ZILLOW GROUP, INC. [Z] Filings

10-Q 1 z-20230930.htm 10-Q z-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________

FORM 10-Q

_____________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36853

_____________________________________________________

ZILLOW GROUP, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________________


Washington						47-1645716
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

1301 Second Avenue, Floor 36,

Seattle, Washington 98101

(Address of principal executive offices) (Zip Code)

(206) 470-7000

(Registrant’s telephone number, including area code)

_____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	ZG	The Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per share	Z	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 25, 2023, 55,719,542 shares of Class A common stock, 6,217,447 shares of Class B common stock and 171,666,169 shares of Class C capital stock were outstanding.

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ZILLOW GROUP, INC.

Quarterly Report on Form 10-Q

For the Three Months Ended September 30, 2023

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		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	51

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 5.	O ther Information	55
Item 6.	Exhibits	56

	Signatures	57

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As used in this Quarterly Report on Form 10-Q, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, including, but not limited to risks related to:

•the current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues;

•our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners;

•our ability to establish or maintain relationships with listing and data providers, which affects traffic to our mobile applications and websites;

•our ability to comply with current and future multiple listing service (“MLS”) rules and requirements;

•our ability to continue to innovate and compete successfully to attract customers and real estate partners;

•our ability to operate and grow Zillow Home Loans, our mortgage origination business, including the ability to obtain or maintain sufficient financing to fund its origination of mortgages, meet customers’ financing needs with its product offerings, continue to grow the origination business and resell originated mortgages on the secondary market;

•the duration and impact of natural disasters and other catastrophic events (including public health crises) on our ability to operate, demand for our products or services, or general economic conditions;

•our ability to maintain adequate security measures or technology systems, or those of third parties on which we rely, to protect data integrity and the information and privacy of our customers and other third parties;

•the impact of pending or future litigation and other disputes or enforcement actions;

•our ability to attract and retain a highly skilled workforce;

•acquisitions, investments, strategic partnerships, capital-raising activities, or other corporate transactions or commitments by us or our competitors;

•our ability to continue relying on third-party services to support critical functions of our business;

•our ability to protect and continue using our intellectual property and prevent others from copying, infringing upon, or developing similar intellectual property;

•our ability to comply with domestic and international laws, regulations, rules, contractual obligations, policies and other obligations, or to obtain or maintain required licenses to support our business and operations;

•our ability to pay debt, settle conversions of our convertible senior notes, or repurchase our convertible senior notes upon a fundamental change;

•our ability to raise additional capital or refinance on acceptable terms, or at all;

•actual or anticipated fluctuations in quarterly and annual results of operations and financial position;

•the assumptions, estimates and internal or third-party data that we use to calculate business, performance and operating metrics; and

•volatility of our Class A common stock and Class C capital stock prices.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

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WHERE YOU CAN FIND MORE INFORMATION

Our filings with the Securities and Exchange Commission (“SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, are available on the “Investors” section of our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC.

Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters, and for complying with its disclosure obligations under Regulation FD:

•Zillow Group Investor Relations Webpage (https://investors.zillowgroup.com)

•Zillow Group Blog (https://www.zillowgroup.com/news/)

•Zillow Group’s X Account, formerly known as Twitter (https://twitter.com/zillowgroup)

The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time and reflects current updated channels as of the date of this Quarterly Report on Form 10-Q. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC, and the inclusion of our website addresses and X Account are as inactive textual references only.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data, unaudited)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,846	$	1,466
Short-term investments	1,421		1,896
Accounts receivable, net	97		72
Mortgage loans held for sale	96		41
Prepaid expenses and other current assets	149		126
Restricted cash	3		2
Total current assets	3,612		3,603
Contract cost assets	23		23
Property and equipment, net	324		271
Right of use assets	103		126
Goodwill	2,416		2,374
Intangible assets, net	162		154
Other assets	16		12
Total assets	$	6,656	$	6,563
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	28	$	20
Accrued expenses and other current liabilities	87		90
Accrued compensation and benefits	52		48
Borrowings under credit facilities	91		37
Deferred revenue	48		44
Lease liabilities, current portion	28		31
Convertible senior notes, current portion	607		—
Total current liabilities	941		270
Lease liabilities, net of current portion	119		139
Convertible senior notes, net of current portion	1,057		1,660
Other long-term liabilities	10		12
Total liabilities	2,127		2,081
Commitments and contingencies (Note 14)
Shareholders’ equity:
Preferred stock, $0.0001 par value; authorized — 30,000,000 shares; no shares issued and outstanding	—		—
Class A common stock, $0.0001 par value; authorized — 1,245,000,000 shares; issued and outstanding — 55,719,542 and 57,494,698 shares as of September 30, 2023 and December 31, 2022, respectively	—		—
Class B common stock, $0.0001 par value; authorized — 15,000,000 shares; issued and outstanding — 6,217,447 shares	—		—
Class C capital stock, $0.0001 par value; authorized — 600,000,000 shares; issued and outstanding — 171,654,263 and 170,555,565 shares as of September 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	6,247		6,109
Accumulated other comprehensive loss	(21)		(15)
Accumulated deficit	(1,697)		(1,612)
Total shareholders’ equity	4,529		4,482
Total liabilities and shareholders’ equity	$	6,656	$	6,563

