UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2017

2023

☐
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36853

ZILLOW GROUP, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________________
Washington47-1645716
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)

1301 Second Avenue, Floor 31, Seattle, Washington98101
(Address of principal executive offices)(Zip Code)

1301 Second Avenue, Floor 36,
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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareZGThe Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per shareZThe Nasdaq Global Select Market
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 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.

Large accelerated filer☒Accelerated filer☐
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 30, 2017, 56,306,36925, 2023, 55,719,542 shares of Class A common stock, 6,217,447 shares of Class B common stock and 126,352,820171,666,169 shares of Class C capital stock were outstanding.



Table of Contents
ZILLOW GROUP, INC.

Quarterly Report on Form 10-Q

For the Three Months Ended September 30, 2017

2023

TABLE OF CONTENTS

Page
PART I – FINANCIAL INFORMATION

Item 1.

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3
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4
6
7
5
10
6
11

Item 2.

23
32

Item 3.

40
49

Item 4.

41
51
PART II – OTHER INFORMATION

Item 1.

42
52

Item 1A.

43
53

Item 2.

44
54

Item 5.

55
Item 6.

45
56
46
57

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As used in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q, including Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), 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 1,I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. 2022, including, but not limited to risks related to:
•the current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues;
•our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners;
•our ability to establish or maintain relationships with listing and data providers, which affects traffic to our mobile applications and websites;
•our ability to comply with current and future multiple listing service (“MLS”) rules and requirements;
•our ability to continue to innovate and compete successfully to attract customers and real estate partners;
•our ability to operate and grow Zillow Home Loans, our mortgage origination business, including the ability to obtain or maintain sufficient financing to fund its origination of mortgages, meet customers’ financing needs with its product offerings, continue to grow the origination business 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 maintain adequate security measures or technology systems, or those of third parties on which we rely, to protect data integrity and the information and privacy of our customers and other third parties;
•the impact of pending or future litigation and other disputes or enforcement actions;
•our ability to attract and retain a highly skilled workforce;
•acquisitions, investments, strategic partnerships, capital-raising activities, or other corporate transactions or commitments by us or our competitors;
•our ability to continue relying on third-party services to support critical functions of our business;
•our ability to protect and continue using our intellectual property and prevent others from copying, infringing upon, or developing similar intellectual property;
•our ability to comply with domestic and international laws, regulations, rules, contractual obligations, policies and other obligations, or to obtain or maintain required licenses to support our business and operations;
•our ability to pay debt, settle conversions of our convertible senior notes, or repurchase our convertible senior notes upon a fundamental change;
•our ability to raise additional capital or refinance on acceptable terms, or at all;
•actual or anticipated fluctuations in quarterly and annual results of operations and financial position;
•the assumptions, estimates and internal or third-party data that we use to calculate business, performance and operating metrics; and
•volatility of our Class A common stock and Class C capital stock prices.
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.

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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 Quarterly Report on Form 10-Q. 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.

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WHERE YOU CAN FIND MORE INFORMATION

Our filings with the Securities and Exchange Commission or SEC,(“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 quarterly reportQuarterly Report on Form 10-Q 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 GroupGroup’s X Account, formerly known as 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 Quarterly Report on Form 10-Q. The information we post through these channels is not a part of this quarterly reportQuarterly Report on Form 10-Q or any other document we file with the SEC, and the inclusion of our website addresses and Twitter accountX Account are as inactive textual references only.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands,millions, except share data, unaudited)

   September 30,
2017		  December 31,
2016		 

Assets

   

Current assets:

   

Cash and cash equivalents

  $319,942  $243,592 

Short-term investments

   361,038   262,870 

Accounts receivable, net of allowance for doubtful accounts of $3,990 and $1,337 at September 30, 2017 and December 31, 2016, respectively

   53,951   40,527 

Prepaid expenses and other current assets

   30,014   34,817 
  

 

 

  

 

 

 

Total current assets

   764,945   581,806 

Restricted cash

   1,053   1,053 

Property and equipment, net

   110,741   98,288 

Goodwill

   1,931,260   1,923,480 

Intangible assets, net

   505,696   527,464 

Other assets

   27,006   17,586 
  

 

 

  

 

 

 

Total assets

  $3,340,701  $3,149,677 
  

 

 

  

 

 

 

Liabilities and shareholders’ equity

   

Current liabilities:

   

Accounts payable

  $4,915  $4,257 

Accrued expenses and other current liabilities

   55,598   38,427 

Accrued compensation and benefits

   25,252   24,057 

Deferred revenue

   31,060   29,154 

Deferred rent, current portion

   1,930   1,347 
  

 

 

  

 

 

 

Total current liabilities

   118,755   97,242 

Deferred rent, net of current portion

   17,787   15,298 

Long-term debt

   380,795   367,404 

Deferred tax liabilities and other long-term liabilities

   134,372   136,146 
  

 

 

  

 

 

 

Total liabilities

   651,709   616,090 

Commitments and contingencies (Note 14)

   

Shareholders’ equity:

   

Preferred stock, $0.0001 par value; 30,000,000 shares authorized as of September 30,
2017 and December 31, 2016; no shares issued and outstanding as of September 30,
2017 and December 31, 2016

   —     —   

Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized as of
September 30, 2017 and December 31, 2016; 56,280,716 and 54,402,809 shares issued
and outstanding as of September 30, 2017 and December 31, 2016, respectively

   6   5 

Class B common stock, $0.0001 par value; 15,000,000 shares authorized as of
September 30, 2017 and December 31, 2016; 6,217,447 shares
issued and outstanding as of September 30, 2017 and December 31, 2016

   1   1 

Class C capital stock, $0.0001 par value; 600,000,000 shares authorized as of
September 30, 2017 and December 31, 2016; 126,285,524 and 121,838,462 shares
issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

   13   12 

Additional paid-in capital

   3,204,383   3,030,854 

Accumulated other comprehensive loss

   (345)   (242) 

Accumulated deficit

   (515,066)   (497,043) 
  

 

 

  

 

 

 

Total shareholders’ equity

   2,688,992   2,533,587 
  

 

 

  

 

 

 

Total liabilities and shareholders’ equity

  $3,340,701  $3,149,677 
  

 

 

  

 

 

 

September 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$1,846 $1,466 
Short-term investments1,421 1,896 
Accounts receivable, net97 72 
Mortgage loans held for sale96 41 
Prepaid expenses and other current assets149 126 
Restricted cash3 2 
Total current assets3,612 3,603 
Contract cost assets23 23 
Property and equipment, net324 271 
Right of use assets103 126 
Goodwill2,416 2,374 
Intangible assets, net162 154 
Other assets16 12 
Total assets$6,656 $6,563 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$28 $20 
Accrued expenses and other current liabilities87 90 
Accrued compensation and benefits52 48 
Borrowings under credit facilities91 37 
Deferred revenue48 44 
Lease liabilities, current portion28 31 
Convertible senior notes, current portion607 — 
Total current liabilities941 270 
Lease liabilities, net of current portion119 139 
Convertible senior notes, net of current portion1,057 1,660 
Other long-term liabilities10 12 
Total liabilities2,127 2,081 
Commitments and contingencies (Note 14)
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 — 55,719,542 and 57,494,698 shares as of September 30, 2023 and December 31, 2022, 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 — 171,654,263 and 170,555,565 shares as of September 30, 2023 and December 31, 2022, respectively— — 
Additional paid-in capital6,247 6,109 
Accumulated other comprehensive loss(21)(15)
Accumulated deficit(1,697)(1,612)
Total shareholders’ equity4,529 4,482 
Total liabilities and shareholders’ equity$6,656 $6,563 


See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except share data, which are presented in thousands, exceptand per share data, unaudited)

   Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
   2017  2016  2017  2016 

Revenue

  $281,839  $224,592  $794,464  $618,977 

Costs and expenses:

     

Cost of revenue (exclusive of amortization) (1)

   22,152   17,608   62,644   50,556 

Sales and marketing

   107,108   93,180   344,266   291,910 

Technology and development

   83,389   64,496   234,798   188,263 

General and administrative

   54,226   42,625   153,038   284,175 

Acquisition-related costs

   218   93   366   890 

Gain on divestiture of business

   —     (1,251)   —     (1,251) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total costs and expenses

   267,093   216,751   795,112   814,543 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from operations

   14,746   7,841   (648)   (195,566) 

Other income

   1,407   561   3,970   1,995 

Interest expense

   (6,906)   (1,595)   (20,526)   (4,740) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   9,247   6,807   (17,204)   (198,311) 

Income tax benefit (expense)

   (41)   —     (41)   1,364 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $9,206  $6,807  $(17,245)  $(196,947) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) per share — basic and diluted

  $0.05  $0.04  $(0.09)  $(1.10) 

Weighted-average shares outstanding — basic

   187,692   180,583   185,447   179,577 

Weighted-average shares outstanding — diluted

   196,425   189,661   185,447   179,577 
         

 

(1) Amortization of website development costs and intangible assets included in technology and development

  $13,442  $22,006  $59,862  $64,931 



 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
Revenue$496 $483 $1,471 $1,523 
Cost of revenue110 89 306 278 
Gross profit386 394 1,165 1,245 
Operating expenses:
Sales and marketing164 165 493 502 
Technology and development142 142 419 369 
General and administrative131 138 407 370 
Impairment and restructuring costs1 — 9 14 
Acquisition-related costs1 — 2 — 
Total operating expenses439 445 1,330 1,255 
Loss from continuing operations(53)(51)(165)(10)
Other income, net34 12 108 19 
Interest expense(9)(9)(27)(26)
Loss from continuing operations before income taxes(28)(48)(84)(17)
Income tax benefit (expense)— (3)(1)1 
Net loss from continuing operations(28)(51)(85)(16)
Net loss from discontinued operations, net of income taxes— (2)— (13)
Net loss$(28)$(53)$(85)$(29)
Net loss from continuing operations per share - basic and diluted$(0.12)$(0.21)$(0.36)$(0.07)
Net loss per share - basic and diluted$(0.12)$(0.22)$(0.36)$(0.12)
Weighted-average shares outstanding - basic and diluted233,295 240,080 235,560 244,157 
See accompanying notes to the condensed consolidated financial statements.


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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

LOSS

(in thousands,millions, unaudited)

   Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
   2017   2016  2017  2016 

Net income (loss)

  $9,206   $6,807  $(17,245)  $(196,947) 

Other comprehensive income (loss):

      

Unrealized gains (losses) on investments

   99    (179)   (103)   664 

Reclassification adjustment for net losses from investments included in net loss

   —      —     —     5 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net unrealized gains (losses) on investments

   99    (179)   (103)   669 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total other comprehensive income (loss)

   99    (179)   (103)   669 
  

 

 

   

 

 

  

 

 

  

 

 

 

Comprehensive income (loss)

  $9,305   $6,628  $(17,348)  $(196,278) 
  

 

 

   

 

 

  

 

 

  

 

 

 


 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
Net loss$(28)$(53)$(85)$(29)
Other comprehensive loss:
Net unrealized losses on investments(2)(6)(6)(26)
Total other comprehensive loss(2)(6)(6)(26)
Comprehensive loss$(30)$(59)$(91)$(55)
See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data, which are presented in thousands, unaudited)

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
SharesAmount
Balance at July 1, 2023232,723 $— $6,174 $(1,669)$(19)$4,486 
Issuance of capital stock upon exercise of stock options631 — 26 — — 26 
Vesting of restricted stock units1,754 — — — — — 
Share-based compensation expense— — 127 — — 127 
Repurchases of Class A common stock and Class C capital stock(1,897)— (100)— — (100)
Issuance of capital stock in connection with an acquisition380 — 20 — — 20 
Net loss— — (28)— (28)
Other comprehensive loss— — — — (2)(2)
Balance at September 30, 2023233,591 $— $6,247 $(1,697)$(21)$4,529 



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
SharesAmount
Balance at July 1, 2022241,141 $— $6,167 $(1,487)$(13)$4,667 
Issuance of common and capital stock upon exercise of stock options83 — 2 — — 2 
Vesting of restricted stock units1,467 — — — — — 
Share-based compensation expense— — 161 — — 161 
Repurchases of Class A common stock and Class C capital stock(4,997)— (176)— — (176)
Net loss— — — (53)— (53)
Other comprehensive loss— — — — (6)(6)
Balance at September 30, 2022237,694 $— $6,154 $(1,540)$(19)$4,595 




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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
SharesAmount
Balance at January 1, 2023234,268 $— $6,109 $(1,612)$(15)$4,482 
Issuance of capital stock upon exercise of stock options1,454 — 56 — — 56 
Vesting of restricted stock units4,675 — — — — — 
Share-based compensation expense— — 398 — — 398 
Repurchases of Class A common stock and Class C capital stock(7,186)— (336)— — (336)
Issuance of capital stock in connection with an acquisition380 — 20 — — 20 
Net loss— — — (85)— (85)
Other comprehensive loss— — — — (6)(6)
Balance at September 30, 2023233,591 $— $6,247 $(1,697)$(21)$4,529 

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
SharesAmount
Balance at January 1, 2022250,630 $— $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 options1,078 — 44 — — 44 
Vesting of restricted stock units3,278 — — — — — 
Share-based compensation expense— — 374 — — 374 
Repurchases of Class A common stock and Class C capital stock(17,292)— (773)— — (773)
Net loss— — — (29)— (29)
Other comprehensive loss— — — — (26)(26)
Balance at September 30, 2022237,694 $— $6,154 $(1,540)$(19)$4,595 
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See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands,millions, unaudited)

   Nine Months Ended
September 30,		 
   2017  2016 

Operating activities

   

Net loss

  $(17,245)  $(196,947) 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of amounts assumed in connection with acquisitions:

   

Depreciation and amortization

   81,576   74,852 

Share-based compensation expense

   84,162   81,152 

Amortization of discount and issuance costs on 2021 Notes

   13,391   —   

Release of valuation allowance on certain deferred tax assets

   —     (1,364) 

Loss on disposal of property and equipment

   4,085   3,416 

Gain on divestiture of business

   —     (1,360) 

Bad debt expense

   5,861   1,715 

Deferred rent

   3,072   312 

Amortization of bond premium

   451   1,171 

Changes in operating assets and liabilities:

   

Accounts receivable

   (19,272)   (11,770) 

Prepaid expenses and other assets

   4,434   5,197 

Accounts payable

   224   3,296 

Accrued expenses and other current liabilities

   13,174   (8,746) 

Accrued compensation and benefits

   1,194   13,016 

Deferred revenue

   1,775   5,645 

Other long-term liabilities

   41   (21) 
  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

   176,923   (30,436) 

Investing activities

   

Proceeds from maturities of investments

   204,520   158,828 

Purchases of investments

   (303,241)   (126,986) 

Proceeds from sales of investments

   —     4,963 

Decrease in restricted cash

   —     1,962 

Purchases of property and equipment

   (51,580)   (45,732) 

Purchases of intangible assets

   (9,377)   (7,827) 

Purchase of cost method investment

   (10,000)   —   

Proceeds from divestiture of a business

   579   3,200 

Cash paid for acquisitions, net

   (11,147)   (16,319) 
  

 

 

  

 

 

 

Net cash used in investing activities

   (180,246)   (27,911) 

Financing activities

   

Proceeds from exercise of stock options

   80,010   20,461 

Value of equity awards withheld for tax liability

   (337)   (492) 
  

 

 

  

 

 

 

Net cash provided by financing activities

   79,673   19,969 

Net increase (decrease) in cash and cash equivalents during period

   76,350   (38,378) 

Cash and cash equivalents at beginning of period

   243,592   229,138 
  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $319,942  $190,760 
  

 

 

  

 

 

 
           

Supplemental disclosures of cash flow information

   

Cash paid for interest

  $4,458  $3,163 

Noncash transactions:

   

Capitalized share-based compensation

  $8,915  $7,809 

Write-off of fully depreciated property and equipment

  $12,685  $11,585 

Write-off of fully amortized intangible assets

  $5,454  $—   

 Nine Months Ended
September 30,
 20232022
Operating activities
Net loss$(85)$(29)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization134 121 
Share-based compensation342 341 
Amortization of right of use assets18 17 
Amortization of contract cost assets16 23 
Amortization of debt discount and debt issuance costs4 24 
Loss on extinguishment of debt— 21 
Accretion of bond discount(29)(11)
Other adjustments to reconcile net loss to net cash provided by operating activities3 11 
Changes in operating assets and liabilities:
Accounts receivable(26)76 
Mortgage loans held for sale(55)58 
Inventory— 3,904 
Prepaid expenses and other assets(22)(13)
Contract cost assets(16)(13)
Lease liabilities(24)(15)
Accounts payable7 1 
Accrued expenses and other current liabilities(3)(49)
Accrued compensation and benefits4 (52)
Deferred revenue4 (1)
Other long-term liabilities(4)6 
Net cash provided by operating activities268 4,420 
Investing activities
Proceeds from maturities of investments1,136 455 
Purchases of investments(638)(1,474)
Purchases of property and equipment(101)(87)
Purchases of intangible assets(24)(17)
Cash paid for acquisitions, net(34)— 
Net cash provided by (used in) investing activities339 (1,123)
Financing activities
Repayments of borrowings on credit facilities— (2,205)
Net borrowings (repayments) on warehouse line of credit and repurchase agreements54 (68)
Repurchases of Class A common stock and Class C capital stock(336)(773)
Settlement of long-term debt— (1,158)
Proceeds from exercise of stock options56 44 
Net cash used in financing activities(226)(4,160)
Net increase (decrease) in cash, cash equivalents and restricted cash during period381 (863)
Cash, cash equivalents and restricted cash at beginning of period1,468 2,838 
Cash, cash equivalents and restricted cash at end of period$1,849 $1,975 
Supplemental disclosures of cash flow information
Noncash transactions:
Capitalized share-based compensation$56 $33 
Write-off of fully depreciated property and equipment29 48 
Value of Class C capital stock issued in connection with an acquisition20 — 
Write-off of fully amortized intangible assets4 200 
Recognition of operating right of use assets and lease liabilities1 14 
Settlement of beneficial interests in securitizations— (79)

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Index to Notes to Condensed Consolidated Financial Statements
Page
Note 1.
11
Note 2.
12
Note 3.
15
Note 4.
16
Note 5.
18
Note 6.
19
Note 7.
19
Note 8.
20
Note 9.
21
Note 10.
23
Note 11.
23
Note 12.
25
Note 13.
26
Note 14.
27
Note 15.
30
Note 16.
31

Note 1. Organization and Description of Business

Zillow Group Inc. operates the leadingis reimagining real estate to make home a reality for more and home-related information marketplaces on mobilemore people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the web,home they want by connecting them with a complementarydigital solutions, great partners, and easier buying, selling, financing and renting experiences.
Our portfolio of brandsaffiliates, subsidiaries 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 Group portfolio of consumer brands includes real estateZillow Premier Agent, Zillow Home Loans, our mortgage originations business and rental marketplacesaffiliate lender, 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 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,industry, including Spruce, Mortech, dotloop, Bridge Interactive and New Home Feed.Feed and ShowingTime+.

