Zillow Group, Inc. (ZG) Earnings Call Transcript & Summary

Hello, and welcome to Zillow Group's Second Quarter 2026 Financial Results Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Brad, you may begin.

Thank you. Good afternoon, and welcome to Zillow Group's quarterly earnings call. Joining me today to discuss our results are Zillow Group's CEO, Jeremy Wacksman; as well as COO and CFO, Jeremy Hofmann. During today's call, we will make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties, and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Please review the cautionary statement and additional information in our earnings release, which can be found on our Investor Relations website. This call is being broadcast on the Internet and is available on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted net income, diluted adjusted net income per share, adjusted EBITDA, which we refer to as EBITDA and adjusted free cash flow, which we refer to as free cash flow. We encourage you to read our shareholder letter and earnings release, which can be found on our Investor Relations website as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We will open the call with remarks followed by live Q&A. And with that, I will now turn the call over to Jeremy Wacksman.

Good afternoon, everyone, and thank you for joining us. Q2 was another quarter of strong results that demonstrate our consistent execution and the durability of our strategy. Zillow is the operating system for modern real estate, AI native at the core of the transaction, empowering both consumers and professionals from end to end. We've earned consumers' trust for many years now by consistently showing up for them at every stage of the housing journey. That's why our brand and engagement are so strong. We have more than twice as many daily active app users as our next closest competitor and 80% of our traffic comes directly to our apps and sites. According to Comscore, which tracks growth trends across the residential real estate category, Zillow's average monthly unique visitors in Q2 outperformed the category, which saw a decline overall amid the rise in mortgage rates. Zillow is the only large company in the category to consistently expand its reach with the real estate audience over the past 7 quarters. In Q2, we delivered total revenue growth of 18%, above our outlook range. We once again outperformed the broader housing market, and even more so when looking at the purchase mortgage market, which was flat this quarter compared with a year ago. EBITDA was above our expectations, and we reported $118 million in adjusted net income. We are on track toward our full year goals. In For Sale, revenue grew 14% year-over-year in Q2 to $549 million with 7% growth in residential revenue and 75% growth in mortgages revenue. In Rentals, Q2 revenue was up 31% year-over-year, driven by 42% growth in multifamily revenue. Our consistently strong quarterly results, brand equity and direct relationship with our users come from 2 decades of keeping the consumer as our North Star. In For Sale, we've built a platform where our interests align with the interest of buyers, sellers and agents. Buyers want access to all available inventory. Sellers want to sell quickly and for the most money. Agents want tools that help them serve their clients and win business. Zillow delivers on what matters most to consumers and their agents, which is why we continue to grow our audience and revenue. For buyers, we've been investing in the depth of the experience, helping with each step from the first question to keys in hand. Buyers spend months on this decision because buying a home is an exhaustive and complex process that's not the same as other consumer purchases online. This is the largest financial decision most people make, and they make it only a few times in their entire lives. It requires hours of deep research. In fact, the average buyer who ends up transacting with a Preferred agent partner visits Zillow nearly 100 times, totaling 15 full hours of time using Zillow before they even reach out to connect with an agent. The deeper buyers engage on Zillow, the more that they teach us about their needs and wants, which means Zillow gets more useful at every step of the journey, recommending the right home at the right moment, while also connecting consumers with a great local agent and financing options. Providing end-to-end support ultimately drives transactions through Zillow and helps people get home. Zillow AI mode is starting to show us what's possible when consumers can engage differently from traditional search. We're seeing them share more about their needs in AI mode than they ever entered into the typical residential search query, not just what they're looking for in a home, but their time frame, their financial picture, the need to sell their current home, whether they need a fence backyard for their pets and other special circumstances that go into their decision. This is unique personalized context we haven't had access to before, and it comes with engagement we can measure. AI mode is in early stages, but these are the signals we want to continue to see as we iterate. Consumers who use AI mode spend more than 3x as long on Zillow, view more than twice as many homes, run nearly 3x as many searches and contact an