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except share data, which are presented in thousands, and per share data, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	496	$	483	$	1,471	$	1,523
Cost of revenue	110		89		306		278
Gross profit	386		394		1,165		1,245
Operating expenses:
Sales and marketing	164		165		493		502
Technology and development	142		142		419		369
General and administrative	131		138		407		370
Impairment and restructuring costs	1		—		9		14
Acquisition-related costs	1		—		2		—
Total operating expenses	439		445		1,330		1,255
Loss from continuing operations	(53)		(51)		(165)		(10)
Other income, net	34		12		108		19
Interest expense	(9)		(9)		(27)		(26)
Loss from continuing operations before income taxes	(28)		(48)		(84)		(17)
Income tax benefit (expense)	—		(3)		(1)		1
Net loss from continuing operations	(28)		(51)		(85)		(16)
Net loss from discontinued operations, net of income taxes	—		(2)		—		(13)
Net loss	$	(28)	$	(53)	$	(85)	$	(29)

Net loss from continuing operations per share - basic and diluted	$	(0.12)	$	(0.21)	$	(0.36)	$	(0.07)


Net loss per share - basic and diluted	$	(0.12)	$	(0.22)	$	(0.36)	$	(0.12)


Weighted-average shares outstanding - basic and diluted	233,295		240,080		235,560		244,157

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions, unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(28)	$	(53)	$	(85)	$	(29)
Other comprehensive loss:
Net unrealized losses on investments	(2)		(6)		(6)		(26)
Total other comprehensive loss	(2)		(6)		(6)		(26)
Comprehensive loss	$	(30)	$	(59)	$	(91)	$	(55)

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions, except share data, which are presented in thousands, unaudited)


	Class A Common Stock, Class B Common Stock and Class C Capital Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity

	Shares	Amount
Balance at July 1, 2023	232,723	$	—	$	6,174	$	(1,669)	$	(19)	$	4,486
Issuance of capital stock upon exercise of stock options	631	—		26		—		—		26
Vesting of restricted stock units	1,754	—		—		—		—		—
Share-based compensation expense	—	—		127		—		—		127
Repurchases of Class A common stock and Class C capital stock	(1,897)	—		(100)		—		—		(100)
Issuance of capital stock in connection with an acquisition	380	—		20		—		—		20
Net loss		—		—		(28)		—		(28)
Other comprehensive loss	—	—		—		—		(2)		(2)
Balance at September 30, 2023	233,591	$	—	$	6,247	$	(1,697)	$	(21)	$	4,529


	Class A Common Stock, Class B Common Stock and Class C Capital Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity

	Shares	Amount
Balance at July 1, 2022	241,141	$	—	$	6,167	$	(1,487)	$	(13)	$	4,667
Issuance of common and capital stock upon exercise of stock options	83	—		2		—		—		2
Vesting of restricted stock units	1,467	—		—		—		—		—
Share-based compensation expense	—	—		161		—		—		161
Repurchases of Class A common stock and Class C capital stock	(4,997)	—		(176)		—		—		(176)
Net loss	—	—		—		(53)		—		(53)
Other comprehensive loss	—	—		—		—		(6)		(6)
Balance at September 30, 2022	237,694	$	—	$	6,154	$	(1,540)	$	(19)	$	4,595

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	Class A Common Stock, Class B Common Stock and Class C Capital Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity

	Shares	Amount
Balance at January 1, 2023	234,268	$	—	$	6,109	$	(1,612)	$	(15)	$	4,482
Issuance of capital stock upon exercise of stock options	1,454	—		56		—		—		56
Vesting of restricted stock units	4,675	—		—		—		—		—
Share-based compensation expense	—	—		398		—		—		398
Repurchases of Class A common stock and Class C capital stock	(7,186)	—		(336)		—		—		(336)
Issuance of capital stock in connection with an acquisition	380	—		20		—		—		20
Net loss	—	—		—		(85)		—		(85)
Other comprehensive loss	—	—		—		—		(6)		(6)
Balance at September 30, 2023	233,591	$	—	$	6,247	$	(1,697)	$	(21)	$	4,529


	Class A Common Stock, Class B Common Stock and Class C Capital Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity

