Zillow Group, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed February 15, 2023. Amounts are U.S. dollars. Zillow operates real estate marketplaces and related advertising, mortgage, rental, title and technology services. Its strategy centers on an integrated “housing super app.”
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue from continuing operations | $1.958 billion | $2.132 billion | -8% |
| Gross profit / margin | $1.591 billion / 81% | $1.809 billion / 85% | Gross profit -12%; margin -4 percentage points |
| Operating expenses | $1.684 billion | $1.570 billion | +7% |
| Continuing operations net income (loss) | -$88 million | $102 million | Declined by $190 million |
| Net income (loss), including discontinued operations | -$101 million | -$528 million | Loss narrowed by $427 million |
| Adjusted EBITDA, non-GAAP | $514 million | $654 million | -21% |
| Operating cash flow | $4.504 billion | -$3.177 billion | Turned positive |
Revenue mix: Premier Agent $1.291 billion (-8%); Rentals $274 million (+4%); Other IMT $274 million (+21%); Mortgages $119 million (-52%). Premier Agent represented 66% of revenue. Mortgage origination volume fell 62% to $1.544 billion, including a 75% decline in refinancing volume.
Fourth-quarter revenue was $435 million, versus $535 million a year earlier. Gross profit was $346 million versus $440 million. Net loss was $72 million, compared with $261 million a year earlier, when discontinued Zillow Offers operations drove substantial losses.
Cash, debt and liquidity
- At year-end, cash and cash equivalents were $1.466 billion, short-term investments $1.896 billion, and restricted cash $2 million; together these totaled approximately $3.364 billion.
- Operating cash flow of $4.504 billion included a $3.9 billion reduction in inventory as Zillow Offers wound down. It should not be viewed as a recurring operating cash-flow run rate. Cash used in investing was $1.533 billion and cash used in financing was $4.341 billion.
- Convertible senior notes had $1.672 billion aggregate principal outstanding, with maturities in 2024, 2025 and 2026. Zillow Home Loans had $37 million outstanding under warehouse and repurchase facilities, with $250 million total maximum borrowing capacity.
- Management said available cash, investments and operating cash flows should meet operating and capital needs for at least 12 months. The company reported compliance with debt covenants at year-end.
- Operating lease obligations totaled $229 million, including $42 million due within 12 months. The company repurchased $947 million of its shares in 2022; $500 million remained authorized for future repurchases at year-end.
Material changes, outlook and risks
- Zillow Offers’ wind down was completed in Q3 2022; its results are presented as discontinued operations. The wind down and other cost actions reduced the workforce by approximately 25% in 2022. Financial results from the pre-wind-down business may not indicate future performance.
- Higher and volatile mortgage rates, tight housing inventory, home-price changes and inflation weighed on Premier Agent and mortgage results. Management expects continued uncertainty and cautions that quarterly and annual results may fluctuate.
- Management expected cost of revenue and technology and development expense to increase in Q1 2023 as it invested to support growth. Beginning in 2023, the company planned to report as one segment and use Residential, Rentals, Mortgages and Other revenue categories. The filing provides no specific revenue or earnings guidance.
- Key risks include housing-market and interest-rate sensitivity, dependence on real estate partner advertising and Premier Agent revenue, access to listing data and MLS compliance, mortgage funding and loan resale, privacy and cybersecurity, regulation, and competition.
- Legal matters include IBM patent litigation and shareholder cases related to Zillow Offers. The company said possible losses in certain matters were not estimable; it had not recorded material accruals for the disclosed proceedings. A proposed settlement in an earlier securities class action remained subject to execution and court approval.
- Unusual items include $77 million of share-based compensation expense recognized in 2022 related to employee option repricing and supplemental restricted stock units; total incremental expense from these award actions was estimated at $189 million. The auditor issued unqualified opinions on the financial statements and internal controls.
Investor facts to verify
- How much of 2022 operating cash flow reflects the one-time Zillow Offers inventory runoff, and what is the normalized cash-flow profile?
- Whether Premier Agent revenue and partner spending stabilize amid housing-market weakness, given the 66% revenue concentration.
- Mortgage origination performance, gain-on-sale margins, and liquidity and funding capacity as interest rates and market conditions change.
- Future share-based compensation, restructuring costs, and the impact of the planned segment and revenue-category reporting changes.
- Developments, potential financial exposure and insurance coverage for IBM litigation and shareholder claims.