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.Offers as discontinued operations in our condensed consolidated statements of operations for the three and Trulia became wholly owned subsidiariesnine months ended September 30, 2022. No assets or liabilities were classified as discontinued operations as of Zillow Group.

December 31, 2022. 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: ratescurrent and future health and stability of revenue growth; engagementthe economy and usage of our products; competition in our market; outcomes of legal proceedings;United States residential real estate industry, including changes in government regulation affecting our business; scalinginflationary conditions, interest rates, housing availability and adaptation of existing technologyaffordability, labor shortages and network infrastructure; management of our growth;supply chain issues; our ability to attractmanage advertising inventory and retain qualified employeespricing and key personnel;maintain relationships with our real estate partners; 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 investment of resources to pursue strategies and develop new products and services that may not prove effective;effective or that are not attractive for customers and real estate partners or that do not allow us to compete successfully; our ability to successfully integrateoperate and realizegrow Zillow Home Loans, our mortgage origination business and affiliate lender, including the benefitsability to obtain or maintain 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
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our ability to operate, demand for our products or services or general economic conditions; outcomes of legal proceedings; our ability to attract and retain a highly skilled workforce; protection of Zillow’s information and systems against security breaches or disruptions in operations; reliance on third-party services to support critical functions of our past or future strategic acquisitions or investments; protection of customers’ information and other privacy concerns;business; protection of our brand and intellectual property; and intellectual property infringement and other claims,changes in laws or government regulation affecting our business, among other things.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include Zillow Group, Inc. and its wholly-ownedwholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with U.S.United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in Zillow Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022, which was filed with the SEC on February 7, 2017.15, 2023. The condensed consolidated balance sheet as of December 31, 2016,2022, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.

The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2017,2023 and our results of operations, comprehensive loss, and comprehensive income (loss)shareholders’ equity for the three and nine month periods ended September 30, 20172023 and 2016,2022, and our cash flows for the nine month periods ended September 30, 20172023 and 2016.2022. The results offor the three and nine month periodsmonths ended September 30, 20172023 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or2023, for any interim period, or for any other future year.

Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Unless indicated otherwise, the information in the Notes to Condensed Consolidated Financial Statements relates to our continuing operations and does not include the results of discontinued operations.

There were no significant changes to the significant accounting policies disclosed in Note 2 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except for the updates noted below. Such updates were made due to our determination that we have a single operating and reportable segment, as well as certain changes to how we disaggregate our revenue into categories, beginning in the first quarter of 2023.
Recoverability of Goodwill
Goodwill is measured as the excess of consideration transferred for an acquired business over the net of the acquisition date fair values of the assets acquired and the 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 initially perform a qualitative assessment to determine whether the existence of events or circumstances indicates that it is more likely than not that 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 if the carrying value of the reporting unit exceeds its fair value.
Beginning in 2023, our chief operating decision maker, who is our chief executive officer, manages our business, makes operating decisions and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. This aligns to our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. This resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. Accordingly, we have realigned our operating structure, resulting in a single operating and reportable segment. In line with this, the nature and substance of the information regularly provided to our segment manager similarly changed, and we determined that we have only one reporting unit. Because the segment change impacted the structure of our reporting units, we performed a qualitative goodwill impairment assessment immediately before and immediately after the change in reporting units. Based on those assessments, we determined it was more likely than not that the fair value of our current and legacy reporting units exceeded their respective carrying values. Therefore, we concluded that it was not necessary to perform a quantitative impairment test.
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Revenue Recognition
We recognize revenue when or as we satisfy our performance obligations by transferring control of the promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.
As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component as the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service is generally one year or less.
We do not disclose the transaction 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 amount to which we have the right to invoice for performance completed to date. The remaining duration over which we satisfy our performance obligations is generally less than one year.
We disaggregate our revenue into the following categories: Residential, Rentals, Mortgages and Other, described below.
Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising and business technology solutions for real estate professionals through StreetEasy for-sale product offerings and ShowingTime+.
Our Premier Agent program offers a suite of marketing and technology products and services to help real estate agents and brokers achieve their advertising goals while growing and managing their businesses and brands. All Premier Agent partners receive access to a dashboard portal on our mobile application and website that provides individualized program performance analytics, our customer relationship management tool that captures detailed information about each contact made with a Premier Agent partner through our mobile and web platforms and our account management tools. The marketing and business technology products and services promised to Premier Agent partners are delivered over time, as the customer simultaneously receives and consumes the benefit of the performance obligations.
Premier Agent advertising products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Payment is received prior to the delivery of connections. Connections are delivered when consumer contact information is provided to Premier Agent partners. 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 customer’s share of voice. We determine the number of connections to deliver to Premier Agent partners in each zip code using a market-based pricing method in consideration of the total amount spent by Premier Agent partners to purchase connections in the zip code during the month. This results in the delivery of connections over time in proportion to each Premier Agent partners’ share of voice. A Premier Agent partners’ 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 Agent partners in that zip code, and determines the proportion of consumer connections a Premier Agent partner receives. The number of connections delivered for a given spend level is dynamic; as demand for advertising in a zip code increases or decreases, the number of connections delivered to a Premier Agent partner in that zip code decreases or 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 methodology best depicts how we satisfy our performance obligations to customers, as we continuously transfer control of the performance obligations to the customer over time. Given a Premier Agent partner typically prepays their monthly spend and the monthly spend is refunded on a pro-rata basis upon cancellation of the contract by a customer, we have determined that Premier Agent partner contracts are effectively daily contracts, and each performance obligation is satisfied over time as each day lapses. We have not allocated the transaction price to each performance obligation within our Premier Agent partner arrangements, 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 select partners alongside our legacy market-based pricing model. With the Flex model, Premier Agent partners 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, generally 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 contract asset for our estimate of the consideration to which we will be entitled when the right to the consideration is conditional. When the right to consideration becomes unconditional, upon the close of a real estate transaction, we reclassify amounts to accounts receivable.
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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 we recognize revenue on a straight-line basis during the contractual period over which the communities are advertised on our mobile applications and websites. New construction revenue also includes revenue generated on a cost per impression 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 is billed in arrears.
StreetEasy for-sale revenue primarily consists of our pay for performance pricing model available in the New 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 real estate purchase 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 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 the estimate of variable consideration for StreetEasy Experts when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the close of a real estate transaction, 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 performance obligations.
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 revenue is primarily billed in advance on a monthly basis and recognized ratably over the contract period which aligns to our satisfaction of performance obligations.
Rentals. 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, lease, listing or impression basis or for a fixed fee for certain advertising packages. 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, which is the amount for which we have the right to invoice. We recognize revenue related to our fixed fee rentals product on a straight-line basis over the contract term as the performance obligations, rental listings on our mobile applications and websites, 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 expected 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 upon the execution of a lease, 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 properties 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 customer has the right to access and submit the rental application.
Mortgages. 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 reflects origination fees on purchase or refinance mortgages and the corresponding sale, or expected future sale, of a loan. When an interest rate lock commitment (“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.
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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.
Other. Other revenue primarily includes revenue generated from display products, which consist 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. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites, which is the amount for which we have the right to invoice.
Use of Estimates

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 recognition,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, 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 and interest rate environment have been made inintroduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the condensed 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 condensed consolidated statement of operations for the three months ended September 30, 2016 were revised herein as shown below (in thousands):

   As Reported   As Revised   Effect of Change 

Cost of revenue (exclusive of amortization)

  $18,254   $17,608   $(646) 

Sales and marketing

   92,794    93,180    386 

Technology and development

   69,171    64,496    (4,675) 

General and administrative

   37,690    42,625    4,935 

Amounts previously reported in the condensed consolidated statement of operations for the nine months ended September 30, 2016 were revised herein as shown below (in thousands):

   As Reported   As Revised   Effect of Change 

Cost of revenue (exclusive of amortization)

  $51,926   $50,556   $(1,370) 

Sales and marketing

   290,810    291,910    1,100 

Technology and development

   201,009    188,263    (12,746) 

General and administrative

   271,159    284,175    13,016 

Certain immaterial reclassifications have been made in the statement of cash flows to conform data for prior periods to the current format.

listed, among others.

Recently Issued Accounting Standards Not Yet Adopted

In March 2017,June 2022, the Financial Accounting Standards Board (“FASB”) issued guidance related to the premium amortization on purchased callable debt securities. This guidance shortens the amortization periodimprove existing measurement and disclosure requirements for certain callable debtequity securities purchased atthat are subject to a premium by requiring that the premium be amortized to the earliest call date.contractual sale restriction. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and2023, with 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 prospectively on January 1, 2019. We have not yet determined the impact the adoption of this guidance will have on our financial position, results of operations or cash flows.

In December 2016, the FASB issued guidance to narrow the definition of a business. This guidance assists entities with evaluating when a set of transferred assets2024, and activities is a business. This guidance is effective for interim 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 expect to adopt this guidance on January 1, 2018. Wewe do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

Note 3. Discontinued Operations

Zillow Offers Wind Down
In November 2016,2021, the FASB issued guidance onBoard of Directors of Zillow Group (the “Board”) made the classificationdetermination to wind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and presentationother 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 changeswhich led us to conclude that, despite its initial promise in restricted cash onearlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals going forward.
The wind down of Zillow Offers was completed in the statementthird quarter of cash flows. This guidance is effective2022, at which time Zillow Offers met the criteria for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The adoption of this guidance requires a retrospective transition method to each period presented. We expect to adopt this guidance on January 1, 2018. We do not expectdiscontinued operations. Accordingly, we have presented the adoption of this guidance to have a material impact on our statements of 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. For available-for-sale debt securities, an entity is required to recognize credit losses through an allowance for credit losses rather than 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 as of the beginning of the first reporting period 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, results of operations, excluding allocation of any general corporate expenses, of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. No assets or cash flows.

In February 2016,liabilities were classified as discontinued operations as of December 31, 2022.

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The following table presents the FASB issued guidance on leases. This guidance requires the recognitionmajor classes of a right-of-use asset 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 beginningline items of the earliest comparative period presenteddiscontinued operations included in the financialcondensed consolidated statements 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 assets 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 for the periods presented (in millions):
Three Months Ended
September 30, 2022		Nine Months Ended
September 30, 2022
Revenue$23 $4,249 
Cost of revenue24 4,023 
Gross profit (loss)(1)226 
Operating expenses:
Sales and marketing1 153 
Technology and development— 6 
General and administrative— 10 
Restructuring costs— 25 
Total operating expenses1 194 
Income (loss) from discontinued operations(2)32 
Loss on extinguishment of debt— (21)
Other income— 13 
Interest expense— (36)
Loss from discontinued operations before income taxes(2)(12)
Income tax expense— (1)
Net loss from discontinued operations$(2)$(13)
Net loss from discontinued operations per share:
Basic$(0.01)$(0.05)
Diluted$(0.01)$(0.05)
The following table presents significant non-cash items and cash flows, if any.

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 consolidationcapital expenditures 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 expect to adopt this guidance on January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our financial position, results ofdiscontinued operations or cash flows.

In May 2014, the FASB issued new guidance on revenue recognition. The guidance states 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. This guidance also 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 contracts with customers. The effective date of this guidance is for interim and annual reporting periods beginning after December 15, 2017, as the FASB approved an optional one-year deferral of the effective date, and the guidance must be applied retrospectively or modified retrospectively. We will adopt this guidance on January 1, 2018 using the modified retrospective transition approach. This will result in an adjustment to accumulated deficit for the cumulative effect, if any, of applyingnine months ended September 30, 2022 (in millions):

Amortization of debt discount and debt issuance costs$21 
Loss on debt extinguishment21 
Share-based compensation16 
Inventory valuation adjustment9 
Depreciation and amortization7 
Settlement of beneficial interests in securitizations(79)
Restructuring
Restructuring costs totaled $14 million for the guidance as of the adoption date. Under this approach, we will not restate the prior financial statements presented. The guidance requires us to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018 as compared to the guidance that was in effect before the change,nine months ended September 30, 2022, and an explanation of the reasons for significant changes, if any. While we continue to assess all potential impacts of this new guidance, we currently expect a significant impactwere related to the accounting for the cost of sales commissions. 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 expectZillow Offers wind down. Cumulative restructuring charges attributable to recover the costs (the average customer life). Currently we expense the cost of all sales commissions as incurred. We also continue to assess the impact of the guidance on our current product offerings. We continue to implement key control activitiescontinuing operations related to the new guidance, particularly related to evaluating the impactZillow Offers wind down as of the standard on new products or products with more than one performance obligation, the determination of average customer life, and the new disclosure requirements. Further, we have concluded that upon adoption of the new guidance, we will not need to implement new information technology systems. We continue to assess the impact the adoption of this guidance will have on our financial position, results of operations, cash flows and disclosures.

September 30, 2022 totaled $23 million.

Note 3.4. Fair Value Measurements

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—Quoted prices in active markets for identical assets or liabilities.

Level 2—Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.

Level 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:

Cash equivalents— Cash equivalents are comprised of highly liquid investments, including money market funds 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 and the(Level 1). The fair value measurement of 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.

Investments — Our investments consistmeans (Level 2).

16
Table of fixed income securities, which include U.S. and foreign government agency securities, corporate notes and bonds, municipal securities, commercial paper and certificates of deposit.Contents
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 revenue in our condensed 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:

September 30, 2023December 31, 2022
Range45% - 100%47% - 100%
Weighted-average88%87%
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):

   September 30, 2017 
   Total   Level 1   Level 2 

Cash equivalents:

      

Money market funds

  $188,622   $188,622   $—   

Certificates of deposit

   996    —      996 

Short-term investments:

      

U.S. government agency securities

   255,541    —      255,541 

Corporate notes and bonds

   44,759    —      44,759 

Commercial paper

   37,554    —      37,554 

Municipal securities

   8,836    —      8,836 

Certificates of deposit

   8,355    —      8,355 

Foreign government securities

   5,993    —      5,993 

Restricted cash

   1,053    —      1,053 
  

 

 

   

 

 

   

 

 

 

Total

  $551,709   $188,622   $363,087 
  

 

 

   

 

 

   

 

 

 

   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

   6,226    —      6,226 

Foreign government securities

   5,985    —      5,985 

Restricted cash

   1,053    —      1,053 
  

 

 

   

 

 

   

 

 

 

Total

  $430,910   $166,527   $264,383 
  

 

 

   

 

 

   

 

 

 

September 30, 2023
TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$1,736 $1,736 $— $— 
Short-term investments:
U.S. government treasury securities1,258 — 1,258 — 
Corporate bonds135 — 135 — 
Commercial paper14 — 14 — 
U.S. government agency securities14 — 14 — 
Mortgage origination-related:
Mortgage loans held for sale96 — 96 — 
Forward contracts - other current assets2 — 2 — 
IRLCs - other current assets1 — — 1 
        Total$3,256 $1,736 $1,519 $1 
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 December 31, 2022
 TotalLevel 1Level 2Level 3
Cash equivalents:
Money market funds$1,338 $1,338 $— $— 
Short-term investments:
U.S. government treasury securities1,716 — 1,716 — 
Corporate bonds161 — 161 — 
Commercial paper10 — 10 — 
U.S. government agency securities9 — 9 — 
Mortgage origination-related:
Mortgage loans held for sale41 — 41 — 
Forward contracts - other current assets1 — 1 — 
Total$3,276 $1,338 $1,938 $— 
At September 30, 2023, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $189 million and $232 million for our IRLCs and forward contracts, respectively. At December 31, 2022, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $62 million and $90 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our forward contract derivative positions.
See Note 9 for the carrying amountamounts and estimated fair valuevalues 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 September 30, 2017 or December 31, 2016. There were no liabilities measured at fair value on a recurring basis as of September 30, 2017 or December 31, 2016.

our convertible senior notes.

Note 4.5. Cash and Cash Equivalents, Investments and Restricted Cash

Our investments are classified as available-for-sale securities and are carried 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 income (loss) based on specific identification.