	Shares	Amount
Balance at January 1, 2022	250,630	$	—	$	7,001	$	(1,667)	$	7	$	5,341
Cumulative-effect adjustment from adoption of guidance on accounting for convertible instruments and contracts in an entity’s own equity	—	—		(492)		156		—		(336)
Issuance of common and capital stock upon exercise of stock options	1,078	—		44		—		—		44
Vesting of restricted stock units	3,278	—		—		—		—		—
Share-based compensation expense	—	—		374		—		—		374
Repurchases of Class A common stock and Class C capital stock	(17,292)	—		(773)		—		—		(773)
Net loss	—	—		—		(29)		—		(29)
Other comprehensive loss	—	—		—		—		(26)		(26)
Balance at September 30, 2022	237,694	$	—	$	6,154	$	(1,540)	$	(19)	$	4,595

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See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)


	Nine Months Ended September 30,
	2023		2022
Operating activities
Net loss	$	(85)	$	(29)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	134		121
Share-based compensation	342		341
Amortization of right of use assets	18		17
Amortization of contract cost assets	16		23
Amortization of debt discount and debt issuance costs	4		24
Loss on extinguishment of debt	—		21
Accretion of bond discount	(29)		(11)
Other adjustments to reconcile net loss to net cash provided by operating activities	3		11
Changes in operating assets and liabilities:
Accounts receivable	(26)		76
Mortgage loans held for sale	(55)		58
Inventory	—		3,904
Prepaid expenses and other assets	(22)		(13)
Contract cost assets	(16)		(13)
Lease liabilities	(24)		(15)
Accounts payable	7		1
Accrued expenses and other current liabilities	(3)		(49)
Accrued compensation and benefits	4		(52)
Deferred revenue	4		(1)
Other long-term liabilities	(4)		6
Net cash provided by operating activities	268		4,420
Investing activities
Proceeds from maturities of investments	1,136		455
Purchases of investments	(638)		(1,474)
Purchases of property and equipment	(101)		(87)
Purchases of intangible assets	(24)		(17)
Cash paid for acquisitions, net	(34)		—
Net cash provided by (used in) investing activities	339		(1,123)
Financing activities
Repayments of borrowings on credit facilities	—		(2,205)
Net borrowings (repayments) on warehouse line of credit and repurchase agreements	54		(68)
Repurchases of Class A common stock and Class C capital stock	(336)		(773)
Settlement of long-term debt	—		(1,158)
Proceeds from exercise of stock options	56		44
Net cash used in financing activities	(226)		(4,160)
Net increase (decrease) in cash, cash equivalents and restricted cash during period	381		(863)
Cash, cash equivalents and restricted cash at beginning of period	1,468		2,838
Cash, cash equivalents and restricted cash at end of period	$	1,849	$	1,975
Supplemental disclosures of cash flow information
Noncash transactions:
Capitalized share-based compensation	$	56	$	33
Write-off of fully depreciated property and equipment	29		48
Value of Class C capital stock issued in connection with an acquisition	20		—
Write-off of fully amortized intangible assets	4		200
Recognition of operating right of use assets and lease liabilities	1		14
Settlement of beneficial interests in securitizations	—		(79)

See accompanying notes to the condensed consolidated financial statements.

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ZILLOW GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Index to Notes to Condensed Consolidated Financial Statements


		Page
Note 1.	Organization and Description of Business	11
Note 2.	Summary of Significant Accounting Policies	12
Note 3.	Discontinued Operations	15
Note 4.	Fair Value Measurements	16
Note 5.	Cash and Cash Equivalents, Investments and Restricted Cash	18
Note 6.	Property and Equipment, net	19
Note 7.	A cqu isit i ons	19
Note 8.	Intangible Assets, net	20
Note 9.	Debt	21
Note 10.	Income Taxes	23
Note 11.	Share Repurchase Authorizations	23
Note 12.	Share-Based Awards	25
Note 13.	Net Loss Per Share	26
Note 14.	Commitments and Contingencies	27
Note 15.	Revenue and Contract Balances	30
Note 16.	Subsequent Events	31

Note 1. Organization and Description of Business

Zillow Group is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, great partners, and easier buying, selling, financing and renting experiences.

Our portfolio of affiliates, subsidiaries and brands includes Zillow Premier Agent, Zillow Home Loans, our mortgage originations business and affiliate lender, Zillow Rentals, Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions for the real estate industry, including Spruce, Mortech, New Home Feed and ShowingTime+.

In the fourth quarter of 2021, we began to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in markets across the country. The wind down was completed in the third quarter of 2022, and we have presented the financial results of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. No assets or liabilities were classified as discontinued operations as of December 31, 2022. See Note 3 for additional information.

