities on our consolidated balance sheet. We continue to assess the potential impacts of this guidance, including the impact the adoption of this guidance will have on our results of operations and cash flows.In January 2016, the FASB issued guidance on the recognition and measurement of financial instruments. This guidance generally requires equity investments, except those accounted for under the equity method of accounting or those that result in consolidationcertain indirect costs of the investee, to be measured at fair value with changes in fair value recognized in net income. This guidance also requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017, early adoption is permitted, and the guidance must be applied prospectively to equity investments that exist as of the adoption date. We adopted this guidance on January 1, 2018. The adoption of this guidance is not expected to have any impact on our financial position, results of operations or cash flows, as we expect to measure our equity investmentsHomes segment that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactionsqualify as discontinued operations. These costs totaled $12 million, $4 million and $8 million, respectively, for the identical or a similar investmentyear ended December 31, 2022. Cumulative restructuring charges attributable to continued operations as of December 31, 2022 totaled $33 million, $10 million of which pertained to employee cost actions that occurred during the same issuer.
In May 2014, the FASB issued new guidance on revenue from contracts with customers. The guidance statesfourth quarter of 2022 that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also states that an entity should recognize as an asset the incremental costs of obtaining a contract that the entity expects to recover and amortize the costs consistent with the transferdid not relate to the customer of the good or services to which the asset relates.Zillow Offers wind down. The guidance requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contractsremaining liability balance associated with customers. We expect to adopt this guidance effective January 1, 2018 using the modified retrospective transition approach applying this guidance to all contracts at the date of initial application, which is expected to result in an adjustment to accumulated deficit for the cumulative effect of applying the guidance. We have substantially completed our assessment of the impacts of the new guidance on our financial statements. We do not expect a material adjustment to accumulated deficit from the adoption of the guidance related to revenue recognition. However, we continue to assess the impact the new guidance may have in future periods related to certain agreements. We have also substantially completed our assessment of the impacts of the new guidance on incremental costs of obtaining a contract with a customer and we expect to record an adjustment to decrease accumulated deficitsuch restructuring charges as of January 1, 2018 for approximately $40 million to $45 million related to the accounting for the cost of sales commissions, primarily related to sales commissions for our Premier Agent and Premier Broker advertising products. Historically, we expensed these sales commission costs as incurred, but under the new guidance, the cost of certain sales commissions will be recorded as an asset and recognized as an operating expense over the period that we expect to recover the costs. We are implementing key control activities related to the new guidance, particularly related to evaluating the impact of the standard on products with more than one performance obligation, products with variable consideration, and the determination of the amortization period for contract costs. We have concluded that upon adoption of the new guidance, we willDecember 31, 2022 is not need to implement
new information technology systems. We continue to assess the impact the adoption of this guidance will have on our disclosures.
material. Note
3.4. Fair Value Measurements
We apply fair value measurements on a recurring and, as otherwise required, on a nonrecurring basis. Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
•Level 1—1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2—2 — Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.
•Level 3—3 — Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
We
appliedapply the following methods and assumptions in estimating our fair value
measurements:measurements on a recurring basis:
Cash equivalents—Cash equivalents are comprised of highly liquid investments, including money market funds, corporate notes and bonds, commercial paper, U.S. government agency securities and certificates of deposit, with original maturities of three months or less. The fair value measurement of money market funds is based on quoted market prices in active markets.markets (Level 1). The fair value measurement of corporate notes and bonds, commercial paper, U.S. government agency securities and certificatesother cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).
Short-term investments — The fair value measurement of depositour short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.Short-term investments—Our investments consistmeans (Level 2).
Restricted cash — The carrying value of fixed income securities, which include U.S. and foreign government agency securities, corporate notes and bonds, commercial paper, municipal securities and certificatesrestricted cash approximates fair value due to the short period of deposit.time amounts are held in escrow (Level 1).
Mortgage loans held for sale — The fair value measurement of thesemortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).
Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments is calculated by reference to quoted prices for similar assets (Level 2).
Interest rate lock commitments — The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an IRLC will ultimately result in a closed loan. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (Level 3).
The pull-through rate is based on
observable market-based inputs or inputs thatestimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are
derived principally from or corroborated by observable market data by correlation or other means.directly related to the fair value of IRLCs as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within Mortgages revenue in our consolidated statements of operations.
The following table presents the range and weighted average pull-through rates used in determining the fair value of IRLCs as of the dates presented: | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Range | 47% - 100% | | 42% - 100% |
| Weighted average | 87% | | 85% |
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands)millions): | | | | | | | | | | | | |
| | | December 31, 2017 | |
| | | Total | | | Level 1 | | | Level 2 | |
Cash equivalents: | | | | | | | | | | | | |
Money market funds | | $ | 233,508 | | | $ | 233,508 | | | $ | — | |
Corporate notes and bonds | | | 6,199 | | | | — | | | | 6,199 | |
Commercial paper | | | 3,987 | | | | — | | | | 3,987 | |
U.S. government agency securities | | | 1,748 | | | | — | | | | 1,748 | |
Certificates of deposit | | | 249 | | | | — | | | | 249 | |
Short-term investments: | | | | | | | | | | | | |
U.S. government agency securities | | | 298,758 | | | | — | | | | 298,758 | |
Corporate notes and bonds | | | 44,607 | | | | — | | | | 44,607 | |
Commercial paper | | | 39,325 | | | | — | | | | 39,325 | |
Municipal securities | | | 11,459 | | | | — | | | | 11,459 | |
Certificates of deposit | | | 10,297 | | | | — | | | | 10,297 | |
Foreign government securities | | | 5,998 | | | | — | | | | 5,998 | |
| | | | | | | | | | | | |
Total | | $ | 656,135 | | | $ | 233,508 | | | $ | 422,627 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | December 31, 2016 | |
| | | Total | | | Level 1 | | | Level 2 | |
Cash equivalents: | | | | | | | | | | | | |
Money market funds | | $ | 166,527 | | | $ | 166,527 | | | $ | — | |
Certificates of deposit | | | 460 | | | | — | | | | 460 | |
Short-term investments: | | | | | | | | | | | | |
U.S. government agency securities | | | 162,312 | | | | — | | | | 162,312 | |
Corporate notes and bonds | | | 61,483 | | | | — | | | | 61,483 | |
Commercial paper | | | 14,952 | | | | — | | | | 14,952 | |
Municipal securities | | | 11,912 | | | | — | | | | 11,912 | |
Certificates of deposit | | | 7,279 | | | | — | | | | 7,279 | |
Foreign government securities | | | 5,985 | | | | — | | | | 5,985 | |
| | | | | | | | | | | | |
Total | | $ | 430,910 | | | $ | 166,527 | | | $ | 264,383 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 1,338 | | | $ | 1,338 | | | $ | — | | | $ | — | |
| Short-term investments: | | | | | | | |
| U.S. government treasury securities | 1,716 | | | — | | | 1,716 | | | — | |
| Corporate bonds | 161 | | | — | | | 161 | | | — | |
| Commercial paper | 10 | | | — | | | 10 | | | — | |
| U.S. government agency securities | 9 | | | — | | | 9 | | | — | |
| Mortgage origination-related: | | | | | | | |
| Mortgage loans held for sale | 41 | | | — | | | 41 | | | — | |
| Forward contracts - other current assets | 1 | | | — | | | 1 | | | — | |
| Total | $ | 3,276 | | | $ | 1,338 | | | $ | 1,938 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 2,132 | | | $ | 2,132 | | | $ | — | | | $ | — | |
| Short-term investments: | | | | | | | |
| U.S. government treasury securities | 471 | | | — | | | 471 | | | — | |
| Corporate bonds | 33 | | | — | | | 33 | | | — | |
| Commercial paper | 10 | | | — | | | 10 | | | — | |
| Mortgage origination-related: | | | | | | | |
| Mortgage loans held for sale | 107 | | | — | | | 107 | | | — | |
| IRLCs - other assets | 5 | | | — | | | — | | | 5 | |
| Total | $ | 2,758 | | | $ | 2,132 | | | $ | 621 | | | $ | 5 | |
The following table presents the changes in our IRLCs for the periods presented (in millions): | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Balance, beginning of the period | $ | 5 | | | $ | 12 | |
| Issuances | 15 | | | 70 | |
| Transfers | (17) | | | (78) | |
| Fair value changes recognized in earnings | (3) | | | 1 | |
| Balance, end of period | $ | — | | | $ | 5 | |
At December 31, 2022, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $62 million and $90 million for our IRLCs and forward contracts, respectively. At December 31, 2021, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $305 million and $388 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our forward contract derivative positions.
See Note
1113 for the carrying amount and estimated fair value of
the Company’s Convertible Senior Notes due in 2021 and Trulia’s Convertible Senior Notes due in 2020.We did not have any Level 3 assets as of December 31, 2017 or 2016. There were no material liabilities measured at fair value as of December 31, 2017 or 2016.
our convertible senior notes.
Note
4.5. Cash and Cash Equivalents,
Investments and
Short-term InvestmentsRestricted Cash
The following tables presenttable presents the amortized cost gross unrealized gains and losses, and estimated fair market value of our cash and cash equivalents, investments, and short-term investmentsrestricted cash as of the dates presented (in thousands)millions): | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | |
| | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated
Fair
Market
Value | |
Cash | | $ | 106,404 | | | $ | — | | | $ | — | | | $ | 106,404 | |
Cash equivalents: | | | | | | | | | | | | | | | | |
Money market funds | | | 233,508 | | | | — | | | | — | | | | 233,508 | |
Corporate notes and bonds | | | 6,200 | | | | — | | | | (1 | ) | | | 6,199 | |
Commercial paper | | | 3,987 | | | | — | | | | — | | | | 3,987 | |
U.S. government agency securities | | | 1,748 | | | | — | | | | — | | | | 1,748 | |
Certificates of deposit | | | 249 | | | | — | | | | — | | | | 249 | |
Short-term investments: | | | | | | | | | | | | | | | | |
U.S. government agency securities | | | 299,814 | | | | — | | | | (1,056 | ) | | | 298,758 | |
Corporate notes and bonds | | | 44,661 | | | | 1 | | | | (55 | ) | | | 44,607 | |
Commercial paper | | | 39,325 | | | | — | | | | — | | | | 39,325 | |
Municipal securities | | | 11,494 | | | | — | | | | (35 | ) | | | 11,459 | |
Certificates of deposit | | | 10,296 | | | | 2 | | | | (1 | ) | | | 10,297 | |
Foreign government securities | | | 6,000 | | | | — | | | | (2 | ) | | | 5,998 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 763,686 | | | $ | 3 | | | $ | (1,150 | ) | | $ | 762,539 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | December 31, 2016 | |
| | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Estimated
Fair
Market
Value | |
Cash | | $ | 76,605 | | | $ | — | | | $ | — | | | $ | 76,605 | |
Cash equivalents: | | | | | | | | | | | | | | | | |
Money market funds | | | 166,527 | | | | — | | | | — | | | | 166,527 | |
Certificates of deposit | | | 460 | | | | — | | | | — | | | | 460 | |
Short-term investments: | | | | | | | | | | | | | | | | |
U.S. government agency securities | | | 162,438 | | | | 31 | | | | (157 | ) | | | 162,312 | |
Corporate notes and bonds | | | 61,530 | | | | 3 | | | | (50 | ) | | | 61,483 | |
Commercial paper | | | 14,952 | | | | — | | | | — | | | | 14,952 | |
Municipal securities | | | 11,925 | | | | — | | | | (13 | ) | | | 11,912 | |
Certificates of deposit | | | 7,279 | | | | — | | | | — | | | | 7,279 | |
Foreign government securities | | | 5,995 | | | | — | | | | (10 | ) | | | 5,985 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 507,711 | | | $ | 34 | | | $ | (230 | ) | | $ | 507,515 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| | Amortized
Cost | | Estimated
Fair Market
Value | | Amortized
Cost | | Estimated
Fair Market
Value |
| Cash | $ | 128 | | | $ | 128 | | | $ | 183 | | | $ | 183 | |
| Cash equivalents: | | | | | | | |
| Money market funds | 1,338 | | | 1,338 | | | 2,132 | | | 2,132 | |
| Short-term investments: | | | | | | | |
| U.S. government treasury securities (1) | 1,731 | | | 1,716 | | | 473 | | | 471 | |
| Corporate bonds (2) | 162 | | | 161 | | | 33 | | | 33 | |
| Commercial paper | 10 | | | 10 | | | 10 | | | 10 | |
| U.S. government agency securities | 9 | | | 9 | | | — | | | — | |
| Restricted cash | 2 | | | 2 | | | 1 | | | 1 | |
| Total | $ | 3,380 | | | $ | 3,364 | | | $ | 2,832 | | | $ | 2,830 | |
| | | | | | | |
| (1) The estimated fair market value includes $15 million and $2 million of gross unrealized losses as of December 31, 2022 and December 31, 2021, respectively. |
| (2) The estimated fair market value includes $1 million of gross unrealized losses as of December 31, 2022. |
The following table presents
available-for-sale investments by contractual maturity date as of December 31,
20172022 (in
thousands)millions):
| | | | | | | | |
| | | Amortized
Cost | | | Estimated Fair
Market Value | |
Due in one year or less | | $ | 263,315 | | | $ | 262,855 | |
Due after one year through two years | | | 148,275 | | | | 147,589 | |
| | | | | | | | |
Total | | $ | 411,590 | | | $ | 410,444 | |
| | | | | | | | |
| | | | | | | | | | | |
| Amortized Cost | | Estimated Fair
Market Value |
| Due in one year or less | $ | 1,159 | | | $ | 1,150 | |
| Due after one year | 753 | | | 746 | |
| Total | $ | 1,912 | | | $ | 1,896 | |
Note
5. Accounts Receivable, NetThe following table presents the detail of accounts receivable6. Contract Balances
Contract assets were $71 million and $78 million as of December 31, 2022 and December 31, 2021, respectively.
For the
dates presented (in thousands): | | | | | | | | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
Accounts receivable | | $ | 51,334 | | | $ | 32,258 | |
Unbilled accounts receivable | | | 8,403 | | | | 9,606 | |
Less: allowance for doubtful accounts | | | (5,341 | ) | | | (1,337 | ) |
| | | | | | | | |
Accounts receivable, net | | $ | 54,396 | | | $ | 40,527 | |
| | | | | | | | |
The following table presents the changesyears ended December 31, 2022 and 2021, we recognized revenue of $51 million and $48 million, respectively, that was included in the allowance for doubtful accounts fordeferred revenue balance at the periods presented (in thousands):
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Allowance for doubtful accounts: | | | | | | | | | | | | |
Balance, beginning of period | | $ | 1,337 | | | $ | 3,378 | | | $ | 2,811 | |
Additions charged to expense | | | 7,349 | | | | 2,681 | | | | 3,235 | |
Less: write-offs, net of recoveries and other adjustments | | | (3,345 | ) | | | (4,722 | ) | | | (2,668 | ) |
| | | | | | | | | | | | |
Balance, end of period | | $ | 5,341 | | | $ | 1,337 | | | $ | 3,378 | |
| | | | | | | | | | | | |
Note 7. Contract Cost Assets
As of December 31, 2022 and 2021, we had $23 million and $35 million, respectively, of contract cost assets. For the years ended December 31, 2022 and 2021, we did not record any material impairment losses to our contract cost assets.
We recorded amortization expense related to contract cost assets of $30 million, $42 million and $37 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Note
6.8. Property and Equipment,
Netnet
The following table presents the detail of property and equipment as of the dates presented (in thousands)millions): | | | | | | | | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
Website development costs | | $ | 130,072 | | | $ | 102,130 | |
Computer equipment | | | 30,071 | | | | 28,175 | |
Leasehold improvements | | | 47,321 | | | | 37,923 | |
Construction-in-progress | | | 28,150 | | | | 19,470 | |
Office equipment, furniture and fixtures | | | 22,887 | | | | 19,254 | |
| | | | | | | | |
Property and equipment | | | 258,501 | | | | 206,952 | |
Less: accumulated amortization and depreciation | | | (146,230 | ) | | | (108,664 | ) |
| | | | | | | | |
Property and equipment, net | | $ | 112,271 | | | $ | 98,288 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Website development costs | $ | 291 | | | $ | 175 | |
| Leasehold improvements | 90 | | | 107 | |
| Office equipment, furniture and fixtures | 24 | | | 26 | |
| Computer equipment | 18 | | | 19 | |
| Construction-in-progress | 7 | | | 7 | |
| Property and equipment | 430 | | | 334 | |
| Less: accumulated amortization and depreciation | (159) | | | (119) | |
| Property and equipment, net | $ | 271 | | | $ | 215 | |
We recorded depreciation expense related to property and equipment (other than website development costs) of
$15.6$25 million,
$13.5$26 million and
$12.2$31 million
respectively, during the years ended December 31,
2017, 20162022, 2021 and
2015.2020, respectively.
We capitalized
$49.9$143 million,
$49.5$82 million and
$46.1$53 million
respectively, in website development costs during the years ended December 31,
2017, 20162022, 2021 and
2015.2020, respectively. Amortization expense for website development costs included in
technology and development expensescost of revenue was
$40.0$67 million,
$40.0$36 million and
$23.9$25 million
respectively, for the years ended December 31,
2017, 20162022, 2021 and
2015.Construction-in-progress primarily consists of website development costs that are capitalizable, but for which the associated applications had not been placed in service.
2020, respectively.
Note
7. Acquisitions and Equity Investments9. Acquisition
Acquisition of
New Home FeedShowingTime.com, Inc.
On September
6, 2017, Zillow, Inc. acquired New Home Feed, Inc. (formerly known as Graphic Language, Inc.), a California corporation which operates the New Home Feed business, pursuant to an Agreement and Plan of Merger for an immaterial amount. New Home Feed is a listing management technology that allows builders to input, manage and syndicate their listings across30, 2021, Zillow Group
and partner sites.acquired ShowingTime.com, Inc. (“ShowingTime”) in exchange for approximately $512 million in cash. Our acquisition of
New Home FeedShowingTime has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of September
6, 2017. We acquired goodwill of $3.6 million and an identifiable intangible asset of $1.9 million.Acquisition-related costs incurred related to the acquisition of New Home Feed, which primarily included legal and accounting fees and other external costs directly related to the acquisition, were expensed as incurred and were not material.
The results of operations related to the acquisition of New Home Feed have been included in our consolidated financial statements since the date of acquisition, and are not significant. Pro forma financial information for the acquisition accounted for as a business combination has not been presented, as the effects were not material to our consolidated financial statements.
Acquisition of Hamptons Real Estate Online
On January 11, 2017, Zillow, Inc. acquired substantially all of the operating assets of RealNet Solutions, Inc., a New York corporation, RealNetDB, LLC, a New York limited liability company, Hamptons Real Estate Online, Inc., a New York corporation, and HREO.com, LLC, a New York limited liability company (collectively, “HREO”), pursuant to an Asset Purchase Agreement entered into by Zillow, Inc., HREO, each of the equity owners of HREO, and an individual acting as representative of the HREO equity holders. HREO is a Hamptons-focused real estate portal which provides buyers and renters with a specialized search experience and access to the area’s most comprehensivefor-sale,for-rent, and vacant land listings. HREO’s listing entry and distribution software, RealNet and Open RealNet Exchange, provides real estate professionals with tools to manage and market their listings. Our acquisition of HREO has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of January 11, 2017. We acquired goodwill of $4.0 million, identifiable intangible assets of $2.1 million and net liabilities of approximately $0.1 million.
Acquisition-related costs incurred related to the acquisition of HREO, which primarily included legal and accounting fees and other external costs directly related to the acquisition, were expensed as incurred and were not material.
The results of operations related to the acquisition of HREO have been included in our consolidated financial statements since the date of acquisition, and are not significant. Pro forma financial information for the acquisition accounted for as a business combination has not been presented, as the effects were not material to our consolidated financial statements.
Acquisition of Bridge Interactive Group
In July 2016, Zillow, Inc., Bridge Interactive Group, LLC, a Georgia limited liability company (“Bridge Interactive”), each of the members of Bridge Interactive, and an individual acting as the seller representative, entered into a Securities Purchase Agreement pursuant to which Zillow, Inc. acquired all of the outstanding ownership interests of Bridge Interactive on August 1, 2016. Bridge Interactive is a creator of broker and multiple listing service (MLS) back-office software. Our acquisition of Bridge Interactive has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of August 1, 2016.