agent at nearly 3x the rate of consumers who don't use AI mode. The same pattern holds in Rentals, where AI mode renters request a tour at nearly 3x the rate and submit an application at nearly twice the rate. Context from repeated engagement compounds into a proprietary data advantage that is difficult to replicate and differentiates us from horizontal LLMs and other real estate companies. Here is one real-life scenario. A recent buyer came to Zillow looking for her next home, open to renting or buying, and 11 weeks later, she closed on a home purchase. Over the course of more than 200 AI mode prompts, she researched neighborhoods across multiple ZIP codes, compared properties and ran affordability scenarios across both renting and buying. At one point, she was looking at a rental listing and asked AI mode what it will cost to buy instead. The kind of questions she could explore instantly without starting a new search. She submitted our form to contact the Zillow Preferred agent partner and meanwhile, kept using AI mode to progressively narrow her search until she spent an hour of 1 night stress testing a single home with questions like what trade-off should I consider when looking at this home? That's what Zillow AI mode enables. It's the deliberation partner that can get a buyer from looking to connecting with an agent. It helps the buyer do the homework that makes the eventual agent conversation efficient, so the agent gets a buyer who is ready to act. We are actively expanding what AI mode can do, adding skills and evaluations that serve buyers, sellers, renters and homeowners. The opportunity in front of us is to deepen our engagement with our already broad audience across every stage in ways that weren't possible before. Zillow AI mode is now live for about 20% of signed-in users, and we are scaling deliberately as we refine the experience. AI mode captures the journey as it unfolds, our new personalized moving hub organizes it. We launched the hub earlier this summer, and it guides buyers through every milestone from setting a budget to closing. This is the first time buyers have had a single organized place for their entire move on Zillow, which means we can identify high-intent buyers and service products that meet their needs. It's a good example of what becomes possible when a buyer's workflows are connected in Zillow's end-to-end infrastructure. We're also differentiating Zillow Home Loans with the integration of pre-approval directly into the home search. Shopping with a Zillow Home Loans verified pre-approval lets buyers see in real time whether each listing fits their verified budget, accounting for taxes, HOA fees and current interest rates, not just the list price. It makes the shopping experience more grounded and more actionable, and it's a clear signal of serious buyer intent. We continue to deliver double-digit adoption of Zillow Home Loans in the integrated experience, thanks to a strong value proposition, convenience and competitive lending terms when compared with other industry-leading mortgage originators. Zillow Home Loans is now a top 25 purchase lender in the country. The average loan officer with Zillow Home Loans originates roughly twice the industry average of purchase loans per month. And because buyers are already on Zillow, our customer acquisition costs are a fraction of what traditional mortgage lenders pay, a structural advantage that we expect to grow as we scale. Integrating our Residential and Zillow Home Loans offerings is delivering a better buying experience. We've been expanding this integrated experience through our preferred partners, and it now accounts for 61% of our connections across Zillow. Our investment in the buyer experience is also what makes our seller solutions so powerful because listing on Zillow means reaching a broad, deeply engaged audience. We continue to expand our suite of products designed to provide differentiated ways to market homes and achieve better outcomes. Zillow Preview is one more way we're working with the industry to serve the needs of consumers and agents. Zillow Preview is a new product designed to help sellers who want to build demand and momentum before a home hits the active market. Preview gives sellers premarket exposure on the most visited real estate platform in America, so they can see useful real-time early demand signals, views, saves, tour requests from Zillow's full buyer audience. Meanwhile, buyers get public no-cost access to pre-market inventory right in their regular Zillow search. And agents get a differentiated listing pitch that puts their clients' interest first and reaches buyers early on an open marketplace. We now have more than 100 brokerage partnerships enabling Zillow Preview, and we are actively onboarding agents in those companies in addition to new brokerages. Later this summer, Preview listings will also be syndicated to Realtor.com, the second most visited real estate platform in the country. And as MLSs give sellers, agents and brokers more options and more flexibility in how long they can premarket a listing, we welcome those changes because they boost the value proposition of Zillow Preview. After Preview builds initial momentum and a listing goes active, sellers and their agents can choose our Zillow Showcase product to maximize impact. Showcase is now