Certain Significant Risks and Uncertainties

We operate in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, we believe that changes in any of the following areas could have a significant negative effect on us in terms of our future financial position, results of operations or cash flows: current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues; our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners; our compliance with multiple listing service rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers; our investment of resources to pursue strategies and develop new products and services that may not prove effective or that are not attractive for customers and real estate partners or that do not allow us to compete successfully; our ability to operate and grow Zillow Home Loans, our mortgage origination business and affiliate lender, including the ability to obtain or maintain sufficient financing and resell originated mortgages on the secondary market; the duration and impact of natural disasters and other catastrophic events (including public health crises) on

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our ability to operate, demand for our products or services or general economic conditions; outcomes of legal proceedings; our ability to attract and retain a highly skilled workforce; protection of Zillow’s information and systems against security breaches or disruptions in operations; reliance on third-party services to support critical functions of our business; protection of our brand and intellectual property; and changes in laws or government regulation affecting our business, among other things.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include Zillow Group, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in Zillow Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 15, 2023. The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.

The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2023 and our results of operations, comprehensive loss, and shareholders’ equity for the three and nine month periods ended September 30, 2023 and 2022, and cash flows for the nine month periods ended September 30, 2023 and 2022. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, for any interim period, or for any other future year. Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Unless indicated otherwise, the information in the Notes to Condensed Consolidated Financial Statements relates to our continuing operations and does not include the results of discontinued operations.

There were no significant changes to the significant accounting policies disclosed in Note 2 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except for the updates noted below. Such updates were made due to our determination that we have a single operating and reportable segment, as well as certain changes to how we disaggregate our revenue into categories, beginning in the first quarter of 2023.

Recoverability of Goodwill

Goodwill is measured as the excess of consideration transferred for an acquired business over the net of the acquisition date fair values of the assets acquired and the liabilities assumed, and is not amortized. We assess the impairment of goodwill at the reporting unit level on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. In our evaluation of goodwill, we initially perform a qualitative assessment to determine whether the existence of events or circumstances indicates that it is more likely than not that the carrying value of each reporting unit is greater than its fair value. If it is more likely than not that the carrying value of a reporting unit is greater than its fair value, we perform a quantitative assessment and an impairment charge is recorded in our statements of operations if the carrying value of the reporting unit exceeds its fair value.

Beginning in 2023, our chief operating decision maker, who is our chief executive officer, manages our business, makes operating decisions and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. This aligns to our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. This resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. Accordingly, we have realigned our operating structure, resulting in a single operating and reportable segment. In line with this, the nature and substance of the information regularly provided to our segment manager similarly changed, and we determined that we have only one reporting unit. Because the segment change impacted the structure of our reporting units, we performed a qualitative goodwill impairment assessment immediately before and immediately after the change in reporting units. Based on those assessments, we determined it was more likely than not that the fair value of our current and legacy reporting units exceeded their respective carrying values. Therefore, we concluded that it was not necessary to perform a quantitative impairment test.

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Revenue Recognition

We recognize revenue when or as we satisfy our performance obligations by transferring control of the promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.

As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component as the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service is generally one year or less.

We do not disclose the transaction price related to remaining performance obligations for (i) contracts with an original expected duration of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for performance completed to date. The remaining duration over which we satisfy our performance obligations is generally less than one year.

We disaggregate our revenue into the following categories: Residential, Rentals, Mortgages and Other, described below.

Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising and business technology solutions for real estate professionals through StreetEasy for-sale product offerings and ShowingTime+.

Our Premier Agent program offers a suite of marketing and technology products and services to help real estate agents and brokers achieve their advertising goals while growing and managing their businesses and brands. All Premier Agent partners receive access to a dashboard portal on our mobile application and website that provides individualized program performance analytics, our customer relationship management tool that captures detailed information about each contact made with a Premier Agent partner through our mobile and web platforms and our account management tools. The marketing and business technology products and services promised to Premier Agent partners are delivered over time, as the customer simultaneously receives and consumes the benefit of the performance obligations.

Premier Agent advertising products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Payment is received prior to the delivery of connections. Connections are delivered when consumer contact information is provided to Premier Agent partners. We do not promise any minimum or maximum number of connections to customers, but instead control when and how many connections to deliver based on a customer’s share of voice. We determine the number of connections to deliver to Premier Agent partners in each zip code using a market-based pricing method in consideration of the total amount spent by Premier Agent partners to purchase connections in the zip code during the month. This results in the delivery of connections over time in proportion to each Premier Agent partners’ share of voice. A Premier Agent partners’ share of voice in a zip code is determined by their proportional monthly prepaid spend in that zip code as a percentage of the total monthly prepaid spend of all Premier Agent partners in that zip code, and determines the proportion of consumer connections a Premier Agent partner receives. The number of connections delivered for a given spend level is dynamic; as demand for advertising in a zip code increases or decreases, the number of connections delivered to a Premier Agent partner in that zip code decreases or increases accordingly.