Acquisition-related costs incurred, which primarily included legal and accounting fees and other external costs directly related to the acquisition, were expensed as incurred and were not material.
The results of operations related to the acquisition of Bridge Interactive have been included in our consolidated financial statements since the date of acquisition, and are not significant. Pro forma financial information for the acquisition accounted for as a business combination has not been presented, as the effects were not material to our consolidated financial statements.
Acquisition of Naked Apartments
In February 2016, Zillow, Inc., Nectarine Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Zillow, Inc. (“Merger Sub”), Naked Apartments, Inc., a Delaware corporation (“Naked Apartments”), and an individual acting as the stockholder representative, entered into an Agreement and Plan of Merger (the “Naked Apartments Merger Agreement”), pursuant to which Zillow, Inc. acquired Naked Apartments on February 22, 2016 for approximately $13.2 million in cash. Under the terms and subject to the conditions of the Naked Apartments Merger Agreement, Merger Sub merged with and into Naked Apartments, with Naked Apartments remaining as the surviving company and a wholly owned subsidiary of Zillow, Inc. Naked Apartments is New York City’s largest rentals-only platform.
Our acquisition of Naked Apartments has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of February 22, 2016.30, 2021. Goodwill, which represents the expected synergies from combining the acquired assets and the operations of the acquirer, as well as intangible assets that do not qualify for separate recognition, is measured as of the acquisition date as the excess of consideration transferred, which is also measured at fair value, and the net of the fair values of the assets acquired and the liabilities assumed as of the acquisition date.
The total purchase price has been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date.
Based upon the fair values determined by us, in which we considered or relied in part upon a valuation report of a third-party expert, the totalThe purchase price was allocated as follows (in
thousands)millions):
| | | | |
Current assets | | $ | 371 | |
Identifiable intangible assets | | | 3,700 | |
Goodwill | | | 10,610 | |
Current liabilities | | | (101 | ) |
Deferred tax liabilities | | | (1,416 | ) |
| | | | |
Total purchase price | | $ | 13,164 | |
| | | | |
Acquisition-related costs incurred, which primarily included legal and accounting fees and other external costs directly related to the acquisition, were expensed as incurred and were not material.
The results of operations related to the acquisition of Naked Apartments have been included in our consolidated financial statements since the date of acquisition, and are not significant. Pro forma financial information for the acquisition accounted for as a business combination has not been presented, as the effects were not material to our consolidated financial statements.
Acquisition of Trulia
Effective February 17, 2015, pursuant to the Merger Agreement dated as of July 28, 2014 by and among Zillow, Zillow Group and Trulia, following the consummation of the transactions contemplated by the Merger Agreement, each of Zillow and Trulia became wholly owned subsidiaries of Zillow Group. With the addition of
Trulia, we expanded our audience and added another consumer brand that offers buyers, sellers, homeowners and renters access to information about homes and real estate for free, and provides advertising and software solutions that help real estate professionals grow their business.
At the effective time of the merger, each share of Zillow Class A common stock was converted into the right to receive one share of fully paid and nonassessable Zillow Group Class A common stock, and each share of Zillow Class B common stock was converted into the right to receive one share of fully paid and nonassessable Zillow Group Class B common stock. Generally, each Zillow stock option and restricted stock unit outstanding (whether or not vested or exercisable) as of the effective time of the merger was assumed by Zillow Group and converted into a corresponding equity award to purchase or acquire shares of Zillow Group Class A common stock, subject to the same terms, conditions and restrictions as the original option or award. Any unvested shares of Zillow Class A common stock subject to a repurchase option, risk of forfeiture or other condition as of the effective time of the merger were exchanged for shares of Zillow Group Class A common stock that were also unvested and subject to the same repurchase option, risk of forfeiture or other condition. Each Zillow restricted unit outstanding as of the effective time of the merger was assumed by Zillow Group and converted into the right to receive Zillow Group Class A common stock, subject to the same terms, conditions and restrictions as the original restricted unit.
At the effective time of the merger, each share of Trulia common stock was converted into the right to receive 0.444 of a share of fully paid and nonassessable Zillow Group Class A common stock. Generally, each Trulia stock option, restricted stock unit, and stock appreciation right outstanding (whether or not vested or exercisable) as of the effective time of the merger was assumed by Zillow Group and converted into a corresponding equity award to purchase, acquire shares of, or participate in the appreciation in the price of Zillow Group Class A common stock, subject to the same terms, conditions and restrictions as the original option or award, subject to specified adjustments to reflect the effect of the Trulia exchange ratio. Each outstanding unvested Trulia stock option and restricted stock unit held by a member of the Trulia board of directors immediately prior to the effective time of the merger who was not an employee of Trulia or any subsidiary of Trulia became fully vested immediately prior to the effective time of the merger in accordance with the terms of the applicable award agreements.
Our acquisition of Trulia has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of February 17, 2015. Goodwill, which represents the expected synergies from combining the acquired assets and the operations of the acquirer, as well as intangible assets that do not qualify for separate recognition, is measured as of the acquisition date as the excess of consideration transferred, which is also measured at fair value, and the net of the fair values of the assets acquired and the liabilities assumed as of the acquisition date.
In all cases in which Zillow Group’s closing stock price is a determining factor in arriving at the amount of merger consideration, the stock price assumed is the closing price of Zillow Class A common stock on Nasdaq on February 17, 2015 ($109.14 per share, unadjusted for the August 2015 stock split effected in the form of a dividend). The purchase price to effect the acquisition of Trulia of approximately $2.0 billion is summarized in the following table (in thousands):
| | | | |
Value of Class A common stock issued | | $ | 1,883,728 | |
Substituted stock options and stock appreciation rights assumed by Zillow Group attributable topre-combination service | | | 54,853 | |
Substituted restricted stock units assumed by Zillow Group attributable topre-combination service | | | 27,798 | |
Cash paid in lieu of fractional outstanding shares | | | 41 | |
| | | | |
Total purchase price | | $ | 1,966,420 | |
| | | | |
A total of 17,259,704 shares of Zillow Group Class A common stock were issued in connection with the acquisition of Trulia. Trulia stockholders did not receive any fractional shares of Zillow Group Class A common stock in connection with the acquisition. Instead of receiving any fractional shares, each holder of Trulia common stock was paid an amount in cash (without interest) equal to such fractional amount multiplied by the last reported sale price of Zillow Class A common stock on Nasdaq on the last complete trading day prior to the date of the effective time of the merger.
A portion of the purchase price has been attributed to the substitution of Trulia’s stock options, restricted stock units and stock appreciation rights outstanding as of February 17, 2015, for corresponding stock options, restricted stock units and stock appreciation rights to purchase, vest in or participate in the appreciation in the price of shares of Zillow Group Class A common stock, all at an exchange ratio of 0.444. The fair value of Trulia’s share-based awards assumed in connection with the acquisition, including stock options, restricted stock units and stock appreciation rights, which relate to post-combination service will be recorded by Zillow Group as share-based compensation expense ratably over the remaining related vesting period of the respective award. The share-based compensation expense related to stock options and stock appreciation rights assumed is estimated at the acquisition date using the Black-Scholes-Merton option-pricing model, assuming no dividends, expected volatility of 53%, a risk-free interest rate of 1.10%, and an expected life of three years. For restricted stock units assumed, Zillow Group used the market value of Zillow’s Class A common stock on the date of acquisition to determine the fair value of the award.
The total purchase price has been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date. Based upon the fair values determined by us, in which we considered or relied in part upon a valuation report of a third-party expert, the total purchase price was allocated as follows (in thousands):
| | | | |
Cash and cash equivalents | | $ | 173,447 | |
Accounts receivable | | | 13,093 | |
Prepaid expenses and other current assets | | | 20,833 | |
Restricted cash | | | 6,946 | |
Property and equipment | | | 30,189 | |
Other assets | | | 434 | |
Identifiable intangible assets | | | 549,000 | |
Goodwill | | | 1,736,362 | |
Accounts payable, accrued expenses and other current liabilities | | | (51,258 | ) |
Accrued compensation and benefits | | | (8,324 | ) |
Deferred revenue | | | (8,300 | ) |
Long-term debt | | | (230,000 | ) |
Debt premium recorded in additionalpaid-in capital | | | (126,386 | ) |
Deferred tax liabilities and other long-term liabilities | | | (139,616 | ) |
| | | | |
Total purchase price | | $ | 1,966,420 | |
| | | | |
| | | | | |
| Cash and cash equivalents | $ | 15 | |
| Identifiable intangible assets | 111 | |
| Goodwill | 389 | |
| Other acquired assets | 6 | |
| Deferred tax liability | (4) | |
| Other assumed liabilities | (5) | |
| Total purchase price | $ | 512 | |
The fair value of identifiable intangible assets acquired
and associated useful lives consisted of the following (in
thousands)millions):
| | | | | | | | |
| | | Estimated
Fair
Value | | | Estimated
Useful Life
(in years) | |
Trulia trade names and trademarks | | $ | 351,000 | | | | Indefinite | |
Market Leader trade names and trademarks | | | 2,000 | | | | 2 | |
Customer relationships | | | 92,000 | | | | 3-7 | |
Developed technology | | | 91,000 | | | | 3-7 | |
Advertising relationships | | | 9,000 | | | | 3 | |
MLS home data feeds | | | 4,000 | | | | 3 | |
| | | | | | | | |
Total | | $ | 549,000 | | | | | |
| | | | | | | | |
The fair value of the intangible assets acquired was determined by Zillow Group, and Zillow Group considered or relied in part upon a valuation report of a third-party expert. Zillow Group used an income approach to measure the fair value of the trade names and trademarks and the developed technology based on the relief-from-royalty method. Zillow Group
| | | | | | | | | | | |
| Estimated Fair Value | | Estimated Weighted-Average Useful Life (in years) |
| Customer relationships | $ | 55 | | | 8 |
| Developed technology | 47 | | | 4 |
| Trade names and trademarks | 9 | | | 10 |
| Total | $ | 111 | | | |
We used an income approach to measure the fair value of the customer relationships based on the excess earnings method, whereby the fair value is estimated based upon the present value of cash flows that the applicable asset is expected to generate.
Zillow GroupWe used an income approach to measure the fair value of the
advertising relationships based on a withdeveloped technology and
without analysis, whereby the
fair value is estimatedtrade names and trademarks based on the
present value of cash flows the combined business is expected to generate with and without the advertising relationships. Zillow Group used a cost approach to measure the fair value of the MLS home data feeds based on the estimated cost to replace the data feed library.relief-from-royalty method. These fair value measurements were based on Level 3
measurementsinputs under the fair value hierarchy.
A portion of the total purchase price was allocated to Trulia’s 2020 Notes (see Note 11). In accordance with the
Acquisition-related costs incurred, which primarily included legal, accounting guidanceand other external costs directly related to business combinations, the 2020 Notesacquisition, are recognized at fair valueincluded within acquisition-related costs in our consolidated statements of operations and were expensed as incurred.
Unaudited pro forma earnings information has not been presented as the effects were not material to our consolidated financial statements.
Note 10. Goodwill and Intangible Assets, net
The following table presents goodwill by reportable segment as of the effective date of the acquisition. December 31, 2022 and 2021 (in millions):
| | | | | |
| IMT | $ | 2,175 | |
| Mortgages | 199 | |
| Total | $ | 2,374 | |
The
fair value of the 2020 Notes as of the date of acquisition was approximately $356.4 million. The fair value of the 2020 Notes as of the date of acquisition was determined by Zillow Group, and Zillow Group considered or relied in part upon a valuation report of a third-party expert. The fair value of the 2020 Notes was determined through combination of the use of a binomial lattice valuation model and consideration of quoted market prices. The fair value is classified as Level 3 due to the use of significant unobservable inputs such as implied volatility of Zillow Group’s Class A common stock, discount spread and the limited trading activity for the 2020 Notes. Given the fair value of the 2020 Notes as of the date of acquisition of $356.4 million was at a substantial premium to the principal amount of $230.0 million, the premium amount of $126.4 million has beengoodwill recorded
as additionalpaid-in capital in the consolidated balance sheet as of the effective date of the acquisition. Accordingly, Zillow Group has recognized the liability component of the 2020 Notes at the stated par amount in the consolidated balance sheet as of the effective date of the acquisition. The conversion feature included in the 2020 Notes is not required to be bifurcated and separately accounted for as it meets the equity scope exception given the conversion feature (i) is indexed to Zillow Group’s Class A common stock and (ii) would be classified in shareholder’s equity. Further, the 2020 Notes do not permit or require Zillow Group to settle the debt in cash (in whole or in part) upon conversion.A portion of the total purchase price was allocated to deferred tax liabilities primarily related to an indefinite-lived intangible asset generated in connection with the acquisition. Due to the recognition of a $351.0 million indefinite-lived Trulia trade name and trademark intangible asset as of the effective date of the acquisition, a deferred tax liability of $139.5 million was recognized which cannot be offset by the recognized deferred tax assets.
The results of operations related to the acquisition of Trulia have been included in our consolidated financial statements since the date of acquisition of February 17, 2015. However, disclosure of the amounts of revenue and earnings of the acquiree since the acquisition date is impracticable because discrete financial informationShowingTime, which includes intangible assets that do not qualify for separate recognition, is not available due to the rapid integration of Zillow’sdeductible for tax purposes and Trulia’s operations.
Unaudited Pro Forma Financial Information
The following unaudited pro forma condensed combined financial information gives effect to the acquisition of Trulia as if it were consummated on January 1, 2014 (the beginning of the comparable prior reporting period in the year of acquisition). The unaudited pro forma condensed combined financial information is presented for informational purposes only. The unaudited pro forma condensed combined financial information does not represent true historical financial information. Further, the unaudited pro forma condensed combined financial information is not intended to represent or be indicative of the results of operations that would have been reported had the acquisition occurred on January 1, 2014 and should not be taken as representative of future results of operations of the combined company.
The following table presents the unaudited pro forma condensed combined financial information for the periods presented, except for the financial information presented for the years ended December 31, 2017 and 2016 which is presented on anas-reported basis (in thousands):
| | | | | | | | | | | | |
| | | Year Ended
December 31, | |
| | | 2017 | | | 2016 | | | 2015 (1) | |
Revenue | | $ | 1,076,794 | | | $ | 846,589 | | | $ | 679,935 | |
Net loss | | $ | (94,420 | ) | | $ | (220,438 | ) | | $ | (91,055 | ) |
(1) | The pro forma net loss for the year ended December 31, 2015 includes pro forma adjustments for $49.3 million to eliminate direct and incremental acquisition-related costs reflected in the historical financial statements, $37.3 million to eliminate share-based compensation expense attributable to substituted equity awards and to record additional share-based compensation expense attributable to substituted equity awards, $35.7 million to eliminate restructuring costs associated with the acquisition of Trulia reflected in the historical financial statements and $2.4 million to record additional amortization expense for acquired intangible assets. |
Equity Investments
In June 2017, we purchased an equity interest in a privately held corporation for approximately $10.0 million, which is accounted for as a cost method investment and classified within other assets in the consolidated balance sheet.
In October 2016, we purchased a 10% equity interest in a privately held variable interest entityincluded within the real estate industry for $10.0 million, which is accounted for as a cost method investment and classified within other assets in the consolidated balance sheet. In October 2016, we also entered into an immaterial commercial agreement with this entity. The entity is financed through its business operations. We are not the primary beneficiary of the entity, as we do not direct the activities that most significantly impact the entity’s economic performance. Therefore, we do not consolidate the entity. Our maximum exposure to loss is $10.0 million, the carrying amount of the investment as of December 31, 2017.
As there were no identified events or changes in circumstances that may have a significant adverse effect on the fair values of our cost method investments as of December 31, 2017, and it is not practicable to estimate the fair values of the investments given the fair values of the investments are not readily determinable, an estimate of the fair values of the cost method investments was not performed.
We assess our cost method investments for impairment whenever events or changes in circumstances indicate that the assets may be impaired. The factors we consider in our evaluation of potential impairment of our cost method investments, include, but are not limited to a significant deterioration in the earnings performance or business prospects of the investee, or factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operation or working capital deficiencies. No impairment was identified for our cost method investments for the year ended December 31, 2017.
Note 8. Goodwill
The following table presents the change in goodwill from December 31, 2016 through December 31, 2017 (in thousands):
| | | | |
Balance as of December 31, 2016 | | $ | 1,923,480 | |
Goodwill recorded in connection with acquisitions | | | 7,596 | |
| | | | |
Balance as of December 31, 2017 | | $ | 1,931,076 | |
| | | | |
Note 9. Intangible Assets
IMT segment.
The following tables present the detail of intangible assets
subject to amortization as of the dates presented (in
thousands)millions):
| | | | | | | | | | | | |
| | | December 31, 2017 | |
| | | Cost | | | Accumulated
Amortization | | | Net | |
Purchased content | | $ | 35,260 | | | $ | (20,480 | ) | | $ | 14,780 | |
Software | | | 18,957 | | | | (8,899 | ) | | | 10,058 | |
Customer relationships | | | 103,900 | | | | (46,365 | ) | | | 57,535 | |
Developed technology | | | 113,380 | | | | (56,664 | ) | | | 56,716 | |
Trade names and trademarks | | | 4,900 | | | | (3,943 | ) | | | 957 | |
Advertising relationships | | | 9,000 | | | | (8,525 | ) | | | 475 | |
Intangibles-in-progress | | | 2,190 | | | | — | | | | 2,190 | |
| | | | | | | | | | | | |
Total | | $ | 287,587 | | | $ | (144,876 | ) | | $ | 142,711 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | December 31, 2016 | |
| | | Cost | | | Accumulated
Amortization | | | Net | |
Purchased content | | $ | 35,205 | | | $ | (15,508 | ) | | $ | 19,697 | |
Software | | | 9,712 | | | | (4,773 | ) | | | 4,939 | |
Customer relationships | | | 103,200 | | | | (30,952 | ) | | | 72,248 | |
Developed technology | | | 110,080 | | | | (36,341 | ) | | | 73,739 | |
Trade names and trademarks | | | 4,900 | | | | (2,877 | ) | | | 2,023 | |
Advertising relationships | | | 9,000 | | | | (5,598 | ) | | | 3,402 | |
MLS home data feeds | | | 1,100 | | | | (684 | ) | | | 416 | |
| | | | | | | | | | | | |
Total | | $ | 273,197 | | | $ | (96,733 | ) | | $ | 176,464 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Cost | | Accumulated
Amortization | | Net |
| Customer relationships | $ | 59 | | | $ | (10) | | | $ | 49 | |
| Software | 54 | | | (15) | | | 39 | |
| Developed technology | 49 | | | (15) | | | 34 | |
| Trade names and trademarks | 45 | | | (15) | | | 30 | |
| Purchased content | 8 | | | (6) | | | 2 | |
| Total | $ | 215 | | | $ | (61) | | | $ | 154 | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Cost | | Accumulated
Amortization | | Net |
| Customer relationships | $ | 139 | | | $ | (84) | | | $ | 55 | |
| Developed technology | 133 | | | (86) | | | 47 | |
| Trade names and trademarks | 45 | | | (9) | | | 36 | |
| Software | 53 | | | (18) | | | 35 | |
| Intangibles-in-progress | 2 | | | — | | | 2 | |
| Purchased content | 4 | | | (3) | | | 1 | |
| Total | $ | 376 | | | $ | (200) | | | $ | 176 | |
Amortization expense recorded for intangible assets for the years ended December 31,
2017, 20162022, 2021 and
20152020 was
$54.3$58 million,
$47.0$56 million and
$39.3$49 million,
respectively,respectively. Amortization expense for trade names and
these amounts aretrademarks and customer relationships intangible assets is included in
technologysales and
developmentmarketing expenses.
Amortization expense for all other intangible assets is included in cost of revenue.