on about 5% of all new listings and agents who use Showcase on the majority of their listings win 35% more listings than peers who don't. Our proprietary rich media, which includes 3D home tours and interactive floor plans is now on 11% of new For Sale listings on Zillow. In our top 10 markets, 30% of new For Sale listings on Zillow have 3D home tours and more than 10% have Showcase. These markets are an early signal of what the future looks like. Later this year, we expect to launch instant floor plans, allowing photographers, sellers and agents to capture a 3D floor plan right from their smartphone. We expect removing friction and lowering the cost will continue to expand the use of rich media, making it the future standard on every listing and providing a better buyer experience to drive engagement. Together, our Preview and Showcase products give sellers and their agents robust tools to launch a listing and market it actively. Agents who use both are putting Showcase on nearly half of all Preview listings when the listing goes live. Our 2-sided platform connects buyers and sellers with the industry professionals who help them get home. But Zillow's value to agent goes far beyond a connection. Zillow powers many of the most successful agents in the industry. The tools and infrastructure we provide function as the operating system for the modern real estate transaction. Follow Up Boss is the CRM of choice for the majority of the highest volume real estate teams in the country. It had 138,000 monthly active users in Q2, up 21% year-over-year. Smart messages, AI-generated text and e-mail drafts based on a buyer's Zillow activity and prior conversations get more than 4x the reply rate of manual outreach because it encourages the agent to follow up when it's top of mind for the consumer. Any agent, whether they advertise on Zillow or not, can access exclusive tools and Follow Up Boss through Zillow Pro, a premium membership we launched nationwide last month. A Zillow Pro membership gives agents a single connected system to manage all of their clients, including those who originate outside the Zillow ecosystem. With a Zillow Pro membership, agents can invite any contact in their Follow Up Boss database, a past client, a referral, a potential buyer they met at an open house, anyone to collaborate with them on Zillow using a feature called My Agent. Once the client accepts the invitation, their trusted agent is right by their side throughout the Zillow experience, easy messaging, tour booking, guidance at every step. And the agent gains real-time visibility into what their client is actively looking for on Zillow, so they can show up to assist and foster the relationship into a transaction. Buyers with a My Agent relationship are 80% more likely to meet with their agent face-to-face and 50% more likely to progress through key home search stages compared with similar buyers without a My Agent relationship. Our early data shows that Zillow Pro agents who use My Agent are handling more transactions than similar agents who don't have a Zillow Pro membership. Zillow Pro also gives listing agents a meaningful edge through a new feature called Likely to List, which uses predictive AI signals from the unique context across our platform, including from AI mode to flag contacts in an agent's Follow Up Boss database whose homes are showing pre-listing activity, giving agents a reason to reconnect with past clients who may be ready to sell before they've raised their hand anywhere else. Likely to List turns the CRM into an active opportunity engine. 70% of actual U.S. buyers and sellers are already on Zillow. That creates an opportunity for agents to reconnect with past clients they've already built relationships with. When agents can see those signals and act on them, they can give consumers a more responsive, more personal experience. The quality of service we're enabling for agents exemplifies the shift we've made to our agent partnership offerings. Over the years, we have deliberately evolved from a top-of-funnel model where agents paid for leads to a success-based model built around efficiently aggregating demand to connect high-intent consumers with high-performing agents. Zillow Preferred agent partners pay when they close, which means Zillow wins when the agent and their client win. Zillow Preferred is optimized for outcomes, not just activity, which is why it's generating 23% more revenue per connection than our legacy advertising model did and one reason why our For Sale revenue is growing faster than industry growth. Zillow is the only residential real estate company that is removing friction by integrating the end-to-end transaction experience at scale, improving outcomes for buyers, for sellers, for agents, for loan officers and for Zillow. We are making progress toward our $1 billion incremental revenue opportunity in For Sale. Since the beginning of 2025, we have added an incremental $287 million of For Sale revenue, nearly 1/3 of our goal. Now turning to rentals. Nearly every buyer starts out as a renter. And for millions of people, renting isn't a stepping stone, it's where they are for the long term. In recent years, 3x as many movers have been looking to rent than to buy or sell. Many consumers are looking at buying or renting options at the same time, and Zillow