Zillow Group, Inc. (Z) Earnings & Analysis

Latest quarter

Zillow reported Q3 FY2026 revenue of $724.0 million, up from $676.0 million a year earlier but below the consensus and its own $745.0 million–$760.0 million guidance. Its adjusted earnings of $0.55 per share also missed the consensus of $0.6 per share.

The company’s filing attributed the revenue increase chiefly to rentals, where revenue rose 26% to $220 million as revenue per visitor increased. Mortgage revenue rose 32% to $70 million, driven by loan origination volume, while residential revenue fell 4% to $419 million as visits declined amid weaker housing demand.

Zillow reported a diluted loss of −$0.70 per share, compared with earnings of $0.04 a year earlier. Gross margin fell to 71.3% from 72.6%, and operating margin declined to −22.2% from −0.44%. The filing said general and administrative expenses increased primarily because of $165 million associated with a securities class action settlement, net of expected insurance recoveries.

Free cash flow was $119.0 million, compared with $65.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Jeremy Wacksman told investors that mortgage rates rose nearly 100 basis points from the start of Q3 into early Q4. CFO Jeremy Hofmann said the rate shock reduced conversion and left mortgage revenue below Zillow’s outlook. In response to a question about the mortgage business, Hofmann said volatility had put buyers on the sidelines and that rebuilding pipelines would take time; he said he saw no structural change in the business.

Hofmann said multifamily property growth and customers upgrading advertising packages supported rentals revenue. Wacksman said rental demand rose nearly 20% year over year in September as mortgage rates rose. Hofmann added that Zillow intended to manage variable costs in line with revenue and invest in advertising opportunistically.

Wacksman said Zillow was accelerating its shift to Preferred, under which partners pay when a transaction closes rather than upfront for leads. He said two-thirds of buyer connections went to preferred agents in Q3, up from about one-third a year earlier, and that preferred connections generated 35% more revenue per connection than the legacy advertising model. Hofmann said the transition would affect revenue recognition timing and increase seasonality.

On technology, Wacksman said more than 2.5 million people used Zillow AI mode between March and September and that users spent more time on the platform, ran more searches and requested more tours. Asked about traffic, he said Zillow had not yet seen much of a shift as AI develops. He also said Zillow was developing AI features in Follow Up Boss to suggest leads and next steps to agents.

Asked how adoption of Zillow Home Loans might develop, Wacksman said Zillow was not putting a number on its potential. Hofmann said legal costs were expected to normalize in Q4, while Zillow would continue hiring to fulfill demand for home loans.

Guidance

For Q4 FY2026, Hofmann said Zillow expects residential revenue to decline roughly 9% to 15% year over year. On the prior call, he had said residential revenue would be in line with purchase mortgage industry growth. On the latest call, Wacksman said Zillow expected the purchase mortgage market to be down 10 to 15% in Q4.