Estimated future amortization expense for intangible assets, including amortization related to future commitments (see Note
16)18), as of December 31,
20172022 is as follows (in
thousands)millions):
| | | | |
2018 | | $ | 47,588 | |
2019 | | | 40,055 | |
2020 | | | 36,808 | |
2021 | | | 32,350 | |
2022 | | | 5,442 | |
| | | | |
Total future amortization expense | | $ | 162,243 | |
| | | | |
| | | | | |
| 2023 | $ | 45 | |
| 2024 | 41 | |
| 2025 | 30 | |
| 2026 | 16 | |
| 2027 | 14 | |
| Thereafter | 24 | |
| Total future amortization expense | $ | 170 | |
We
have an indefinite-lived intangible asset that we recorded in connection with our February 2015 acquisition of Trulia for Trulia’s trade names and trademarks that isdid not
subject to amortization. See Note 7 for further detailsrecord any impairment costs related to
our intangible assets for the
acquisition. The carrying value of the of the Trulia trade names and trademarks intangible asset was $177.0 million and $351.0 million, respectively, as ofyears ended December 31,
20172022 and
2016.2021. During the year ended December 31, 2017,2020, we recognized anon-cash impairment charge of $174.0$72 million related to our indefinite-lived Trulia trade names and trademarks intangible asset. The impairment charge is included in Impairment and restructuringimpairment costs in our consolidated statement of operations within our consolidated statements of operations.IMT and Mortgages segments for the year ended December 31, 2020 for $69 million and $3 million, respectively. In connection with our qualitative assessment of the recoverability of this asset during our annual impairment test as of October 1, 2017,March 2020, we identified factors, including shortfalls in projected revenue related to the Trulia brand, directly related to the COVID-19 pandemic that led us to conclude it was more likely than not that the $351.0 million carrying value of the asset exceeded its fair value. The most significant of such factors was a shortfall in projected revenue related to the Trulia brand compared to projections at the time the intangible asset was initially recorded in February 2015. Accordingly, with the assistance of a third-party valuation specialist, we performed a quantitative analysis to determine the fair value of the intangible asset and concluded that our best estimate of its fair value was $177.0 million.asset. The valuation was prepared using an income approach based on the relief-from-royalty method and relied on inputs with unobservable market prices including the assumedprojected revenue, growth rates, royalty rate, discount rate, and estimated tax rate, and therefore is considered a Level 3 measurement under the fair value hierarchy. In connection with this impairment analysis, we evaluated our planned future use of the Trulia trade names and trademarks intangible asset and concluded that it remains appropriate to consider this asset to have an indefinite life.
Note
10.11. Accrued Expenses and Other Current Liabilities
The following table presents the detail of accrued expenses and other current liabilities as of the dates presented (in thousands)millions): | | | | | | | | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
Accrued marketing and advertising | | $ | 17,180 | | | $ | 7,978 | |
Accrued purchased content | | | 5,984 | | | | 8,382 | |
Accrued estimated legal liabilities and legal fees | | | 9,052 | | | | 2,257 | |
Merger consideration payable to former stockholders of certain acquired entities | | | 5,904 | | | | 5,904 | |
Other accrued expenses and other current liabilities | | | 23,253 | | | | 13,906 | |
| | | | | | | | |
Total accrued expenses and other current liabilities | | $ | 61,373 | | | $ | 38,427 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Accrued estimated legal liabilities and legal fees | $ | 21 | | | $ | 7 | |
| Accrued marketing and advertising | 9 | | | 27 | |
| Other accrued expenses and other current liabilities | 60 | | | 55 | |
| Total accrued expenses and other current liabilities | $ | 90 | | | $ | 89 | |
Note 11. 12. Leases
The components of our operating lease expense were as follows for the periods presented (in millions): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Operating lease cost | $ | 36 | | | $ | 38 | | | $ | 40 | |
| Variable lease cost | 18 | | | 13 | | | 10 | |
| Total lease cost | $ | 54 | | | $ | 51 | | | $ | 50 | |
We have subleases related to certain of our operating leases. We recognize sublease income on a straight-line basis over the sublease term, which is recorded as a reduction to our operating lease cost. For the years ended December 31, 2022 and 2021, we recognized $10 million and $7 million, respectively, of sublease income. Sublease income was not material for the year ended December 31, 2020.
Total lease costs associated with short-term leases were not material for the years ended December 31, 2022, 2021 and 2020.
Other information related to operating leases was as follows for the periods presented (in millions, except for years and percentages): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 (1) | | 2020 |
| Cash paid for amounts included in the measurement of operating lease liabilities, net of lease incentives of $9, $— and $19 for the years ended December 31, 2022, 2021 and 2020, respectively | $ | 34 | | | $ | 43 | | | $ | 18 | |
| Right of use assets obtained in exchange for new operating lease obligations | $ | 19 | | | $ | (36) | | | $ | — | |
| Weighted average remaining lease term for operating leases | 7 years | | 7 years | | 8 years |
| Weighted average discount rate for operating leases | 8.2 | % | | 7.2 | % | | 6.5 | % |
| | | | | |
(1) During the year ended December 31, 2021, we modified our existing office space lease for our corporate headquarters in Seattle, Washington, whereby the renewal options for certain existing office space which we had previously included in the measurement of the lease liability and right of use asset were removed and we partially terminated our lease early for certain existing office space, resulting in a reduction of the lease liability and right of use asset of approximately $44 million and $42 million, respectively. The lease term for certain other existing leased office space in Seattle was extended such that it now expires in 2032 and retains the two five-year renewal options, partially offsetting the reduction of the lease liability and right of use asset described above. |
The following table presents the scheduled maturities of our operating lease liabilities by year as of December 31, 2022 (in millions):
| | | | | |
| 2023 | $ | 42 | |
| 2024 | 37 | |
| 2025 | 23 | |
| 2026 | 24 | |
| 2027 | 23 | |
| Thereafter | 80 | |
| Total lease payments | 229 | |
| Less: Imputed interest | (59) | |
| Present value of lease liabilities | $ | 170 | |
Operating lease liabilities included in the table above do not include sublease income. As of December 31, 2022, we expect to receive sublease income of approximately $34 million from 2023 through 2030.
Note 13. Debt
The following table presents the carrying values of Zillow Group’s debt as of the dates presented (in millions): | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Mortgages segment | | | |
| Repurchase agreements: | | | |
| Credit Suisse AG, Cayman Islands | $ | 23 | | | $ | 77 | |
| Citibank, N.A. | 3 | | | 17 | |
| Warehouse line of credit: | | | |
| Comerica Bank | 11 | | | 19 | |
| Total Mortgages segment debt | 37 | | | 113 | |
| Convertible senior notes | | | |
| 1.375% convertible senior notes due 2026 | 495 | | | 369 | |
| 2.75% convertible senior notes due 2025 | 560 | | | 443 | |
| 0.75% convertible senior notes due 2024 | 605 | | | 507 | |
| Total convertible senior notes | 1,660 | | | 1,319 | |
| Total debt | $ | 1,697 | | | $ | 1,432 | |
Mortgages Segment
To provide capital for Zillow Home Loans, we utilize master repurchase agreements and a warehouse line of credit which are classified as current liabilities in our consolidated balance sheets. The repurchase agreements and warehouse line of credit provide short-term financing between the issuance of a mortgage loan and when Zillow Home Loans sells the loan to an investor or directly to an agency. The following table summarizes certain details related to our repurchase agreements and warehouse line of credit (in millions, except interest rates): | | | | | | | | | | | | | | | | | | | | |
| Lender | | Maturity Date | | Maximum Borrowing Capacity | | Weighted Average Interest Rate |
| Credit Suisse AG, Cayman Islands | | March 17, 2023 | | $ | 100 | | | 6.16 | % |
| Citibank, N.A. | | June 9, 2023 | | 100 | | | 6.18 | % |
| Comerica Bank | | June 24, 2023 | | 50 | | | 6.22 | % |
| | Total | | $ | 250 | | | |
Master Repurchase Agreements
On March 18, 2022, Zillow Home Loans amended its Credit Suisse AG, Cayman Islands (“Credit Suisse”) master repurchase agreement to decrease the uncommitted total maximum borrowing capacity to $100 million with a maturity date of March 17, 2023 and to update the reference rate from one-month LIBOR to Adjusted Daily Simple Secured Overnight Financing Rate.
On June 10, 2022, Zillow Home Loans amended its Citibank, N.A. (“Citibank”) master repurchase agreement to update the reference rate from one-month LIBOR to Secured Overnight Financing Rate (“SOFR”), as defined by the governing agreements. Additionally, the amendment extended the maturity date of the Citibank master repurchase agreement from June 10, 2022 to June 9, 2023.
In accordance with the master repurchase agreements, Credit Suisse and Citibank (together the “Lenders”) have agreed to pay Zillow Home Loans a negotiated purchase price for eligible loans, and Zillow Home Loans has simultaneously agreed to repurchase such loans from the Lenders under a specified timeframe at an agreed upon price that includes interest. The master repurchase agreements contain margin call provisions that provide the Lenders with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreements. As of December 31, 2022 and 2021, $28 million and $87 million, respectively, in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.
Warehouse Line of Credit
On June 25, 2022, Zillow Home Loans amended its Comerica Bank warehouse line of credit to decrease the total maximum borrowing capacity from $60 million to $50 million and update the reference rate from one-month LIBOR to Bloomberg Short-Term Bank Yield Index Rate (“BSBY”), as defined by the governing agreements. Additionally, the amendment extended the maturity date of the Comerica Bank warehouse line of credit from June 25, 2022 to June 24, 2023.
Borrowings on the repurchase agreements and warehouse line of credit bear interest either at a floating rate based on SOFR plus an applicable margin, as defined by the governing agreements, or BSBY plus an applicable margin, as defined by the governing agreements. The repurchase agreements and warehouse line of credit include customary representations and warranties, covenants and provisions regarding events of default. As of December 31, 2022, Zillow Home Loans was in compliance with all financial covenants and no event of default had occurred. The repurchase agreements and warehouse line of credit are recourse to Zillow Home Loans, and have no recourse to Zillow Group or any of its other subsidiaries.
Effective January 1, 2022, we adopted guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. For additional information regarding the adoption of this guidance, see Note 2 of our consolidated financial statements.
The following tables summarize certain details related to our outstanding convertible senior notes as of the dates presented or for the periods ended (in millions, except interest rates): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | December 31, 2022 | | December 31, 2021 |
| Maturity Date | | Aggregate Principal Amount | | Stated Interest Rate | | Effective Interest Rate | | First Interest Payment Date | | Semi-Annual Interest Payment Dates | | Unamortized Debt Issuance Costs | | Fair Value | | Unamortized Debt Discount and Debt Issuance Costs | | Fair Value |
| September 1, 2026 | | $ | 499 | | | 1.375 | % | | 1.57 | % | | March 1, 2020 | | March 1; September 1 | | $ | 4 | | | $ | 504 | | | $ | 130 | | | $ | 781 | |
| May 15, 2025 | | 565 | | | 2.75 | % | | 3.20 | % | | November 15, 2020 | | May 15; November 15 | | 5 | | | 531 | | | 122 | | | 725 | |
| September 1, 2024 | | 608 | | | 0.75 | % | | 1.02 | % | | March 1, 2020 | | March 1; September 1 | | 3 | | | 629 | | | 101 | | | 945 | |
| Total | | $ | 1,672 | | | | | | | | | | | $ | 12 | | | $ | 1,664 | | | $ | 353 | | | $ | 2,451 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| Maturity Date | | Contractual Coupon Interest | | Amortization of Debt Issuance Costs | | Interest Expense | | Contractual Coupon Interest | | Amortization of Debt Discount | | Amortization of Debt Issuance Costs | | Interest Expense | | Contractual Coupon Interest | | Amortization of Debt Discount | | Amortization of Debt Issuance Costs | | Interest Expense |
| September 1, 2026 | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | 7 | | | $ | 22 | | | $ | 1 | | | $ | 30 | | | $ | 7 | | | $ | 20 | | | $ | — | | | $ | 27 | |
| May 15, 2025 | | 16 | | | 3 | | | 19 | | | 16 | | | 27 | | | 1 | | | 44 | | | 10 | | | 15 | | | 1 | | | 26 | |
| September 1, 2024 | | 4 | | | 2 | | | 6 | | | 4 | | | 32 | | | 1 | | | 37 | | | 5 | | | 33 | | | 1 | | | 39 | |
| July 1, 2023 | | — | | | — | | | — | | | 3 | | | 8 | | | 1 | | | 12 | | | 6 | | | 15 | | | 1 | | | 22 | |
| December 1, 2021 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | 14 | | | 2 | | | 22 | |
| Total | | $ | 27 | | | $ | 5 | | | $ | 32 | | | $ | 30 | | | $ | 89 | | | $ | 4 | | | $ | 123 | | | $ | 34 | | | $ | 97 | | | $ | 5 | | | $ | 136 | |
The convertible senior notes are senior unsecured obligations and are classified as long-term debt in our consolidated balance sheets based on their contractual maturity dates. Interest on the convertible notes is paid semi-annually in arrears. The estimated fair value of the convertible senior notes is classified as Level 2 and was determined through consideration of quoted market prices in markets that are not active.
Convertible Senior Notes due in 2025
On May 15, 2020, we issued $500 million aggregate principal amount of 2.75% Convertible Senior Notes due 2025 (the “Initial 2025 Notes”) and on May 19, 2020, we issued $65 million aggregate principal amount of 2.75% Convertible Senior Notes due 2025 (the “Additional Notes” and, together with the Initial 2025 Notes, the “2025 Notes”). The Additional Notes were sold pursuant to the underwriters’ option to purchase additional 2025 Notes granted in connection with the offering of the Initial 2025 Notes. The net proceeds from the issuance of the 2025 Notes were approximately $553 million, after deducting underwriting discounts and commissions and offering expenses paid by Zillow Group.
Convertible Senior Notes due in 2024 and 2026
On September 9, 2019, we issued $600 million aggregate principal amount of Convertible Senior Notes due 2024 (the “Initial 2024 Notes”) and $500 million aggregate principal amount of Convertible Senior Notes due 2026 (the “2026 Notes”) in a private offering to qualified institutional buyers. The net proceeds from the issuance of the Initial 2024 Notes were approximately $592 million and the net proceeds from the issuance of the 2026 Notes were approximately $494 million, in each case after deducting fees and expenses paid by Zillow Group. We used approximately $75 million of the net proceeds from the issuance of the Initial 2024 Notes and approximately $75 million of the net proceeds from the issuance of the 2026 Notes to pay the cost of the capped call transactions entered into in connection with the issuances, described below.
On October 9, 2019, we issued $73 million aggregate principal amount of 0.75% Convertible Senior Notes due 2024 (the “Additional Notes” and, together with the Initial 2024 Notes, the “2024 Notes”). The Additional Notes were sold pursuant to the initial purchasers’ partial exercise of their option to purchase such notes, granted in connection with the offering of the Initial 2024 Notes. The Additional Notes have the same terms, and were issued under the same indenture, as the Initial 2024 Notes. The net proceeds from the offering of the Additional Notes were approximately $72 million, after deducting fees and expenses paid by Zillow Group. We used approximately $9 million of the net proceeds from the issuance of the Additional Notes to pay the cost of the capped call transactions entered into in connection with the issuance of the Additional Notes, described below.
Convertible Senior Notes due in 2023
On July 3, 2018, we issued $374 million aggregate principal amount of Convertible Senior Notes due 2023 (the “2023 Notes”), which includes $49 million principal amount of 2023 Notes sold pursuant to the underwriters’ option to purchase additional 2023 Notes. The net proceeds from the issuance of the 2023 Notes were approximately $364 million, after deducting fees and expenses paid by Zillow Group. We used approximately $29 million of the net proceeds from the issuance of the 2023 Notes to pay the cost of capped call transactions entered into in connection with the issuances, described below.
Convertible Senior Notes due in 2021
On December 12, 2016,
Zillow Groupwe issued
$460.0$460 million aggregate principal amount of 2.00% Convertible Senior Notes due 2021 (the “2021 Notes”), which
amount includes the exercise
in full of the
$60.0$60 million over-allotment option, to
Citigroup Global Markets Inc. as the initial purchaser of the 2021 Notes in a private offering to
the initial purchaser in reliance on the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for resale to qualified institutional
buyers as defined in, and pursuant to, Rule 144A under the Securities Act. The 2021 Notes bear interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2017. The 2021 Notes are convertible into cash, shares of our Class C capital stock or a combination thereof, at the Company’s election. The 2021 Notes will mature on December 1, 2021, unless earlier repurchased, redeemed, or converted in accordance with their terms.buyers. The net proceeds from the issuance of the 2021 Notes were approximately $447.8$448 million, after deducting fees and expenses. The Companyexpenses paid by Zillow Group. In addition, we used approximately $370.2 millionof the net proceeds from the issuance of the
2021 Notes to repurchase a portion of the outstanding 2020 Notes (see additional information below under “Trulia’s Convertible Senior Notes due 2020”) in privately negotiated transactions. In addition, the Company used approximately $36.6$37 million of the net proceeds from the issuance of the 2021 Notes to pay the cost of the capped call transactions with the initial purchaser of the 2021 Notes and two additional financial institutions, (“Capped Call Confirmations”described below.
The outstanding 2024 Notes, 2025 Notes and 2026 Notes (collectively “the Notes”) are convertible into cash, shares of Class C capital stock or a combination thereof, at our election, and may be settled as discussed furtherdescribed below. They will mature on their respective maturity date, unless earlier repurchased, redeemed or converted in accordance with their terms.
The
Company usedfollowing table summarizes the
remainder ofconversion and redemption options with respect to the
net proceeds for general corporate purposes.Notes:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity Date | | Early Conversion Date | | Conversion Rate | | Conversion Price | | Optional Redemption Date |
| September 1, 2026 | | March 1, 2026 | | 22.9830 | | $ | 43.51 | | | September 5, 2023 |
| May 15, 2025 | | November 15, 2024 | | 14.8810 | | 67.20 | | | May 22, 2023 |
| September 1, 2024 | | March 1, 2024 | | 22.9830 | | 43.51 | | | September 5, 2022 |
Prior to the close of business on the business day immediately preceding
September 1, 2021, the
2021applicable Early Conversion Date, the Notes
arewill be convertible at the option of the holders
of the 2021 Notes only under certain
conditions, none of which conditions have been satisfied as of December 31, 2017.conditions. On or after
September 1, 2021,the applicable Early Conversion Date, until the close of business on the second scheduled trading day immediately preceding the
maturity date,applicable Maturity Date, holders
of the 2021 Notes may convert
their 2021the Notes at their option at the
conversion rateapplicable Conversion Rate then in effect, irrespective of these conditions. The Company will settle conversions of the
2021 Notes by paying or delivering, as the case may be, cash, shares of
its Class C capital stock, or a combination of cash and shares of
its Class C capital stock, at its election. The
conversion rateapplicable Conversion Rate for each series of Notes will initially be
19.0985the conversion rate of shares of Class C capital stock per $1,000 principal amount of
2021the Notes (equivalent to an initial
conversion price of approximately $52.36Conversion Price per share of Class C capital stock). The
conversion rate isapplicable Conversion Rate and the corresponding initial Conversion Price will be subject to
customary adjustments upon the occurrence of certain events.adjustment in some events but will not be adjusted for any accrued and unpaid interest. The Company may redeem for cash all or part of the
2021respective series of Notes, at its option, on or after
December 6, 2019,the applicable Optional Redemption Date, under certain circumstances, at a redemption price equal to 100% of the principal amount of the
2021 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as defined in the
indentureindentures governing the
2021 Notes).
We may not redeem a series of Notes prior to the applicable Optional Redemption Date. We may redeem for cash all or any portion of a series of Notes, at our option, in whole or in part on or after the applicable Optional Redemption Date if the last reported sale price per share of our Class C capital stock has been at least 130% of the Conversion Price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period. The conversion option does not meet the criteria for separate accounting as a derivative as it is indexed to our own stock.
The last reported sale price of our Class C capital stock did not exceed 130% of the conversion price of each series of the Notes for more than 20 trading days during the 30 consecutive trading days ended December 31, 2022. Accordingly, each series of the Notes is not redeemable or convertible at the option of the holders from January 1, 2023 through March 31, 2023.