We primarily recognize revenue related to the Premier Agent products and services based on the monthly prepaid spend recognized on a straight-line basis during the monthly billing period over which the products and services are provided. This methodology best depicts how we satisfy our performance obligations to customers, as we continuously transfer control of the performance obligations to the customer over time. Given a Premier Agent partner typically prepays their monthly spend and the monthly spend is refunded on a pro-rata basis upon cancellation of the contract by a customer, we have determined that Premier Agent partner contracts are effectively daily contracts, and each performance obligation is satisfied over time as each day lapses. We have not allocated the transaction price to each performance obligation within our Premier Agent partner arrangements, as the amounts recognized would be the same irrespective of any allocation.

We also offer a pay for performance pricing model called “Flex” for Premier Agent advertising services in certain markets. Flex is available to select partners alongside our legacy market-based pricing model. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads, generally within two years. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration and record revenue as performance obligations, or validated leads, are transferred. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a contract asset for our estimate of the consideration to which we will be entitled when the right to the consideration is conditional. When the right to consideration becomes unconditional, upon the close of a real estate transaction, we reclassify amounts to accounts receivable.

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Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby we recognize revenue on a straight-line basis during the contractual period over which the communities are advertised on our mobile applications and websites. New construction revenue also includes revenue generated on a cost per impression basis whereby we recognize revenue as impressions are delivered to users interacting with our mobile applications and websites, which is the amount for which we have the right to invoice. Consideration for new construction products is billed in arrears.

StreetEasy for-sale revenue primarily consists of our pay for performance pricing model available in the New York City market for which agents and brokers are provided with leads at no initial cost and pay a performance referral fee only when a real estate purchase transaction is closed with one of the leads. Under the StreetEasy pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration based on the expected number of closed transactions during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for StreetEasy Experts when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the close of a real estate transaction, we reclassify amounts to accounts receivable.

Our dotloop real estate transaction management software-as-a-service solution is primarily billed in advance on a monthly basis and revenue is recognized ratably over the contract period which aligns to our satisfaction of performance obligations.

ShowingTime revenue is primarily generated by Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center revenue is primarily billed in advance on a monthly basis and recognized ratably over the contract period which aligns to our satisfaction of performance obligations.

Rentals. Rentals revenue includes the sale of advertising and a suite of tools to rental professionals, landlords and other market participants under the Zillow and StreetEasy brands. Rentals revenue includes revenue generated by advertising sold to property managers, landlords and other rental professionals on a cost per lead, lease, listing or impression basis or for a fixed fee for certain advertising packages. We recognize revenue as leads, clicks and impressions are provided to rental professionals, or as rental listings are published on our mobile applications and websites, which is the amount for which we have the right to invoice. We recognize revenue related to our fixed fee rentals product on a straight-line basis over the contract term as the performance obligations, rental listings on our mobile applications and websites, are satisfied over time based on time elapsed. The number of leases generated through our rentals pay per lease product, Zillow Lease Connect, during the period is accounted for as variable consideration, and we estimate the amount of variable consideration based on the expected number of qualified leases secured during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of leases secured is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for Zillow Lease Connect when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the execution of a lease, we reclassify amounts to accounts receivable. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee. We recognize revenue for the rental applications product on a straight-line basis during the contractual period over which the customer has the right to access and submit the rental application.

Mortgages. Mortgages revenue primarily includes revenue generated by Zillow Home Loans, our affiliated mortgage lender, and marketing products sold to mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.

Mortgage origination revenue reflects origination fees on purchase or refinance mortgages and the corresponding sale, or expected future sale, of a loan. When an interest rate lock commitment (“IRLC”) is made to a customer, we record the expected gain on sale of the mortgage, plus the estimated earnings from the expected sale of the associated servicing rights, adjusted for a pull-through percentage (which is defined as the likelihood that an interest rate lock commitment will be originated), as revenue. Revenue from loan origination fees is recognized at the time the related purchase or refinance transactions are completed, usually upon the close of escrow and when we fund the purchase or refinance mortgage loans. Once funded, mortgage loans held for sale are recorded at fair value based on either sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loan is sold. Origination costs associated with originating mortgage loans are recognized as incurred. We sell substantially all of the mortgages we originate and the related servicing rights to third-party purchasers.

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Mortgage loans are sold with limited recourse provisions, which can result in repurchases of loans previously sold to investors or payments to reimburse investors for loan losses. Based on historical experience, discussions with our mortgage purchasers, analysis of the volume of mortgages we originated and current housing and credit market conditions, we estimate and record a loss reserve for mortgage loans held in our portfolio and mortgage loans held for sale, as well as known and projected mortgage loan repurchase requests. These have historically not been significant to our financial statements.