The following tables presenttable presents the amortized cost gross unrealized gains and losses, and estimated fair market value of our cash and cash equivalents, available-for-sale investments, and restricted cash as of the dates presented (in thousands)millions):

   September 30, 2017 
   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Estimated
Fair Market
Value		 

Cash

  $130,324   $—     $—     $130,324 

Cash equivalents:

        

Money market funds

   188,622    —      —      188,622 

Certificates of deposit

   996    —      —      996 

Short-term investments:

        

U.S. government agency securities

   255,903    2    (364)    255,541 

Corporate notes and bonds

   44,794    —      (35)    44,759 

Commercial paper

   37,554    —      —      37,554 

Municipal securities

   8,840    —      (4)    8,836 

Certificates of deposit

   8,353    2    —      8,355 

Foreign government securities

   5,998    —      (5)    5,993 

Restricted cash

   1,053    —      —      1,053 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $682,437   $4   $(408)   $682,033 
  

 

 

   

 

 

   

 

 

   

 

 

 
   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

   6,226    —      —      6,226 

Foreign government securities

   5,995    —      (10)    5,985 

Restricted cash

   1,053    —      —      1,053 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $507,711   $34   $(230)   $507,515 
  

 

 

   

 

 

   

 

 

   

 

 

 

 September 30, 2023December 31, 2022
 Amortized
Cost		Estimated
Fair Market
Value		Amortized
Cost		Estimated
Fair Market
Value
Cash$110 $110 $128 $128 
Cash equivalents:
Money market funds1,736 1,736 1,338 1,338 
Short-term investments:
U.S. government treasury securities(1)
1,278 1,258 1,731 1,716 
Corporate bonds136 135 162 161 
Commercial paper14 14 10 10 
U.S. government agency securities14 14 9 9 
Restricted cash3 3 2 2 
        Total$3,291 $3,270 $3,380 $3,364 
(1)The estimated fair market value includes $20 million and $15 million of gross unrealized losses as of September 30, 2023 and December 31, 2022, respectively.
The following table presents available-for-sale investments by contractual maturity date as of September 30, 20172023 (in thousands)millions):

   Amortized
Cost		   Estimated Fair
Market Value		 

Due in one year or less

  $244,619   $244,436 

Due after one year through two years

   116,823    116,602 
  

 

 

   

 

 

 

Total

  $361,442   $361,038 
  

 

 

   

 

 

 
Amortized CostEstimated Fair
Market Value
Due in one year or less$513 $509 
Due after one year929 912 
Total$1,442 $1,421 
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Note 5.6. Property and Equipment, net

The following table presents the detail of property and equipment as of the dates presented (in thousands)millions):

   September 30,
2017		   December 31,
2016		 

Website development costs

  $121,966   $102,130 

Computer equipment

   28,462    28,175 

Leasehold improvements

   47,995    37,923 

Construction-in-progress

   23,688    19,470 

Office equipment, furniture and fixtures

   23,519    19,254 
  

 

 

   

 

 

 

Property and equipment

   245,630    206,952 

Less: accumulated amortization and depreciation

   (134,889)    (108,664) 
  

 

 

   

 

 

 

Property and equipment, net

  $110,741   $98,288 
  

 

 

   

 

 

 

September 30, 2023December 31, 2022
Website development costs$415 $291 
Leasehold improvements89 90 
Office equipment, furniture and fixtures22 24 
Computer equipment19 18 
Construction-in-progress— 7 
Property and equipment545 430 
Less: accumulated amortization and depreciation(221)(159)
Property and equipment, net$324 $271 
We recorded depreciation expense related to property and equipment (other than website development costs) of $14.0$6 million and $3.5 million, respectively, duringfor each of the three months ended September 30, 20172023 and 2016,2022, and $21.7$18 million and $9.9$19 million respectively, duringfor the nine months ended September 30, 20172023 and 2016.

2022, respectively.

We capitalized $13.4 million and $13.0 million, respectively, in website development costs duringof $49 million and $37 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $39.8$144 million and $38.1$104 million respectively, duringfor the nine months ended September 30, 20172023 and 2016.2022, respectively. Amortization expense for website development costs included in technology and development expensescost of revenue was $10.1$30 million and $10.4$17 million respectively, duringfor the three months ended September 30, 20172023 and 2016,2022, respectively, and $30.0$79 million and $29.4$48 million respectively, duringfor the nine months ended September 30, 20172023 and 2016.

Construction-in-progress primarily consists of website development costs that are capitalizable, but for which the associated applications had not been placed in service.

2022, respectively.

Note 6. Acquisition and Equity Investments

Acquisition

7. Acquisitions

On September 6, 2017,July 31, 2023, Zillow Group acquired Aryeo, Inc. acquired New Home Feed, Inc. (formerly known as Graphic Language, Inc.(“Aryeo”), a California corporation which operates the New Home Feed business, pursuant to an Agreementsoftware company that serves real estate photographers, in exchange for approximately $15 million in cash, net of cash acquired, and Plan380,259 shares of Mergerour Class C capital stock with a value of $20 million, for an immaterial amount. New Home Feed is a listing management technology that allows builders to input, manage and syndicate their listings acrosstotal consideration of $35 million, net of cash acquired. On September 11, 2023, Zillow Group acquired substantially all of the assets and partner sites. Our acquisitionliabilities of New Home Feed hasSpruce Holdings, Inc. and certain affiliated entities (collectively referred to as “Spruce”), a tech-enabled title and escrow platform, in exchange for approximately $19 million in cash, net of cash acquired. The acquisitions of Aryeo and Spruce have been accounted for as a business combination,combinations, and assets acquired and liabilities assumed were recorded at their preliminary estimated fair values. Goodwill 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. Goodwill is measured as the excess of consideration transferred over the net of the fair values of the assets acquired and the liabilities assumed. Goodwill recorded in connection with the acquisition of Aryeo is not deductible for tax purposes, and goodwill recorded in connection with the acquisition of Spruce is deductible for tax purposes.
The total preliminary purchase prices have been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date, as follows (in millions):
AryeoSpruce
Cash and cash equivalents$3 $5 
Goodwill26 16 
Intangible assets11 2 
Other assets— 2 
Liabilities(2)(1)
Total preliminary purchase price$38 $24 
The preliminary estimated fair values as of September 6, 2017. We acquired goodwill of $3.8 million and anthe identifiable intangible assets acquired and associated useful lives consisted of the following (in millions):

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AryeoSpruce
Preliminary Estimated Fair ValueEstimated Useful Life (in years)Preliminary Estimated Fair ValueEstimated Useful Life (in years)
Customer relationships$5 5$— —
Purchased content4 3— —
Developed technology2 32 3
Total$11 $2 
We used an income approach to measure the fair value of the customer relationships intangible asset acquired from Aryeo based on the excess earnings method, whereby the fair value is estimated based upon the present value of $1.9 million,cash flows that the applicable asset is expected to generate. We used a cost approach to measure the fair value of purchased content acquired from Aryeo. We used an income approach to measure the fair value of the developed technology acquired from Aryeo and we recorded a deferred tax liability of $0.2 million.

Spruce based on the relief-from-royalty method. These fair value measurements were based on Level 3 inputs under the fair value hierarchy.

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 beenare included within acquisition-related costs in our condensed consolidated financial statements since the date of acquisition,operations and are not significant. Prowere expensed as incurred.

Unaudited pro forma financialearnings information for the acquisition accounted for as a business combination has not been presented as the effects were not material to our condensed consolidated financial statements.

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 condensed consolidated balance sheet.

In October 2016, we purchased a 10% equity interest in a privately held variable interest entity 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 condensed 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 September 30, 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 September 30, 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.

Note 7. Goodwill

The following table presents the change in goodwill from December 31, 2016 through September 30, 2017 (in thousands):

Balance as of December 31, 2016

  $ 1,923,480 

Goodwill recorded in connection with acquisitions

   7,780 
  

 

 

 

Balance as of September 30, 2017

  $1,931,260 
  

 

 

 

Note 8. Intangible Assets, net

The following tables present the detail of intangible assets subject to amortization as of the dates presented (in thousands)millions):

   September 30, 2017 
   Cost   Accumulated
Amortization		   Net 

Purchased content

  $34,010   $(17,981)   $16,029 

Software

   15,605    (7,556)    8,049 

Customer relationships

   103,900    (42,555)    61,345 

Developed technology

   113,380    (50,953)    62,427 

Trade names and trademarks

   4,900    (3,679)    1,221 

Advertising relationships

   9,000    (7,811)    1,189 

MLS home data feeds

   1,100    (955)    145 

Intangibles-in-progress

   4,291    —      4,291 
  

 

 

   

 

 

   

 

 

 

Total

  $286,186   $(131,490)   $154,696 
  

 

 

   

 

 

   

 

 

 

   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 
  

 

 

   

 

 

   

 

 

 

 September 30, 2023
 CostAccumulated AmortizationNet
Software$78 $(25)$53 
Customer relationships63 (16)47 
Developed technology53 (25)28 
Trade names and trademarks45 (18)27 
Purchased content16 (9)7 
Total$255 $(93)$162 
 December 31, 2022
 CostAccumulated AmortizationNet
Customer relationships$59 $(10)$49 
Software54 (15)39 
Developed technology49 (15)34 
Trade names and trademarks45 (15)30 
Purchased content8 (6)2 
Total$215 $(61)$154 
Amortization expense recorded for intangible assets was $13 million and $11 million for the three months ended September 30, 20172023 and 2016 was $13.42022, respectively, and $37 million and $11.6$47 million respectively. Amortization expense recorded for intangible assets for the nine months ended September 30, 20172023 and 2016 was $39.9 million2022, respectively. Amortization expense for trade names and $35.5 million, respectively. 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.

We did not record any impairment costs related to our intangible assets for the three or nine months ended September 30, 2023 or 2022.
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Note 9. Debt
The following table presents the carrying values of Zillow Group’s debt as of the dates presented (in millions):
September 30, 2023December 31, 2022
Credit facilities
Master repurchase agreements:
JPMorgan Chase Bank, N.A.(1)
$68 $— 
Atlas Securitized Products, L.P.(2)
22 23 
Citibank, N.A.(3)
— 3 
Warehouse line of credit:
Comerica Bank1 11 
Total credit facilities91 37 
Convertible senior notes
1.375% convertible senior notes due 2026496 495 
2.75% convertible senior notes due 2025561 560 
0.75% convertible senior notes due 2024607 605 
Total convertible senior notes1,664 1,660 
Total debt$1,755 $1,697 
(1)Agreement commenced on June 1, 2023 and provides for a total maximum borrowing capacity of $100 million, $25 million of which is committed, until May 30, 2024.
(2)Agreement was reassigned from Credit Suisse AG, Cayman Islands (“Credit Suisse”) on May 25, 2023.
(3)Agreement expired on June 9, 2023 and was not renewed.
Credit Facilities
To provide capital for Zillow Home Loans, we utilize master repurchase agreements and a warehouse line of credit. The following table summarizes certain details related to our outstanding master repurchase agreements and warehouse line of credit as of September 30, 2023 (in millions, except interest rates):
LenderMaturity DateMaximum Borrowing CapacityWeighted-Average Interest Rate
JPMorgan Chase Bank, N.A.May 30, 2024$100 7.03 %
Atlas Securitized Products, L.P.March 11, 202450 7.32 %
Comerica BankDecember 29, 202350 7.45 %
Total$200 
On August 17, 2023, Zillow Home Loans amended its warehouse line of credit with Comerica Bank to extend the date after which Zillow Home Loans is no longer permitted to draw additional amounts on the warehouse line of credit from September 30, 2023 to November 1, 2023.
In accordance with the master repurchase agreements, Atlas Securitized Products, L.P., JPMorgan Chase Bank, N.A and prior to its expiration in June 2023, Citibank, N.A., (together, the “Lenders”) agreed to pay Zillow Home Loans a negotiated purchase price for eligible loans, and Zillow Home Loans 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 September 30, 20172023 and December 31, 2016,2022, $93 million and $28 million, respectively, in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.
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Borrowings on the repurchase agreements and warehouse line of credit bear interest either at a floating rate based on Secured Overnight Financing Rate plus an applicable margin, as defined by the governing agreements, or Bloomberg Short-Term Bank Yield Index Rate 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 September 30, 2023, 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.
For additional details related to our repurchase agreements and warehouse line of credit, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Convertible Senior Notes
Effective January 1, 2022, we haveadopted guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an indefinite-lived intangible assetentity’s own equity. Refer to Note 2in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for $351.0 million that we recordedthe fiscal year ended December 31, 2022 for additional information regarding the adoption of this guidance.
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):
September 30, 2023December 31, 2022
Maturity DateAggregate Principal AmountStated Interest RateEffective Interest RateSemi-Annual Interest Payment DatesUnamortized Debt Issuance CostsFair ValueUnamortized Debt Issuance CostsFair Value
September 1, 2026$499 1.375 %1.57 %March 1; September 1$3 $598 $4 $504 
May 15, 2025565 2.75 %3.20 %May 15; November 154 571 5 531 
September 1, 2024608 0.75 %1.02 %March 1; September 11 706 3 629 
Total$1,672 $8 $1,875 $12 $1,664 
Three Months Ended
September 30, 2023		Three Months Ended
September 30, 2022
Maturity DateContractual Coupon InterestAmortization of Debt Issuance CostsInterest ExpenseContractual Coupon InterestAmortization of Debt Issuance CostsInterest Expense
September 1, 2026$2 $— $2 $2 $— $2 
May 15, 20254 — 4 4 1 5 
September 1, 20241 1 2 1 1 2 
Total$7 $1 $8 $7 $2 $9 
Nine Months Ended
September 30, 2023		Nine Months Ended
September 30, 2022
Maturity DateContractual Coupon InterestAmortization of Debt Issuance CostsInterest ExpenseContractual Coupon InterestAmortization of Debt Issuance CostsInterest Expense
September 1, 2026$6 $1 $7 $5 $— $5 
May 15, 202512 1 13 12 2 14 
September 1, 20243 2 5 4 1 5 
Total$21 $4 $25 $21 $3 $24 

The convertible notes maturing in connection with2026 (“2026 Notes”), 2025 (“2025 Notes”) and 2024 (“2024 Notes”) (together, the “Notes”) are senior unsecured obligations. The 2026 Notes and 2025 Notes are classified as long-term debt and the 2024 Notes are classified as current liabilities in our February 2015 acquisitioncondensed 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 Trulia for Trulia’s trade namesthe convertible senior notes is classified as Level 2 and trademarks that is not subject to amortization.

Intangibles-in-progress consistwas determined through consideration of purchased content and softwarequoted market prices in markets that are capitalizable but have not been placed in service.

Note 9. Convertible Senior Notes

Convertible Senior Notes due in 2021

On December 12, 2016, Zillow Group issued $460.0 million aggregate principal amountactive.

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Table of 2.00% Convertible Senior Notes due 2021 (the “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. Contents
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 Notesour election, and may be settled as described below. They will mature on December 1, 2021,their respective maturity dates, unless earlier repurchased, redeemed or converted in accordance with their terms.

The net proceeds fromfollowing table summarizes the issuance ofconversion and redemption options with respect to the 2021 Notes were approximately $447.8 million, after deducting fees and expenses. Notes:

Maturity DateEarly Conversion DateConversion RateConversion PriceOptional Redemption Date
September 1, 2026March 1, 202622.9830$43.51 September 5, 2023
May 15, 2025November 15, 202414.881067.20 May 22, 2023
September 1, 2024March 1, 202422.983043.51 September 5, 2022
The Company used approximately $370.2 million of the net proceeds from the issuance of the 2021 Notesfollowing table summarizes certain details related 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 million of the net proceeds from the issuance of the 2021 Notes to pay the cost of the capped call transactionsconfirmations with respect to the initial purchaserconvertible senior notes:
Maturity DateInitial Cap PriceCap Price Premium
September 1, 2026$80.5750 150 %
September 1, 202472.5175 125 %
There were no conversions of the 2021 Notes during the three and two additional financial institutions (“Capped Call Confirmations”) as discussed further below. nine months ended September 30, 2023 or 2022.
The Company used the remainderlast reported sale price of our Class C capital stock did not exceed 130% of the net proceedsconversion price of each series of the Notes for general corporate purposes.

Prior tomore than 20 trading days during the close30 consecutive trading days ended September 30, 2023. Accordingly, each series of business on the business day immediately preceding September 1, 2021, the 2021 Notes areis not redeemable or convertible at the option of the holders of the 2021 Notes only under certain conditions, none of which conditions have been satisfied as of September 30, 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, or a combination of cash and shares of Class C capital stock, at its election. The conversion rate will initially be 19.0985 shares 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 2021 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as defined in the indenture governing the 2021 Notes). The conversion option does not meet the criteria for separate accounting as a derivative as it is indexed to our own stock.

If the Company undergoes a fundamental change (as defined in the indenture governing the 2021 Notes), holders of the 2021 Notes may require the Company to repurchase for cash all or part of their 2021 Notes at a repurchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the indenture 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 2021 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 indenture governing the 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, the Company separated the 2021 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible 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. The difference between the principal amount of the 2021 Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the consolidated balance sheet and amortized to interest expense using the effective interest method over the term of the 2021 Notes. The equity component of the 2021 Notes of approximately $91.4 million is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred transaction costs of approximately $12.2 million related 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. In accounting for 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 component were recorded as a direct deduction from the related debt liability in the condensed consolidated balance sheet and amortized to interest expense over the term 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 for the three months ended September 30, 2017 was $6.8 million, which is comprised of approximately $4.5 millionending December 31, 2023.

For additional details related to our convertible senior notes, see Note 13 in the amortization of debt discount and debt issuance costs and $2.3 millionNotes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the contractual coupon interest. Interest expense related to the 2021 Notes for the nine months ended September 30, 2017 was $20.3 million, which is comprised of approximately $13.4 million related to the amortization of debt discount and debt issuance costs and $6.9 million for the contractual coupon interest. Accrued interest related to the 2021 Notes as of September 30, 2017 and December 31, 2016 was $3.1 million and $0.5 million, respectively, and is recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet.

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		 

September 30, 2017

  $460,000   $(89,342)   $370,658 

December 31, 2016

  $460,000   $(102,733)   $357,267 

As of September 30, 2017, the unamortized debt discount and debt issuance costs for the 2021 Notes will be amortized to interest expense over a remaining period of approximately 50 months.

The estimated fair value of the 2021 Notes was $498.1 million and $474.2 million, respectively, as of September 30, 2017 and December 31, 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 Confirmations are expected generally to reduce the potential dilution of our Class C capital stock upon any conversion of 2021 Notes and/or offset the cash payments the Company is required to make in excess of the principal amount of the 2021 Notes in the event that the market price of the Class C capital stock is greater than the strike price of the Capped Call Confirmations (which initially corresponds to the initial conversion price of the 2021 Notes and is subject to certain adjustments under the terms of the Capped Call Confirmations), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Confirmations. The Capped Call Confirmations have an initial cap price of $69.19 per share, which represents a premium of approximately 85% over the closing price of the Company’s Class C capital stock on The NASDAQ Global Select Market on December 6, 2016, and is subject to certain adjustments under the terms of the Capped Call Confirmations. The Capped Call Confirmations will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2021 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. The Capped Call Confirmations do not meet the criteria for separate accounting as a derivative as they are indexed to our own stock. The premiums paid for the Capped Call Confirmations have been included as a net reduction to additional paid-in capital within shareholders’ equity.