If the Company undergoes a fundamental change (as defined in the
indentureindentures governing the
2021 Notes), holders
of the 2021 Notes may require the Company to repurchase for cash all or part of
their 2021a series of Notes,
as applicable, at a repurchase price equal to 100% of the principal amount of the
2021 Notesnotes to be
repurchased,purchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the
indentureindentures governing the
2021 Notes). In addition, if certain fundamental changes occur, the Company may be required, in certain circumstances, to increase the conversion rate for any
2021of the Notes converted in connection with such fundamental changes by a specified number of shares of its Class C capital stock. Certain events are also considered “Events of Default,” which may result in the acceleration of the maturity of the
2021 Notes, as described in the
indentureindentures governing the
notes.Notes. There are no financial covenants associated with the
2021 Notes.
We may not redeem the 2021 Notes prior to December 6, 2019. We may redeem the 2021 Notes for cash, at our option, in whole or in part on or after December 6, 2019, if the last reported sale price per share of our Class C capital stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
In accounting for the issuance of the
2021 Notes,convertible senior notes, prior to the adoption of new accounting guidance on January 1, 2022, the Company separated the
2021 Notesconvertible senior notes into liability and equity components. The carrying amount of the liability component
for each of the Notes was calculated by measuring the fair value of a similar liability that does not have an associated
conversionconvertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the
2021 Notes.convertible senior notes. The difference between the principal
amount of the 2021 Notesamounts and the liability
component representscomponents represented the
respective debt
discount,discounts, which
iswere recorded as a direct deduction from the related debt liability in the consolidated balance
sheetsheets and amortized to interest expense using the effective interest method over the term of the
2021 Notes.convertible senior notes. The equity
componentcomponents of the
2021 Notesconvertible senior notes, net of
approximately $91.4 million isissuance costs, were included in additional
paid-in capital in the consolidated balance
sheetsheets and
iswere not remeasured as long as
it continuesthey continued to meet the conditions for equity classification.
The Company incurred transaction costs of approximately $12.2 million related to the issuance Upon adoption of the 2021 Notes, including approximately $11.5 million in fees tonew accounting guidance, we de-recognized the initial purchaser, which amount was paid outequity components of the gross proceeds fromconvertible senior notes and the note offering. In accounting forrespective debt discounts through a decrease to additional paid-in capital, an increase to long-term debt and a cumulative-effect adjustment to accumulated deficit of $156 million. For additional information regarding the transaction costs, the Company allocated the total
amount incurred to the liability and equity components using the same proportions as the proceeds from the 2021 Notes. Transaction costs attributable to the liability componentadoption of this guidance, see Note 2 of our consolidated financial statements.
There were
recorded as a direct deduction from the related debt liability in the consolidated balance sheet and amortized to interest expense over the termno conversions or repurchases of
the 2021 Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.Interest expense related to the 2021 Notes forconvertible senior notes during the year ended December 31, 2017 was $27.2 million, which is comprised of approximately $18.0 millionrelated to2022. The following table summarizes the amortization of debt discount and debt issuance costs and $9.2 millionforactivity for our convertible senior notes for the contractual coupon interest. Interest expenseperiods presented (in millions, except for share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| 2023 Notes | | 2024 Notes | | 2026 Notes | | Total | | 2021 Notes |
| Aggregate principal amount settled | $ | 374 | | | $ | 65 | | | $ | 1 | | | $ | 440 | | | $ | 460 | |
| Cash paid | 1 | | | — | | | — | | | 1 | | | 195 | |
| Shares of Class C capital stock issued | 4,752 | | | 1,485 | | | 28 | | | 6,265 | | | 5,820 | |
| Total fair value of consideration transferred (1) | $ | 572 | | | $ | 200 | | | $ | 4 | | | $ | 776 | | | $ | 783 | |
| (Gain) loss on extinguishment of debt: | | | | | | | | | |
| Consideration allocated to the liability component (2) | $ | 349 | | | $ | 53 | | | $ | 1 | | | $ | 403 | | | $ | 430 | |
| Carrying value of the liability component, net of unamortized debt discount and debt issuance costs | 334 | | | 51 | | | 1 | | | 386 | | | 431 | |
| (Gain) loss on extinguishment of debt | $ | 15 | | | $ | 2 | | | $ | — | | | $ | 17 | | | $ | (1) | |
| Consideration allocated to the equity component | $ | 223 | | | $ | 147 | | | $ | 3 | | | $ | 373 | | | $ | 353 | |
| | | | | | | | | |
| (1) For convertible senior notes converted by note holders, the total fair value of consideration transferred includes the value of shares transferred to note holders using the daily volume weighted-average price of our Class C capital stock on the conversion date and an immaterial amount of cash paid in lieu of fractional shares. For convertible senior notes redeemed, the total fair value of consideration transferred comprises cash transferred to note holders to settle the related notes. For convertible senior notes repurchased in the year ended December 31, 2020, the total value of consideration transferred includes the value of shares transferred to note holders using the daily volume weighted-average price of our Class C capital stock on the date of transfer as well as cash transferred to note holders to settle the related notes. |
| | | | | | | | | |
| (2) Consideration allocated to the liability component is based on the fair value of the liability component immediately prior to settlement, which was calculated using a discounted cash flow analysis with a market interest rate of a similar liability that does not have an associated convertible feature. |
The following table summarizes certain details related to the
2021 Notes for the year ended December 31, 2016 was $1.3 million, which is comprised of approximately $0.9 millionrelatedcapped call confirmations with respect to
the amortization of debt discount and debt issuance costs and $0.5 million for the contractual coupon interest. The effective interest rate on the liability componentcertain of the
2021 Notes is 7.44%for the years ended December 31, 2017 and 2016. Accrued interest related to the 2021 Notes was $0.8 million and $0.5 million, respectively, as of December 31, 2017 and 2016, and is recorded in accrued expenses and other current liabilities in the consolidated balance sheet.convertible senior notes:
| | | | | | | | | | | | | | |
| Maturity Date | | Initial Cap Price | | Cap Price Premium |
| September 1, 2026 | | $ | 80.5750 | | | 150 | % |
| September 1, 2024 | | 72.5175 | | | 125 | % |
| July 1, 2023 | | 105.45 | | | 85 | % |
The
following table presents the outstanding principal amount and carrying value of the 2021 Notes as of the dates presented (in thousands): | | | | | | | | | | | | |
| | | Outstanding
Principal
Amount | | | Unamortized
Debt Discount
and Debt
Issuance Costs | | | Carrying
Value | |
December 31, 2017 | | $ | 460,000 | | | $ | (84,721 | ) | | $ | 375,279 | |
December 31, 2016 | | $ | 460,000 | | | $ | (102,733 | ) | | $ | 357,267 | |
As of December 31, 2017, the unamortized debt discount and debt issuance costs for the 2020 Notes will be amortized to interest expense over a remaining period of approximately 47 months.
The estimated fair value of the 2021 Notes was $509.0 million and $474.2 million, respectively, as of December 31, 2017 and 2016. The estimated fair value of the 2021 Notes was determined through consideration of quoted market prices. The fair value is classified as Level 3 due to the limited trading activity for the 2021 Notes.
The Capped Call Confirmationscapped call confirmations are expected generally to reduce the potential dilution of our Class C capital stock uponin connection with any conversion of 2021the Notes and/or offset the cash payments the Company is required to make in excess of the principal amount of the 2021 Notessuch notes in the event that the market price of the Class C capital stock is greater than the strike price of the Capped Call Confirmationscapped call confirmations (which initially corresponds to the initial conversion priceConversion Price of the 2021 Notessuch notes and is subject to certain adjustments under the terms of the Capped Call Confirmations)capped call confirmations), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Confirmations.capped call confirmations. The Capped Call Confirmationscapped call confirmations with respect to the 2026 Notes, the 2024 Notes and the 2023 Notes have an initial cap price of $69.19Initial Cap Price per share, which represents a premium of approximately 85%(“Cap Price Premium”) over the relevant historical closing price of the Company’s Class C capital stock on Thethe Nasdaq Global Select Market, on December 6, 2016, and is subject to certain adjustments under the terms of the Capped Call Confirmations.capped call confirmations. The Capped Call Confirmationscapped call confirmations will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2021 Notes,convertible senior notes, the number of shares of Class C capital stock that will underlie the 2021 Notes. In addition, the Capped Call Confirmations provide for the Company to elect, subject to certain conditions, for the Capped Call Confirmations to remain outstanding (with certain modifications) following its election to redeem the 2021 Notes, notwithstanding any conversions of 2021 Notes in connection with such redemption.notes. The Capped Call Confirmationscapped call confirmations do not meet the criteria for separate accounting as a derivative as they are indexed to our own stock. The capped call premiums paid for the Capped Call Confirmations have been included as a net reduction to additionalpaid-in capital within shareholders’ equity.
Trulia’s Convertible Senior Notes due in 2020
In connection with the
February 2015 acquisitionrepurchase of
Trulia (see Note 7), a portion of the
total purchase price was allocated to Trulia’s Convertible Senior2021 Notes
due induring the year ended December 31, 2020,
(the “2020 Notes”), which are unsecured senior obligations. Pursuant to and in accordance withwe partially terminated the
Merger Agreement, Zillow Groupcapped call transactions entered into
a supplemental indenture in
respect of the 2020 Notes in the aggregate principal amount of $230.0 million, which supplemental indenture provides, among other things, that, at the effective time of the Trulia Merger, (i) each outstanding 2020 Note is no longer convertible into shares of Trulia common stock and is convertible solely into shares of Zillow Group Class A common stock, pursuant to, and in accordanceconnection with
the terms of the indenture governing the 2020 Notes, and (ii) Zillow Group guaranteed all of the obligations of Trulia under the 2020 Notes and related indenture. The aggregate principal amount of the 2020 Notes is due on December 15, 2020 if not earlier converted or redeemed. Interest is payable on the 2020 Notes at the rate of 2.75% semi-annually on June 15 and December 15 of each year.In December 2016, the Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notes discussed above to repurchase $219.9 million aggregate principal of the 2020 Notes in privately negotiated transactions. The repurchase of the 2020 Notes was accounted for as a debt extinguishment, and the consideration transferred was allocated between the liability and equity components by determining the intrinsic value of the conversion option immediately prioran amount corresponding to the debt extinguishment and allocating that portion of the repurchase price to additionalpaid-in capital for $127.6 million with the residual repurchase price allocated to the liability component. The partial repurchase of the 2020 Notes resulted in the recognition of a $22.8 million loss on debt extinguishment for the year ended December 31, 2016.
Holders of the 2020 Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. Regarding the supplemental indenture in respect of the 2020 Notes, the conversion ratio immediately prior to the effective time of the Trulia Merger of 27.8303 shares of Trulia common stock per $1,000aggregate principal amount of notes was adjusted to 12.3567 sharesthe 2021 Notes that were repurchased. As a result of our Class A common stock per $1,000 principal amountthe partial settlement of notes based on the exchange ratio of 0.444 per the Merger Agreement. This was equivalent to an initial conversion price of approximately $80.93 per share of our Class A common stock. Regarding the August 2015 distribution ofcapped call transactions, we received 0.3 million shares of our Class C capital stock as a dividend to our Class A and Class B common shareholders, the conversion ratio has been further adjusted to 41.4550 shares of Class A common stock per $1,000 principal amount of notes, which is equivalentequal to a conversion pricevalue of approximately $24.12 per share$15 million based on the trading price of our Class A common stock. The conversion ratio will be adjusted for certain dilutive events and will be increasedC capital stock at the time of the unwind. On December 1, 2021, the remaining capped call transactions entered into in connection with the issuance of the 2021 Notes were settled on their contractual maturity date. As a result, we received 0.7 million shares of our Class C capital stock equal to a value of approximately $43 million based on the trading price of our Class C capital stock at the time of the unwind. Under applicable Washington State law, the acquisition of a corporation’s own shares is not disclosed separately as treasury stock in the casefinancial statements and such shares are treated as authorized but unissued shares. We record acquisitions of corporate events that constituteour shares of capital stock as a “Make-Whole Fundamental Change” (as defined inreduction to capital stock at the indenture governing the notes). The conversion optionpar value of the 2020 Notes has no cash settlement provisions. The conversion option does not meet the criteria for separate accounting as a derivative asshares reacquired, then to additional paid-in capital until it is indexeddepleted to our own stock.
The holdersa nominal amount, with any further excess recorded to retained earnings. We recorded an offsetting increase to additional paid-in capital for the partial unwind of the 2020capped call transactions.
Convertible Senior Notes will have the ability to require us to repurchase the notes in whole or in part upon the occurrenceRepurchase Authorization
On December 2, 2021, Zillow Group’s Board of
an event that constitutes a “Fundamental Change” (as defined in the indenture governing the notes, including such events as a “change in control” or “termination of trading”, subject to certain exceptions). In such case,Directors (the “Board”) authorized the repurchase
price would be 100% of
the principal amount of the 2020 Notes plus accrued and unpaid interest, if any,up to
but excluding, the Fundamental Change repurchase date. Certain events are also considered “Events of Default,” which may result in the acceleration of the maturity of the 2020 Notes, as described in the indenture governing the notes. There are no financial covenants associated with the 2020 Notes.The 2020 Notes are redeemable, at our option, in whole or in part on or after December 20, 2018, if the last reported sale price per share$750 million of our Class A common stock, has been at least 130%Class C capital stock or a combination thereof. On May 4, 2022, the Board authorized the repurchase of up to an additional $1.0 billion (together the “Repurchase Authorizations”) of our Class A common stock, Class C capital stock or a combination thereof. On November 1, 2022, the Board further expanded the Repurchase Authorizations to allow for the repurchase of a portion of our outstanding Notes. Repurchases of outstanding Notes may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, market price of the conversion price thenNotes, trading volume, cash needs and other business factors, in effecteach case as permitted by securities laws and other legal requirements. There were no repurchases of convertible senior notes during the year ended December 31, 2022. As of December 31, 2022, $500 million remained available for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period.
Interest expensefuture repurchases pursuant to the Repurchase Authorizations. For additional details related to the 2020 Notes forRepurchase Authorizations, see Note 15 under the years ended December 31, 2017 and 2016 was $0.3 million and $6.1 million, respectively. Accrued interest related to the 2020 Notes as of December 31, 2017
and 2016 was not material. Accrued interest is recorded in accrued expenses and other current liabilities in our consolidated balance sheet.
The carrying value of the 2020 Notes was $10.1 million as of December 31, 2017 and 2016. The estimated fair value of the 2020 Notes was $17.6 million and $17.3 million, respectively, as of December 31, 2017 and 2016. The estimated fair value of the 2020 Notes was determined through consideration of quoted market prices. The fair value is classified as Level 3 due to the limited trading activity for the 2020 Notes.
subsection titled “Stock Repurchase Authorizations”.
We are subject to
federal and state income taxes in the United States
(federal and
in Canada. Forstate), Canada, and Serbia. We recorded income tax expense of $3 million for the
yearsyear ended December 31,
2017, 2016 and 2015, we did not have a material amount of current taxable income.On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay aone-time transition tax on certain untaxed earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and how AMT credits are utilized; and (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Shortly after enactment, implementation guidance was released2022, primarily driven by the Securities and Exchange Commission that requires a company to reflect the income tax effects of those aspects of the Tax Act for which the accounting under the accounting rules is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but the company is able to determine a reasonable estimate, it should record a provisional estimate in the financial statements. Further, the implementation guidance also provides for a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete their accounting pursuant to the accounting rules.
state taxes. We recorded an income tax benefit of $89.6$1 million for the year ended December 31, 2017. Approximately $66.02021, comprised of a $3 million of the income tax benefit relatesfrom a decrease in the valuation allowance associated with our September 2021 acquisition of ShowingTime, partially offset by $2 million of tax expense related to state and foreign income taxes. We recorded an income tax benefit of $8 million for the year ended December 31, 2020, primarily driven by a $174.0$10 million income tax benefit associated with the $72 million non-cash impairment we recorded during the year ended December 31, 2017 related to the $351.0 million indefinite-lived intangible asset that we recorded in connection with our February 2015 acquisition of Trulia for Trulia’s trade names and trademarks.2020. For additional information about thenon-cash impairment, see Note 910 of our Notes to our consolidated financial statements. The remaining $23.6 million of the income tax benefit primarily relates to our initial analysis of the impact of the rate decrease included in the Tax Act for the impact of the reduction in our net deferred tax liability related to our indefinite-lived intangible asset. As of December 31, 2017, we have not completed our accounting for the income tax effects of certain elements of the Tax Act and we have recorded provisional adjustments where we were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, including as related to the deduction limitations on compensation.
Income tax expense was not material for the year ended December 31, 2016. We recorded an income tax benefit of $4.6 million for the year ended December 31, 2015 due to a deferred tax liability generated in connection with Zillow’s August 20, 2015 acquisition of DotLoop, Inc. that can be used to realize certain deferred tax assets for which we had previously provided a full allowance.
Consolidated Financial Statements.
The following table summarizespresents the components of our income tax expense (benefit) expense for the periods presented (in thousands)millions): | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Federal | | $ | (84,238 | ) | | $ | 1,248 | | | $ | 2,838 | |
State | | | (5,348 | ) | | | (1,378 | ) | | | 1,807 | |
| | | | | | | | | | | | |
Deferred income tax (benefit) expense | | $ | (89,586 | ) | | $ | (130 | ) | | $ | 4,645 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Current income tax expense | | | | | |
| State | $ | 2 | | | $ | 2 | | | $ | — | |
| Foreign | 1 | | | — | | | — | |
| Total current income tax expense | 3 | | | 2 | | | — | |
| Deferred income tax benefit: | | | | | |
| Federal | — | | | (3) | | | (7) | |
| State | — | | | — | | | (1) | |
| Total deferred income tax benefit | — | | | (3) | | | (8) | |
| Total income tax expense (benefit) | $ | 3 | | | $ | (1) | | | $ | (8) | |
The following table presents a reconciliation of the federal statutory rate and our effective tax rate for the periods presented: | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Tax expense at federal statutory rate | | | (35.0 | )% | | | (35.0 | )% | | | (35.0 | )% |
State income taxes, net of federal tax benefit | | | (4.4 | ) | | | (1.9 | ) | | | (2.3 | ) |
Nondeductible expenses | | | 0.8 | | | | 4.9 | | | | 2.8 | |
Share-based compensation | | | (20.6 | ) | | | (0.2 | ) | | | 1.2 | |
Research and development credits | | | (6.3 | ) | | | (1.5 | ) | | | (4.1 | ) |
Divestiture of businesses | | | — | | | | — | | | | 2.3 | |
Enactment of Tax Act | | | (13.1 | ) | | | — | | | | — | |
Other | | | 2.2 | | | | (0.9 | ) | | | (1.0 | ) |
Valuation allowance | | | 27.7 | | | | 34.7 | | | | 33.1 | |
| | | | | | | | | | | | |
Effective tax rate | | | (48.7 | )% | | | 0.1 | % | | | (3.0 | )% |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Tax expense at federal statutory rate | (21.0) | % | | (21.0) | % | | (21.0) | % |
| State income taxes, net of federal tax benefit | 6.2 | | | 8.7 | | | (364.0) | |
| Share-based compensation | 13.2 | | | 84.1 | | | (2,329.4) | |
| Non-deductible executive compensation | 14.3 | | | (7.7) | | | 86.9 | |
| Research and development credits | (25.7) | | | 40.8 | | | (393.0) | |
| Other | 8.2 | | | (4.9) | | | (23.2) | |
| Valuation allowance | 7.4�� | | | (99.3) | | | 2,827.6 | |
| Effective tax rate | 2.6 | % | | 0.7 | % | | (216.1) | % |
Deferred federal, state and foreign income taxes reflect the net tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. The following table presents the significant components of our deferred tax assets and liabilities as of the dates presented (in thousands)millions): | | | | | | | | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
Deferred tax assets: | | | | | | | | |
Federal and state net operating loss carryforwards | | $ | 234,316 | | | $ | 208,029 | |
Share-based compensation | | | 47,655 | | | | 67,482 | |
Depreciation and amortization | | | — | | | | 3,123 | |
Start-up and organizational costs | | | 146 | | | | 300 | |
Research and development credits | | | 35,793 | | | | 24,295 | |
Other tax credits | | | 910 | | | | 1,358 | |
Accruals and reserves | | | 2,729 | | | | 1,814 | |
Deferred rent | | | 5,484 | | | | 5,882 | |
Other deferred tax assets | | | 8,342 | | | | 14,544 | |
| | | | | | | | |
Total deferred tax assets | | | 335,375 | | | | 326,827 | |
Deferred tax liabilities: | | | | | | | | |
Website and software development costs | | | (13,202 | ) | | | (15,851 | ) |
Goodwill. | | | (688 | ) | | | (363 | ) |
Intangible assets | | | (69,241 | ) | | | (192,830 | ) |
Discount on 2021 Notes not deductible for tax | | | (19,374 | ) | | | (34,384 | ) |
Depreciation and amortization | | | (2,425 | ) | | | — | |
| | | | | | | | |
Total deferred tax liabilities | | | (104,930 | ) | | | (243,428 | ) |
Net deferred tax assets before valuation allowance | | | 230,445 | | | | 83,399 | |
Less: valuation allowance | | | (274,810 | ) | | | (217,351 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (44,365 | ) | | $ | (133,952 | ) |
| | | | | | | | |
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Deferred tax assets: | | | |
| Federal and state net operating loss carryforwards | $ | 433 | | | $ | 524 | |
| Research and development credits | 164 | | | 133 | |
| Share-based compensation | 102 | | | 66 | |
| Capitalized research and development | 100 | | | — | |
| Lease liability | 43 | | | 41 | |
| Interest expense limitation | 28 | | | 58 | |
| Debt discount on convertible notes | 18 | | | — | |
| Accruals and reserves | 3 | | | 13 | |
| Depreciation and amortization | — | | | 1 | |
| Inventory | — | | | 69 | |
| Other deferred tax assets | 5 | | | 1 | |
| Total deferred tax assets | 896 | | | 906 | |
| Deferred tax liabilities: | | | |
| Right of use assets | (31) | | | (32) | |
| Intangible assets | (15) | | | (22) | |
| Goodwill | (5) | | | (5) | |
| Depreciation and amortization | (3) | | | — | |
| Debt discount on convertible notes | — | | | (60) | |
| Website and software development costs | — | | | (43) | |
| Total deferred tax liabilities | (54) | | | (162) | |
| Net deferred tax assets before valuation allowance | 842 | | | 744 | |
| Less: valuation allowance | (843) | | | (746) | |
| Net deferred tax liabilities | $ | (1) | | | $ | (2) | |
Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. We have provided a full valuation allowance against the net deferred tax assets as of December 31,
20172022 and
20162021 because, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized. The
valuation allowance increased by $57.5$97 million and $54.6$274 million, respectively, during the years ended December 31, 20172022 and 2016.