is uniquely positioned to help them with both. The same thesis that drives For Sale is behind our rental strategy, a streamlined operating system that modernizes the transaction experience on top of the largest and most varied inventory from single-family homes to large apartment communities. In Q2, we had 2.8 million average monthly active rental listings and reached an all-time high of 79,000 multifamily properties. Rentals revenue was up 31% year-over-year in Q2 with multifamily revenue up 42%, growth that reflects the compounding value of what we've built on both sides of the marketplace. Property managers tell us Zillow delivers the highest return on marketing investment in our category compared not just with other rental platforms, but with other digital marketing options available to them, including search and social media. They keep renewing and upgrading their presence on Zillow as a result, and we see a significant opportunity to capture more of the marketing dollars currently being spent elsewhere. We're also bringing Zillow's inventory and booking infrastructure to other platforms potential renters may be on. This summer, Zillow Rentals became the only real estate platform in Google's Gemini connected apps ecosystem. If a renter asked Gemini to find them available apartments, Zillow powers what happens next, the real-time availability, the tour scheduling, the booking confirmation. Wherever consumers begin their move, we're helping them complete it with our partners and our real estate operating system. Rentals is one of our most compelling growth opportunities with a clear path to $1 billion and beyond in annual rentals revenue. Before I turn it over to our COO and CFO, Jeremy Hofmann, I want to put our results in context. Zillow has consistently outperformed industry total transaction volume for 3 long years, while the housing market has basically stood still. We have grown revenue by mid-teens or better each year even as industry growth has been essentially flat. We keep reaching more of the real estate audience, while others in our category don't. It's been a noisy year, but it has not changed what we see in our business. Zillow has continued to execute and our results show it. We consistently perform well because Zillow supports the needs of both sides of the marketplace. We've rapidly built the modern real estate operating system professionals rely on every day to run their businesses and consumers trust and return to Zillow throughout a month-long journey no matter where that journey began. Our direct brand and audience engagement put us in a position of strength as we drive forward and expand our business. To position Zillow for the path ahead, yesterday, we restructured parts of our organization and eliminated some roles. We made this decision to ensure we can move faster and operate more efficiently, including a more sustainable cost structure. We're grateful to every person who is leaving for their contributions through the years. Today, we also announced changes to our executive leadership team. We have appointed Jeremy Hofmann to an expanded role as Chief Operating Officer and Chief Financial Officer. Jeremy has been one of the key architects of Zillow's current business strategy, a driving force in the vision and execution of the housing super app. His deep command of our strategy and financial architecture, combined with the strength of the teams he has developed over 9 years here, positioned Zillow to move with greater coordination and speed. Jun Choo, who has served as Chief Operating Officer since 2024, is stepping down to focus on his health and will serve in an advisory capacity through the end of the year. Jun has been an invaluable part of Zillow's growth over the decade-plus tenure he's had here and his contributions to the operational foundation of this company are immeasurable. We wish him all the best. We are also welcoming Sandi Knight to serve in a new role as Chief Legal and Policy Officer. Sandi joins us from Google, where she served as Vice President of Litigation and Discovery. She brings more than 20 years of experience in complex litigation and operational leadership across technology and financial services, including at Google, PayPal and Morgan Stanley. Her appointment reflects our continued investment in building the leadership team that Zillow needs to support our future growth. The strength of our team and the strategy we're executing gives us every confidence in what comes next. The Zillow experience gets people from curiosity to closing, the dreaming and decision-making, the tour for renters and buyers, the application or pre-approval, the financing, the agent relationship, the offer and the lease or close increasingly run through Zillow. We support the whole transaction and our ability to do so compounds as more of the transaction uses our infrastructure. Our focus is on serving consumers, and helping professionals grow their businesses because that's what drives our results. We are on track toward our full year goals. We are in control of our own path, and we are building toward a future where getting home through the integrated experience on Zillow is the standard for renters, for buyers, for sellers and for the industry professionals who guide them through it. With that, I'll turn the call over to Jeremy.