Trulia’s Convertible Senior Notes due in 2020

In connection with the February 2015 acquisition of Trulia, a portion of the total purchase price was allocated to Trulia’s Convertible Senior Notes due in 2020 (the “2020 Notes”), which are unsecured senior obligations. Pursuant to and in accordance with the Merger Agreement, 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 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 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 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 prior to the debt extinguishment and allocating that portion of the repurchase price to additional paid-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 thefiscal 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 $1,000 principal 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. Regarding 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 holders of the 2020 Notes will have the ability to require us to repurchase the notes in whole or in part upon the occurrence 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, the repurchase price would be 100% of the principal amount of the 2020 Notes plus accrued and unpaid interest, if any, 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 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.

Interest expense related to the 2020 Notes for the three months ended September 30, 2017 and 2016 was $0.1 million and $1.6 million, respectively. Interest expense related to the 2020 Notes for the nine months ended September 30, 2017 and 2016 was $0.2 million and $4.7 million, respectively. Accrued interest related to the 2020 Notes as of September 30, 2017 and December 31, 2016 was not material.

The carrying value of the 2020 Notes was $10.1 million as of September 30, 2017 and December 31, 2016. The estimated fair value of the 2020 Notes was $17.6 million and $17.3 million, respectively, as of September 30, 2017 and December 31, 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.

2022.

Note 10. Income Taxes

We are primarily subject to federal and state income taxes in the United States (federal and in Canada. During the three and nine month periods endedstate), as well as certain foreign jurisdictions. As of September 30, 20172023 and 2016, we did not have a material amount of current taxable income, and we are not projecting a material amount of current taxable income for the year ending December 31, 2017. We2022, we have provided a full valuation allowance against our net deferred tax assets as of September 30, 2017 and December 31, 2016 because,that we believe, based on the weight of available evidence, it isare not more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets will notto be realized. Therefore, no material current tax liability or expense has been recorded in the condensed consolidated financial statements. We have accumulated federal tax losses of approximately $893.3 million$1.8 billion as of December 31, 2016,2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $13.5$63 million (tax effected) as of December 31, 2016.

We recorded an2022.

Our income tax expense or benefit for interim periods is determined using an estimate of $1.4 millionour annual effective tax rate, adjusted for discrete items, if any, that are taken into account for the relevant period. We update our estimate of the annual effective tax rate on a quarterly basis and make year-to-date adjustments to the tax provision or benefit, as applicable. Income tax expense (benefit) for the three and nine months ended September 30, 2023 and the nine months ended September 30, 20162022 was not material. We recorded income tax expense of $3 million for the three months ended September 30, 2022, primarily duerelated to a deferred tax liability generated in connection with Zillow Group’s February 22, 2016 acquisition of Naked Apartments that can be used to realize certain deferred tax assets for which we had previously provided a full allowance.

state income taxes.

Note 11. Shareholders’ Equity

Preferred Stock

Our boardShare Repurchase Authorizations

Prior to July 31, 2023, the Board authorized the repurchase of directors has the authorityup to fix and determine and to amend the number$1.8 billion 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 September 30, 2017 or December 31, 2016.

Common and Capital Stock

Our Class A common stock, has no preferencesClass C capital stock, outstanding convertible senior notes or privileges and is not redeemable. Holdersa combination thereof. For additional information on these authorizations, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of our Class A common stock, are entitledClass C capital stock, outstanding convertible senior notes or a combination thereof. This additional authorization (together with the previous authorizations, the “Repurchase Authorizations”) increased our total cumulative Repurchase Authorizations to one vote for each share.

Our Class B common$2.5 billion.

Repurchases of stock has no preferences or privileges and is not redeemable. At any time afterunder the date of issuance, each share of Class B common stock, at the option of the holder,Repurchase Authorizations may be converted into onemade 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,
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in each case as permitted by securities laws and other legal requirements. As of September 30, 2023, $914 million remained available for future repurchases pursuant to the Repurchase Authorizations.
The following table summarizes our 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 nine months ended September 30, 2017 and the year ended December 31, 2016, 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 redeemablerepurchase activity under the Repurchase Authorizations for the periods presented (in millions, except share data, which are presented in thousands, and except in limited circumstances, is non-voting.

per share amounts):
 Three Months Ended
September 30, 2023		Three Months Ended
September 30, 2022
Class A common stockClass C capital stockClass A common stockClass C capital stock
Shares repurchased965 932 772 4,225 
Weighted-average price per share$52.57 $52.80 $35.52 $35.18 
Total purchase price$50 $50 $27 $149 
 Nine Months Ended
September 30, 2023		Nine Months Ended
September 30, 2022
Class A common stockClass C capital stockClass A common stockClass C capital stock
Shares repurchased1,775 5,411 3,349 13,943 
Weighted-average price per share$48.71 $46.15 $46.13 $44.40 
Total purchase price$86 $250 $154 $619 
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Note 12. Share-Based Awards

In connection with our February 2015 acquisition of Trulia, we assumed the obligations of Zillow, Inc. and Trulia outstanding under pre-existing stock plans. We intend that future equity grants will be made under Zillow Group’s 2011 Amended and Restated Incentive Plan (as amended and/or restated from time to time, the “2011 Plan”) only (or a successor thereto).

Zillow Group, Inc. Amended and Restated 2011 Incentive Plan

On July 19, 2011, the 2011 Plan became effective and serves as the successor to Zillow, Inc.’s 2005 Equity Incentive Plan (the “2005 Plan”). Shareholders last approved the 2011 Plan on June 15, 2016.

In addition to the share reserve of 18,400,000 shares, the number of shares available for issuanceoption awards and restricted stock units typically granted under the 2011Zillow Group, Inc. 2020 Incentive Plan automatically increases on(the “2020 Plan”) which vest quarterly over four years, during the first dayquarter of each2023, the Compensation Committee of the Board approved option and restricted stock unit awards granted under the 2020 Plan in connection with the 2022 annual review cycle that vest quarterly over three years. The exercisability terms of these equity awards are otherwise consistent with the terms of the option awards and restricted stock units typically granted under the 2020 Plan. For additional information regarding our fiscal years by a

number of shares equalshare-based awards, see Note 16 in the Notes to the leastConsolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

On August 3, 2022, upon the recommendation of (a) 3.5%the Compensation Committee, the Board approved adjustments to the exercise price of ourcertain outstanding Class A common stock, Class B common stock,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 a fully diluted basis asAugust 8, 2022. No other changes were made to the terms and conditions of the end of our immediately preceding fiscal year, (b) 10,500,000 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 actually issued will continue to be availableeligible option awards. We have accounted for issuance under the 2011 Plan. In addition, 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 exercisereprice of the awards) are available for grant undereligible option awards as an equity modification whereby the 2011 Plan. The 2011 Plan is administered byincremental fair value attributable to the compensation committee of the board of directors. Under the terms of the 2011 Plan, the compensation committee may grant equityrepriced option awards, including incentive stock options, nonqualified stock options, restricted stock, restricted stock units or restricted units to employees, officers, directors, consultants, agents, advisors and independent contractors. The board of directors has also authorized certain senior executive officers to grant equity awards under the 2011 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.

Options under the 2011 Plan are granted with an exercise price per share not less than 100% of the fair market value of our stockas measured on the date of grant, with the exception of substitutedreprice, will be recognized as additional share-based compensation expense. The reprice impacted 7 million stock option awards, grantedaffected 3,348 employees and was expected to result in connection with acquisitions, and are exercisable at such times and under such conditions as determined by theincremental share-based compensation committee. Under the 2011 Plan, the maximum termexpense of an option is ten years from the date of grant. 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 3 months following their termination of employment or 12 months$66 million in the event of termination by reason of death, disability or retirement. Options granted under the 2011 Plan typically expire seven or 10 years from the grant date and typically vest either 25% after 12 months and ratably thereaftertotal over the next 36 months or quarterly over aremaining requisite service period of four years, though certainthe original awards. The weighted-average total fair value of options have been granted with alternative vesting schedules.

Restricted stock units granted under the 2011 Plan typically vest either 25% after 12 months and quarterly thereafter over the next three years or 12.5% after 6 months and quarterly thereafter for the next 3.5 years. 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 grants restricted stock units and option awards to acquire shares of Class C capital stock to certain employees to retain and recognize their efforts on behalf of Zillow Group.

repriced in August 2022 was $67.58.

Option Awards

The following table summarizes option award activity for the nine months ended September 30, 2017:

   Number
of Shares
Subject to
Existing
Options		   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

   4,330,797    35.83     

Exercised

   (5,260,391)    15.21     

Forfeited or cancelled

   (1,172,856)    32.27     
  

 

 

       

Outstanding at September 30, 2017

   27,525,993    27.31    5.87    359,650 

Vested and exercisable at September 30, 2017

   13,985,706    24.77    4.47    218,956 

2023:

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, 202328,598 $44.90 7.1$15 
Granted6,890 42.63 
Exercised(1,454)38.84 
Forfeited or cancelled(892)48.28 
Outstanding at September 30, 202333,142 44.60 7.0173 
Vested and exercisable at September 30, 202319,802 44.96 5.8113 
The following assumptions were used to determine the fair value of optionsoption awards granted is estimated at the date of grant using the Black-Scholes-Merton option-pricing model, assuming no dividends and with the following assumptions for the periods presented:

   Three Months Ended
September 30,		 Nine Months Ended
September 30,
   2017 2016 2017 2016

Expected volatility

  46% 50% 46%-49% 50%-51%

Expected dividend yield

  —   —   —   —  

Risk-free interest rate

  1.70% 0.98% 1.67%-1.84% 0.98%-1.12%

Weighted-average expected life

  4.25 years 4.00 years 4.25-4.75 years 3.75-4.25 years

Weighted-average fair value of options granted

  $15.79 $14.29 $14.40 $9.20

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
Expected volatility62%61%55% - 62%55% - 61%
Risk-free interest rate4.34%3.38%3.75% - 4.34%1.94% - 3.38%
Weighted-average expected life5.3 years5.0 years5.3 - 6.5 years4.5 - 6.0 years
Weighted-average fair value of options granted$27.26$18.06$24.06$23.75
As of September 30, 2017,2023, there was a total of $161.0$384 million in unrecognized compensation cost related to unvested stock options.

option awards.

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Restricted Stock Units

The following table summarizes activity for restricted stock units for the nine months ended September 30, 2017:

   Restricted
Stock Units		   Weighted-
Average Grant-
Date Fair
Value		 

Unvested outstanding at January 1, 2017

   3,780,577   $28.54 

Granted

   2,218,754    36.78 

Vested

   (1,059,105)    29.04 

Forfeited or cancelled

   (721,000)    31.34 
  

 

 

   

Unvested outstanding at September 30, 2017

   4,219,226    32.27 
  

 

 

   

The fair value of the outstanding restricted stock units will be recorded as share-based compensation expense over the vesting period. 2023:

Restricted
Stock Units (in thousands)		Weighted-Average Grant Date Fair Value
Unvested outstanding at January 1, 202310,930 $46.85 
Granted8,191 43.27 
Vested(4,675)45.96 
Forfeited(841)46.58 
Unvested outstanding at September 30, 202313,605 45.01 
As of September 30, 2017,2023, there was $126.1a total of $557 million of totalin unrecognized compensation cost related to unvested restricted stock units.

Share-Based Compensation Expense

The following table presents the effects of share-based compensation expense in our condensed consolidated statements of operations during the periods presented (in thousands)millions):

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Cost of revenue

  $1,014   $894   $2,942   $2,662 

Sales and marketing

   5,914    5,968    17,694    17,566 

Technology and development

   10,438    8,035    29,329    23,160 

General and administrative

   11,208    12,388    34,197    37,764 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $28,574   $27,285   $84,162   $81,152 
  

 

 

   

 

 

   

 

 

   

 

 

 

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
Cost of revenue$4 $5 $12 $12 
Sales and marketing18 21 53 46 
Technology and development42 57 123 123 
General and administrative45 64 154 142 
Impairment and restructuring costs— — — 2 
Share-based compensation - continuing operations109 147 342 325 
Share-based compensation - discontinued operations— 1 — 16 
Total share-based compensation$109 $148 $342 $341 
Note 13. Net Income (Loss)Loss Per Share

Basic net income (loss) per share is computed by dividing net income (loss) 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 income (loss) per share, undistributed earnings are allocated assuming all earnings during the period were distributed.

Diluted net income (loss) per share is computed by dividing net income (loss) 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 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 Class A common stock and Class C capital stock underlying 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 2020 Notes using the if-converted method.

For the periods presented, the following table reconciles the denominators used in the basic and diluted net income (loss) per share calculations (in thousands):

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Denominator for basic calculation

   187,692    180,583    185,447    179,577 

Effect of dilutive securities:

        

Option awards

   7,401    7,928    —      —   

Unvested restricted stock units

   1,332    1,150    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for dilutive calculation

   196,425    189,661    185,447    179,577 
  

 

 

   

 

 

   

 

 

   

 

 

 

For the periods presented, the following Class A common stock and Class C capital stock equivalents were excluded from the calculations of diluted net income (loss)loss and net loss from continuing operations per share because their effect would have been antidilutive (in thousands):

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Weighted-average Class A common stock and Class C capital stock option awards outstanding

   6,542    8,456    28,671    17,874 

Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding

   199    235    4,311    3,559 

Class A common stock issuable upon conversion of the 2020 Notes

   438    10,026    438    10,026 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Class A common stock and Class C capital stock equivalents

   7,179    18,717    33,420    31,459 
  

 

 

   

 

 

   

 

 

   

 

 

 

Since the Company expects to settle the principal amount

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
Weighted-average Class A common stock and Class C capital stock option awards outstanding30,063 2,417 20,924 15,942 
Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding14,172 9,670 13,890 8,326 
Class C capital stock issuable upon conversion of the Notes33,855 33,855 33,855 33,855 
Total Class A common stock and Class C capital stock equivalents78,090 45,942 68,669 58,123 
26
Table 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.

In the event of liquidation, dissolution, distribution of assets or winding-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 income (loss) per share under the two-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.

Contents

Note 14. Commitments and Contingencies

Lease

Commitments

We have entered into various non-cancelable operating lease agreements for certain of our office space and equipment with original lease periods expiring between 2017 and 2024. We are committed to pay a portion of the related operating expenses under certain of these lease agreements. Certain of these arrangements have free rent periods or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis. Operating lease expense for

During the three months ended September 30, 2017 and 2016 was $5.7 million and $4.3 million, respectively. Operating lease expense for the nine months ended September 30, 2017 and 2016 was $15.8 million and $12.1 million, respectively.

Future minimum payments for all operating leases as of September 30, 2017 are as follows (in thousands):

Remainder of 2017

  $6,266 

2018

   25,510 

2019

   24,579 

2020

   25,006 

2021

   25,322 

All future years

   61,755 
  

 

 

 

Total future minimum lease payments

  $168,438 
  

 

 

 

Purchase Commitments

We have entered into various non-cancelable purchase commitments for content related to our mobile applications and websites. License agreement terms vary by vendor. In some instances, we retain perpetual rights to this information after the contract 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 contract term.

We capitalize payments made to third parties for data licenses that we expect to provide future economic benefit 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 amortize the total contract value over the estimated useful life. For contracts in which we have perpetual rights2023, there were no material changes to the data and expect to utilizecommitments disclosed in Note 18 in the data beyond the life of the contract, the total contract value is amortized on a straight-line basis over the life of the contract plus two years, which is equivalentNotes to the estimated useful life of the asset. For contractsConsolidated Financial Statements included in which we either do not have access to the data beyond the contractual term or do not expect to utilize the data beyond the life of the contract, the total contract value is amortizedour Annual Report on a straight-line basis over the term of the contract. 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 periodForm 10-K for the capitalized purchased content is based on our best estimate of the useful life of the asset, which ranges from approximately five to nine years. 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.

As of September 30, 2017, we had non-cancelable purchase commitments for content related to our mobile applications and websites totaling $144.4 million. The amounts due for this content as of September 30, 2017 are as follows (in thousands):

Remainder of 2017

  $8,265 

2018

   32,750 

2019

   33,500 

2020

   33,500 

2021

   32,000 

2022

   4,375 
  

 

 

 

Total future purchase commitments

  $144,390 
  

 

 

 

Letters of Credit

As of September 30, 2017, we have outstanding letters of credit of approximately $5.2 million, $1.8 million, $1.5 million and $1.1 million, respectively, which secure our lease obligations in connection with the operating leases of our San Francisco, Seattle, New York and Denver office spaces. Certain of the letters of credit are unsecured obligations, and certain of the letters of credit are secured by certificates of deposit held as collateral in our name at a financial institution. The secured letters of credit are classified as restricted cash in our consolidated balance sheet.

Surety Bonds

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 million and $3.6 million as of September 30, 2017 andfiscal year ended December 31, 2016, respectively.

2022.

Legal Proceedings

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,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 have recorded a liability related to the settlement for $6.0 millionmaterial accruals as of September 30, 2017 and2023 or December 31, 2016. 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 complaint 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 September 30, 2017, which is classified in general and administrative expenses in our condensed consolidated statement of operations for the nine months ended September 30, 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. We continue to cooperate with the CFPB in connection with requests for information. 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 intends 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 our co-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 relief 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 September 30, 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.

2022.

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. We anticipate thatIn 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. In 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, will beand 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 to settle this action. On March 31, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 3, 2023. The terms of the parties’ proposed settlement agreement are contained in the settlement documents filed with the court on March 31, 2023. The court approved the settlement terms on August 8, 2023 and the full amount was paid by our insurance carriers under the applicable insurance policy and pursuant to the terms of the settlement.
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In October and November 2017 and January and February 2018, four shareholder derivative lawsuits were filed in the first quarterU.S. District Court for the Western District of 2018. We intendWashington 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 denycorporate governance practices. The plaintiffs in the allegationsderivative 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 wrongdoingthe Company’s public statements and vigorously defendlegal compliance, and as a result of the claimsbreach 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 these lawsuits. We have not recorded an accrual relatedthat 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 these lawsuits as of September 30, 2017, asdismiss 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 do not believemoved 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 loss is probable.