2021.
We have accumulated federal
taxnet operating losses of approximately
$1,014.0 million$1.8 billion and
$893.3 million, respectively,$2.1 billion, as of December 31,
20172022 and
2016,2021, respectively, which are available to reduce future taxable income. We have accumulated state
taxnet operating losses of approximately
$21.4$63 million and
$13.5$73 million (tax effected)
, respectively, as of December 31,
2022 and 2021, respectively. Federal net operating losses generated in taxable periods on or before December 31, 2017
have a twenty year carryforward period and
2016.begin to expire in 2023. Federal net operating loss carryforwards generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. State net operating loss carryforward periods for the various state jurisdictions generally range from three years to indefinite-lived and begin to expire in 2025. Additionally, we have net research and development credit carryforwards of
$35.8$164 million and
$24.3$133 million
respectively, as of December 31,
20172022 and
2016,2021, respectively, which are available to reduce future tax liabilities. The
tax loss and research and development credit carryforwards begin to expire in 2025. Under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an
ownership change,“ownership change”, the corporation’s ability to use its
pre-change net operating loss carryforwards and other
pre-change tax attributes, such as research
taxand development credits, to offset its post-change
taxable income or income tax liability may be limited. In connection with our August 2013 public offering of our Class A
Commoncommon stock, we experienced an ownership change that triggered Sections 382 and 383, which may limit our ability to utilize
our net operating loss and
taxresearch and development credit carryforwards. In connection with our February 2015 acquisition of Trulia, Trulia experienced an ownership change that triggered Section 382 and 383, which may limit Zillow Group’s ability to utilize Trulia’s net operating loss and
taxresearch and development credit carryforwards.
We are currently not under audit in any
Our primary income tax
jurisdiction. Tax years from 2014 through 2017 are currently openjurisdiction is the United States (federal). With limited exceptions for
audit by federal and state taxing
authorities.authorities, which are not material to the financial statements, all tax years for which the Company has filed a tax return remain subject to examination due to the existence of net operating loss carryforwards.
Changes for unrecognized tax benefits for the periods presented are as follows (in
thousands)millions):
| | | | |
Balance at January 1, 2015 | | $ | 6,493 | |
Gross increases—prior and current period tax positions | | | 3,577 | |
Gross increases—assumed in connection with February 2015 acquisition of Trulia | | | 3,910 | |
| | | | |
Balance at December 31, 2015 | | $ | 13,980 | |
| | | | |
Gross increases—current period tax positions | | | 2,619 | |
Gross decreases—prior period tax positions | | | (1,204 | ) |
| | | | |
Balance at December 31, 2016 | | $ | 15,395 | |
| | | | |
Gross increases—current period tax positions | | | 5,216 | |
Gross increases—prior period tax positions | | | 1,002 | |
| | | | |
Balance at December 31, 2017 | | $ | 21,613 | |
| | | | |
| | | | | |
| Balance at January 1, 2020 | $ | 40 | |
| Gross increases—current period tax positions | 9 | |
| Balance at December 31, 2020 | $ | 49 | |
| Gross increases—current period tax positions | 17 | |
| Gross increases—prior period tax positions | 9 | |
| Balance at December 31, 2021 | $ | 75 | |
| Gross increases—current period tax positions | 17 | |
| Gross increases—prior period tax positions | 4 | |
| Gross decreases—prior period tax positions | (6) | |
| Balance at December 31, 2022 | $ | 90 | |
At December 31, 2017,2022, the total amount of unrecognized tax benefits of $21.6$90 million is recorded as a reduction to our deferred tax asset.asset when available. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Accrued interest and penalties related to unrecognized tax benefits are recorded as income tax expense and are zero.not material.
Note
13.15. Shareholders’ Equity
Preferred Stock
Our board of directors
The Board has the authority to fix and determine and to amend the number of shares of any series of preferred stock that is wholly unissued or to be established and to fix and determine and to amend the designation, preferences, voting powers and limitations and the relative, participating, optional or other rights, of any series of shares of preferred stock that is wholly unissued or to be established, subject in each case to certain approval rights of holders of our outstanding Class B common stock. There was no preferred stock issued and outstanding as of December 31,
20172022 or December 31,
2016.2021.
Our Class A common stock has no preferences or privileges and is not redeemable. Holders of Class A common stock are entitled to one vote for each share.
Our Class B common stock has no preferences or privileges and is not redeemable. At any time after the date of issuance, each share of Class B common stock, at the option of the holder, may be converted into one share of Class A common stock, or automatically converted into Class A common stock upon the affirmative vote by or written consent of holders of a majority of the shares of the Class B common stock. During the years ended December 31,
2017, 20162022, 2021 and
2015,2020, no shares of Class B common stock were converted into Class A common stock at the option of the holders. Holders of Class B common stock are entitled to 10 votes for each share.
Our Class C capital stock has no preferences or privileges, is not redeemable and, except in limited circumstances, is
non-voting.Equity Distribution Agreement
On February 17, 2021, we entered into an equity distribution agreement with certain sales agents and/or principals (the “Managers”), pursuant to which we may offer and sell from time to time, through the Managers, shares of our Class C capital stock, having an aggregate gross sales price of up to $1.0 billion, in such share amounts as we may specify by notice to the Managers, in accordance with the terms and conditions set forth in the equity distribution agreement.
There were no shares issued under the equity distribution agreement during the year ended December 31, 2022.
The following sharestable summarizes the activity pursuant to the equity distribution agreement for the year ended December 31, 2021 (in millions, except share data which are presented in thousands, and per share amounts):
| | | | | |
| Shares of Class C capital stock issued | 3,164 | |
| Weighted-average issuance price per share | $ | 174.05 | |
| Gross proceeds (1) | $ | 551 | |
(1) Net proceeds were $545 million after deducting $6 million of commissions and other offering expenses incurred.
Stock Repurchase Authorizations
Repurchases of stock under the Repurchase Authorizations may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, share price, trading volume, cash needs and other business factors, in each case as permitted by securities laws and other legal requirements. As of December 31, 2022, $500 million remained available for future repurchases pursuant to the Repurchase Authorizations.
The following table summarizes, on a settlement date basis, our Class A common
stock and
Class C capital stock
have been reservedrepurchase activity under the Repurchase Authorizations for
future issuance as of the
dates presented: | | | | | | | | |
| | | December 31,
2017 | | | December 31,
2016 | |
Option awards outstanding | | | 26,645,206 | | | | 29,628,443 | |
Restricted stock units outstanding | | | 4,016,405 | | | | 3,780,577 | |
Class A common stock and Class C capital stock available for grant under 2011 Plan | | | 5,076,898 | | | | 2,887,262 | |
Shares issuable upon conversion of outstanding Class B common stock | | | 6,217,447 | | | | 6,217,447 | |
| | | | | | | | |
Total | | | 41,955,956 | | | | 42,513,729 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2022 | | 2021 |
| Class A common stock | | Class C capital stock | | Class C capital stock |
| Shares repurchased | 4,052 | | | 18,161 | | | 4,944 | |
| Weighted-average price per share | $ | 44.14 | | | $ | 42.30 | | | $ | 61.12 | |
| Total purchase price | $ | 179 | | | $ | 768 | | | $ | 302 | |
Note
14.16. Share-Based Awards
In connection with our February 2015 acquisition of Trulia, we assumed
Zillow Group, Inc. 2020 Incentive Plan
On June 9, 2020, the
obligations of Zillow
and Trulia outstanding underpre-existing stock plans. We intend that future equity grants will be made under Zillow Group’s 2011 Amended and RestatedGroup, Inc. 2020 Incentive Plan
(as amended and/or restated from time to time,(the “2020 Plan”) became effective, which replaces the
“2011 Plan”) only (or a successor thereto).Zillow Group, Inc. Amended and Restated 2011 Incentive Plan
On (the “2011 Plan”), which became effective July 19, 2011,2011. Subject to adjustment from time to time as provided in the 2020 Plan, a total of 12 million shares of Class C capital stock are authorized for issuance under the 2020 Plan. In addition, shares previously available for new grants under the 2011 Plan became effectiveas of June 9, 2020 and serves as the successorshares subject to Zillow, Inc.’s 2005 Equity Incentive Plan (the “2005 Plan”). Shareholders last approvedoutstanding awards under the 2011 Plan as of June 9, 2020 that on June 15, 2016. In additionor after that date cease to be subject to such awards (other than by reason of exercise or settlement of the share reserve of 18,400,000 shares, the number of sharesawards in vested or nonforfeitable shares) are also available for issuance under the 20112020 Plan. The number of shares authorized under the 2020 Plan automatically increaseswill be increased on the first day of each of our fiscal yearscalendar year, beginning January 1, 2021 and ending on and including January 1, 2030, by a number of sharesan amount equal to the leastlesser of (a) 3.5%5% of our outstanding Class A common stock, Class B common stock and Class C capital stock on a fully diluted basis as of the end of ourthe immediately preceding fiscalcalendar year and (b) 10,500,000a number of shares and (c) a lesser amount determined by our board of directors; provided, however, that any shares from any increases in previous years that are not actuallyBoard. Shares issued will continue to be available for issuance under the 2011 Plan. In addition,2020 plan may be issued from authorized and unissued shares previously available for grant under the 2005 Plan, but not issued or subject to outstanding awards under the 2005 Plan as of July 19, 2011, and shares subject to outstanding awards under the 2005 Plan that subsequently cease to be subject to such awards (other than by reason of exercise of the awards) are available for grant under the 2011 Plan.Class C capital stock. The 20112020 Plan is administered by the compensation committeeCompensation Committee of the board of directors.Board (the “Compensation Committee”). Under the terms of the 20112020 Plan, the compensation committeeCompensation Committee may grant equity awards, including incentive stock options,or nonqualified stock options, restricted stock, restricted stock units, restricted units, stock appreciation rights, performance shares or restrictedperformance units to employees, officers, directors and consultants agents, advisorsof Zillow Group and independent contractors.its subsidiaries. The board of directors
Board has also authorized certain senior executive officers to grant equity awards under the 20112020 Plan, within limits prescribed by our board of directors. The 2011 Plan provides that in the event of a stock dividend, stock split or similar event, the maximum number and kind of securities available for issuance under the plan will be proportionally adjusted.
Board.
Options under the
20112020 Plan are granted with an exercise price per share not less than 100% of the fair market value of our
Class C capital stock on the
grant date,
of grant, with the exception of substituted option awards granted in connection with acquisitions, and are exercisable at such times and under such conditions as determined by the
compensation committee. Under the 2011 Plan, the maximum term of an option is ten years from the date of grant.Compensation Committee. Any portion of an option that is not vested and exercisable on the date of a participant’s termination of service expires on such date. Employees generally forfeit their rights to exercise vested options
after 3three months following their termination of employment or 12 months
in the event offollowing termination by reason of death, disability or retirement. Options granted under the
20112020 Plan
typically expire
seven or 10no later than ten years from the grant date and typically vest
either 25% after 12 months and ratably thereafter over the next 36 months or quarterly over a period of four
years, though certain options have been granted with alternative vesting schedules.years.
Restricted stock units granted under the
20112020 Plan typically vest
either 25% after 12 months and quarterly thereafter over the next three years, quarterly over a period of four
years, or 12.5% after 6 months and quarterly thereafter for the next 3.5 years.
AnyGenerally, any portion of a restricted stock unit that is not vested on the date of a participant’s termination of service expires on such date.
In March 2016,
Zillow Group, established an equity choice program pursuant to which Zillow Group grantsInc. Amended and Restated 2011 Incentive Plan
Options and restricted stock units that remain outstanding under the 2011 Plan have vesting and optionexercisability terms consistent with those described above for awards granted under the 2020 Plan.
Zillow Group, Inc. 2019 Equity Inducement Plan
On August 8, 2019, the 2019 Equity Inducement Plan (“Inducement Plan”) became effective. Subject to
acquireadjustment from time to time as provided in the Inducement Plan, 10 million shares of Class C capital stock
are available for issuance under the Inducement Plan. Shares issued under the Inducement Plan shall be drawn from authorized and unissued shares of Class C capital stock. The purpose of the Inducement Plan is to
certain employees toattract, retain and
recognizemotivate certain new employees of the Company and its subsidiaries by providing them the opportunity to acquire a proprietary interest in the Company and to align their
interests and efforts
on behalf of Zillow Group.Trulia 2005 Stock Incentive Plan
Trulia granted options under its 2005 Stock Incentive Plan (as amended, “the 2005 Plan”) until September 2012 when the 2005 Plan was terminated. Stock options issued prior to the plan termination remained outstanding in accordance with their terms.long-term interests of the Company’s shareholders. Each award under the Inducement Plan is intended to qualify as an employment inducement award pursuant to Listing Rule 5635(c) of the corporate governance rules of the NASDAQ Stock Market. The Inducement Plan is administered by the Compensation Committee. Under the terms of the 2005Inducement Plan, Trulia had the ability toCompensation Committee may grant incentive and nonqualified stock options, stock appreciation rights, restricted stockequity awards, and restricted stock units. Options granted under the 2005 Plan generally vest at a rate of 25% after 12 months and ratably thereafter over the next 36 months and expire 10 years from the grant date. Certain options vest monthly over two to four years.
Trulia 2012 Equity Incentive Plan, as Amended and Restated
On September 19, 2012, Trulia’s 2012 Equity Incentive Plan (the “2012 Plan”) became effective. The 2012 Plan provides for the grant of incentive andincluding nonqualified stock options, restricted stock or restricted stock units stock appreciation rights, performanceor restricted units to new employees of the Company and performance shares to employees, directors and consultants. Underits subsidiaries.
Options under the 2012Inducement Plan stock options are granted at awith an exercise price per share not less than 100% of the fair market value per share of the underlyingour Class C capital stock at the grant date. The plan administrator determines the vesting period for each option award on the date of grant, with the exception of substituted option awards granted in connection with acquisitions, and are exercisable at such times and under such conditions as determined by the Compensation Committee. Any portion of an option that is not vested and exercisable on the date andof a participant’s termination of service generally expires on such date. Employees generally forfeit their rights to exercise vested options three months following their termination of employment or 12 months following termination by reason of death, disability or retirement. Options granted under the options generallyInducement Plan expire 10ten years from the grant date orand vest 25% after 12 months and quarterly thereafter over the next three years.
Restricted stock units granted under the Inducement Plan vest 25% after 12 months and quarterly thereafter over the next three years. In general, any portion of a restricted stock unit that is not vested on the date of a participant’s termination of service expires on such shorter term as may be determineddate.
Option Award Repricing
On August 3, 2022, upon recommendation of the Compensation Committee, the Board approved adjustments to the exercise price of certain outstanding vested and unvested option awards for eligible employees. The exercise price of eligible option awards was reduced to $38.78, which was the closing market price of our Class C capital stock on August 8, 2022. No other changes were made to the terms and conditions of the eligible option awards.
We have accounted for the
options. As noted above, we intend that futurereprice of the eligible option awards as an equity
grantsmodification whereby the incremental fair value attributable to the repriced option awards, as measured on the date of reprice, will be
made underrecognized as additional share-based compensation expense. The weighted-average total fair value of options repriced was $67.58. The reprice impacted 7 million stock option awards, affected 3,348 employees and is expected to result in incremental share-based compensation expense of $66 million in total, of which $33 million was recognized during the
2011 Plan only.year ended December 31, 2022, including amounts associated with vested awards. The remaining expense will be recognized over the remaining requisite service period of the original awards.
Option Awards
and Stock Appreciation RightsThe following table summarizes all option award activity for the year ended December 31, 2017: | | | | | | | | | | | | | | | | |
| | | Number
of Shares
Subject to
Existing
Options and
Stock
Appreciation
Rights | | | Weighted-
Average
Exercise
Price Per
Share | | | Weighted-
Average
Remaining
Contractual
Life (Years) | | | Aggregate
Intrinsic
Value
(in
thousands) | |
Outstanding at January 1, 2017 | | | 29,628,443 | | | $ | 24.11 | | | | 5.97 | | | $ | 376,004 | |
Granted | | | 4,558,215 | | | | 36.12 | | | | | | | | | |
Exercised | | | (6,202,421 | ) | | | 15.81 | | | | | | | | | |
Forfeited or cancelled | | | (1,339,031 | ) | | | 32.05 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2017 | | | 26,645,206 | | | | 27.70 | | | | 5.72 | | | | 355,739 | |
Vested and exercisable at December 31, 2017 | | | 14,653,727 | | | | 25.54 | | | | 4.45 | | | | 227,688 | |
2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number
of Shares
Subject to
Existing
Options (in thousands) | | Weighted-
Average
Exercise
Price Per
Share | | Weighted-
Average
Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value
(in millions) |
| Outstanding at January 1, 2022 | 25,746 | | | $ | 72.86 | | | 7.48 | | $ | 354 | |
| Granted | 7,527 | | | 45.22 | | | | | |
| Exercised | (1,129) | | | 39.97 | | | | | |
| Forfeited or cancelled | (3,546) | | | 83.46 | | | | | |
| Outstanding at December 31, 2022 | 28,598 | | | 44.90 | | | 7.08 | | 15 | |
| Vested and exercisable at December 31, 2022 | 16,813 | | | 44.67 | | | 5.98 | | 14 | |
The following assumptions were used to determine the fair value of optionsall option awards granted excluding certain options granted to the Company’s executives in January and February 2015, is estimated at the date of grant using the Black-Scholes-Merton option-pricing model with the following assumptions for the periods presented: | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 |
Expected volatility | | 45% – 49% | | 49% – 51% | | 54% – 57% |
Expected dividend yield | | — | | — | | — |
Risk-free interest rate | | 1.67% – 2.06% | | 0.89% – 1.89% | | 1.01% – 1.48% |
Weighted-average expected life | | 4.32 years | | 3.81 years | | 4.26 years |
Weighted-average fair value of options granted | | $14.51 | | $9.42 | | $13.77 |
The assumptions included in the table above exclude stock options and stock appreciation rights assumed in connection with the February 17, 2015 acquisition of Trulia (see Note 7) and unvested stock options substituted in connection with the August 20, 2015 acquisition of DotLoop, Inc.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Expected volatility | 55% – 61% | | 52% – 58% | | 45% – 52% |
| Risk-free interest rate | 1.94% – 3.95% | | 0.57% – 1.15% | | 0.22% – 0.93% |
| Weighted-average expected life | 4.50 – 6.00 years | | 4.50 – 5.75 years | | 4.50 – 5.50 years |
| Weighted-average fair value of options granted | $23.25 | | $54.55 | | $22.50 |
As of December 31,
2017,2022, there was a total of
$143.1$409 million in unrecognized compensation cost related to unvested
stock options,option awards, which is expected to be recognized over a weighted-average period of
2.62.5 years.