Zillow Group operates Custom Quote and Connect through its wholly owned subsidiary, Zillow Group Marketplace, Inc., a licensed mortgage broker. For our Connect and Custom Quote cost per lead marketing products, participating qualified mortgage professionals typically make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Mortgage professionals who exhaust their initial prepayment prepay additional funds to continue to participate in the marketplace. In Zillow Group’s Connect platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information, or leads, when the consumer chooses to share their information with a lender. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. For our cost per lead mortgages products, we recognize revenue when a user contacts a mortgage professional through our mortgages platform, which is the amount for which we have the right to invoice.

Other. Other revenue primarily includes revenue generated from display products, which consist of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites, which is the amount for which we have the right to invoice.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to the accounting for certain revenue offerings, restructuring costs, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets, share-based compensation, income taxes, the presentation of discontinued and continuing operations, business combinations and the recoverability of goodwill, among others. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The health of the residential housing market and interest rate environment have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the estimates previously listed, among others.

Recently Issued Accounting Standards Not Yet Adopted

In June 2022, the Financial Accounting Standards Board issued guidance to improve existing measurement and disclosure requirements for equity securities that are subject to a contractual sale restriction. This guidance is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. We expect to adopt this guidance prospectively on January 1, 2024, and we do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

Note 3. Discontinued Operations

Zillow Offers Wind Down

In November 2021, the Board of Directors of Zillow Group (the “Board”) made the determination to wind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment, all of which led us to conclude that, despite its initial promise in earlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals going forward.

The wind down of Zillow Offers was completed in the third quarter of 2022, at which time Zillow Offers met the criteria for discontinued operations. Accordingly, we have presented the results of operations, excluding allocation of any general corporate expenses, of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. No assets or liabilities were classified as discontinued operations as of December 31, 2022.

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The following table presents the major classes of line items of the discontinued operations included in the condensed consolidated statements of operations for the periods presented (in millions):


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Revenue	$	23	$	4,249
Cost of revenue	24		4,023
Gross profit (loss)	(1)		226
Operating expenses:
Sales and marketing	1		153
Technology and development	—		6
General and administrative	—		10
Restructuring costs	—		25
Total operating expenses	1		194
Income (loss) from discontinued operations	(2)		32
Loss on extinguishment of debt	—		(21)
Other income	—		13
Interest expense	—		(36)
Loss from discontinued operations before income taxes	(2)		(12)
Income tax expense	—		(1)
Net loss from discontinued operations	$	(2)	$	(13)
Net loss from discontinued operations per share:
Basic	$	(0.01)	$	(0.05)
Diluted	$	(0.01)	$	(0.05)

The following table presents significant non-cash items and capital expenditures of the discontinued operations for the nine months ended September 30, 2022 (in millions):


Amortization of debt discount and debt issuance costs	$	21
Loss on debt extinguishment	21
Share-based compensation	16
Inventory valuation adjustment	9
Depreciation and amortization	7
Settlement of beneficial interests in securitizations	(79)

Restructuring

Restructuring costs totaled $14 million for the nine months ended September 30, 2022, and were related to the Zillow Offers wind down. Cumulative restructuring charges attributable to continuing operations related to the Zillow Offers wind down as of September 30, 2022 totaled $23 million.

Note 4. Fair Value Measurements

We apply the following methods and assumptions in estimating our fair value measurements:

Cash equivalents — The fair value measurement of money market funds is based on quoted market prices in active markets (Level 1). The fair value measurement of other cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).

Short-term investments — The fair value measurement of our short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means (Level 2).

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Mortgage loans held for sale — The fair value of mortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).

Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments is calculated by reference to quoted prices for similar assets (Level 2).

Interest rate lock commitments — The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an IRLC will ultimately result in a closed loan. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (Level 3).

The pull-through rate is based on estimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are directly related to the fair value of IRLCs as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within revenue in our condensed consolidated statements of operations. The following table presents the range and weighted-average pull-through rates used in determining the fair value of IRLCs as of the dates presented:


	September 30, 2023	December 31, 2022
Range	45% - 100%	47% - 100%
Weighted-average	88%	87%

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in millions):


	September 30, 2023
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,736	$	1,736	$	—	$	—

Short-term investments:
U.S. government treasury securities	1,258		—		1,258		—
Corporate bonds	135		—		135		—
Commercial paper	14		—		14		—
U.S. government agency securities	14		—		14		—
Mortgage origination-related:
Mortgage loans held for sale	96		—		96		—
Forward contracts - other current assets	2		—		2		—
IRLCs - other current assets	1		—		—		1
Total	$	3,256	$	1,736	$	1,519	$	1