Thanks, Jeremy, and good afternoon, everyone. We delivered excellent results in Q2 and are well positioned to continue delivering strong performance as we execute on our strategy in 2026 and beyond. In Q2, we generated revenue of $772 million, up 18% year-over-year and EBITDA of $176 million, resulting in an EBITDA margin of 23%. Both revenue and EBITDA are above the high end of our outlook range. We reported a net loss of $4 million and adjusted net income of $118 million. Share-based compensation expense was down 24% year-over-year during the quarter. Diluted adjusted net income per share was $0.52 compared to $0.40 in Q2 a year ago. Year-to-date, we have generated $223 million of free cash flow, a 19% increase compared with the same period a year ago. Now let me take you through the details of the quarter. Our For Sale revenue grew 14% year-over-year in Q2 to $549 million. Within the For Sale revenue category, residential revenue of $465 million was up 7% year-over-year, above our outlook. The majority of the increase in residential revenue was due to growth in Zillow Preferred, primarily driven by the expansion of connections in the fully integrated experience. Zillow Showcase, new construction and our suite of agent software tools were also contributors to residential revenue growth. These increases were partially offset by a decrease in market-based pricing revenue as we continue to shift more connections to preferred. Within the For Sale revenue category, mortgages revenue accelerated to 75% year-over-year growth in Q2 to $84 million, above our outlook. Purchase loan origination volume, which was the main driver of our mortgages revenue growth, grew 95% year-over-year in Q2, as we saw continued growth from expanding our share of connections to our preferred program and better-than-expected conversion rates from customers in our pipeline. With double-digit customer adoption rates, our results continue to demonstrate that Zillow Home Loans has an attractive value proposition for buyers. Our 14% year-over-year For Sale revenue growth in Q2 outperformed the estimated flat industry purchase mortgage origination volume. Our For Sale revenue growth also outperformed the 6% real estate total transaction value growth, despite the 600 basis point headwind from the purchase mortgage industry. We call out mortgage industry growth because a majority of Zillow buyers purchased their home with a mortgage. Affordability challenges continue to have a larger impact on mortgage buyers than cash buyers. Turning to Rentals. Q2 revenue was $209 million, growing 31% year-over-year. This was primarily driven by our multifamily revenue, which was up 42% year-over-year in Q2. Our value proposition continues to attract new multifamily property managers with total properties growing to 79,000 in Q2, up 23% from a year ago. Additionally, our superior ROI is winning more wallet share as we attract new properties and existing property managers upgrade their subscription packages with us. Q2 EBITDA expenses were $596 million, which exclude the $10 million of FTC Matter litigation expenses. We reported $36 million of restructuring costs in Q2 related to cost management actions we announced yesterday that are also not included in EBITDA expenses. I will discuss these cost management actions in more detail shortly. We ended the quarter with cash and investments of $682 million, down from $783 million at the end of Q1. We repurchased $200 million of our stock during Q2 as we continue to demonstrate our conviction in the long-term value of the business and our commitment to returning capital when the opportunity is compelling. Year-to-date, we have repurchased $826 million in shares. Our total outstanding shares declined to 225 million at the end of Q2 from 240 million at the beginning of 2026. As of the end of June, we have approximately $1.1 billion remaining for future share purchases under our existing authorizations. Combining our $682 million of cash and investments with our $500 million undrawn line of credit, we have total liquidity of approximately $1.2 billion. This strong liquidity position gives us flexibility on our financial priorities to invest in driving growth, maintain an adequate risk-based capital reserve, support flexibility for potential M&A and continue to be opportunistic with share buybacks. Next, I want to take some time to discuss how our preferred monetization model is working, why we have decided to accelerate the transition of our connections to preferred and the near-term implications for revenue across both our residential and mortgages categories included in our For Sale revenue. First and foremost, the preferred monetization model enables us to better serve customers by offering them our integrated transaction experience, which drives more For Sale revenue per connection than our legacy advertising model. As a result, we are accelerating to more than 75% of our connections in Preferred by the end of 2026, up from 44% at the end of 2025 and 21% at the end of 2024. We expect that nearly all connections will be serviced by Preferred partners over time. The Preferred agent partner base is made up of some of the most productive agents in the country and is a group of people who are highly motivated to serve Zillow's customers well. By partnering closely with this talented group of real estate agents, we are able to build technology and services that allow them to be more productive, win more business and convert our shared customers better. And the results for Zillow have been excellent. The increase in our revenue per connection generated from our integrated experience demonstrates our execution. This is calculated as a combination of total preferred revenue, revenue from preferred agent partners using Follow Up Boss and Showcase and revenue generated from the integrated transactions where consumers choose to use Zillow Home Loans. We compare that combination of revenue to revenue from our legacy advertising model and revenue generated from agents in that model who use Follow Up Boss and Showcase. In 2025, we generated 23% higher revenue per connection compared to our legacy advertising model. By the end of 2026, we expect to accelerate to 35% more revenue per connection, driven by improved conversion across our Preferred agent partner base and greater adoption of Zillow products and services from consumers. Seeing these results gives us a lot of confidence to move faster to the future and move more connections to Preferred, so we can serve our customers and partners better, while generating more revenue and revenue per connection along the way. Another critical data point for us has been the steady improvement in Zillow Home Loans profitability. Across fixed and variable costs, our per mortgage unit economics are positive today. And in the future, we believe Zillow Home Loans economics will generate profits similar to profits we earn from Preferred agent partner referral fees. We believe this acceleration is clearly the right decision for our go-forward business, but there are 3 important nuances for investors to understand as we progress. One is a shift in revenue from residential to mortgages within For Sale. The second is the timing