The total intrinsic value of options
and stock appreciation rights exercised during the years ended December 31,
2017, 20162022, 2021 and
20152020 was
$156.1$13 million,
$51.7$310 million and
$67.3$564 million, respectively. The fair value of options
and stock appreciation rights vested for the years ended December 31,
2017, 20162022, 2021 and
20152020 was
$84.8$226 million,
$87.9$173 million and
$59.9$85 million, respectively.
The following table summarizes activity for
all restricted stock units for the year ended December 31,
2017: | | | | | | | | |
| | | Restricted
Stock Units | | | Weighted-
Average Grant-
Date Fair
Value | |
Unvested outstanding at January 1, 2017 | | | 3,780,577 | | | $ | 28.54 | |
Granted | | | 2,546,748 | | | | 37.42 | |
Vested | | | (1,449,257 | ) | | | 29.53 | |
Forfeited or cancelled | | | (861,663 | ) | | | 31.34 | |
| | | | | | | | |
Unvested outstanding at December 31, 2017 | | | 4,016,405 | | | | 33.22 | |
| | | | | | | | |
2022:
| | | | | | | | | | | |
| Restricted
Stock Units (in thousands) | | Weighted-
Average Grant-
Date Fair
Value |
| Unvested outstanding at January 1, 2022 | 6,074 | | | $ | 66.51 | |
| Granted | 12,066 | | | 41.72 | |
| Vested | (4,722) | | | 52.39 | |
| Forfeited | (2,488) | | | 59.48 | |
| Unvested outstanding at December 31, 2022 | 10,930 | | | 46.85 | |
The total fair value of
vested restricted stock units
was $43.7 million, $46.5 million and $67.3 million, respectively, forthat vested during the years ended December 31,
2017, 20162022, 2021 and
2015.The fair value of the outstanding restricted stock units will be recorded as share-based compensation expense over the vesting period. 2020 was $247 million, $152 million and $125 million, respectively.
As of December 31,
2017,2022, there was
$123.4$470 million of total unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted-average period of
2.82.5 years.
Share-Based Compensation Expense
The following table presents the effects of share-based compensation expense in our consolidated statements of operations during the periods presented (in thousands)millions): | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Cost of revenue | | $ | 3,884 | | | $ | 3,550 | | | $ | 2,384 | |
Sales and marketing | | | 22,735 | | | | 23,320 | | | | 25,391 | |
Technology and development | | | 39,938 | | | | 31,466 | | | | 26,849 | |
General and administrative | | | 47,014 | | | | 48,582 | | | | 50,590 | |
Impairment and restructuring costs | | | — | | | | — | | | | 14,859 | |
| | | | | | | | | | | | |
| | $ | 113,571 | | | $ | 106,918 | | | $ | 120,073 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cost of revenue | $ | 16 | | | $ | 9 | | | $ | 6 | |
| Sales and marketing | 63 | | | 42 | | | 28 | |
| Technology and development | 165 | | | 103 | | | 67 | |
| General and administrative | 189 | | | 122 | | | 69 | |
| Impairment and restructuring costs | 2 | | | 1 | | | — | |
Share-based compensation - continuing operations
| 435 | | | 277 | | | 170 | |
Share-based compensation - discontinued operations
| 16 | | | 40 | | | 27 | |
| Total share-based compensation | $ | 451 | | | $ | 317 | | | $ | 197 | |
Note
15.17. Net Loss Per Share
Basic net loss per share
isand basic income (loss) from continuing operations per share are computed by dividing net loss
or income (loss) from continuing operations, as applicable, by the weighted-average number of shares (including Class A common stock, Class B common stock and Class C capital stock) outstanding during the period. In the calculation of basic net loss per share
and basic income (loss) from continuing operations per share, undistributed earnings are allocated assuming all earnings during the period were distributed.
Diluted net loss
per share and diluted net income (loss) from continuing operations per share is computed by dividing net loss
or net income (loss) from continuing operations, as applicable, by the weighted-average number of shares (including Class A common stock, Class B common stock and Class C capital stock) outstanding during the period,
which is calculated based on net income (loss) from continuing operations, and potentially dilutive Class A common stock and Class C capital stock equivalents, except in cases where the effect of the Class A common stock or Class C capital stock equivalent would be antidilutive. Potential Class A common stock and Class C capital stock equivalents consist of Class A common stock and Class C capital stock issuable upon exercise of stock options and
stock appreciation rights and Class A common stock and Class C capital stock underlying
unvested restricted stock awards and unvested restricted stock units using the treasury stock method. Potential Class A common stock equivalents also include Class A common stock issuable upon conversion of the
convertible senior notes due in 2020
Notes using the
if-converted method. method through the date of their last conversion in December 2020.
Prior to the second half of 2020, we used the treasury stock method to calculate any potential dilutive effect of the conversion spread of our outstanding convertible senior notes on diluted net income per share, if applicable. Effective July 1, 2020, on a prospective basis we have applied the if-converted method for calculating any potential dilutive effect of the conversion of the outstanding convertible notes on diluted net income per share, if applicable.
The following table presents the maximum number of shares and conversion price per share of Class C capital stock for each of the Notes based on the aggregate principal amount outstanding as of December 31, 2022 (in thousands, except per share amounts): | | | | | | | | | | | | | | |
| Maturity Date | | Shares | | Conversion Price per Share |
| September 1, 2026 | | 11,464 | | | $ | 43.51 | |
| May 15, 2025 | | 8,408 | | | 67.20 | |
| September 1, 2024 | | 13,983 | | | 43.51 | |
For the periods presented, the following table reconciles the denominators used in the basic and diluted net loss and net income (loss) from continuing operations per share calculations (in thousands):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Denominator for basic calculation | 242,163 | | | 249,937 | | | 223,848 | |
| Effect of dilutive securities: | | | | | |
| Option awards | — | | | 9,304 | | | 5,062 | |
| Unvested restricted stock units | — | | | 2,585 | | | 2,187 | |
| Convertible senior notes maturing 2020 | — | | | — | | | 338 | |
| Denominator for dilutive calculation | 242,163 | | | 261,826 | | | 231,435 | |
For the periods presented, the following Class A common stock and Class C capital stock equivalents were excluded from the calculations of diluted net loss per share and diluted net income (loss) from continuing operations per share because their effect would have been antidilutive (in thousands): | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Weighted-average Class A common stock and Class C capital stock option awards and stock appreciation rights outstanding | | | 27,998 | | | | 19,993 | | | | 16,607 | |
Weighted-average Class A common stock and Class C capital stock unvested restricted stock awards and restricted stock units outstanding | | | 4,262 | | | | 3,607 | | | | 3,453 | |
Class A common stock issuable upon conversion of the 2020 Notes | | | 435 | | | | 440 | | | | 9,535 | |
| | | | | | | | | | | | |
Total Class A common stock and Class C capital stock equivalents | | | 32,695 | | | | 24,040 | | | | 29,595 | |
| | | | | | | | | | | | |
Since the Company expects to settle the principal amount of the outstanding 2021 Notes in cash, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread of approximately 8.8 million shares will have a dilutive impact on diluted net income per share when the market price of the Company’s Class C capital stock at the end of a period exceeds the conversion price of $52.36 per share for the 2021 Notes.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Weighted-average Class A common stock and Class C capital stock option awards outstanding | 15,759 | | | 2,455 | | | 12,338 | |
| Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding | 9,015 | | | 1,173 | | | 4,192 | |
| Class C capital stock issuable upon conversion of the convertible notes maturing in 2021, 2023, 2024, 2025 and 2026 | 33,855 | | | 36,540 | | | 24,182 | |
| Total Class A common stock and Class C capital stock equivalents | 58,629 | | | 40,168 | | | 40,712 | |
In the event of liquidation, dissolution, distribution of assets orwinding-up of the Company, the holders of all classes of common and capital stock have equal rights to receive all the assets of the Company after the rights of the holders of preferred stock have been satisfied. We have not presented net loss per share under thetwo-class method for our Class A common stock, Class B common stock and Class C capital stock because it would be the same for each class due to equal dividend and liquidation rights for each class.
Note
16.18. Commitments and Contingencies
Lease
Interest Rate Lock Commitments
We have entered into IRLCs with prospective borrowers under our mortgage origination business whereby we commit to lend a certain loan amount under specific terms and at a specific interest rate to the borrower. These commitments are treated as derivatives and are carried at fair value. For additional information regarding our IRLCs, see Note 4 to our consolidated financial statements.
Lease Commitments
We have entered into various
non-cancelable operating
leaseslease agreements for
certain of our office space and
equipment.Seattle, Washington
In March 2011, we entered into aequipment with original lease agreement for office space that housesperiods expiring between 2023 and 2032. For additional information regarding our corporate headquarters in Seattle (as amended from timelease agreements, see Note 12 to time, the “Seattle Lease”). Pursuantour consolidated financial statements.
Purchase Commitments
Purchase commitments primarily include various non-cancelable agreements to the terms of the Seattle Lease, we currently lease a total of 307,237 square feet, and we are obligated to make escalating monthly lease payments that began in December 2012 and continue through December 2024. We will continue to take possession of additional office space pursuant to the Seattle Lease as space becomes available through 2018 under the same terms and conditions.San Francisco, California
In connection with our February 2015 acquisition of Trulia, we assumed a lease agreement for office space in San Francisco (as amended from time to time, the “San Francisco Lease”), which houses Trulia’s corporate headquarters and Zillow’s personnel located in San Francisco. Pursuant to the terms of the San Francisco Lease, we lease a total of 105,897 square feet, and we are obligated to make escalating monthly lease payments through September 2023.
In November 2012, we entered into an operating lease in San Francisco, California for 18,353 square feet under which we are obligated to make escalating monthly lease payments which began in December 2012 and continue through December 2018. In March 2015, we ceased use of this space in connection with our February 2015 acquisition of Trulia, and in May 2015, we sublet this office space to another occupant. Pursuant to the terms of the operating lease and since October 2015, we lease an additional 8,311 square feet of office space under the same terms and conditions, and we also sublet this office space to another occupant.
New York, New York
In February 2014, we entered into an operating lease in New York (as amended from time to time, the “New York Lease”). Pursuant to the terms of the New York Lease, we lease a total of approximately 53,200 square feet, and we are obligated to make escalating monthly lease payments that began in August 2014 and continue through October 2024.
Denver, Colorado
In connection with our February 2015 acquisition of Trulia, we assumed a lease agreement for office space in Denver. Pursuant to the terms of the lease, we lease a total of 64,908 square feet, and we are obligated to make escalating monthly lease payments through October 2021.
Irvine, California
In April 2012, we entered into a lease agreement for office space in Irvine (as amended from time to time, the “Irvine Lease”). Pursuant to the terms of the Irvine Lease, we lease a total of 60,074 square feet under which we are obligated to make escalating monthly lease payments which began in August 2012 and continue through July 2022.
We lease additional office space in Chicago, Illinois, Cincinnati, Ohio, Lincoln, Nebraska, Atlanta, Georgia and Vancouver, British Columbia.
Future minimum payments for all operating leases as of December 31, 2017 are as follows (in thousands):
| | | | |
2018 | | $ | 25,510 | |
2019 | | | 24,579 | |
2020 | | | 25,006 | |
2021 | | | 25,322 | |
2022 | | | 23,032 | |
All future years | | | 38,722 | |
| | | | |
Total future minimum lease payments | | $ | 162,171 | |
| | | | |
Rent expense for the years ended December 31, 2017, 2016 and 2015, was $21.4 million, $16.6 million and $14.9 million, respectively. Total minimum rentals to be received in the future under noncancelable subleases as of December 31, 2017 is $1.6 million.
Purchase Commitments
As of December 31, 2017, we hadnon-cancelablepurchase commitments for content related to our mobile applications and websites totaling $216.8 million.and certain cloud computing services. The amounts due for this contentnon-cancelable purchase commitments as of December 31, 20172022 are as follows (in thousands)millions):
| | | | |
2018 | | $ | 57,822 | |
2019 | | | 63,500 | |
2020 | | | 63,500 | |
2021 | | | 32,000 | |
| | | | |
Total future purchase commitments | | $ | 216,822 | |
| | | | |
| | | | | |
| Purchase Obligations |
| 2023 | $ | 79 | |
| 2024 | 21 | |
| 2025 | 9 | |
| 2026 | 2 | |
| Total future purchase commitments | $ | 111 | |
Escrow Balances
In conducting our title and escrow operations through Zillow Closing Services, we routinely hold customers’ assets in escrow, pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. Certain of these amounts are maintained in segregated bank accounts and have not been included in the accompanying consolidated balance sheets. These balances were not material as of December 31, 2022 and $55 million as of December 31, 2021, and pertain to discontinued operations.
Letters of Credit
As of December 31, 2022 and 2021, we have outstanding letters of credit of approximately $16 million and $17 million, respectively, which secure our lease obligations in connection with certain of our office space operating leases.
In the course of business, we are required to provide financial commitments in the form of surety bonds to third parties as a guarantee of our performance on and our compliance with certain obligations. If we were to fail to perform or comply with these obligations, any draws upon surety bonds issued on our behalf would then trigger our payment obligation to the surety bond issuer. We have outstanding surety bonds issued for our benefit of approximately
$3.7$13 million and
$3.6$12 million as of December 31,
20172022 and
2016,2021, respectively.
We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities, some of which are at preliminary stages and some of which seek an indeterminate amount of damages. We regularly evaluate the status of legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made if accruals are not appropriate. For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories presented. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial position, results of operations or cash flow.
In March 2015, For the Wage and Hour Division of the U.S. Department of Labor (“DOL”) notified the Company that it was initiating a compliance review to determine the Company’s compliance with one or more federal labor laws enforced by the DOL. Asmatters discussed below, on May 5, 2016, Zillow, Inc. agreed to settle a class action lawsuit which alleged, among other things, claims that we failed to provide meal and rest breaks, failed to pay overtime, and failed to keep accurate records of employees’ hours worked. The settlement of the class action lawsuit, which was approved by the court on October 3, 2017, was contingent on Zillow, Inc.’s complete resolution of the DOL compliance review. On November 28, 2016, Zillow, Inc. entered into a settlement agreement with the DOL that resolved the DOL’s compliance review. Under the terms of the settlement agreement, Zillow, Inc. agreed that it will make the voluntary payments contemplated by the class action lawsuit settlement and establish and maintain certain procedures to promote future compliance with the Fair Labor Standards Act. The settlement agreement with the DOL doeshave not require Zillow, Inc. to makerecorded any payments which are in addition to those contemplated by the class action lawsuit settlement. Zillow, Inc. has not admitted liability with respect to either the DOL settlement or the class action lawsuit settlement.
In November 2014, a former employee filed a putative class action lawsuit against us in the United States District Court, Central District of California, with the caption Ian Freeman v. Zillow, Inc. The complaint alleged,
among other things, claims that we failed to provide meal and rest breaks, failed to pay overtime, and failed to keep accurate records of employees’ hours worked. After the court granted our two motions to dismiss certain claims, plaintiff filed a second amended complaint that includes claims under the Fair Labor Standards Act. On November 20, 2015, plaintiff filed a motion for class certification. On February 26, 2016, the court granted the plaintiff’s motion for class certification. On May 5, 2016, the parties agreed to settle the lawsuit, which was later memorialized in a settlement agreement executed by the parties on December 2, 2016, with payment by Zillow, Inc. of up to $6.0 million. On June 9, 2016, the Ninth Circuit Court of Appeals granted our petition for permission to appeal the order granting class certification. The settlement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties. On April 10, 2017, the parties executed an amendment to the settlement agreement providing that the settlement class includes all current and former inside sales consultants employed by Zillow, Inc. in (i) its California offices from November 19, 2010 through the date on which the court granted preliminary approval and (ii) its Washington offices from March 1, 2013 through the date on which the court granted preliminary approval. On May 26, 2017, the court granted preliminary approval of the settlement of the class action lawsuit, and on October 3, 2017, the court granted final approval of the settlement of the class action lawsuit. We made the voluntary payments contemplated by the class action settlement agreement in the amount of $6.0 million in October 2017. We do not believe that any additional loss will be incurred related to this matter given the court granted final approval of the settlement of the class action lawsuit in October 2017.
In July 2015, VHT, Inc. (“VHT”) filed a complaint against us in the U.S. District Court for the Western District of Washington alleging copyright infringement of VHT’s images on the Zillow Digs site. In January 2016, VHT filed an amended complaint alleging copyright infringement of VHT’s images on the Zillow Digs site as well as the Zillow listing site. In December 2016, the court granted a motion for partial summary judgment that dismissed VHT’s claims with respect to the Zillow listing site. A federal jury trial began on January 23, 2017, and on February 9, 2017, the jury returned a verdict finding that the Company had infringed VHT’s copyrights in images displayed or saved to the Digs site. The jury awarded VHT $79,875 in actual damages and approximately $8.2 million in statutory damages. In March 2017, the Company filed motions in the district court seeking judgment for the Company on certain claims that are the subject of the verdict, and for a new trial on others. On June 20, 2017, the judge ruled and granted in part our motions, finding that VHT failed to present sufficient evidence to prove direct copyright infringement for a portion of the images, reducing the total damages to approximately $4.1 million. On October 26, 2017, the Company filed an appeal with the Ninth Circuit Court of Appeals seeking review of the final judgment and certain prior rulings entered by the district court. We did not record an accrual related to this complaintmaterial accruals as of December 31, 2016, as we did not believe a loss was probable. We have recorded an estimated liability for approximately $4.1 million as of December 31, 2017, which is classified in general and administrative expenses in our consolidated statement of operations for the year ended December 31, 2017. We do not believe there is a reasonable possibility that a material loss in excess of amounts accrued may be incurred.
In April 2017, we received a Civil Investigative Demand from the Consumer Financial Protection Bureau (“CFPB”) requesting information related to our March 2017 response to the CFPB’s February 2017 Notice and Opportunity to Respond and Advise (“NORA”) letter. The NORA letter notified us that the CFPB’s Office of Enforcement was considering whether to recommend that the CFPB take legal action against us, alleging that we violated Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) and Section 1036 of the Consumer Financial Protection Act (“CFPA”). This notice stemmed from an inquiry that commenced in 2015 when we received and responded to an initial Civil Investigative Demand from the CFPB. Based on correspondence from the CFPB in August 2017, we understand that it has concluded its investigation. The CFPB invited us to discuss a possible settlement and indicated that it intended to pursue further action if those discussions do not result in a settlement. We continue to believe that our acts and practices are lawful and that ourco-marketing program allows lenders and agents to comply with RESPA, and we will vigorously defend against any allegations to the contrary. Should the CFPB commence an action against us, it may seek restitution, disgorgement, civil monetary penalties, injunctive relief2022 or other corrective action. We cannot provide assurance that the CFPB will not commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such
action. As of December 31, 2017, we have recorded an accrual for an immaterial amount in connection with this matter. There is a reasonable possibility that a loss in excess of amounts accrued may be incurred; however, the possible loss or range of loss is not estimable. We did not record an accrual related to this matter as of December 31, 2016 because the possible loss or range of loss was not estimable.
2021.