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	December 31, 2022
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,338	$	1,338	$	—	$	—
Short-term investments:
U.S. government treasury securities	1,716		—		1,716		—
Corporate bonds	161		—		161		—
Commercial paper	10		—		10		—
U.S. government agency securities	9		—		9		—
Mortgage origination-related:
Mortgage loans held for sale	41		—		41		—
Forward contracts - other current assets	1		—		1		—

Total	$	3,276	$	1,338	$	1,938	$	—

At September 30, 2023, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $189 million and $232 million for our IRLCs and forward contracts, respectively. At December 31, 2022, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $62 million and $90 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our forward contract derivative positions.

See Note 9 for the carrying amounts and estimated fair values of our convertible senior notes.

Note 5. Cash and Cash Equivalents, Investments and Restricted Cash

The following table presents the amortized cost and estimated fair market value of our cash and cash equivalents, investments, and restricted cash as of the dates presented (in millions):


	September 30, 2023				December 31, 2022
	Amortized Cost		Estimated Fair Market Value		Amortized Cost		Estimated Fair Market Value
Cash	$	110	$	110	$	128	$	128
Cash equivalents:
Money market funds	1,736		1,736		1,338		1,338
Short-term investments:
U.S. government treasury securities(1)	1,278		1,258		1,731		1,716
Corporate bonds	136		135		162		161
Commercial paper	14		14		10		10
U.S. government agency securities	14		14		9		9
Restricted cash	3		3		2		2
Total	$	3,291	$	3,270	$	3,380	$	3,364

(1)The estimated fair market value includes $20 million and $15 million of gross unrealized losses as of September 30, 2023 and December 31, 2022, respectively.

The following table presents available-for-sale investments by contractual maturity date as of September 30, 2023 (in millions):


	Amortized Cost		Estimated Fair Market Value
Due in one year or less	$	513	$	509
Due after one year	929		912
Total	$	1,442	$	1,421

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Note 6. Property and Equipment, net

The following table presents the detail of property and equipment as of the dates presented (in millions):


	September 30, 2023		December 31, 2022
Website development costs	$	415	$	291
Leasehold improvements	89		90
Office equipment, furniture and fixtures	22		24
Computer equipment	19		18
Construction-in-progress	—		7
Property and equipment	545		430
Less: accumulated amortization and depreciation	(221)		(159)
Property and equipment, net	$	324	$	271

We recorded depreciation expense related to property and equipment (other than website development costs) of $6 million for each of the three months ended September 30, 2023 and 2022, and $18 million and $19 million for the nine months ended September 30, 2023 and 2022, respectively.

We capitalized website development costs of $49 million and $37 million for the three months ended September 30, 2023 and 2022, respectively, and $144 million and $104 million for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense for website development costs included in cost of revenue was $30 million and $17 million for the three months ended September 30, 2023 and 2022, respectively, and $79 million and $48 million for the nine months ended September 30, 2023 and 2022, respectively.

Note 7. Acquisitions

On July 31, 2023, Zillow Group acquired Aryeo, Inc. (“Aryeo”), a software company that serves real estate photographers, in exchange for approximately $15 million in cash, net of cash acquired, and 380,259 shares of our Class C capital stock with a value of $20 million, for total consideration of $35 million, net of cash acquired. On September 11, 2023, Zillow Group acquired substantially all of the assets and liabilities of Spruce Holdings, Inc. and certain affiliated entities (collectively referred to as “Spruce”), a tech-enabled title and escrow platform, in exchange for approximately $19 million in cash, net of cash acquired. The acquisitions of Aryeo and Spruce have been accounted for as business combinations, and assets acquired and liabilities assumed were recorded at their preliminary estimated fair values. Goodwill represents the expected synergies from combining the acquired assets and the operations of the acquirer as well as intangible assets that do not qualify for separate recognition. Goodwill is measured as the excess of consideration transferred over the net of the fair values of the assets acquired and the liabilities assumed. Goodwill recorded in connection with the acquisition of Aryeo is not deductible for tax purposes, and goodwill recorded in connection with the acquisition of Spruce is deductible for tax purposes.

