Zillow Group, Inc. — 2023 Form 10-K Summary
Business context and reporting period
This is Zillow Group’s annual report for the fiscal year ended December 31, 2023, not a standalone fourth-quarter report. The filing text provided does not give clear standalone Q4 financial results. Zillow operates a digital real estate marketplace across residential, rentals, mortgages and related software and services. Beginning in 2023, management began reporting the business as one operating segment. Zillow Offers, its home-buying business, was wound down in 2022 and is reported as discontinued operations.
Financial performance and position
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $1.945 billion | $1.958 billion |
| Gross profit / gross margin | $1.524 billion / 78% | $1.591 billion / 81% |
| Loss from continuing operations | $158 million | $88 million |
| Net loss, including discontinued operations | $158 million | $101 million |
| Adjusted EBITDA (non-GAAP) | $391 million | $514 million |
| Cash provided by operating activities | $354 million | $4.504 billion |
- Revenue by category: Residential $1.452 billion, Rentals $357 million, Mortgages $96 million and Other $40 million. Residential represented 75% of revenue.
- Residential revenue fell 5% and Mortgages revenue fell 19%; Rentals revenue rose 30%. Visits declined 5% to 9.977 billion and average monthly unique users declined 3% to 214 million.
- Zillow Home Loans originated $1.550 billion of loans, essentially flat year over year. Purchase originations rose 93% to $1.534 billion, offset by a 98% decline in refinancing to $16 million.
- Operating expenses increased 7% to $1.794 billion. Technology and development rose 12% to $560 million; general and administrative rose 11% to $553 million. Share-based compensation was $451 million.
- Other income, net increased to $151 million from $43 million, primarily reflecting higher returns on investments. This helped offset operating losses; it is not operating revenue.
- At year-end, cash and cash equivalents were $1.492 billion and short-term investments were $1.318 billion; restricted cash was $3 million. Current assets were $3.149 billion and current liabilities $971 million.
- Total debt carrying value was $1.700 billion: $1.607 billion in convertible notes and $93 million in mortgage credit facilities. The notes have $1.614 billion aggregate principal; $608 million of principal is due in September 2024. The mortgage facilities had $157 million of available capacity under $250 million of maximum capacity.
- Shareholders’ equity was $4.526 billion; accumulated deficit was $1.770 billion. Zillow repurchased $424 million of its shares during 2023 and had $770 million remaining under its repurchase authorizations.
Material changes versus the prior year
- Total revenue declined 1%, while gross profit declined 4% and gross margin contracted three percentage points. Higher cost of revenue, including increased website development amortization, contributed to lower gross profit.
- Operating cash flow fell to $354 million from $4.504 billion. The prior-year figure included a $3.9 billion working-capital inflow from the Zillow Offers wind-down and inventory reduction, so the comparison is not representative of ordinary recurring cash generation.
- Investing cash flow was $25 million provided in 2023 versus $1.533 billion used in 2022. 2023 included $433 million of acquisition cash outflows and $623 million of net investment maturities.
- Net loss widened to $158 million from $101 million, while Adjusted EBITDA declined 24%. The company continued to report operating losses despite positive Adjusted EBITDA.
- Zillow acquired Aryeo, Spruce and Follow Up Boss in 2023. Follow Up Boss cost $399 million net of cash acquired, plus up to $100 million of contingent consideration; its preliminary allocation included $401 million of goodwill.
Outlook, risks and unusual items
- Management said it expects Residential revenue to increase in absolute dollars in the three months ending March 31, 2024, citing market stabilization, Follow Up Boss, product expansion and seasonality. It expects general and administrative expense to decrease in that quarter, partly because the Seattle office lease charge recorded in Q4 2023 will not recur. No numerical company-wide revenue or earnings guidance is provided.
- Management believes cash from operations and cash and investment balances will cover operating activities and other requirements for at least the next 12 months. Zillow was in compliance with debt covenants at year-end.
- Housing-market exposure remains central: low inventory, affordability constraints, elevated and volatile mortgage rates, and fewer listings weigh on transaction activity and advertising demand. Industry transaction value fell 17% in 2023, according to the cited NAR data.
- Potential changes to agent commissions following the NAR antitrust class action and related litigation or investigations could alter industry practices, partner spending and Zillow’s revenue model. Zillow itself filed an antitrust suit in December 2023 against multiple listing service entities concerning showing-management services.
- Other material risks include dependence on MLS and data-provider access, partner advertising spend, competition, mortgage funding and loan resale, cybersecurity and privacy, regulatory compliance, and litigation. The filing reports IBM patent litigation with possible loss not estimable; it states no material accruals were recorded for the legal matters described.
- Unusual and judgment-sensitive items include $16 million of office-space impairment costs, $14 million of accelerated Seattle lease right-of-use asset amortization, and $90 million of accrued variable revenue for performance-based products. The Follow Up Boss acquisition accounting remains preliminary.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified highly automated Residential and Rentals revenue systems as a critical audit matter.
Important facts for investors to verify
- Whether housing-market activity, traffic and Residential partner spending stabilize enough to support the stated near-term Residential revenue outlook.
- How recurring operating cash flow develops, separating it from the unusually large Zillow Offers-related working-capital inflow in 2022.
- Liquidity and refinancing or settlement plans for the $608 million of 2024 notes due within 12 months, as well as later convertible-note maturities.
- Acquisition performance, integration costs and the potential $100 million Follow Up Boss contingent payment.
- Developments in real estate commission litigation and regulation, MLS access disputes, and the company’s disclosed IBM and shareholder litigation.
- Whether Rentals growth and mortgage purchase-originations growth can offset continuing weakness in Residential and mortgage advertising.