In October 2017, anew 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.Company and certain other relief, such as reform to corporate governance practices, alleging, among other things, violations of federal securities laws. The plaintiffU.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. On April 20, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 25, 2023. The terms of the parties’ settlement agreement are contained in the settlement documents filed with the court on April 20, 2023 and found on Zillow’s Investor Relations page at https://investors.zillowgroup.com/investors/resources/investor-faqs/default.aspx. The court issued final approval of the settlement on August 29, 2023. The full amount of plaintiffs’ attorneys’ fees and costs associated with the settlement has been paid by our insurance carriers under the applicable insurance policy and pursuant to the terms of the settlement.

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. Our 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. (“Rakuten IPR”), IPR2022-00646 concerning the final remaining patent in this action, which the court granted on April 20, 2023. On October 13, 2023, the PTAB ruled on the Rakuten IPR finding the claims of the patent asserted against Zillow unpatentable. 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.
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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 (“Federal Court”) and on July 25, 2022, a shareholder derivative suit (in whichwas 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 isand certain other relief, such as reform to corporate governance practices. The plaintiffs (including the Company as a nominal defendant) alleges,allege, among other things, that the defendants breached their fiduciary duties in connection with oversightby failing to maintain an effective system of public statementsinternal 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 legal compliance, and that as a resultSection 20(a) of the breachSecurities Exchange Act of such fiduciary duties,1934, insider trading and waste of corporate assets. On June 1, 2022 and September 14, 2022, the CompanyU.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, which stay was damaged, and that defendants were unjustly enriched.further continued by the Federal Court on September 6, 2023. 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. A partial stay was then reentered in the 2022 State Suit on June 26, 2023. On August 23, 2023 a second shareholder derivative suit was filed in the Superior Court of the State of Washington, King County. The defendants intend to deny the allegations of wrongdoing and vigorously defend the claims in the lawsuit.these lawsuits. We have not recorded an accrual related to this lawsuit as of September 30, 2017, as we do not believe that a loss related to these lawsuits 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.

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Indemnifications

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 limitedmatters. For additional information regarding our indemnifications, see Note 18 in the Notes to losses arising outthe Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Note 15. Revenue and Contract Balances
We recognize revenue when or as we satisfy our performance obligations by transferring control of the breach of such agreements and out of intellectual property infringement claims made by third parties. In addition,promised products or services to our customers in an amount that reflects the consideration to which 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 mayexpect to be conditional on the other party making a claim pursuant to the procedures specifiedentitled in the particular contract. Further, our obligations under these agreements may be limitedexchange for those products or services.
Beginning 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 15. 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 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 Hart-Scott-Rodino Antitrust Improvements Act of 1976 filings, which filing was required due to Mr. Barton’s ownership of Zillow, Inc.’s common stock.

Note 16. Self-Insurance

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 $2.6 million as of September 30, 2017 and $1.7 million as of December 31, 2016.

Note 17. Employee Benefit Plan

Effective January 1, 2016, we have a single defined contribution 401(k) retirement plan covering Zillow Group employees who have met certain eligibility requirements (“the Zillow Group 401(k) Plan”). Eligible employees may contribute pretax 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 for the three months ended September 30, 2017 and 2016 was $3.0 million and $2.4 million, respectively. The total expense related to the Zillow Group 401(k) Plan for the nine months ended September 30, 2017 and 2016 was $8.9 million and $7.1 million, respectively.

Note 18. Segment Information and Revenue

We have one operating and reportable segment which has been identified based on how2023, our chief executive officer, who acts as the chief operating decision-makerdecision maker, manages our business, makes operating decisions and evaluates operating performance. The chief executive officer actsperformance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision-makerdecision maker. This serves to align our reported results with our ongoing growth strategy and reviews financialour intent to provide integrated customer solutions for all tasks and operational information on an entity-wide basis. There are no segment managers who are held accountableservices related to facilitating real estate transactions. As a result, we have determined that we have a single reportable segment. Our revenue is classified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.

The Residential revenue category primarily includes revenue for operations, operating results or plansour Premier Agent and new construction marketplaces, as well as revenue from the sale of other advertising and business technology solutions for levels or components.

The chief executive officer reviews information aboutreal estate professionals, including StreetEasy for-sale product offerings and ShowingTime+. Our Rentals and Mortgages revenue categories including marketplaceremain consistent with our historical presentation, and our Other revenue andcategory primarily includes revenue generated from display revenue. advertising.

Disaggregation of Revenue
The following table presents our revenue categories duringdisaggregated by category for the periods presented (in thousands)millions):

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 

Marketplace revenue:

        

Premier Agent

  $197,054   $158,322   $562,081   $439,957 

Other real estate

   44,778    28,799    117,427    72,847 

Mortgages

   20,869    19,775    62,075    54,621 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Marketplace revenue

   262,701    206,896    741,583    567,425 

Display revenue

   19,138    17,696    52,881    51,552 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

  $281,839   $224,592   $794,464   $618,977 
  

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Residential$362 $372 $1,103 $1,182 
Rentals99 74 264 206 
Mortgages24 26 74 101 
Other11 1130 34
Total revenue$496 $483 $1,471 $1,523 
Contract Balances
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. The current portion of contract assets is recorded within prepaid expenses and other current assets and the long-term portion of contract assets is recorded within other assets in our condensed consolidated balance sheets and totaled $89 million and $71 million as of September 30, 2023 and December 31, 2022, respectively.
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.
For the three months ended September 30, 2023, the opening balance of deferred revenue was $49 million, of which $46 million was recognized as revenue during the period. For the three months ended September 30, 2022, the opening balance of deferred revenue was $52 million, of which $50 million was recognized as revenue during the period.
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For the nine months ended September 30, 2023, the opening balance of deferred revenue was $44 million, of which $43 million was recognized as revenue during the period. For the nine months ended September 30, 2022, the opening balance of deferred revenue was $51 million, of which $51 million was recognized as revenue during the period. As of September 30, 2023 and 2022, deferred revenue was $48 million and $50 million, respectively.
Note 16. Subsequent Events
UBS AG Repurchase Agreement
On October 11, 2023, Zillow Home Loans entered into a master repurchase agreement with UBS AG. The master repurchase agreement provides a total maximum borrowing capacity of $100 million through October 9, 2024. Borrowings on the master repurchase agreement will be classified within current liabilities in our condensed consolidated balance sheets.
Acquisition of Follow Up Boss
On October 28, 2023, Zillow, Inc. and Enchant, LLC, d/b/a Follow Up Boss (“Follow Up Boss”), entered into a Membership Interest Purchase Agreement (the “Agreement”), pursuant to which Zillow, Inc. agreed to acquire Follow Up Boss for $400 million in cash, subject to certain adjustments, payable upon closing of the transaction, and up to $100 million in cash payable over a three-year period upon achievement of certain performance metrics contemplated by the Agreement. Follow Up Boss is a customer relationship management system for real estate professionals. The Agreement contains customary representations, warranties and covenants of the parties as well as conditions to closing, including, among other things, regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Partial Repurchase of 2025 Notes
On October 31, 2023 and November 1, 2023, we repurchased a total of approximately $28 million aggregate principal amount of our 2025 Notes, plus accrued interest, using a 10b5-1 plan, in accordance with the Repurchase Authorizations. These repurchases will reduce our outstanding convertible senior notes, net of current portion in our condensed consolidated balance sheet.
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Item 2. 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 condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q, including in the section titled “Note Regarding Forward-Looking Statements,” and also those factors discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2016.

2022.

Overview of our Business

Zillow Group Inc. operates the leadingis reimagining real estate to make home a reality for more and home-related information marketplaces on mobilemore people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the web,home they want by connecting them with a complementarydigital solutions, great partners, and easier buying, selling, financing and renting experiences.
Our portfolio of brandsaffiliates, subsidiaries 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 Group portfolio of consumer brands includes real estateZillow Premier Agent, Zillow Home Loans, our mortgage originations business and rental marketplacesaffiliate lender, 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, including Spruce, Mortech, New Home Feed and ShowingTime+.
As of September 30, 2023, we had 6,148 employees compared to 5,724 employees as of December 31, 2022.
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 have been driven by low housing inventory, fewer new for-sale listings, increases and volatility in mortgage professionals maximize business opportunitiesinterest rates, as well as home price fluctuations and connect with millions of consumers. We also own and operateinflationary conditions. These factors may have a negative impact on the number of business brandstransactions consumers complete using our products and services and on demand for our advertising services. According to industry data from the National Association of REALTORS®, total residential real estate rental and mortgage professionals, including Mortech, dotloop, Bridge Interactive and New Home Feed.

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 74 million homes, 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 million U.S. homes. We provide this information to our users where, when and how they want it, through our industry-leading mobile applications that enable consumers to access our information when they are curbside, viewing homes, and through our websites. There were approximately 175.2 million average monthly unique users of our mobile applications and websites fortransaction dollars declined 14% during the three months ended September 30, 20172023 as compared to 164.5 million average monthly unique users for the three months ended September 30, 2016, representing year-over-year2022 and more than 20% during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Despite the industry headwinds and total residential real estate transaction value declines, we continue to invest in the execution of our strategy to increase customer transactions and revenue per transaction. We believe this continued investment in our strategic priorities has resulted in year over year Residential revenue results, described below, for the three and nine months ended September 30, 2023 as compared to the same periods in the prior year, that exceeded residential real estate industry performance for the same periods. The extent to which market factors impact our results and financial position will depend on future developments, which are uncertain and difficult to predict.

Acquisitions
On July 31, 2023, we acquired Aryeo, Inc. (“Aryeo”), a software company that serves real estate photographers, in exchange for total consideration of $35 million, net of cash acquired. On September 11, 2023, we acquired substantially all of the assets and liabilities of Spruce Holdings, Inc. and certain affiliated entities (collectively referred to as “Spruce”), a tech-enabled title and escrow platform, in exchange for total consideration of $19 million, net of cash acquired. Acquisition-related costs incurred, which primarily included legal, accounting and other external costs directly related to the acquisition, are included within acquisition-related costs in our condensed consolidated statements of operations and were expensed as incurred.
On October 28, 2023, Zillow, Inc. and Enchant, LLC, d/b/a Follow Up Boss (“Follow Up Boss”), entered into a Membership Interest Purchase Agreement (the “Agreement”), pursuant to which Zillow, Inc. agreed to acquire Follow Up Boss for $400 million in cash, subject to certain adjustments, payable upon closing of the transaction, and up to $100 million in cash payable over a three-year period upon achievement of certain performance metrics contemplated by the Agreement. Follow Up Boss is a customer relationship management system for real estate professionals.
Discontinued Operations
In the fourth quarter of 2021, the Board of Directors of Zillow Group (the “Board”) 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 condensed
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consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations. Given the wind down of Zillow Offers and corresponding shift in our strategic plans, financial performance for prior and current periods may not be indicative of future performance. For additional information, see Note 3 in our Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
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 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”) has and is expected to continue to result in incremental share-based compensation expense over the remaining requisite service period, which is largely through the third quarter of 2024. For additional information regarding the August 2022 Equity Award Actions, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Change in Reportable Segments
Beginning in 2023, our chief operating decision maker manages our business, makes operating decisions, and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. 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 of 6%.

We generatestrategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, we have determined that we have a single operating and reportable segment.

Revenue Overview
Our revenue is classified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.
Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising services and our suite of marketing software andbusiness technology solutions to businesses and professionals primarily associated with the residentialfor real estate mortgageprofessionals through StreetEasy for-sale product offerings 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 consists of Premier Agent revenue, other real estate revenue and mortgages revenue. ShowingTime+.

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 flagshipPremier 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 purchased 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 advertising productservices 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 advertising productfee only when a real estate transaction is closed with one of the leads, generally within two years.
New construction revenue primarily includes advertising services sold to home builders on a cost per residential community or cost per impression basis. Impressions are delivered when aStreetEasy for-sale revenue includes advertising services sold advertisement appears on pages viewed by users of our mobile applications and websites. Otherto 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 includes revenue generated by Zillow Group 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. Our dotloop real estate transaction management software-as-a-service solution is a monthly subscription service allowing real estate partners to efficiently manage their transactions.
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Rentals. Rentals through which we offerrevenue includes advertising products in our rentals marketplace and a suite of tools forsold to property managers, landlords and other rental professionals New Construction,on a cost per lead, lease, listing or impression basis or for a fixed fee for certain advertising packages through both the Zillow and StreetEasy brands. 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.
Mortgages. Mortgages revenue includes advertising services for homebuilders, as well as revenue fromgenerated through mortgage originations and the related sale of various other advertisingmortgages on the secondary market through Zillow Home Loans and business software solutions and services and technology solutions for real estate professionals. Mortgages revenue primarily includesfrom advertising sold to mortgage lenders and other mortgage professionals as well ason a cost per lead basis, including our Custom Quote and Connect services.
Other. Other revenue includes revenue generated primarily by Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform.

display advertising. Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost-per-clickcost per click basis to advertisers promoting their brands on our mobile applications and websites andwebsites.

For additional information regarding our partner websites.

Duringrevenue recognition policies, see Note 2 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Financial Overview
For the three months ended September 30, 2017,2023 and 2022, we generated total revenue of $281.8$496 million as compared to $224.6and $483 million, in the three months ended September 30, 2016,respectively, an increase of 25%3%. ThisThe increase in total revenue was primarily attributable to the result of a $38.7following:
•Rentals revenue increased by $25 million or 24%, increase in Premier Agent revenue, and a $16.0 million, or 55%, increase in other real estate revenue. There were approximately 175.2 million average monthly unique users of our mobile applications and websites for the three months ended September 30, 2017, representing year-over-year growth of 6%. Visits increased 19% to 1,667.1$99 million for the three months ended September 30, 2017 from 1,403.82023 compared to $74 million for the three months ended September 30, 2016.

In September 2017, we acquired New Home Feed. New Home Feed is2022. The increase in Rentals revenue was primarily due to a leading provider of listing management and syndication tools20% increase in quarterly revenue per average monthly rentals unique visitor to $3.30 for the new construction industry. For additional information about the acquisition of New Home Feed, see Note 6 to our condensed consolidated financial statements.

As ofthree months ended September 30, 2017, we had 3,060 full-time employees2023 as compared to 2,776 full-time employees$2.74 for the three months ended September 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers as well as growth in multifamily property listings. The increase in Rentals revenue was also driven by growth in average monthly rentals unique visitors which increased 11% to 30 million during the three months ended September 30, 2023 from 27 million during the three months ended September 30, 2022.

•Residential revenue decreased by $10 million to $362 million for the three months ended September 30, 2023 compared to $372 million for the three months ended September 30, 2022. The decrease in Residential revenue was primarily driven by a 5% decrease in the number of December 31, 2016.

visits for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, due to macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates, as well as home price fluctuations. The impact of the decrease in visits was partially offset by a 3% increase in Residential revenue per visit, driven by continued improvement in our ability to connect high-intent customers to agents.

•Mortgages revenue decreased by $2 million to $24 million for the three months ended September 30, 2023 compared to $26 million for the three months ended September 30, 2022, driven by an $8 million decrease in revenue from Custom Quote and Connect advertising services due to a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period. This resulted in a 40% decrease in leads generated from marketing products sold to mortgage professionals. The decrease in revenue from Custom Quote and Connect advertising services was offset by an $8 million increase in mortgage originations revenue, as total loan origination volume increased 69%, primarily driven by continued growth in Zillow Home Loans purchase loan originations.
During the three months ended September 30, 2023 and 2022, we generated gross profit of $386 million and $394 million, respectively, a decrease of 2%.
Key Metrics

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.

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.
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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):
 Three Months Ended
September 30,		2022 to 2023
% Change		Nine Months Ended
September 30,		2022 to 2023
% Change
 2023202220232022
Visits2,6262,767(5)%7,7668,291(6)%
During the three and nine month periods ended September 30, 2023, visits to our mobile applications and websites decreased by 5% and 6%, respectively, compared to the three and nine month periods ended September 30, 2022. These decreases were primarily driven by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations.
Unique Users

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 display revenue categories. In addition, our communitywebsites to engage in the sale, purchase and financing of users improves the qualityhomes, including with Zillow Home Loans, and a significant portion of our living databaseResidential revenue, Rentals revenue and Other revenue depend on advertisements being served to users of homes with their contributions, which in turn attracts more users.

our 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 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
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in millions)     

Average Monthly Unique Users

   175.2    164.5    6% 

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 with 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-afteraccess by our agent and other real estate professional advertisers.

We define a visit as a group of interactions by users with the Zillow, Trulia, StreetEasy (as of March 2017) and RealEstate.com (as of June 2017) mobile applications and websites, as we monetize our Premier Agent and Premier Broker products on these 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, StreetEasy and RealEstate.com 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, 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.

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in millions)     

Visits

   1,667.1    1,403.8    19% 

Basis of Presentation

Revenue

We generate 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.Marketplace revenue for the three and nine month periods ended September 30, 2017 and 2016 consisted of Premier Agent revenue, other real estate revenue and mortgages revenue.

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 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. 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. 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 trafficindividual to our mobile applications and websites. With this pricing method, we recognized revenue related to our impression-based Premier Agent and Premier Broker products basedIn such instances, Google Analytics would count different instances of access by the same individual as separate unique users. Accordingly, reliance on the lessernumber of (i)unique users counted by Google Analytics may overstate 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 then month-to-month thereafter.

In 2016, we began testing and implementation of a new auction-based pricing method for our Premier Agent 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, 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 forunique users who 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 spend on a straight-line basis during the contractual period over which the services are delivered. 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.

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 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 homebuilders 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. Through Long Form, 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.

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 andduring the period.

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The following table presents our partner websites and mobile applications, primarily inaverage monthly unique users for 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.

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.

Acquisition-related Costs.Acquisition-related costs consist of investment banking, legal, accounting, tax, and regulatory filing fees associated with acquisitions.

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 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. periods presented (in millions, except percentages):

 Three Months Ended
September 30,		2022 to 2023
% Change		Nine Months Ended
September 30,		2022 to 2023
% Change
 2023202220232022
Average monthly unique users224 236 (5)%221 227 (3)%
During the three and nine month periods ended September 30, 2017,2023, average monthly unique users decreased by 5% and 2016, we did not have a material amount3%, respectively, compared to each of current taxable income. We have provided a full valuation allowance against our deferred tax assets as ofthe three and nine month periods ended September 30, 20172022. These decreases were primarily driven by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and December 31, 2016 because, based on the weight of available evidence,volatility in mortgage interest rates as well as home price fluctuations.
Loan Origination Volume
Loan origination volume is an important metric as it is more likely than not (a likelihooda measure of more than 50%) that some or allhow successful we are at the origination of mortgage loan products through our mortgage origination business, Zillow Home Loans, which directly impacts our Mortgages revenue. Loan origination volume represents the deferred tax assets will not be realized. Therefore, no material related tax liability or expense has been recorded intotal value of mortgage loan originations closed through Zillow Home Loans during the financial statements.