of revenue recognition associated with Zillow Home Loans originations and the value we realize over the life of a connection. And the third is a different seasonal pattern in Preferred revenue than our legacy advertising model. First is the shift in revenue from residential to mortgages within our For Sale category. Under the legacy advertising model, both agent advertising and lender co-marketing revenue was earned and recognized in the residential revenue category as connections were delivered. Once we earn that revenue, the customer's transaction moved off platform. With the integrated transaction model, customers choose to stay on our platform past the agent connection where they can work with an agent using Zillow's suite of agent products and choose their own service providers, including Zillow Home Loans. As this happens, an increasing share of For Sale revenue is recognized in mortgages. Because of the transition to Preferred, there has been a consistent shift from residential revenue to mortgages revenue. In 2025, this was a 300 basis point impact to residential revenue. In the first half of 2026, this was a 500 basis point impact to residential revenue, as we accelerated more connections into Preferred. We expect this impact to accelerate in the second half of 2026 and continue in the first half of 2027 before moderating in the second half of 2027. Second, this transition to preferred results in a difference in the timing of revenue recognition and the value we realize over the life of a connection. This difference is because Zillow Home Loans revenue is generally recognized near the time a loan is originated, which is 6 to 12 months after a connection is delivered. This difference has created a consistent 200 basis point headwind to For Sale revenue as we have moved more and more connections into Preferred. We expect this headwind to moderate throughout 2027. Third of the 3 factors important to understand is the different seasonal pattern in Preferred revenue compared to our legacy advertising model. Because of seasonality, historically, our connection volumes have declined in the range of 20% to 25% sequentially from Q3 to Q4 and then increased in Q1 compared to Q4. Zillow Preferred revenue follows this seasonality trend more closely versus our legacy advertising model. Because we are planning to accelerate to more than 75% of our connections in Preferred by the end of the year, we expect the seasonality impact to result in a 200 to 300 basis point headwind to our year-over-year For Sale revenue growth in Q4. We expect this seasonality trend to reverse in Q1 2027. We have included an accompanying chart in this quarter's shareholder letter to illustrate the quarter-by-quarter impacts of these factors. The most important takeaway is that the integrated transaction strategy is working, and we are accelerating the transition to Preferred going forward. We see better outcomes for customers and partners. We see more total revenue and revenue per connection for Zillow, and we are growing EBITDA per connection with a path to more profits as Zillow Home Loan scales. And of course, despite the moving pieces through this transition, for-sale revenue has grown 13% year-to-date compared to a purchase mortgage market that is roughly flat. Now I'll provide some additional details on our cost management actions. Yesterday, we announced a restructuring, which included eliminating approximately 7% of employees as we continue to scale our integrated strategy and drive efficiencies. As a result, we expect to generate approximately $75 million of annualized EBITDA cost savings from Q2 run rates and an aggregate of $140 million when including reductions from previously planned headcount growth. We recorded $36 million of restructuring costs in Q2, and we expect to record an additional $23 million to $28 million of restructuring costs in Q3 associated with these actions. Turning to our outlook for Q3 2026. We expect total revenue of $745 million to $760 million, implying year-over-year growth of approximately 11% at the midpoint of our outlook range. We expect For Sale revenue growth to be between 5% to 7%, which includes an assumption of 200 to 300 basis points headwind from the difference in timing of revenue recognition in Zillow Home Loans and the value we realize over the life of the connection. Within For Sale, we expect residential revenue to be flat year-over-year, which includes an assumption of 600 to 700 basis points shifting from our residential revenue category to our mortgages revenue category over time. For mortgages revenue, we continue to see a strong pipeline, which we expect puts us on track for growth of over 50% year-over-year. Our revenue outlook includes our expectation for a decline in year-over-year purchase industry mortgage originations, down from our prior expectation of flat. We see continued pressure on affordability having a larger impact on mortgage buyers than the overall market as interest rates have continued to rise since their lows in early March. In Rentals, we expect Q3 revenue growth in the high 20% range year-over-year. In Q3, we expect EBITDA expenses of $560 million to $565 million and EBITDA of $180 million to $200 million, implying 25% EBITDA margins at the midpoint. Turning to our full year outlook for 2026. We continue to expect to deliver mid-teens total revenue growth with a range of $2.92 billion to $2.96 billion. We continue to expect approximately 30% growth in Rentals revenue. For the rest of 2026 and the full year, we are assuming the purchase mortgage originations market will be down low to mid-single digits from our prior view of flat. In Q4, we are planning to further accelerate our transition to our Preferred monetization model. We expect to end the year with more than 75% of our connections going to Preferred partners. We expect the combination of seasonality and the timing of revenue recognition in Zillow Home Loans and the value of the life of the connection to translate to 400 to 600 basis points of headwind to For Sale revenue. Within For Sale, we expect residential revenue to be in line with purchase mortgage industry growth, which includes an assumption of 700 to 800 basis points shifting from our residential revenue category to our mortgages revenue category over time. Additionally, we expect higher mortgage rates to have an impact on conversion rates for Zillow Home Loans in Q4. Now turning to EBITDA. For the full year 2026, we expect continued EBITDA margin expansion, translating to EBITDA of $730 million to $760 million. Of note, our full year outlook implies year-over-year EBITDA cost growth in Q4 to be in the mid-single digits, which sets us up well to deliver year-over-year margin expansion in Q4 and in 2027. Last, we continue to expect full year share-based compensation expense to be down more than 15% year-over-year. To close, we are buoyed by the continued strength in our business and excited to accelerate our integrated transaction strategy. We are on track to hit our 2026 and mid-cycle targets, underpinned by a strong growth strategy and a disciplined cost structure that allows us to grow profits faster than revenue. With that, operator, we will open the line for questions.