In August and September 2017, two purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our common stock between February 12, 2016 and August 8, 2017. One of those purported class actions, captioned Vargosko v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Central District of California. The other purported class action lawsuit, captioned Shotwell v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Western District of Washington. The complaints allege, among other things, that during the period between February 12, 2016 and August 8, 2017, we issued materially false and misleading statements regarding our business practices. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. In November 2017, an amended complaint was filed against us and certain of our executive officers in the Shotwell v. Zillow Group purported class action lawsuit, extending the beginning of the class period to November 17, 2014. We anticipate thatIn January 2018, the Vargosko v. Zillow Group purported class action lawsuit was transferred to the U.S. District Court for the Western District of Washington and consolidated with the Shotwell v. Zillow Group purported class action lawsuit. In February 2018, the plaintiffs filed a consolidated amended complaint, willand in April 2018, we filed our motion to dismiss the consolidated amended complaint. In October 2018, our motion to dismiss was granted without prejudice, and in November 2018, the plaintiffs filed a second consolidated amended complaint, which we moved to dismiss in December 2018. On April 19, 2019, our motion to dismiss the second consolidated amended complaint was denied. On October 11, 2019, plaintiffs filed a motion for class certification which was granted by the court on October 28, 2020. On February 17, 2021, the Ninth Circuit Court of Appeals denied our petition for review of that decision. On October 21, 2022, the parties jointly filed a notice of settlement with the U.S. District Court for the Western District of Washington to inform the court that the parties have reached an agreement in principle to settle this action. The proposed settlement is subject to the negotiation and execution of a settlement agreement and court approval thereof. The full amount of the settlement payment is expected to be filed inpaid by the first quarter of 2018. We intend to deny the allegations of wrongdoing and vigorously defend the claims in these lawsuits. We have not recorded an accrual related to these lawsuits as of December 31, 2017, as we do not believe a loss is probable.Company’s insurance carriers under its insurance policy.
In October and November 2017 and January and February 2018, four shareholder derivative lawsuits were filed in the U.S. District Court for the Western District of Washington and the Superior Court of the State of Washington, King County, against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties in connection with oversight of the Company’s public statements and legal compliance, and as a result of the breach of such fiduciary duties, the Company was damaged, and defendants were unjustly enriched. Certain of the plaintiffs also allege, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934 and waste of corporate assets. On February 5, 2018, the U.S. District Court for the Western District of Washington consolidated the two federal shareholder derivative lawsuits pending in that court (the “Federal Suit”). On February 16, 2018, the Superior Court of the State of Washington, King County, consolidated the two shareholder derivative lawsuits pending in that court (the “State Suit”). The Federal Suit and State Suit were stayed until our motion to dismiss the second consolidated amended complaint in the securities class action lawsuit discussed above was denied in April 2019. On July 8, 2019, the plaintiffs in the Federal Suit filed a consolidated shareholder derivative complaint, which we moved to dismiss on August 22, 2019. On February 28, 2020, our motion to dismiss the Federal Suit was denied. On February 16, 2021, the court in the State Suit matter stayed the action. On March 5, 2021, a new shareholder derivative lawsuit was filed in the U.S. District Court for the Western District of Washington against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices, alleging, among other things, violations of federal securities laws. The U.S. District Court for the Western District of Washington formally consolidated the new lawsuit with the other consolidated Federal Suit pending in that court on June 15, 2021. On November 14, 2022, the parties jointly filed a stipulation with the U.S. District Court for the Western District of Washington informing the court that, among other things, they have agreed in principle to all material terms of a settlement.
The proposed settlement is subject to the execution of a settlement agreement and court approval thereof. The full amount of plaintiffs’ attorneys’ fees and costs associated with the settlement is expected to be paid by the Company’s insurance carriers under its insurance policy.
On September 17, 2019, International Business Machines Corporation (“IBM”) filed a complaint against us in the U.S. District Court for the Central District of California, alleging, among other things, that the Company has infringed and continues to willfully infringe seven patents held by IBM and seeks unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. On November 8, 2019, we filed a motion to transfer venue and/or to dismiss the complaint. On December 2, 2019, IBM filed an amended complaint, and on December 16, 2019 we filed a renewed motion to transfer venue and/or to dismiss the complaint. The Company’s motion to transfer venue to the U.S. District Court for the Western District of Washington was granted on May 28, 2020. On August 12, 2020, IBM filed its answer to our counterclaims. On September 18, 2020, we filed four Inter Partes Review (“IPR”) petitions before the U.S. Patent and Trial Appeal Board (“PTAB”) seeking the Board’s review of the patentability with respect to three of the patents asserted by IBM in the lawsuit. On March 15, 2021, the PTAB instituted IPR proceedings with respect to two of the three patents for which we filed petitions. On March 22, 2021, the PTAB denied institution with respect to the last of the three patents. On January 22, 2021, the court partially stayed the action with respect to all patents for which we filed an IPR and set forth a motion schedule. On March 8, 2021, IBM filed its second amended complaint. On March 25, 2021, we filed an amended motion for judgment on the pleadings. On July 15, 2021, the court rendered an order in connection with the motion for judgment on the pleadings finding in our favor on two of the four patents on which we filed our motion. On August 31, 2021, the Court ruled that the parties will proceed with respect to the two patents for which it previously denied judgment, and vacated the stay with respect to one of the three patents for which Zillow filed an IPR, which stay was later reinstated by stipulation of the parties on May 18, 2022. On September 23, 2021, IBM filed a notice of appeal with the United States Court of Appeals for the Federal Circuit with respect to the August 31, 2021 judgment entered, which judgment was affirmed by the Federal Circuit on October 17, 2022. On March 3, 2022, the PTAB ruled on Zillow’s two remaining IPRs finding that Zillow was able to prove certain claims unpatentable, and others it was not. On October 28, 2022, the court found one of the two patents upon which the parties were proceeding in this action as invalid, and dismissed IBM’s claim relating to that patent. Following the court’s ruling, on October 28, 2022, the parties filed a joint stipulation with the court seeking a stay of this action, which was granted by the court on November 1, 2022. On November 25, 2022, Zillow filed a motion to join an IPR petition within Ebates Performance Mktg., Inc. d/b/a Rakuten Rewards v. Int’l Bus. Machs. Corp., IPR2022-00646 concerning the final remaining patent in this action. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.
On July 21, 2020, IBM filed a second action against us in the U.S. District Court for the Western District of Washington, alleging, among other things, that the Company has infringed and continues to willfully infringe five patents held by IBM and seeks unspecified damages. On September 14, 2020, we filed a motion to dismiss the complaint filed in the action, to which IBM responded by the filing of an amended complaint on November 5, 2020. On December 18, 2020, we filed a motion to dismiss IBM’s first amended complaint. On December 23, 2020, the Court issued a written order staying this case in full. On July 23, 2021, we filed an IPR with the PTAB with respect to one patent included in the second lawsuit. On October 6, 2021, the stay of this action was lifted, except for proceedings relating to the one patent for which we filed an IPR. On December 1, 2021, the Court dismissed the fourth claim asserted by IBM in its amended complaint. On December 16, 2021 Zillow filed a motion to dismiss the remaining claims alleged in IBM’s amended complaint. On March 9, 2022, the Court granted Zillow’s motion to dismiss in full, dismissing IBM’s claims related to all the patents asserted by IBM in this action, except for the one patent for which an IPR was still pending. On March 10, 2022, the PTAB rendered its decision denying Zillow’s IPR on the one remaining patent, for which this case continues to remain stayed. On August 1, 2022, IBM filed an appeal of the Court’s ruling with respect to two of the dismissed patents. Zillow’s responsive brief was filed on September 30, 2022, and IBM’s reply brief was filed on November 4, 2022. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.
On November 16, 2021, November 19, 2021 and January 6, 2022, three purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our stock between August 7, 2020 and November 2, 2021. The three purported class action lawsuits, captioned Barua v. Zillow Group, Inc. et al., Silverberg v. Zillow Group, et al. and Hillier v. Zillow Group, Inc. et al. were brought in the U.S. District Court for the Western District of Washington and were consolidated on February 16, 2022. On May 12, 2022, the plaintiffs filed their amended consolidated complaint which alleges, among other things, that we issued materially false and misleading statements regarding our Zillow Offers business. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. We moved to dismiss the amended consolidated complaint on July 11, 2022, plaintiffs filed their opposition to the motion to dismiss on September 2, 2022, and we filed a reply in support of the motion to dismiss on October 11, 2022. On December 7, 2022, the court rendered its decision granting defendants’ motion to dismiss, in part, and denying the motion, in part. On January 23, 2023, the defendants filed their answer to the consolidated complaint. We intend to deny the allegations of wrongdoing and intend to vigorously defend the claims in this consolidated lawsuit. We do not believe that a loss related to this consolidated lawsuit is probable.
On March 10, 2022, May 5, 2022 and July 20, 2022 shareholder derivative suits were filed in the U.S. District Court for the Western District of Washington and on July 25, 2022, a shareholder derivative suit was filed in the Superior Court of the State of Washington, King County (the “2022 State Suit”), against us and certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs (including the Company as a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties by failing to maintain an effective system of internal controls, which purportedly caused the losses the Company incurred when it decided to wind down Zillow Offers operations. Plaintiffs also allege, among other things, violations of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, insider trading and waste of corporate assets. On June 1, 2022 and September 14, 2022, the U.S. District Court for the Western District of Washington issued orders consolidating the three federal derivative suits and staying the consolidated action until further order of the court. On September 15, 2022, the Superior Court of the State of Washington entered a temporary stay in the 2022 State Suit. Upon the filing of the defendants’ answer in the related securities class action lawsuit on January 23, 2023, the stay in the 2022 State Suit was lifted. The defendants intend to deny the allegations of wrongdoing and vigorously defend the claims in
the lawsuit.these lawsuits. We
havedo not
recorded an accrualbelieve that a loss related to these lawsuits
as of December 31, 2017, as we do not believe a loss is probable.
In addition to the matters discussed above, from time to time, we are involved in litigation and claims that arise in the ordinary course of business. Although we cannot be certain of the outcome of any such litigation or claims, nor the amount of damages and exposure that we could incur, we currently believe that the final disposition of such matters will not have a material effect on our business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements and out of intellectual property infringement claims made by third parties. In addition, we have agreements that indemnify certain issuers of surety bonds against losses that they may incur as a result of executing surety bonds on our behalf. For our indemnification arrangements, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments. In addition, we have indemnification agreements with certain of our directors and executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations may vary.
Note 17. Related Party Transactions
In February 2016, we paid a total of approximately $0.2 million and $0.2 million, respectively, to Mr. Lloyd Frink, our Vice Chairman and President, and Mr. Richard Barton, our Executive Chairman, for reimbursement of costs incurred by Mr. Frink and Mr. Barton for use of private planes by certain of the Company’s employees and Mr. Frink and Mr. Barton for business travel in prior years.
In February 2015, we paid approximately $0.3 million in filing fees directly to the Federal Trade Commission (the “FTC”), on behalf of and in connection with filings made by Mr. Barton under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), which filings were required due to Mr. Barton’s ownership of Zillow, Inc.’s common stock. In April 2016, we paid approximately $0.1 million for a tax“gross-up” payment to Mr. Barton to cover the imputed income associated with one of his HSR Act filings.
Note 18. Self-Insurance
Prior to January 1, 2016, we were self-insured for a portion of our medical and dental benefits for certain employees of Trulia since the date of our acquisition of Trulia in February 2015. Beginning on January 1, 2016, we are self-insured for medical benefits for all qualifying Zillow Group employees. The medical plan carries a stop-loss policy which will protect when cumulative medical claims exceed 125% of expected claims for the plan year with a limit of $1.0 million and from individual claims during the plan year exceeding $150,000. We record estimates of the total costs of claims incurred based on an analysis of historical data and independent estimates. Our liability for self-insured medical claims is included within accrued compensation and benefits in our consolidated balance sheet and was $2.0 million and $1.7 million, respectively, as of December 31, 2017 and 2016.
Note 19. Employee Benefit Plan
Prior to January 1, 2016, we maintained separate defined contribution 401(k) retirement plans for employees of Zillow, Inc. and Trulia. Effective January 1, 2016, we
We have a single defined contribution 401(k) retirement plan covering Zillow Group employees who have met certain eligibility requirements (“the Zillow(the “Zillow Group 401(k) Plan”). Eligible employees may contribute pretaxpre-tax compensation up to a maximum amount allowable under the Internal Revenue Service limitations. Employee contributions and earnings thereon vest immediately. We currently match up to 4% of employee contributions under the Zillow Group 401(k) Plan. The total expense related to the Zillow Group 401(k) Plan was $12.3$29 million, $10.1$27 million and $4.2$21 million, respectively, for the years ended December 31, 2017, 20162022, 2021 and 2015.2020.
Note 20. Segment Information and Revenue
We have onethree operating and reportable segmentsegments, which hashave been identified based on howthe way in which our chief operating decision-maker manages our business, makes operating decisions and evaluates operating performance. The chief executive officer acts as the chief operating decision-maker and reviews financial and operational information for the Internet, Media & Technology (“IMT”), Mortgages and Homes segments.
The IMT segment includes the financial results for the Premier Agent and rentals marketplaces, as well as Other IMT, which includes our new construction marketplace and revenue from the sale of other advertising and business technology solutions for real estate professionals, including display, StreetEasy for-sale product offerings and ShowingTime+, which houses ShowingTime, Bridge Interactive, dotloop and interactive floor plans. In the first quarter of 2022, we began reporting rentals revenue as a separate revenue category within the IMT segment and prior period amounts have been recast to conform to this presentation. The Mortgages segment primarily includes the financial results for mortgage originations and the sale of mortgages on an entity-wide basis. Therethe secondary market through Zillow Home Loans and advertising sold to mortgage lenders and other mortgage professionals. The Homes segment includes the financial results from title and escrow services performed by Zillow Closing Services and certain indirect costs of the Homes segment which do not qualify as discontinued operations. As discussed in Note 3, the wind down of Zillow Offers was completed in the third quarter of 2022, and we have presented the financial results of Zillow Offers as discontinued operations in our consolidated financial statements. Prior period amounts have been recast to conform to this presentation.
Revenue and costs are
nodirectly attributed to our segments when possible. However, due to the integrated structure of our business, certain costs incurred by one segment
managers whomay benefit the other segments. These costs primarily include headcount-related expenses, general and administrative expenses including executive, finance, accounting, legal, human resources, recruiting and facilities costs, product development and data acquisition costs, costs related to operating our mobile applications and websites and marketing and advertising costs. These costs are
held accountable for operations, operating results or plans for levels or components.allocated to each segment based on the estimated benefit each segment receives from such expenditures.
The chief executive officer reviews information about our revenue categories including marketplace revenue and display revenue.as well as statement of operations data inclusive of income (loss) from continuing operations before income taxes by segment. This information is included in the following tables for the periods presented (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| IMT | | Mortgages | | Homes | | IMT | | Mortgages | | Homes | | IMT | | Mortgages | | Homes |
| Revenue: | | | | | | | | | | | | | | | | | |
| Premier Agent | $ | 1,291 | | | $ | — | | | $ | — | | | $ | 1,396 | | | $ | — | | | $ | — | | | $ | 1,047 | | | $ | — | | | $ | — | |
| Rentals | 274 | | | — | | | — | | | 264 | | | — | | | — | | | 222 | | | — | | | — | |
| Other | 274 | | | — | | | — | | | 226 | | | — | | | — | | | 181 | | | — | | | — | |
| Mortgages | — | | | 119 | | | — | | | — | | | 246 | | | — | | | — | | | 174 | | | — | |
| Total revenue | 1,839 | | | 119 | | | — | | | 1,886 | | | 246 | | | — | | | 1,450 | | | 174 | | | — | |
| Cost of revenue (1) | 275 | | | 68 | | | 24 | | | 203 | | | 84 | | | 36 | | | 193 | | | 39 | | | 23 | |
| Gross profit (loss) | 1,564 | | | 51 | | | (24) | | | 1,683 | | | 162 | | | (36) | | | 1,257 | | | 135 | | | (23) | |
| Operating expenses (1): | | | | | | | | | | | | | | | | | |
| Sales and marketing | 572 | | | 79 | | | 13 | | | 552 | | | 109 | | | 54 | | | 441 | | | 60 | | | 34 | |
| Technology and development | 438 | | | 50 | | | 10 | | | 318 | | | 32 | | | 71 | | | 260 | | | 23 | | | 41 | |
| General and administrative | 375 | | | 85 | | | 38 | | | 258 | | | 72 | | | 84 | | | 225 | | | 44 | | | 55 | |
| Impairment and restructuring costs | 12 | | | 4 | | | 8 | | | — | | | 1 | | | 9 | | | 74 | | | 3 | | | — | |
| Acquisition-related costs | — | | | — | | | — | | | 9 | | | — | | | — | | | — | | | — | | | — | |
| Integration costs | — | | | — | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | |
| Total operating expenses | 1,397 | | | 218 | | | 69 | | | 1,138 | | | 214 | | | 218 | | | 1,000 | | | 130 | | | 130 | |
| Income (loss) from continuing operations | 167 | | | (167) | | | (93) | | | 545 | | | (52) | | | (254) | | | 257 | | | 5 | | | (153) | |
| Segment other income (expense), net | (7) | | | 3 | | | — | | | — | | | 5 | | | — | | | 5 | | | 2 | | | — | |
| Segment interest expense | — | | | (3) | | | — | | | — | | | (5) | | | — | | | — | | | (2) | | | — | |
| Income (loss) from continuing operations before income taxes (2) | $ | 160 | | | $ | (167) | | | $ | (93) | | | $ | 545 | | | $ | (52) | | | $ | (254) | | | $ | 262 | | | $ | 5 | | | $ | (153) | |
(1) The following table presents depreciation and amortization expense and share-based compensation expense for each of our revenue categories duringsegments for the periods presented (in thousands)millions): | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
Marketplace revenue: | | | | | | | | | | | | |
Premier Agent | | $ | 761,594 | | | $ | 604,292 | | | $ | 446,921 | |
Other real estate | | | 164,991 | | | | 102,635 | | | | 35,171 | |
Mortgages | | | 80,591 | | | | 71,133 | | | | 44,263 | |
Market Leader | | | — | | | | — | | | | 29,549 | |
| | | | | | | | | | | | |
Total Marketplace revenue | | | 1,007,176 | | | | 778,060 | | | | 555,904 | |
Display revenue | | | 69,618 | | | | 68,529 | | | | 88,773 | |
| | | | | | | | | | | | |
Total revenue | | $ | 1,076,794 | | | $ | 846,589 | | | $ | 644,677 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| IMT | | Mortgages | | Homes | | IMT | | Mortgages | | Homes | | IMT | | Mortgages | | Homes |
| Depreciation and amortization expense | $ | 137 | | | $ | 11 | | | $ | 2 | | | $ | 99 | | | $ | 8 | | | $ | 13 | | | $ | 90 | | | $ | 7 | | | $ | 8 | |
| Share-based compensation expense | $ | 356 | | | $ | 60 | | | $ | 17 | | | $ | 201 | | | $ | 34 | | | $ | 41 | | | $ | 135 | | | $ | 15 | | | $ | 20 | |
(2) The following table presents the reconciliation of total segment income (loss) from continuing operations before income taxes to consolidated income (loss) from continuing operations before income taxes for the periods presented (in millions): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Total segment income (loss) from continuing operations before income taxes | $ | (100) | | | $ | 239 | | | $ | 114 | |
| Corporate interest expense | (32) | | | (123) | | | (136) | |
| Corporate other income, net | 47 | | | 2 | | | 18 | |
| Gain (loss) on extinguishment of debt | — | | | (17) | | | 1 | |
| Consolidated income (loss) from continuing operations before income taxes | $ | (85) | | | $ | 101 | | | $ | (3) | |
Certain corporate items are not directly attributable to any of our segments, including the gain (loss) on extinguishment of debt, interest income earned on our short-term investments included in other income, net and interest costs on our convertible senior notes included in interest expense.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
(a) The Audit Committee (the “Audit Committee”) of the Board of Directors of the Company conducted a comprehensive, competitive process to determine the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2017. As a result of this process, the Audit Committee approved the dismissal of Ernst & Young LLP (“EY”), effective upon issuance by EY of its reports on the Company’s consolidated financial statements as of and for the year ended December 31, 2016 and the effectiveness of internal control over financial reporting as of December 31, 2016 included in the filing of the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2016 (“2016 Annual Report”). The 2016 Annual Report was filed on February 7, 2017, and therefore, the effective date of EY’s dismissal is February 7, 2017.
The reports of EY on the Company’s consolidated financial statements for the years ended December 31, 2015 and 2016 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principle.