Results of Operations

period.

The following tables present our results of operationstable presents loan origination volume by purpose and in total for Zillow Home Loans for the periods indicatedpresented (in millions, except percentages):
Three Months Ended
September 30,		2022 to 2023
% Change		Nine Months Ended
September 30,		2022 to 2023
% Change
2023202220232022
Purchase loan origination volume$452 $240 88 %$1,047 $557 88 %
Refinance loan origination volume5 31 (84)%12 745 (98)%
Total loan origination volume$457 $271 69 %$1,059 $1,302 (19)%
During the three months ended September 30, 2023, total loan origination volume increased 69% compared to the three months ended September 30, 2022. This increase was primarily driven by the continued growth in Zillow Home Loans purchase loan originations, partially offset by a decrease in refinance loan origination volume, which was impacted by interest rate increases. During the nine months ended September 30, 2023, total loan origination volume decreased 19% compared to the nine months ended September 30, 2022. This decrease was primarily driven by a decrease in refinance loan origination volume which was impacted by interest rate increases, partially offset by the continued growth in Zillow Home Loans purchase loan originations.
Results of Operations
Given continued uncertainty surrounding the health of the housing market, interest rate environment and inflationary conditions, financial performance for current and prior periods may not be indicative of future performance.
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Revenue
% of Total Revenue
Three Months Ended
September 30,		2022 to 2023Three Months Ended
September 30,
 20232022$ Change% Change20232022
(in millions, except percentages, unaudited)
Residential$362 $372 $(10)(3)%73 %77 %
Rentals99 74 25 34 20 15 
Mortgages24 26 (2)(8)5 5 
Other11 11— — 2 2 
Total revenue$496 $483 $13 3 %100 %100 %
% of Total Revenue
 Nine Months Ended
September 30,		2022 to 2023Nine Months Ended
September 30,
 20232022$ Change% Change20232022
(in millions, except percentages, unaudited)
Residential$1,103 $1,182 $(79)(7)%75 %78 %
Rentals264 206 58 28 18 14 
Mortgages74 101 (27)(27)5 7 
Other30 34(4)(12)2 2 
Total revenue$1,471 $1,523 $(52)(3)%100 %100 %
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Total revenue increased $13 million, or 3%, to $496 million:
•Rentals revenue increased $25 million, or 34%. The increase in Rentals revenue was primarily due to a 20% increase in quarterly revenue per average monthly rentals unique visitor to $3.30 for the three months ended September 30, 2023 as compared to $2.74 for the three months ended September 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers as well as growth in multifamily property listings, which drove a percentage42% increase in multifamily rentals revenue. We calculate quarterly revenue per average monthly rentals unique visitor by dividing total Rentals revenue for the period by the average monthly rentals unique visitors for the period and then dividing by the number of quarters in the period. The increase in Rentals revenue was also driven by growth in average monthly rentals unique visitors which increased 11% to 30 million during the three months ended September 30, 2023 from 27 million during the three months ended September 30, 2022. Average monthly rentals unique visitors are measured with Comscore data, which includes average monthly unique visitors on rental listings on Zillow, Trulia and HotPads mobile apps and websites. We expect Rentals revenue to decrease in absolute dollars during the three months ending December 31, 2023, primarily due to the impact of seasonality on rental property listings and landlord advertising spend.
•Residential revenue decreased $10 million, or 3%. The decrease in Residential revenue was primarily driven by a 5% decrease in the number of visits for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 due to macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations. The impact of the decrease in visits was partially offset by a 3% increase in Residential revenue per visit to $0.138 for the three months ended September 30, 2023 from $0.134 for the three months ended September 30, 2022, primarily driven by continued improvement in our ability to connect high-intent customers to agents. We calculate Residential revenue per visit by dividing the revenue generated by our Residential offerings by the number of visits in the period. As a result of the housing market factors described above, Premier Agent revenue decreased 3% during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. We expect Residential revenue to decrease in absolute dollars during the three months ending December 31, 2023, primarily due to continued pressure from the macro housing market factors described above and the impact of seasonality on real estate transaction volumes.
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•Mortgages revenue decreased $2 million, or 8%, driven by an $8 million decrease in our Custom Quote and Connect advertising services revenue, offset by an $8 million increase in mortgage originations revenue. The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 40% decrease in leads generated from marketing products sold to mortgage professionals. This decrease in leads was driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period. The decrease in Custom Quote and Connect advertising services revenue was offset by an $8 million increase in mortgage originations revenue, as total revenue:

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 
   (in thousands, except per share data, unaudited) 

Statements of Operations Data:

        

Revenue

  $281,839   $224,592   $794,464   $618,977 

Costs and expenses:

        

Cost of revenue (exclusive of amortization) (1)(2)

   22,152    17,608    62,644    50,556 

Sales and marketing (1)

   107,108    93,180    344,266    291,910 

Technology and development (1)

   83,389    64,496    234,798    188,263 

General and administrative (1)

   54,226    42,625    153,038    284,175 

Acquisition-related costs

   218    93    366    890 

Gain on divestiture of business

   —      (1,251)    —      (1,251) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

   267,093    216,751    795,112    814,543 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

   14,746    7,841    (648)    (195,566) 

Other income

   1,407    561    3,970    1,995 

Interest expense

   (6,906)    (1,595)    (20,526)    (4,740) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

   9,247    6,807    (17,204)    (198,311) 

Income tax benefit (expense)

   (41)    —      (41)    1,364 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $9,206   $6,807   $(17,245)   $(196,947) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share — basic and diluted

  $0.05   $0.04   $(0.09)   $(1.10) 

Weighted-average shares outstanding — basic

   187,692    180,583    185,447    179,577 

Weighted-average shares outstanding — diluted

   196,425    189,661    185,447    179,577 

Other Financial Data:

        

Adjusted EBITDA (3)

  $70,957   $59,463   $165,456   $(39,923) 
  Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2017   2016   2017   2016 
   (in thousands, unaudited) 

(1) Includes share-based compensation as follows:

        

Cost of revenue

  $1,014   $894   $2,942   $2,662 

Sales and marketing

   5,914    5,968    17,694    17,566 

Technology and development

   10,438    8,035    29,329    23,160 

General and administrative

   11,208    12,388    34,197    37,764 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $28,574   $27,285   $84,162   $81,152 
  

 

 

   

 

 

   

 

 

   

 

 

 

(2) Amortization of website development costs and intangible assets included in technology and development

  $13,442   $22,006   $59,862   $64,931 

(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 U.S. generally accepted accounting principles, or GAAP. Adjusted EBITDA for the nine months ended September 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.

     

   Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
   2017  2016  2017  2016 
   (unaudited) 

Percentage of Revenue:

     

Revenue

   100%   100%   100%   100% 

Costs and expenses:

     

Cost of revenue (exclusive of amortization)

   8   8   8   8 

Sales and marketing

   38   41   43   47 

Technology and development

   30   29   30   30 

General and administrative

   19   19   19   46 

Acquisition-related costs

   —     —     —     —   

Gain on divestiture of business

   0   (1)   0   —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Total costs and expenses

   95   97   100   132 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from operations

   5   3   —     (32) 

Other income

   —     —     —     —   

Interest expense

   (2)   (1)   (3)   (1) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   3   3   (2)   (32) 

Income tax benefit (expense)

   —     0   —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

   3%   3%   (2%)   (32%) 
  

 

 

  

 

 

  

 

 

  

 

 

 

loan origination volume increased 69% from $271 million for the three months ended September 30, 2022 to $457 million for the three months ended September 30, 2023, primarily driven by continued growth in Zillow Home Loans purchase loan origination volume, partially offset by a decrease in refinance loan origination volume due to the impact of interest rate increases. The increase in mortgage originations revenue was also attributable to a 40% increase in gain on sale margin. 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.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Total revenue decreased $52 million, or 3%, to $1,471 million:
•Residential revenue decreased $79 million, or 7%. This decrease was driven by a 6% decrease in the number of visits for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations. These factors also resulted in an 8% decrease in Premier Agent revenue during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
•Mortgages revenue decreased $27 million, or 27%. This decrease was driven by a decline in our Custom Quote and Connect advertising services revenue. The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 35% decrease in leads generated from marketing products sold to mortgage professionals. This decrease in leads was driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period.
•Rentals revenue increased $58 million, or 28%. The increase in Rentals revenue was primarily due to growth in average monthly rentals unique visitors which increased 15% to 30 million during the nine months ended September 30, 2023 from 26 million during the nine months ended September 30, 2022. The increase in Rentals revenue was also driven by an 11% increase in quarterly revenue per average monthly rentals unique visitor to $2.93 for the nine months ended September 30, 2023 as compared to $2.64 for the nine months ended September 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers as well as growth in multifamily property listings.
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Adjusted EBITDA


The following table summarizes net loss, which includes the impact of discontinued operations, and Adjusted EBITDA, which excludes the impact of discontinued operations (in millions, except percentages):
% of Revenue
 Three Months Ended
September 30,		2022 to 2023Three Months Ended
September 30,
 20232022$ Change% Change20232022
Net loss$(28)$(53)$25 47 %(6)%(11)%
Adjusted EBITDA$107 $130 $(23)(18)%22 %27 %

% of Revenue
 Nine Months Ended
September 30,		2022 to 2023Nine Months Ended
September 30,
 20232022$ Change% Change20232022
Net loss$(85)$(29)$(56)(193)%(6)%(2)%
Adjusted EBITDA$322 $441 $(119)(27)%22 %29 %

To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA, a non-GAAP financial measure, within this Quarterly Report on Form 10-Q, a non-GAAP financial measure.10-Q. We have provided a reconciliation below of Adjusted EBITDA to net income (loss),loss, the most directly comparable GAAPU.S. generally accepted accounting principle (“GAAP”) financial measure.

We have included Adjusted EBITDA in this Quarterly Report on Form 10-Q becauseas it is a key metric used by our management and board of directorsBoard 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 has limitations as an analytical tool, and you should not consider itthis measure 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 are non-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 gain on divestiture of business;

•Adjusted EBITDA does not reflect interest expense or other income;income, net;

•Adjusted EBITDA does not reflect income 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 alongside other financial performance measures, including various cash flowcash-flow metrics, net income (loss)loss and our other GAAP results.

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The following table presents a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net income (loss)loss for each of the periods presented:

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2017   2016   2017   2016 
   (in thousands, unaudited) 

Reconciliation of Adjusted EBITDA to Net Income (Loss):

        

Net income (loss)

  $9,206   $6,807   $(17,245)   $(196,947) 

Other income

   (1,407)    (561)    (3,970)    (1,995) 

Depreciation and amortization expense

   27,419    25,495    81,576    74,852 

Share-based compensation expense

   28,574    27,285    84,162    81,152 

Acquisition-related costs

   218    93    366    890 

Gain on divestiture of business

   —      (1,251)    —      (1,251) 

Interest expense

   6,906    1,595    20,526    4,740 

Income tax benefit (expense)

   41    —      41    (1,364) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)

  $70,957   $59,463   $165,456   $(39,923) 
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)Adjusted EBITDA for the nine month periodpresented (in millions, unaudited):
 Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Reconciliation of Adjusted EBITDA to Net Loss:
Net loss$(28)$(53)$(85)$(29)
Loss from discontinued operations, net of income taxes— 2 — 13 
Income taxes— 3 1 (1)
Other income, net(34)(12)(108)(19)
Depreciation and amortization49 34 134 114 
Share-based compensation109 147 342 323 
Impairment and restructuring costs1 — 9 14 
Acquisition-related costs1 — 2 — 
Interest expense9 9 27 26 
Adjusted EBITDA$107 $130 $322 $441 
Costs and Expenses, Gross Profit and Other Items
% of Total Revenue
 Three Months Ended
September 30,		2022 to 2023Three Months Ended
September 30,
 20232022$ Change% Change20232022
(in millions, except percentages, unaudited)
Cost of revenue$110 $89 $21 24 %22 %18 %
Gross profit386 394 (8)(2)78 82 
Operating expenses:
Sales and marketing164 165 (1)(1)33 34 
Technology and development142 142 — — 29 29 
General and administrative131 138 (7)(5)26 29 
Impairment and restructuring costs1 — 1 — — — 
Acquisition-related costs1 — 1 — — — 
Total operating expenses439 445 (6)(1)89 92 
Other income, net34 12 22 183 7 2 
Interest expense(9)(9)— — (2)(2)
Income tax expense— (3)3 100 — (1)
40

% of Total Revenue
Nine Months Ended
September 30,		2022 to 2023Nine Months Ended
September 30,
 20232022$ Change% Change20232022
(in millions, except percentages, unaudited)
Cost of revenue$306 $278 $28 10 %21 %18 %
Gross profit1,165 1,245 (80)(6)79 82 
Operating expenses:
Sales and marketing493 502 (9)(2)34 33 
Technology and development419 369 50 14 28 24 
General and administrative407 370 37 10 28 24 
Impairment and restructuring costs9 14 (5)(36)1 1 
Acquisition-related costs2 — 2 — — — 
Total operating expenses1,330 1,255 75 6 90 82 
Other income, net108 19 89 468 7 1 
Interest expense(27)(26)(1)(4)(2)(2)
Income tax benefit (expense)(1)1 (2)(200)— — 

Cost of Revenue
Cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount-related expenses, such as salaries, benefits, bonuses and share-based compensation expense, as well as revenue-sharing costs related to our commercial business relationships, depreciation expense, and costs associated with hosting our mobile applications and websites. Cost of revenue also includes 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, and amortization of certain intangible assets recorded in connection with acquisitions, including developed technology. Cost of revenue also includes credit card fees and ad serving costs paid to third parties, and direct costs to originate mortgage loans, including underwriting and processing costs.
Three months ended September 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.

Three Months Ended September 30, 2017 Compared2023 compared to Three Months Endedthree months ended September 30, 2016

Revenue

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Revenue:

      

Marketplace revenue:

      

Premier Agent

  $197,054   $158,322    24% 

Other real estate

   44,778    28,799    55% 

Mortgages

   20,869   19,775    6% 
  

 

 

   

 

 

   

Total Marketplace revenue

   262,701    206,896    27% 

Display revenue

   19,138    17,696    8% 
  

 

 

   

 

 

   

Total revenue

  $281,839   $224,592    25% 
  

 

 

   

 

 

   

   Three Months Ended
September 30,		 
   2017  2016 

Percentage of Total Revenue:

   

Marketplace revenue:

   

Premier Agent

   70%   70% 

Other real estate

   16   13 

Mortgages

   7  9 
  

 

 

  

 

 

 

Total Marketplace revenue

   93   92 

Display revenue

   7   8 
  

 

 

  

 

 

 

Total revenue

   100%   100% 
  

 

 

  

 

 

 

Overall2022

Cost of revenue increased by $57.2$21 million, or 25%24%, primarily driven by increases of $15 million in depreciation and amortization expense due to an increase in website development costs, $3 million in ad serving costs and $3 million in software and hardware costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Cost of revenue increased $28 million, or 10%, primarily driven by increases of $22 million in depreciation and amortization expense due to an increase in website development costs, $6 million in ad serving costs, $6 million in software and hardware costs and $4 million in mortgage loan processing costs due to increased purchase loan origination volume. These increases were partially offset by a $7 million decrease in lead acquisition costs as we focus on organic growth of our mortgage origination business and a $2 million decrease in credit card processing fees attributable to the previously mentioned decrease in revenue.
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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 various product offerings.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Gross profit decreased by $8 million, or 2%, due to increases in cost of revenue, primarily associated with additional depreciation and amortization expenses, which outpaced the growth of revenue. Total gross margin decreased from 82% to 78%.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Gross profit decreased by $80 million, or 6%, primarily due to a decrease in revenue, discussed above. Total gross margin decreased from 82% to 79%.
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 and mortgage loan officers and specialists, 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.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Sales and marketing expenses decreased $1 million, or 1%, due to a decrease of $5 million in headcount-related expenses, including share-based compensation expense, primarily driven by the recognition of incremental share-based compensation expense in the three months ended September 30, 20172022 in connection with the repricing of eligible option awards in connection with the August 2022 Equity Award Actions, partially offset by a $2 million increase in marketing and advertising costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Sales and marketing expenses decreased $9 million, or 2%, due to decreases of $6 million in marketing and advertising costs and $4 million in third-party professional service fees both driven by active cost management, a $3 million decrease in depreciation and amortization expense, and a $3 million decrease in headcount-related expenses, including share-based compensation expense primarily driven by the recognition of incremental share-based compensation expense in the three months ended September 30, 2016. Marketplace revenue increased2022 in connection with the repricing of eligible option awards in connection with the August 2022 Equity Award Actions. The decreases were partially offset by 27%,a $6 million increase in travel expenses and display revenue increased by 8%. There were approximately 175.2a $2 million average monthly unique usersincrease in software and hardware costs.
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.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Technology and development expenses remained flat, primarily due to a decrease of $3 million in third-party professional service fees, partially offset by a $2 million increase in travel expenses and a $2 million increase in software and hardware costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Technology and development expenses increased $50 million, or 14%, primarily due to increases of $41 million in headcount-related expenses, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions, $5 million in travel expenses and $4 million in software and hardware costs.
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Table of Contents
General and Administrative
General and administrative expenses consist 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.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
General and administrative expenses decreased $7 million, or 5%, primarily due to a decrease of $10 million in headcount-related expenses, including share-based compensation expense, primarily driven by the recognition of incremental share-based compensation expense in the three months ended September 30, 20172022 in connection with the repricing of eligible option awards in connection with the August 2022 Equity Award Actions, partially offset by an increase of $2 million in third-party professional service fees.
Nine months ended September 30, 2023 compared to 164.5nine months ended September 30, 2022
General and administrative expenses increased $37 million, average monthly unique usersor 10%, primarily due to increases of $34 million in headcount-related expenses, including share-based compensation expense, primarily driven by an $18 million increase in share-based compensation expense associated with the departures of certain personnel, as well as the impact of the August 2022 Equity Award Actions. The increase in general and administrative expenses was also driven by increases of $3 million in third-party professional service fees and $3 million in software and hardware costs.
Impairment and Restructuring Costs
Impairment and restructuring costs were $1 million and $9 million for the three and nine month periods ended September 30, 2023, respectively. The nine months ended September 30, 2023 include impairment costs of $6 million related to reductions in our right of use assets associated with changes in the use of certain office space in our lease portfolio and employee termination costs of $3 million.
There were no impairment and restructuring costs incurred during the three months ended September 30, 2016, representing year-over-year growth of 6%. This increase in unique users increased the number of impressions2022. Impairment 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, as well as lost sales, impacted Premier Agent revenue by more than $0.8restructuring costs totaled $14 million for the quarterly period ended September 30, 2017. We expect Premier Agent revenue for

the three months ended December 31, 2017 will be impacted by approximately $1.0 million due to relief initiatives. We also experienced a temporary decline in traffic to our mobile applications and websites from consumers in impacted areas during September 2017, which may have impacted the number of unique users and visits for the threenine months ended September 30, 2017,2022. These costs do not qualify as discontinued operations and may impactwere primarily attributable to employee termination costs associated with the numberwind down of unique usersZillow Offers operations. For additional information regarding these costs, see Note 3 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Other Income, net
Other income, net consists primarily of interest income earned on our cash, cash equivalents and visitsinvestments, and fair value adjustments on an outstanding warrant.
Other income, net increased $22 million and $89 million for the three and nine month periods ended September 30, 2023, respectively. The increase in other income, net was primarily driven by increases in returns on investments due to the higher interest rate environment as compared to the prior year period.
Income Taxes
We are primarily subject to income taxes in the United States (federal and state), as well as certain foreign jurisdictions. As of September 30, 2023 and December 31, 2022, 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.
Income tax expense (benefit) for the three and nine months ended December 31, 2017.