[Operator Instructions] Our first question will come from Ryan McKeveny with Zelman.

Great. I'll start with a couple higher-level strategy ones for you guys. So on the leadership changes and particularly Jeremy H. taking on both CFO and COO, I guess, does this signal any broader strategy change, any change in the go-to-market approach across the various businesses? And Jeremy H., I'm sure you can give some color on that, but maybe also Jeremy Wacksman, can you maybe add some color as to why Jeremy H. is the right person for the COO role in addition to CFO as opposed to having those positions separated?

Yes, Ryan, this is Jeremy Wacksman. I'll take that one. No change in strategy. This is really about strengthening the leadership team and setting us up for the road ahead. I mean I think as you heard from the prepared remarks and you see in the results. Our business is growing. We're scaling the housing super app. We're navigating an increasingly complex environment. And we're doing so in a way that builds consumer trust. And having Jeremy, who is one of our most capable operationally focused leaders who over the past 9 years has really been at the heart of developing our strategy and building a lot of the cross-company operations to execute it, having him put strategy and operations closer together is a huge boon for the company. We obviously wish Jun all the best as he steps back to focus on his health. He's been a valued part of Zillow's past 11 years. But this is really about setting us up for the future, and we're tremendously excited about having Jeremy take on this expanded role.

Ryan, I'll just chime in. Thanks for the congrats. I mean I'm really excited to step into the expanded role. I've been -- Jeremy said it, but I've been intimately involved with the strategy, the operations and the financials for 9 years now, and I've worked really closely with the leadership team throughout. So I'm expecting a seamless transition and obviously looking for ways to ensure we can keep moving faster and that the organization is set up well to deliver on the growth and profits we see into the future.

That's great. And maybe along similar lines on kind of moving fast and efficiency. So on the elimination of roles, any additional color you can share on kind of why now? Also anything on the type of roles impacted? Like obviously, you've got strong growth in rentals, purchase share is really expanding. A lot going on, obviously, on the For Sale side of things and with Preferred. So it seems as though the strategy across the board is really pushing forward. So just curious why now for that action?

I can take that one as well. To start, we don't expect any impact to our growth bets as part of these actions. So you're right, the strategy is working well. We are accelerating in a variety of places and don't expect the restructuring to have any impact there. We really restructured parts of the organization and eliminated roles because we saw opportunities to move faster, and we saw opportunities for continued cost discipline. That's what the changes were about. Let's ensure that we have a disciplined cost structure. Let's get leaner as an organization and let's look to move faster and operate with more efficiency, but not get in the way of any of the growth bets.

Our next question will come from Dan Kurnos with StoneX.

Great. Again, I want to also echo, appreciate the thorough covering of all of the details and all of the moving pieces here. Of course, if you guys don't have enough on your plate internally, you have a whole bunch of noise outside. So I'll ask the two sort of requisite questions. One, we had a whole bunch of noise from Google and I want to just see if you guys are seeing any impact from that? And then two, on the legal front, you guys have had a few things settled. You've got a court date coming out of the FTC later this month. So there's a lot coming in here. You've had a couple of things dismissed. So just how are you thinking about the overall legal picture and any kind of strategic thoughts?

Yes. Thanks, Dan. On Google, I assume you mean their local service advertising product that they've expanded into real estate.

Yes.

I mean the short answer is we're not seeing any impact. I mean they ran it as a test for a while. In the markets they ran as a test, we saw no impact to our traffic or metrics, and we've seen no impact as they've expanded it. I think the big reason for why we don't see impact, you heard it a bunch in our prepared remarks, the brand commands a direct audience because it's a differentiated experience, right? 80% of our traffic comes directly to us, single-digit share of traffic comes from things like paid search. So we're just not ripe to feel impact for changes in that channel. And then the reason that traffic comes direct to us is we provide this full stack infrastructure real estate transaction and buyers and sellers and renters are choosing our products and services and that's what they reengage with, tell their friends about, install the apps on their phone and use for. I mean the comment I made earlier, a buyer who hires a preferred agent, they're on Zillow more than 100x, right? And they're coming back to us of their own volition and because we offer products and services that no one else does. So there's always going to be changes in the category. There's always going to be changes in the platform, but the unique and differentiated strategy and product offering is why we've been so successful to date, and it's why we expect to continue to be successful. And that's some of the answer to your second question on legal cases, those aren't impacting our business either, and you can see that in our Q2 results. And the reason for that is because we are focused on delivering the products and services that renters, buyers and sellers want and that industry professionals want who serve them. And when you put the consumer as your North Star, and that's how you build products and make decisions, you see that play out in favorable results. I think the sort of most recent case that was challenging our For Sale business is a good example. We're very thoughtful about how we build our product experiences and all the allegations against our product experience were loudly dismissed in a court ruling to show that. And so you've heard from us for a while now, these things are things we'll have to knock out and deal with, but they're not going to impact the business or the team or our operations. And I think you see that in our continued results.

