Zillow ‘well positioned to thrive’ despite commissions trial outcome 

Zillow shared some good news with investors today, reporting $496 million in revenue for the third quarter, representing a 3% increase from the same period last year. 

There was a notable 34% uptick in rental revenue and an 88% gain in purchase mortgage originations, Zillow Co-founder and CEO Rich Barton highlighted in the letter to shareholders. However, Barton's prepared remarks during today's earnings call with investors were largely dominated by the recent verdict in the landmark Sitzer/Burnett case.

"It's important that I address the high level of media attention and speculation surrounding several ongoing industry lawsuits, and what the implications may be for the broader residential real estate industry and for Zillow in particular," Barton said. "The short version is we strongly believe Zillow is well positioned to thrive regardless of how it all plays out."

Barton added that he believes appeals will likely keep the case "tied up in court for years" and reminded investors that "Zillow is not a party to this lawsuit nor other similar ones."

Key numbers

Revenue: $496 million in Q3, which was down from $506 million the previous quarter but up 3% compared to the same period last year. 

Cash and cash equivalents: $3.3 billion at the end of Q3, which remained unchanged from the previous quarter. 

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization): $107 million, which was down slightly from $111 million the previous quarter and off from $130 million a year ago.

Net income/loss: Zillow reported a net loss of $28 million for Q3, which was slightly lower than the $35 million net loss from Q2 and significantly better than the $53 million net loss from Q2 2022. 

Traffic and visits: According to Zillow, the company saw 224 million average monthly unique visitors across its various apps and websites in Q3 while total visits during the quarter were 2.6 billion. Both metrics were down 5% year-over-year.

What Zillow had to say

Not only was Barton's monologue largely focused on the outcome of the commissions trial, but many of the investors on the call had questions about Zillow's position in a world where there is no guaranteed compensation for buyer agents. 

Barton reaffirmed his support for buyer agents and the theme of buyers having their own representation.

"We believe a well-lit game is cleaner and more equitable. People deserve and need independent representation," Barton said. "We've seen double-siding in the industry, which is clearly a conflict and is at certain times more expensive to the transaction."

In the letter to shareholders, Barton elaborated further on the theme if buyer agency were to be diminished.

"In this scenario, the U.S. market would likely transition to what we observe in several international geographies, where a few large portals offer a 'pay to play' digital listings marketplace," Barton wrote. "In this scenario, we believe Zillow would be an odds-on favorite to become the leading digital listings marketplace, given our brand, traffic, engagement, and unique focus on solving movers' real pain points with our software-anchored housing super app vision."

Notable moves

While there was much discussion about the Sitzer/Burnett trial, Zillow recently won an unrelated case brought by the low-commission brokerage REX related to how the portal displays non-MLS listings. Following the Sitzer/Burnett verdict, however, REX announced it was requesting a new trial, but no ruling on the request has been made.

Additionally, Zillow execs highlighted the company's recent announcement that it was acquiring popular CRM product Follow Up Boss and how it plays into Zillow's "housing super app" concept. 

"Today, we are focused on delivering the 'housing super app,' a tech-enabled end-to-end platform with products and services that make it easier for people to move," Barton said. "You've heard me say many times that 2023 is crucial for Zillow. It's a year of execution as we prepare to scale in 2024 and 2025."