Marketplace revenue grew to $262.7September 30, 2023 and the nine months ended September 30, 2022 was not material. We recorded income tax expense of $3 million for the three months ended September 30, 2017 from $206.9 million for the three months ended September 30, 2016, an increase of $55.8 million. Marketplace revenue represented 93% of total revenue for the three months ended September 30, 2017 compared to 92% of total revenue for the three months ended September 30, 2016. The increase in marketplace revenue was primarily attributable to the $38.7 million, or 24%, increase in Premier Agent revenue. Premier Agent revenue was positively impacted by an increase in visits. Visits increased 19% to 1,667.1 million for the three months ended September 30, 2017 from 1,403.8 million for the three months ended September 30, 2016. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit increased by 5% to $0.118 for the three months ended September 30, 2017 from $0.113 for the three months ended September 30, 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 number 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. Revenue generated from Premier Agent accounts which have advertised with Zillow Group for more than one year grew by 45% for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.

The increase in marketplace revenue was also attributable to growth in other real estate revenue, which increased by $16.0 million, or 55%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase in other real estate revenue was primarily a result of a 56% 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 $1.1 million, or 6%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase in mortgages revenue was primarily a result of a 31% increase in our average revenue per loan information request for the three months ended September 30, 2017 compared to the three months ended September 30, 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, 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 5.5 million mortgage loan information requests submitted by consumers for the three months ended September 30, 2017 compared to 6.9 million mortgage loan information requests submitted by consumers for the three months ended September 30, 2016, a decrease of 20%. 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 $19.1 million for the three months ended September 30, 2017 compared to $17.7 million for the three months ended September 30, 2016, an increase of $1.4 million. Display revenue represented 7% of total revenue for the three months ended September 30, 2017 compared to 8% of total revenue for the three months ended September 30, 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.

Cost of Revenue

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Cost of revenue

  $22,152   $17,608    26% 

Cost of revenue was $22.2 million for the three months ended September 30, 2017 compared to $17.6 million for the three months ended September 30, 2016, an increase of $4.5 million, or 26%. The increase in cost of revenue was primarily attributable to a $2.2 million increase in revenue share costs, a $1.4 million increase in data center and connectivity costs, a $0.4 million increase in headcount-related expenses, including share-based compensation expense, and a $0.5 million increase in various miscellaneous expenses. We expect our cost of revenue to increase in absolute dollars in future years as we continue to incur more expenses that are associated with growth in revenue.

Sales and Marketing

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Sales and marketing

  $107,108   $93,180    15% 

Sales and marketing expenses were $107.1 million for the three months ended September 30, 2017 compared to $93.2 million for the three months ended September 30, 2016, an increase of $13.9 million, or 15%. The increase in sales and marketing expenses was primarily attributable to increased marketing and advertising expenses of $6.8 million,2022, primarily related to advertising spend during the peak residential real estate transaction period to attract consumers across online and offline channels, which supports our growth initiatives.

In addition to the increases in marketing and advertising, headcount-related expenses increased $5.0 million, including share-based compensation expense, due primarily to significant growth in the sizestate income taxes.

43
Table of our sales team. The increase in sales and marketing expenses was also attributable to a $1.4 million increase in consulting costs to support our advertising initiatives and a $0.7 million increase in various miscellaneous expenses. We expect our sales and marketing expenses to 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.

Technology and Development

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Technology and development

  $83,389   $64,496    29% 

Technology and development expenses, which include research and development costs, were $83.4 million for the three months ended September 30, 2017 compared to $64.5 million for the three months ended September 30, 2016, an increase of $18.9 million, or 29%. Approximately $13.2 million of the increase related to growth in headcount-related expenses, including share-based compensation expense, as we continue to grow our engineering teams to support current and future product initiatives. In addition, there was a $3.6 million increase in other non-capitalizable data content expense, a $1.4 million increase in the amortization of purchased data content intangible assets, and a $0.7 million increase in various miscellaneous expenses.

Amortization expense included in technology and development for capitalized website development costs and software was $11.2 million and $11.3 million, respectively, for the three months ended September 30, 2017 and 2016. Amortization expense included in technology and development related to intangible assets recorded in connection with acquisitions was $9.8 million and $9.6 million, respectively, for the three months ended September 30, 2017 and 2016. Other data content expense was $10.1 million and $6.5 million, respectively, for the three months ended September 30, 2017 and 2016. Amortization expense included in technology and development for purchased data content intangible assets was $2.5 million and $1.1 million, respectively, for the three months ended September 30, 2017 and 2016. We expect our technology and development expenses to increase in absolute dollars over time as we continue to build new mobile and website functionality.

General and Administrative

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

General and administrative

  $54,226   $42,625    27% 

General and administrative expenses were $54.2 million for the three months ended September 30, 2017 compared to $42.6 million for the three months ended September 30, 2016, an increase of $11.6 million, or 27%. The increase in general and administrative expenses was due in part to a $3.6 million increase in estimated legal liabilities, a $1.9 million increase in city and state taxes, a $1.8 million increase in building lease-related expenses including rent, utilities and insurance, a $1.4 million increase in travel and meals expense, a $1.1 million increase in bad debt expense, a $1.1 million increase in headcount-related expenses, including share-based compensation expense, driven primarily by growth in headcount in shared corporate services to support our engineering and other teams, and a $0.7 million increase 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.

Acquisition-Related Costs

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Acquisition-related costs

  $218   $93    134% 

Acquisition-related costs were $0.2 million for the three months ended September 30, 2017, primarily as a result of our September 2017 acquisition of New Home Feed, including legal and accounting fees. Acquisition-related costs were $0.1 million for the three months ended September 30, 2016, primarily as a result of our August 2016 acquisition of Bridge Interactive Group, including legal and accounting fees.

Gain on Divestiture of Business

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Gain on divestiture of business

  $—   $1,251    N/A 

There was no gain on divestiture of business for the three months ended September 30, 2017. The gain on divestiture of business of $1.3 million for the three months ended September 30, 2016 relates to the August 2016 sale of our Diverse Solutions business.

Interest Expense

   Three Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Interest expense

  $6,906   $1,595    333% 

Interest expense was $6.9 million for the three months ended September 30, 2017, compared to $1.6 million for the three months ended September 30, 2016.

For the three months ended September 30, 2017, interest expense primarily relates to the 2021 Notes that were issued on December 12, 2016. 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.

For the three months ended September 30, 2016, interest expense relates to the 2020 Notes that we guaranteed in connection with the February 2015 acquisition of Trulia, which accrue interest at a fixed rate of 2.75% annually.

For additional information regarding the 2020 Notes and the 2021 Notes, see Note 9 to our condensed consolidated financial statements.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Revenue

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Revenue:

      

Marketplace revenue:

      

Premier Agent

  $562,081   $439,957    28% 

Other real estate

   117,427    72,847    61% 

Mortgages

   62,075   54,621    14% 
  

 

 

   

 

 

   

Total Marketplace revenue

   741,583    567,425    31% 

Display revenue

   52,881    51,552    3% 
  

 

 

   

 

 

   

Total revenue

  $794,464   $618,977    28% 
  

 

 

   

 

 

   

   Nine Months Ended
September 30,		 
   2017  2016 

Percentage of Total Revenue:

   

Marketplace revenue:

   

Premier Agent

   71%   71% 

Other real estate

   15   12 

Mortgages

   8  9 
  

 

 

  

 

 

 

Total Marketplace revenue

   93   92 

Display revenue

   7   8 
  

 

 

  

 

 

 

Total revenue

   100%   100% 
  

 

 

  

 

 

 

Overall revenue increased by $175.5 million, or 28%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Marketplace revenue increased by 31%, and display revenue increased by 3%.

Marketplace revenue grew to $741.6 million for the nine months ended September 30, 2017 from $567.4 million for the nine months ended September 30, 2016, an increase of $174.2 million. Marketplace revenue represented 93% of total revenue for the nine months ended September 30, 2017 compared to 92% of total revenue for the nine months ended September 30, 2016. The increase in marketplace revenue was primarily attributable to the $122.1 million, or 28%, increase in Premier Agent revenue. Premier Agent revenue was positively impacted by an increase in visits. Visits increased 18% to 4,878.8 million for the nine months ended September 30, 2017 from 4,133.5 million for the nine months ended September 30, 2016. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit increased by 8% to $0.115 for the nine months ended September 30, 2017 from $0.106 for the nine months ended September 30, 2016. 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.

The increase in marketplace revenue was also attributable to growth in other real estate revenue, which increased by $44.6 million, or 61%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in other real estate revenue was primarily a result of a 73% 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 $7.5 million, or 14%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in mortgages revenue was primarily a result of a 62% increase in our average revenue per loan information request for the nine months ended September 30, 2017 compared to the nine months ended September 30, 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, 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 17.3 million mortgage loan information requests submitted by consumers for the nine months ended September 30, 2017 compared to 24.8 million mortgage loan information requests submitted by consumers for the nine months ended September 30, 2016, a decrease of 30%. 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 $52.9 million for the nine months ended September 30, 2017 compared to $51.6 million for the nine months ended September 30, 2016, an increase of $1.3 million. Display revenue represented 6% of total revenue for the nine months ended September 30, 2017 compared to 8% of total revenue for the nine months ended September 30, 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.

Cost of Revenue

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Cost of revenue

  $62,644   $50,556    24% 

Cost of revenue was $62.6 million for the nine months ended September 30, 2017 compared to $50.6 million for the nine months ended September 30, 2016, an increase of $12.1 million, or 24%. The increase in cost of revenue was primarily attributable to a $6.6 million increase in revenue share costs, a $3.1 million increase in data center and connectivity costs, a $0.9 million increase in headcount-related expenses, including share-based compensation expense, a $0.6 million increase in software and hardware costs, and a $0.9 million increase in various miscellaneous expenses.

Sales and Marketing

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Sales and marketing

  $344,266   $291,910    18% 

Sales and marketing expenses were $344.3 million for the nine months ended September 30, 2017 compared to $291.9 million for the nine months ended September 30, 2016, an increase of $52.4 million, or 18%. The increase in sales and marketing expenses was primarily attributable to increased marketing and advertising expenses $30.5 million, primarily related to advertising spend to attract consumers across online and offline channels, which supports our growth initiatives.

In addition to the increases in marketing and advertising, headcount-related expenses increased $15.1 million, including share-based compensation expense, due primarily to significant growth in the size of our sales team. The increase in sales and marketing expenses was also attributable to a $2.4 million increase in tradeshows and conferences expense and related travel costs, a $1.9 million increase in consulting costs to support our advertising initiatives, a $1.0 million increase in software, hardware and connectivity costs, and a $1.5 million increase in various miscellaneous expenses.

Technology and Development

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Technology and development

  $234,798   $188,263    25% 

Technology and development expenses, which include research and development costs, were $234.8 million for the nine months ended September 30, 2017 compared to $188.3 million for the nine months ended September 30, 2016, an increase of $46.5 million, or 25%. Approximately $33.1 million of the increase related to growth in headcount-related expenses, including share-based compensation expense, as we continue to grow our engineering teams to support current and future product initiatives. In addition, there was a $7.0 million increase in other non-capitalizable data content expense, a $3.8 million increase in amortization of purchased data content intangible assets, and a $2.6 million increase in various miscellaneous expenses.

Amortization expense included in technology and development for capitalized website development costs and software was $33.0 million and $32.4 million, respectively, for the nine months ended September 30, 2017 and 2016. Amortization expense included in technology and development related to intangible assets recorded in connection with acquisitions was $29.5 million and $28.9 million, respectively, for the nine months ended September 30, 2017 and 2016. Other data content expense was $25.8 million and $18.8 million, respectively, for the nine months ended September 30, 2017 and 2016. Amortization expense included in technology and development for purchased data content intangible assets was $7.5 million and $3.6 million, respectively, for the nine months ended September 30, 2017 and 2016.

General and Administrative

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

General and administrative

  $153,038   $284,175    (46%) 

General and administrative expenses were $153.0 million for the nine months ended September 30, 2017 compared to $284.2 million for the nine months ended September 30, 2016, a decrease of $131.1 million, or 46%. The decrease in general and administrative expenses was primarily 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 million in connection with a release of all claims. In addition, there was a $30.4 million decrease in professional services fees, primarily as a result of our settlement of litigation with Move, as we incurred $28.8 million in legal costs related to our litigation with Move for the nine months ended September 30, 2016. These decreases were partially offset by a $5.7 million increase in estimated legal liabilities, a $5.6 million increase in building lease-related expenses including rent, utilities and insurance, a $4.5 million increase in headcount-related expenses, including share-based compensation expense, driven primarily by growth in headcount in shared corporate services to support our engineering and other teams, a $4.3 million increase in city and state taxes, a $4.1 million increase in bad debt expense, a $1.5 million increase in software and hardware costs, a $1.3 million increase in the loss on disposal of assets, and a $2.3 million increase in miscellaneous general and administrative expenses.

Acquisition-Related Costs

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Acquisition-related costs

  $366   $890    (59%) 

Acquisition-related costs were approximately $0.4 million for the nine months ended September 30, 2017, primarily as a result of our January 2017 acquisition of HREO and our September 2017 acquisition of New Home Feed, including legal and accounting fees. Acquisition-related costs were $0.9 million for the nine months ended September 30, 2016, primarily as a result of our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive Group, including legal and accounting fees.

Gain on Divestiture of Business

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Gain on divestiture of business

  $—   $1,251    N/A 

There was no gain on divestiture of business for the nine months ended September 30, 2017. The gain on divestiture of business was $1.3 million for the nine months ended September 30, 2016 and relates to the August 2016 sale of our Diverse Solutions business.

Interest Expense

   Nine Months Ended
September 30,		   2016 to 2017
% Change		 
   2017   2016   
   (in thousands, unaudited)     

Interest expense

  $20,526   $4,740    333% 

Interest expense was $20.5 million for the nine months ended September 30, 2017, compared to $4.7 million for the nine months ended September 30, 2016.

For the nine months ended September 30, 2017, interest expense primarily relates to the 2021 Notes that were issued on December 12, 2016. 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.

For the nine months ended September 30, 2016, interest expense relates to the 2020 Notes that we guaranteed in connection with the February 2015 acquisition of Trulia, which accrue interest at a fixed rate of 2.75% annually.

For additional information regarding the 2020 Notes and the 2021 Notes, see Note 9 to our condensed consolidated financial statements.

Contents

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 September 30, 20172023 and December 31, 2016,2022, we had cash and cash equivalents, investments and restricted cash of $3.3 billion and investments of $682.0 million and $507.5 million,$3.4 billion, respectively. Cash and cash equivalents balances consist of operating cash on deposit with financial institutions and money market funds and certificates of deposit with original maturities of three months or less.funds. Investments as of September 30, 2017 and December 31, 2016 consistedconsist of fixed income securities, which include U.S. government treasury securities, U.S. government agency securities, investment grade corporate notessecurities, and bonds, municipal securities, foreign government securities, commercial paper and certificatespaper. Restricted cash primarily consists of deposit.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 (“FDIC”) and the Securities Investor Protection Corporation insurance limits, as applicable. As of September 30, 2023, 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, strategic acquisitions and investments and other capital requirements for at least the next 12 months.

On February 17, 2015, We believe we acquired Trulia in a stock-for-stock transaction. The total purchase price of Trulia was approximately $2.0 billion. 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 $1,000 principal 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 9 to our condensed 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 million related 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 9 to our condensed 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 September 30, 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.

Summarized Cash Flow Information
The cash flows related to discontinued operations have not been separated. Accordingly, the condensed 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 (equivalentcontinuing and discontinued operations for the nine months ended September 30, 2022. There were no cash flows related to an initial conversion price of approximately $52.36 per share of Class C capital stock). The conversion rate is subject to customary adjustments upondiscontinued operations for 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 2021nine months ended September 30, 2023. See Note 3 in our Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as defined in the indenture governing the 2021 Notes).