Our next question comes from Brad Erickson with RBC Capital Markets.

Guys, can you hear me?

Yes. We got you, Brad.

Cool. Sorry. Yes. So two for me, one easy one and then one not as easy one. The easy one is Rentals growth. The guidance looks like maybe tracking like the mid-20s in back half. Just you're lapping the Redfin deal here. Talk about what is allowing you to kind of sustain those higher growth levels? And then second, just on this whole revenue and timing shift, et cetera. I recognize there's higher monetization per transaction. But can you talk about kind of the like-for-like profit comparison? Because like, for example, the co-marketing revenue you used to get on MVP represents essentially getting paid for leads for third-party mortgages, whereas it seems like you need ZHL to close here in order to capture that higher revenue per transaction. So in that sense, it kind of sounds dilutive, but can you unpack that or correct that, if you can?

Yes. Brad, maybe I'll take rentals and Hof, maybe you can take modeling and revenue and margin composition. You're right. We're really pleased with our rentals growth, Brad. And even as we're lapping the Redfin partnership, you're still seeing really strong growth rates now and into the future. And the reason for that is the strategy is differentiated. The platform that we are building, we are really the only place to assemble the most inventory that you can find, 2.8 million average monthly listings in Q2. And yes, that's the big multifamily apartment buildings and the advertisers, a record 79,000 of those choosing the advertiser audience, but they come because we solve that renter experience because we have the single family, we have the long tail. We have this integrated transaction platform where you can have a portable application, custom leases and make your payments happen. So the all-in-one experience with the most inventory is why the audience is here. We have the biggest audience. That's the ROI, right? That's what an advertiser wants, and that's why you're seeing the advertising growth. It's why they also tell us we're their highest ROI channel. They are regularly telling us we're not just their highest ROI source among other apartment-focused sites, but we're their highest ROI across search and social as well. And so you're seeing more budgets come to our platform because we deliver great ROI for them, because we have this unique offering that delivers high-intent customers. So that's been working for a while now, and Redfin was a great booster shot to that strategy, the same way the Realtor.com deal was, but that growth was happening before, and it's happening now. And it's also why we're so confident in the $1 billion-plus revenue target that's in front of us.

Yes. And then, Brad, I'll take your next one. I think we're moving towards this Preferred integrated transaction strategy more aggressively because the growth opportunity is far beyond what we saw as possible in the ad model. And you're seeing that in the revenue per connection uplift in 2025 and 2026 that I highlighted. We grew revenue per connection in the experience 23% in 2025. We expect it to grow 35% in 2026. And the SAM is just expanding pretty substantially because of this move. We have the ability to better grow transactions, better grow adjacent services, better grow our suite of software and our listing marketing tools by doing this. And all of that opportunity is driven by really building these great products and services for consumers and agents. And that Preferred agent base is such a critical input because they are the folks that work closest with our shared customers. So that's why we're doing it. We're seeing the results work through. There's obviously a number of moving pieces that I walked through in the prepared remarks, and we have plenty of time as a team to walk you all through the modeling components, but we feel really good about pressing the gas. With respect to the margin trade-off, what I'd say there is earlier in the enhanced markets rollout, we were definitely investing in ZHL, which put pressure on margins versus the lender co-marketing dollars that we got in that legacy ad model. Now ZHL unit economics are across both variable and fixed are profitable. And we see a path to dollars per loan at the same level as Preferred agent referral fees. So the atomic dollar opportunity feels quite large to us and the growth opportunity feels quite large. And then obviously, we've been growing EBITDA overall through that investment in ZHL, and we've been able to drive margins off fixed cost leverage. We expect to continue to do that, and ZHL is now at a spot where it can grow profitably. And the last thing I think I'd say is just to keep in mind, the mid-cycle targets of 45% EBITDA margins and 25% net income, both contemplate all that we're doing right now and both have a healthy mix of ZHL included in those targets because we do see a really substantial growth and profit opportunity as we get that business to scale.

Our next question will come from Ron Josey with Citi.