During the fiscal years ended December 31, 2015 and 2016 and during the subsequent interim period through February 7, 2017, there were no disagreements (as that term is defined in Item 304(a)(1)(iv) of RegulationS-K) between the Company and EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of the disagreements in connection with EY’s report on the Company’s consolidated financial statements for such fiscal years. During the fiscal years ended December 31, 2015 and 2016 and during the subsequent interim period through February 7, 2017, there were no reportable events (as defined in Item 304(a)(1)(v) of RegulationS-K).
The Company provided EY with the statements made by the Company in response to Item 304(a) of RegulationS-K prior to its filing with the Securities and Exchange Commission (“SEC”) and requested that EY provide the Company with letters addressed to the SEC stating whether EY agrees with the statements made by the Company in response to Item 304(a) of RegulationS-K. A copy of these letters, dated August 4, 2016 and February 7, 2017, furnished by EY in response to the Company’s request, are filed as Exhibit 16.1 and Exhibit 16.2 to this report, respectively.
(b) On August 3, 2016, the Audit Committee approved the engagement of Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2017. During the two most recent fiscal years ended December 31, 2015 and 2016 and during the subsequent period through the date of the engagement of Deloitte, neither the Company nor anyone acting on its behalf has consulted with Deloitte regarding:
| (i) | The application of accounting principles to a specified transaction, either completed or proposed, or |
| (ii) | The type of audit opinion that might be rendered on the Company’s financial statements, and either a written report was provided to the Company or oral advice was provided that Deloitte concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or |
| (iii) | Any matter that was either the subject of a disagreement or a reportable event, as each term is defined in Items 304(a)(1)(iv) or (v) of RegulationS-K, respectively. |
There were no disagreements with Deloitte on accounting and financial disclosure matters from the date of the engagement of Deloitte through the year ended December 31, 2017, or in any period subsequent to such date, through the date of this report.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, with the participation of our management, and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under
Rule 13a-15(e) and Rule
15d-15(e) under the
Securities Exchange
Act)Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31,
2017.2022.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule
13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31,
2017.2022.
We intend to regularly review and evaluate the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and to improve these controls and procedures over time and to correct any deficiencies that we may discover in the future. While we believe the present design of our disclosure controls and procedures and internal control over financial reporting are effective, future events affecting our business may cause us to modify our controls and procedures.
The Company’s independent registered public accounting firm has issued an attestation report regarding its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31,
2017.2022.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2017, the Company implemented a new enterprise resource planning (“ERP”) system to support our procurement and financial reporting processes. We implemented this new ERP system to enhance our overall system of internal control over financial reporting through further automation and integration of business processes. The ERP system was not implemented in response to any identified deficiency or material weakness in the Company’s internal control over financial reporting. As a result of this implementation, we have modified the design and documentation of certain internal control processes and procedures relating to the ERP system.
Other than the ERP system implementation described above, there
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule
13a-15(d) and
15d-15(d) of the Exchange Act that occurred during the three months ended December 31,
20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
To the shareholders and the Board of Directors
and Shareholders of Zillow Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Zillow Group, Inc. (the “Company”) as of December 31, 2017, 2022,
based on criteria established in Internal Control—Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control—Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company as of and for the year ended December 31,
2017,2022, and our report dated February 15,
20182023 expressed an unqualified opinion on those financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTEDELOITTE & TOUCHETOUCHE LLP February 15, 20182023
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is incorporated by reference to the
Corporate Governance section of the Company’s definitive proxy statement relating to the
20182023 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the
20172022 fiscal year.
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, principal accounting officer andChief Accounting Officer, controller and persons performing similar functions. The Code of Ethics is posted on our website at http:https://investors.zillowgroup.com/corporate-governance.cfm.investors/governance/governance-documents/default.aspx. We intend to satisfy the disclosure requirements under Item 5.05 of Form8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics by posting such information on our website at the address specified above.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 20182023 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 20172022 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 20182023 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 20172022 fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 20182023 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 20172022 fiscal year.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the
20182023 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the
20172022 fiscal year.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements We have filed the financial statements listed in the Index to Consolidated Financial Statements as a part of this Annual Report on Form
10-K.(a)(2) Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable, not material or the required information is presented in the financial statements or the notes thereto.
Certain of the following exhibits have heretofore been filed with the Securities and Exchange Commission and are incorporated by reference from the documents described in parentheses. Certain others are filed herewith. The exhibits are numbered in accordance with Item 601 of Regulation
S-K. In reviewing the agreements included as exhibits to this Annual Report on Form
10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreement. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other party or parties to the applicable agreement and (i) should not be treated as categorical statements of fact, but rather as a means of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified by disclosures that were made to the other party or parties in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a manner that is different from what may be viewed as material to you or other investors; and (iv) were made only as of the date of the applicable agreement or other date or dates that may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report on Form
10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
| | | | | | | | |
Exhibit
Number | | Description |
| | |
Exhibit
Number
3.1 | | Description
|
| |
2.1+ | | Agreement and Plan of Merger, dated August 16, 2013, by and among Zillow, Inc., NMD Interactive, Inc., d/b/a StreetEasy, Strawberry Acquisition, Inc. and Shareholder Representative Services LLC (Filed as Exhibit 2.1 to Zillow, Inc.’s Current Report on Form8-K filed with the Securities and Exchange Commission on August 19, 2013, and incorporated herein by reference). |
| |
2.2+ | | Agreement and Plan of Merger, dated July 28, 2014, by and among Zillow, Inc., the Company (f/k/a Zebra Holdco, Inc.) and Trulia, Inc. (Filed as Exhibit 2.1 to Zillow, Inc.’s Current Report on Form8-K filed with the Securities and Exchange Commission (FileNo. 001-35237) on July 29, 2014, and incorporated herein by reference). |
| |
3.1
| | |
| | |
| 3.2 | | |
| | |
Exhibit
Number
4.1 | | Description
|
| |
4.1 | | |
| | |
| 4.2 | | |
| |
4.3 | | Indenture, dated as of December 17, 2013, between Trulia, Inc. and Wells Fargo Bank, National Association, as trustee (Filed as Exhibit 4.1 to Trulia, Inc.’s Current Report on Form8-K filed with the Securities and Exchange Commission (FileNo. 001-35650) on December 17, 2013, and incorporated herein by reference).
|
| |
4.44.3 | | Form of Note for Trulia, Inc.’s 2.75% Convertible Senior Notes due 2020 (incorporated by reference to Exhibit 4.3 hereto). |
| |
4.5 | | Supplemental Indenture, dated as of February 17, 2015, among Zillow Group, Inc., Trulia, Inc. and Wells Fargo Bank, National Association, as trustee (Filed as Exhibit 4.2 to Registrant’s Current Report on Form8-K12B filed with the Securities and Exchange Commission on February 17, 2015, and incorporated herein by reference).
|
| |
4.6 | | Second Supplemental Indenture, dated as of December 30, 2015, among Zillow Group, Inc., Trulia, Inc. and Wells Fargo Bank, National Association, as trustee (Filed as Exhibit 4.1 to Registrant’s Current Report on Form8-K filed with the Securities and Exchange Commission on December 30, 2015, and incorporated herein by reference). |
| |
4.7 | | |
| | |
4.84.4 | | |
| | |
| | | | | | | | |
4.94.5 | | Indenture dated as of December 12, 2016,September 9, 2019, by and between Zillow Group, Inc. and The Bank of New York Mellon Trust Company, National Association,N.A., as trustee (Filed as Exhibit 4.1 to Registrant’s Current Report on Form8-K filed with the Securities and Exchange Commission on December 12, 2016,September 10, 2019, and incorporated herein by reference). |
| | |
4.104.6 | | |
| |
10.1* | | Zillow, Inc. Amended and Restated 2005 Equity Incentive PlanThe Bank of New York Mellon Trust Company, N.A., as trustee (Filed as Exhibit 10.54.2 to Zillow, Inc.’s Amendment No. 3 to Registration StatementRegistrant’s Current Report on FormS-1 8-K filed with the Securities and Exchange Commission (SEC FileNo. 333-173570)on June 20, 2011,September 10, 2019, and incorporated herein by reference). |
| | |
10.2*4.7 | | |
| | |
| 4.8 | | |
| | |
| 4.9 | | |
| |
10.3* | | Market Leader, Inc. Amended and Restated 2004 Equity Incentive Plan (Filed as Appendix A to Market Leader, Inc.’s Definitive Proxy Statement on Schedule 14A filed with the Securities Exchange Commission (SEC File No. 000- 51032) on April 10, 2009, and incorporated herein by reference). |
| | |
Exhibit
Number
4.10 | | Description
|
| |
10.4* | | Trulia,Indenture dated as of May 15, 2020, by and between Zillow Group, Inc. 2005 Stock Incentive Plan,and The Bank of New York Mellon Trust Company, N.A., as amended, and form of Stock Option Agreement and form of Stock Option Grant Notice thereundertrustee (Filed as Exhibit 10.24.1 to Trulia, Inc.’sRegistrant’s Current Report on Form S-18-K filed with the Securities and Exchange Commission (SEC File No. 333-183364) on August 17, 2012,May 18, 2020, and incorporated herein by reference). |
| | |
10.5*4.11 | | |
| | |
| 10.1* | | |
| | |
10.6*10.2* | | |
| | |
10.7*10.3* | | |
| |
10.8* | | Form of Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement under the Zillow, Inc. Amended and Restated 2011 Incentive Plan (Filed as Exhibit 10.2 to Zillow, Inc.’s Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014, and incorporated herein by reference). |
| |
10.9*10.4* | | Form of Restricted Unit Award Notice and Restricted Unit Award Agreement under the Zillow, Inc. Amended and Restated 2011 Incentive Plan (Filed as Exhibit 10.3 to Zillow, Inc.’s Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014, and incorporated herein by reference). |
| |
10.10* | | |
| | |
10.11*10.5* | | |
| | |
10.12*10.6* | | |
| | |
10.13*10.7* | | |
| |
10.14* | | Form of Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement under the Zillow, Inc. Amended and Restated 2011 Incentive Plan (Assumed by Registrant; Filed as Exhibit 10.13 to Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2015, and incorporated herein by reference). |
| | |
Exhibit
Number
| | Description
|
| |
10.17* | | Form of Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement under the Trulia, Inc. 2012 Equity Incentive Plan (Assumed by Registrant; Filed as Exhibit 10.16 to Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2015, and incorporated herein by reference). |
| |
10.18* | | Executive Employment Agreement by and between Spencer M. Rascoff and Zillow, Inc. (Filed as Exhibit 10.14 to Zillow, Inc.’s Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission (SEC File No. 333-173570) on May 23, 2011, and incorporated herein by reference). |
| |
10.19* | | Executive Employment Agreement by and between Kathleen Philips and Zillow, Inc. (Filed as Exhibit 10.16 to Zillow, Inc.’s Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission (SEC File No. 333-173570) on May 23, 2011, and incorporated herein by reference). |
| |
10.20* | | Amended and Restated Executive Employment Agreement by and between Errol Samuelson and Zillow, Inc. (Filed as Exhibit 10.1 to Zillow, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014, and incorporated herein by reference). |
| |
10.21* | | Amendment No. 1 to the Amended and Restated Executive Employment Agreement, dated March 25, 2016, by and between Errol Samuelson and Zillow, Inc. (Filed as Exhibit 10.3 to Zillow, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 4, 2016, and incorporated herein by reference). |
| |
10.22* | | Letter Agreement dated June 16, 2014 by and between Zillow, Inc. and Greg M. Schwartz (Filed as Exhibit 10.1 to Zillow, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2014, and incorporated herein by reference). |
| |
10.23* | | Letter Agreement dated April 23, 2015 by and between Zillow Group, Inc. and Greg M. Schwartz (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2015, and incorporated herein by reference). |
| |
10.24* | | Amended and Restated Letter Agreement dated August 3, 2015, by and between Zillow Group, Inc. and Greg M. Schwartz (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2015, and incorporated herein by reference). |
| |
10.25* | | Letter Agreement dated February 24, 2016 by and between Zillow Group, Inc. and Greg M. Schwartz (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 29, 2016, and incorporated herein by reference). |
| |
10.26* | | Letter Agreement dated March 6, 2017 by and between Zillow Group, Inc. and Greg M. Schwartz (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 8, 2017, and incorporated herein by reference). |
| |
10.27* | | Executive Employment Agreement, dated February 17, 2015, between Paul Levine and Zillow Group, Inc. (Filed as Exhibit 10.8 to Registrant’s Current Report on Form 8-K12B filed with the Securities and Exchange Commission on February 17, 2015, and incorporated herein by reference). |
| |
10.28* | | Transition Employment Letter Agreement, dated February 17, 2015, by and between Peter Flint and Zillow Group, Inc. (Filed as Exhibit 10.27 to Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2015, and incorporated herein by reference). |
| |
10.29* | | Form of Confidential Information, Inventions, and Nonsolicitation Agreement for certain officers of Zillow, Inc. (Filed as Exhibit 10.4 to Zillow, Inc.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014, and incorporated herein by reference). |
| 10.8* | | |
Exhibit
Number
| | Description
|
| |
10.30* | | Forms of Confidential Information, Inventions, Nonsolicitation and Noncompetition Agreement for the Officers of Zillow Group, Inc. (Filed as Exhibit 10.29 to Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2015, and incorporated herein by reference). |
| |
10.31* | | |
| | |
10.32*10.9* | | |
| | |
10.33*10.10* | | |
| | |
10.34*10.11* | | |
| |
10.35* | | Trulia, Inc. SMT Bonus Plan (Filed as Exhibit 10.4 to Trulia, Inc.’s Form S-1 filed with the Securities and Exchange Commission (SEC File No. 333-183364) on August 17, 2012, and incorporated herein by reference). |
| |
10.3610.12 | | |
| | |
10.3710.13 | | |
| | |
10.3810.14 | | |
| | |
10.3910.15 | | |
| | |
10.4010.16 | | |
| | |
10.4110.17 | | |
| | |
10.4210.18 | | |
| | |
10.4310.19 | | Seventh Amendment to Lease by and between FSP-RIC, LLC and Zillow, Inc., dated March 10, 2014, between Trulia and BXP Mission 535 LLCas of October 19, 2021 (Filed as Exhibit 10.110.21 to Trulia, Inc.’s QuarterlyRegistrant’s Annual Report on Form 10-Q10-K filed with the Securities and Exchange Commission on May 2, 2014,February 10, 2022, and incorporated herein by reference). |
| | |
Exhibit
Number
10.20* | | Description
|
| |
10.44 | | Amendment to Office Lease,Amended and Restated Executive Employment Agreement, dated July 25, 2014,November 13, 2018, between TruliaZillow Group, Inc. and BXP Mission 535 LLC (Filed as Exhibit 10.1 to Trulia, Inc.’s Form 10-Q filed with the Securities and Exchange Commission on August 8, 2014, and incorporated herein by reference). |
| |
10.45 | | Settlement Agreement and Release, dated as of June 6, 2016, among Move, Inc., Real Select, Inc., Top Producer Systems Company, National Association of Realtors, Realtors Information Network, Inc., Zillow, Inc., Errol Samuelson, and Curt BeardsleyAllen Parker (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2016,November 14, 2018, and incorporated herein by reference). |
| | |
10.4610.21* | | Base Capped Call Confirmation,Executive Departure Agreement and Release, dated December 6, 2016,February 20, 2019, between Zillow Group, Inc. and Citigroup Global Markets Inc.Spencer Rascoff (Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2016,February 21, 2019, and incorporated herein by reference). |
| | |
| | | | | | | | |
10.4710.22* | | |
| | |
| 10.23* | | |
| | |
| 10.24* | | |
| | |
| 10.25* | | |
| | |
| 10.26* | | |
| | |
| 10.27* | | |
| | |
| 10.28* | | |
| | |
| 10.29* | | |
| | |
10.4810.30* | | |
| | |
| 10.31* | | |
| |
10.49 | | Additional Capped Call Confirmation, dated December 8, 2016, between Zillow Group, Inc. and Citigroup Global Markets Inc. (Filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 2016, and incorporated herein by reference). |
| |
10.5021.1 | | Additional Capped Call Confirmation, dated December 8, 2016, between Zillow Group, Inc. and Goldman, Sachs & Co. (Filed as Exhibit 10.5 to Registrant’s Current Report on Form8-K filed with the Securities and Exchange Commission on December 12, 2016, and incorporated herein by reference). |
| |
10.51 | | Additional Capped Call Confirmation, dated December 8, 2016, between Zillow Group, Inc. and Bank of America, N.A. (Filed as Exhibit 10.6 to Registrant’s Current Report on Form8-K filed with the Securities and Exchange Commission on December 12, 2016, and incorporated herein by reference). |
| |
16.1
| | Letter of Ernst & Young LLP, dated August 4, 2016 (Filed as Exhibit 16.1 to Registrant’s Current Report on Form8-K filed with the Securities and Exchange Commission on August 4, 2016, and incorporated herein by reference).
|
| |
16.2 | | Letter of Ernst & Young LLP, dated February 7, 2017 (Filed as Exhibit 16.1 to Registrant’s Current Report on Form8-K/A filed with the Securities and Exchange Commission on February 10, 2017, and incorporated herein by reference). |
| |
21.1 | | |
| |
23.1
| | |
| |
23.231.1 | | Consent of Ernst & Young LLP, independent registered public accounting firm. |
| |
31.1 | | |
| |
| 31.2 | | |
| | |
Exhibit
Number
32.1^ | | Description
|
| |
32.1# | | |
| |
32.2#32.2^ | | |
| | |
| 101.INS | | Inline XBRL Instance Document.Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document). |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
| | |
| | | | | | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
+ | Schedules omitted pursuant to Item 601(b)(2) of RegulationS-K. Zillow Group agrees to furnish a supplemental copy of any omitted schedule to | |
| 104 | | Cover Page Interactive Data File (embedded within the Securities and Exchange Commission upon request.Inline XBRL document). |
* | | |
| * | | Indicates a management contract or compensatory plan or arrangement. |
# | Indicates exhibit is furnished, | |
| ^ | | The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed for purposes of Section 18 ofwith the Securities and Exchange Act or otherwise subject to the liability of that section. The certification willCommission and are not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act except toof 1934, as amended (whether made before or after the extent the Company specifically incorporates it by reference.date of this Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing. |
Item 16. Form
10-K Summary.
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| Dated: February 15, 2023 | | ZILLOW GROUP, INC. |
| | |
Date: February 15, 2018 | | By: | | /S/ KATHLEEN PHILIPS
|
| | Name:By: | | Kathleen Philips/s/ JENNIFER ROCK |
| | Title:Name: | Jennifer Rock |
| | Title: | Chief FinancialAccounting OfficerChief Legal Officer, and Secretary
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below on February 15, 2018.2023. | | | | | | | | |
| | |
Signature | | Title |
| | |
/s/ SPENCER M. RASCOFFSpencer M. Rascoff
ICHARD BARTON | | Chief Executive Officer (Principal Executive Officer) and Director |
| Richard Barton | |
| |
/s/ KATHLEENALLEN PHILIPSKathleen Philips
ARKER | | Chief Financial Officer Chief Legal Officer, and Secretary (Principal Financial andOfficer) |
| Allen Parker | |
| | |
/s/ JENNIFER ROCK | | Chief Accounting Officer (Principal Accounting Officer) |
| Jennifer Rock | |
| |
/s/ RICHARD BARTONRichard Barton
LLOYD D. FRINK | | Executive Chairman, President and Director |
| Lloyd D. Frink | |
| |
/s/ LLOYD D. FRINKLloyd D. Frink
AMY C. BOHUTINSKY | | Vice Chairman, President and Director
|
| Amy Bohutinsky | |
| | |
/s/ ERIK BLACHFORD | | Director |
| Erik Blachford | |
| |
/s/ ERIK BLACHFORDErik Blachford
JAY C. HOAG | | Director |
| Jay C. Hoag | |
| | |
/s/ GREGORY B. MAFFEI | | Director |
| Gregory B. Maffei | |
| |
/s/ APRIL UNDERWOODApril Underwood
GORDON STEPHENSON | | Director |
| Gordon Stephenson | |
| |
/s/ JAY C. HOAGJay C. Hoag
CLAIRECORMIER THIELKE | | Director |
| Claire Cormier Thielke | |
| |
/s/ GREGORY B. MAFFEI
Gregory B. Maffei
| | Director |
| |
/s/ GORDON STEPHENSONGordon Stephenson
APRIL UNDERWOOD | | Director |
| April Underwood | |
141