We may not redeem the 2021 Notes prior to December 6, 2019. We may redeem the 2021 NotesCondensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q 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 9 to our condensed 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:

   Nine Months Ended
September 30,		 
   2017   2016 
   (in thousands, unaudited) 

Cash Flow Data:

    

Net cash provided by (used in) operating activities

  $176,923   $(30,436) 

Net cash used in investing activities

   (180,246)    (27,911) 

Net cash provided by financing activities

   79,673    19,969 

presented (in millions, unaudited):
 Nine Months Ended
September 30,
 20232022
Cash Flow Data:
Net cash provided by operating activities$268 $4,420 
Net cash provided by (used in) investing activities339 (1,123)
Net cash used in financing activities(226)(4,160)

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.

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For the nine months ended September 30, 2017,2023, net cash provided by operating activities was $176.9$268 million. This was primarily driven by a net loss of $17.2$85 million, adjusted by share-based compensation of $342 million, depreciation and amortization expense of $81.6$134 million, share-based compensation expenseaccretion of $84.2bond discount of $29 million, amortization of the discountright of use assets of $18 million, amortization of contract cost assets of $16 million and amortization of debt issuance costs on the 2021 Notes of $13.4$4 million. Changes in operating assets and liabilities decreased cash provided by operating activities by $135 million. The changes in operating assets and liabilities are primarily related to a $55 million increase in mortgage loans held for sale due to an increase in badpurchase loan origination volume, a $26 million increase in accounts receivable primarily due to an increase in revenue from products and services billed in arrears, a $24 million decrease in lease liabilities due to contractual lease payments, a $22 million increase in prepaid expenses and other current assets primarily due to an increase in revenue from products and services billed in arrears, a $16 million increase in contract cost assets primarily due to capitalized sales commissions, a $4 million decrease in other long term liabilities, and a $3 million decrease in accrued expenses and other current liabilities. These changes were partially offset by a $7 million increase in accounts payable and a $4 million increase in accrued compensation and benefits both driven by the timing of payments, and a $4 million increase in deferred revenue.
For the nine months ended September 30, 2022, net cash provided by operating activities was $4.4 billion. This was driven by a net loss of $29 million, adjusted by share-based compensation of $341 million, depreciation and amortization of $121 million, amortization of debt expensediscount and debt issuance costs of $5.9$24 million, amortization of contract cost assets of $23 million, a loss on disposalextinguishment of property and equipmentdebt of $4.1$21 million, amortization of right of use assets of $17 million, accretion of bond discount of $11 million, and a change in deferred

rentother adjustments to reconcile net loss to net cash provided by operating activities of $3.1$11 million. Changes in operating assets and liabilities increased cash provided by operating activities by $1.6 million.$3.9 billion. The changes in operating assets and liabilities are primarily duerelated to a $19.3$3.9 billion decrease in inventory and a $76 million decrease in accounts receivable as we wound down Zillow Offers operations, a $58 million decrease in mortgage loans held for sale driven by increased interest rates which decreased demand for mortgages, and a $6 million increase in accounts receivableother long-term liabilities primarily due primarily to an increaseour outstanding warrant agreement. These changes were partially offset by a $52 million

decrease in revenue,accrued compensation and benefits and a $13.2$49 million increasedecrease in accrued expenses and other current liabilities anddriven primarily by the wind down of Zillow Offers operations, a $4.4$15 million decrease in lease liabilities primarily due to lease payments, a $13 million increase in prepaid expenses and other current assets driven primarily by the timing of payments.

For the nine months ended September 30, 2016, net cash used in operating activities was $30.4 million. This was primarily driven by a net loss of $196.9 million, including the impact of the settlement of a lawsuit for $130.0 million in June 2016, adjusted by share-based compensation expense of $81.2 million, depreciation and amortization expense of $74.9 million, a loss on disposal of property and equipment of $3.4 million, bad debt expense of $1.7 million, a $1.4 million gain on the divestiture of a business and a $1.4 million non-cash change in the valuation allowance related to a deferred tax liability generated in connection with our February 2016 acquisition of Naked Apartments. Changes in operating assets and liabilities increased cash provided by operating activities by $6.6 million. The increase in operating assets and liabilities is primarily due to a $13.0$13 million increase in accrued compensation and benefits due primarily to an increase in sales commissions and the timing of payroll, an $11.8 million increase in accounts receivable driven by an increase in revenue and a $5.6 million increase in deferred revenue driven by an increase in revenue.

contract cost assets.


Cash Flows Used InProvided By (Used In) Investing Activities

Our primary investing activities include the purchase and sale or maturity of investments, the purchasecash outflows for purchases of property and equipment and intangible assets, the purchase of cost method investments, netincluding capitalized website development costs and internal-use software, and cash paid in connection with acquisitions and proceeds from divestiture of a business.

acquisitions.

For the nine months ended September 30, 2017,2023, net cash provided by investing activities was $339 million. This was the result of $498 million of net proceeds from the maturity of investments, $125 million of purchases of property and equipment and intangible assets, and $34 million of cash paid for acquisitions, net of cash acquired.
For the nine months ended September 30, 2022, net cash used in investing activities was $180.2 million.$1.1 billion. This was primarily the result of $98.7 million$1.0 billion of net purchases of investments $61.0and $104 million of purchases forof property and equipment and intangible assets, $11.1 million paidassets.
Cash Flows Used In Financing Activities
Net cash used in connection with acquisitions,financing activities has primarily resulted from repurchases of Class A common stock and approximately $10.0 millionClass C capital stock, the exercise of employee option awards, repayments of borrowings on the warehouse line of credit and master repurchase agreements related to the purchaseZillow Home Loans, and, prior to September 30, 2022, settlement of a cost method investment, partially offset by $0.6 million inlong term debt including our Zillow Offers securitization term loans, proceeds from our August 2016 saleZillow Offers securitization transaction, and proceeds from and repayments of borrowings on our Diverse Solutions business.

credit facilities related to Zillow Offers.

For the nine months ended September 30, 2016,2023, net cash used in investingfinancing activities was $27.9 million. This was$226 million, which primarily the result of $53.6related to $336 million of purchasescash paid for property and equipment and intangible assets and $16.3 million paid in connection with our February 2016 acquisition of Naked Apartments and our August 2016 acquisition of Bridge Interactive Group,share repurchases, partially offset by $36.8$56 million of proceeds from the exercise of option awards and $54 million of net maturitiesborrowings on our warehouse line of credit and sales of investments, $3.2 million in proceeds from the divestiture of a business and a $2.0 million decrease in restricted cash.

Cash Flows Provided By Financing Activities

master repurchase agreements related to Zillow Home Loans.

For the nine months ended September 30, 2017 and 2016, our2022, net cash used in financing activities was $4.2 billion, which was primarily related to $2.2 billion of repayments on borrowings of our credit facilities and $1.2 billion for the exerciserepayment of employee option awards.the term loans associated with the wind down of Zillow Offers operations, $773 million of cash paid for share repurchases and $68 million of net repayments on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans. The cash outflows were partially offset by $44 million of proceeds from the exercise of option awardsawards.
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Capital Resources
We continue to invest in the development and expansion of our 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 September 30, 2023, we have $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):
September 30, 2023December 31, 2022
Maturity DateAggregate Principal AmountStated Interest RateCarrying ValueCarrying Value
September 1, 2026$499 1.375 %$496 $495 
May 15, 2025565 2.75 %561 560 
September 1, 2024608 0.75 %607 605 
Total$1,672 $1,664 $1,660 
We may from time to time seek to redeem, retire or purchase outstanding debt through cash purchases and/or exchanges for cash, shares of stock or a combination of cash and stock, pursuant to the redemption terms of such debt securities, in open market purchases, privately negotiated transactions or otherwise. In particular, the 2024 Notes and 2026 Notes may be redeemed if the last reported sale price of our Class C capital stock exceeds $56.56 per share for a specified period of trading days. To the extent our Class C capital stock price rises above those levels, we may redeem the 2024 Notes and/or 2026 Notes, in which case, we would expect to settle any conversions in cash up to the principal amount and shares of Class C capital stock for any conversion obligation in excess of the principal amount. Such redemptions, repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Refer to Note 9 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding our convertible senior notes, including conversion rates, conversion and redemption dates and the related capped call transactions.
On July 31, 2023, we acquired Aryeo, a software company which serves real estate photographers, for approximately $20 million of our Class C capital stock and $15 million in cash, net of cash acquired, subject to certain adjustments. Additionally, on September 11, 2023, we acquired substantially all of the assets and liabilities of Spruce, a tech-enabled title and escrow platform, for approximately $19 million in cash, net of cash acquired, subject to certain adjustments.
On October 28, 2023, Zillow, Inc. and Follow Up Boss entered into an Agreement pursuant to which Zillow, Inc. agreed to acquire Follow Up Boss for $400 million in cash, subject to certain adjustments, payable upon closing of the transaction, and up to $100 million in cash payable over a three-year period upon achievement of certain performance metrics contemplated by the Agreement. Follow Up Boss is a customer relationship management system for real estate professionals. The Agreement contains customary representations, warranties and covenants of the parties as well as conditions to closing, including, among other things, regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Prior to July 31, 2023, the Board authorized the repurchase of up to $1.8 billion of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. For additional information on these authorizations, see Notes 13 and 15 to our Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of Class A common stock, Class C capital stock, convertible senior notes or a combination thereof. This additional authorization (together with the previous authorizations, the “Repurchase Authorizations”) increased our total cumulative Repurchase Authorizations to $2.5 billion. During the nine months ended September 30, 20172023, we repurchased 1.8 million shares of Class A common stock and 2016 were $80.05.4 million shares of Class C capital stock at an average price of $48.71 and $46.15 per share, respectively, for an aggregate purchase price of $86 million and $20.5$250 million, respectively.

Off-Balance Sheet Arrangements

As of September 30, 2023, $914 million remained available for future repurchases pursuant to the Repurchase Authorizations, which repurchases decrease our liquidity and capital resources when effected.

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Zillow Home Loans operations impact our liquidity and capital resources as a cash intensive business that funds mortgage loans originated for resale in the secondary market. We didprimarily 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):
LenderMaturity DateMaximum Borrowing CapacityOutstanding Borrowings at September 30, 2023
Outstanding Borrowings at
December 31, 2022
Weighted Average Interest Rate
JPMorgan Chase Bank, N.A.(1)
May 30, 2024$100 $68 $— 7.03 %
Atlas Securitized Products, L.P.(2)
March 11, 202450 22 23 7.32 %
Comerica BankDecember 29, 202350 1 11 7.45 %
Citibank, N.A.(3)
June 9, 2023— — 3 — %
Total$200 $91 $37 
(1)Agreement commenced on June 1, 2023 and provides for a total maximum borrowing capacity of $100 million, $25 million of which is committed, until May 30, 2024.
(2)Agreement was reassigned from Credit Suisse AG, Cayman Islands on May 25, 2023. No other material changes were made to the agreement in connection with the reassignment.
(3)Agreement expired on June 9, 2023 and was not renewed.
On October 11, 2023, Zillow Home Loans entered into a repurchase agreement with UBS AG. The repurchase agreement provides a total maximum borrowing capacity of $100 million until October 9, 2024.

Refer to Note 9 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information on Zillow Group’s warehouse line of credit and master repurchase agreements.
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 September 30, 2023, we have any off-balance sheet arrangements other thanan outstanding surety bonds issuedaggregate principal amount of convertible senior notes of $1.7 billion, $608 million of which is payable within 12 months. Future interest payments associated with the convertible senior notes total $55 million, with $27 million payable within 12 months. Refer to Note 9 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for maturity dates, stated interest rates and additional information on our convertible senior notes.
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 September 30, 2023, we have outstanding principal amounts of $91 million. Amounts exclude an immaterial amount of estimated interest payments.
Operating Lease Obligations - Our lease portfolio primarily comprises operating leases for our benefitoffice space. During the nine months ended September 30, 2023, there were no material changes to our operating lease obligations disclosed in Note 12 of approximately $3.7 millionthe Notes to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Additionally, as of September 30, 2017. We do not believe that the surety bonds will have a material effect on our liquidity, capital resources, market risk support or credit risk support. For additional information regarding the surety bonds, see Note 14 to our condensed consolidated financial statements under the subsection titled “Surety Bonds”.

Contractual Obligations and Other Commitments

The following table provides a summary of our contractual obligations as of September 30, 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)

   38,333    9,200    18,400    10,733    —   

2020 Notes (3)

   10,137    —      —      10,137    —   

Interest on 2020 Notes (4)

   976    279    558    139    —   

Operating lease obligations (5)

   168,438    25,521    49,569    49,086    44,262 

Purchase obligations (6)

   144,390    32,640    67,000    44,750    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $822,274   $67,640   $135,527   $574,845   $44,262 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(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 14 to our condensed 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 14 to our condensed consolidated financial statements.

We have excluded unrecognized tax benefits from the contractual obligations table above because2023, we cannot make a reasonably reliable estimate of the amount and period of payment due primarily to our significant net operating loss carryforwards.

As of September 30, 2017, we havehad outstanding letters of credit of approximately $5.2$12 million, $1.8 million, $1.5 million and $1.1 million, respectively, which secure our lease obligations in connection with certain of the operating leases of our San Francisco, Seattle, New Yorkoffice spaces.

Purchase Obligations - We have non-cancellable purchase obligations for content related to our mobile applications and Denver office spaces. Certainwebsites and certain cloud computing costs. During the nine months ended September 30, 2023, there were no material changes to the purchase commitments disclosed in Note 18 of the letters of credit are unsecured obligations, and certain ofNotes to the letters of credit are secured by certificates of deposit held as collateralConsolidated Financial Statements in our name at a financial institution.

In the course of business, we are required to provide financial commitments in the form of surety bonds to third parties as a guaranteePart II, Item 8 of our performanceAnnual 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 toForm 10-K for the surety bond issuer. We have outstanding surety bonds issued for our benefitfiscal year ended December 31, 2022.

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Table of approximately $3.7 million as of September 30, 2017.

Contents

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these condensed 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 and the broader economy have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact our estimates. For information on our critical accounting policies and estimates, see Part II Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

2022.
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Item 3. 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.

Interest Rate Risk

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, 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 September 30, 2017,2023, 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 ofconvertible senior notes outstanding with maturities ranging from September 30, 2017, we also have2024 through September 2026. All 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 Notesconvertible senior notes bear interest at fixed rates we have no directof 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 do not expect

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 results of operationsoperations. This risk is primarily mitigated through the expedited sale of our loans. As of September 30, 2023 and December 31, 2022, we had $91 million and $37 million, respectively, of outstanding borrowings on our warehouse line of credit 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 September 30, 2023 and December 31, 2022.

For additional details related to our credit facilities and convertible senior notes, see Note 9 to our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Inflation Risk
The macroeconomic environment in the United States has experienced, and continues to experience inflationary pressures. While it is difficult to accurately measure the impact of these inflationary pressures on our business, resultswe believe these effects have been pervasive throughout our business during the past several quarters. In response to ongoing inflationary pressures in the United States, the Federal Reserve has implemented a number of operations or financial condition. increases to the federal funds rate in recent quarters. 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 our Mortgages revenue.
If inflationary pressures persist, our costs, were to become subject to significant inflationary pressures,in particular labor, marketing and hosting costs, may increase 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.

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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.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of September 30, 2017.2023. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective as of September 30, 2017.

2023.

Changes in Internal Control Over Financial Reporting

During the three months ended September 30, 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 September 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings in which we are involved, see Note 14 under the subsection titled “Legal Proceedings” in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 1A. Risk Factors

There have not been any material changes to the risk factors affecting our business, financial condition or future results from those set forth in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. However, you should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

On July 31, 2023, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act and Regulation D thereunder, we issued 380,259 shares of Class C capital stock to the stockholders of Aryeo as partial payment for acquisition of the entity by Zillow Group.
There were no other unregistered sales of equity securities during the three months ended September 30, 2017.

2023.
Purchase of Equity Securities by the Issuer
The following table summarizes our stock repurchases during the three months ended September 30, 2023 (in millions, except share data which are presented in thousands, and per share amounts):
Total Number of Shares PurchasedAverage Price Paid Per ShareTotal 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)
PeriodClass A common stockClass C capital stockClass A common stockClass C capital stock
July 1 - July 31, 2023— —$— $— — $1,014 
August 1 - August 31, 2023965 93252.57 52.80 1,897 914 
September 1 - September 30, 2023— —— — — 914 
Total965 9321,897 
(1) On December 2, 2021, the Board authorized a stock repurchase program granting the authority to repurchase up to $750 million of Class A common stock, Class C capital stock or a combination of both. On May 4, 2022, the Board authorized the repurchase of up to an additional $1 billion of Class A common stock, Class C capital stock or a combination thereof. On November 1, 2022, the Board further expanded these authorizations to allow for the repurchase of a portion of our outstanding convertible senior notes. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof (together with the previous authorizations, “Repurchase Authorizations”). The Repurchase Authorizations do not have an expiration date. There were no repurchases of convertible senior notes during the three months ended September 30, 2023.












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Item 5. Other Information
Trading Plans
On August 21, 2023, Brad Owens, General Counsel, entered into a 10b5-1 sales plan (the “10b5-1 Sales Plan”) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The 10b5-1 Sales Plan provides for the exercise of option awards and sale of up to 127,625 shares of Class C capital stock and the sale of an indeterminate number of shares of Class C capital stock related to future vesting of restricted stock units. The 10b5-1 Sales Plan will become effective on November 20, 2023 and will terminate on August 18, 2025, subject to earlier termination upon the exercise of option awards and sale of all shares of Class C capital stock subject to the 10b5-1 Sales Plan or as otherwise provided in the 10b5-1 Sales Plan.
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Item 6. Exhibits

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

Exhibit
Number		Description

Exhibit

Number

3.1

Description

  31.13.2
10.1
10.2*
31.1
31.2
  32.132.1^
  32.232.2^
101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (embedded within the inline XBRL document).
*Indicates a management contract or compensatory plan or arrangement.
^The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.


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SIGNATURES

Pursuant to the requirements 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: November 7, 20171, 2023ZILLOW GROUP, INC.
By:By:

/s/ KATHLEEN PHILIPS

JENNIFER ROCK
Name:Name:Kathleen PhilipsJennifer Rock
Title:Title:

Chief FinancialAccounting Officer Chief Legal Officer, and Secretary

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