The total preliminary purchase prices have been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date, as follows (in millions):


	Aryeo		Spruce
Cash and cash equivalents	$	3	$	5
Goodwill	26		16
Intangible assets	11		2
Other assets	—		2
Liabilities	(2)		(1)
Total preliminary purchase price	$	38	$	24

The preliminary estimated fair values of the identifiable intangible assets acquired and associated useful lives consisted of the following (in millions):

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	Aryeo			Spruce
	Preliminary Estimated Fair Value		Estimated Useful Life (in years)	Preliminary Estimated Fair Value		Estimated Useful Life (in years)
Customer relationships	$	5	5	$	—	—
Purchased content	4		3	—		—
Developed technology	2		3	2		3
Total	$	11		$	2

We used an income approach to measure the fair value of the customer relationships intangible asset acquired from Aryeo based on the excess earnings method, whereby the fair value is estimated based upon the present value of cash flows that the applicable asset is expected to generate. We used a cost approach to measure the fair value of purchased content acquired from Aryeo. We used an income approach to measure the fair value of the developed technology acquired from Aryeo and Spruce based on the relief-from-royalty method. These fair value measurements were based on Level 3 inputs under the fair value hierarchy.

Acquisition-related costs incurred, which primarily included legal, accounting and other external costs directly related to the acquisition, are included within acquisition-related costs in our condensed consolidated statements of operations and were expensed as incurred.

Unaudited pro forma earnings information has not been presented as the effects were not material to our condensed consolidated financial statements.

Note 8. Intangible Assets, net

The following tables present the detail of intangible assets as of the dates presented (in millions):


	September 30, 2023
	Cost		Accumulated Amortization		Net
Software	$	78	$	(25)	$	53
Customer relationships	63		(16)		47
Developed technology	53		(25)		28
Trade names and trademarks	45		(18)		27
Purchased content	16		(9)		7
Total	$	255	$	(93)	$	162


	December 31, 2022
	Cost		Accumulated Amortization		Net
Customer relationships	$	59	$	(10)	$	49
Software	54		(15)		39
Developed technology	49		(15)		34
Trade names and trademarks	45		(15)		30
Purchased content	8		(6)		2
Total	$	215	$	(61)	$	154

Amortization expense recorded for intangible assets was $13 million and $11 million for the three months ended September 30, 2023 and 2022, respectively, and $37 million and $47 million for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense for trade names and trademarks and customer relationships intangible assets is included in sales and marketing expenses. Amortization expense for all other intangible assets is included in cost of revenue.

We did not record any impairment costs related to our intangible assets for the three or nine months ended September 30, 2023 or 2022.

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Note 9. Debt

The following table presents the carrying values of Zillow Group’s debt as of the dates presented (in millions):


	September 30, 2023		December 31, 2022
Credit facilities
Master repurchase agreements:
JPMorgan Chase Bank, N.A.(1)	$	68	$	—
Atlas Securitized Products, L.P.(2)	22		23
Citibank, N.A.(3)	—		3
Warehouse line of credit:
Comerica Bank	1		11
Total credit facilities	91		37
Convertible senior notes
1.375% convertible senior notes due 2026	496		495
2.75% convertible senior notes due 2025	561		560
0.75% convertible senior notes due 2024	607		605
Total convertible senior notes	1,664		1,660
Total debt	$	1,755	$	1,697

(1)Agreement commenced on June 1, 2023 and provides for a total maximum borrowing capacity of $100 million, $25 million of which is committed, until May 30, 2024.
(2)Agreement was reassigned from Credit Suisse AG, Cayman Islands (“Credit Suisse”) on May 25, 2023.
(3)Agreement expired on June 9, 2023 and was not renewed.

Credit Facilities

To provide capital for Zillow Home Loans, we utilize master repurchase agreements and a warehouse line of credit. The following table summarizes certain details related to our outstanding master repurchase agreements and warehouse line of credit as of September 30, 2023 (in millions, except interest rates):


Lender	Maturity Date	Maximum Borrowing Capacity		Weighted-Average Interest Rate
JPMorgan Chase Bank, N.A.	May 30, 2024	$	100	7.03	%
Atlas Securitized Products, L.P.	March 11, 2024	50		7.32	%
Comerica Bank	December 29, 2023	50		7.45	%
	Total	$	200

On August 17, 2023, Zillow Home Loans amended its warehouse line of credit with Comerica Bank to extend the date after which Zillow Home Loans is no longer permitted to draw additional amounts on the warehouse line of credit from September 30, 2023 to November 1, 2023.

In accordance with the master repurchase agreements, Atlas Securitized Products, L.P., JPMorgan Chase Bank, N.A and prior to its expiration in June 2023, Citibank, N.A., (together, the “Lenders”) agreed to pay Zillow Home Loans a negotiated purchase price for eligible loans, and Zillow Home Loans simultaneously agreed to repurchase such loans from the Lenders under a specified timeframe at an agreed upon price that includes interest. The master repurchase agreements contain margin call provisions that provide the Lenders with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreements. As of September 30, 2023 and December 31, 2022, $93 million and $28 million, respectively, in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.

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Borrowings on the repurchase agreements and warehouse line of credit bear interest either at a floating rate based on Secured Overnight Financing Rate plus an applicable margin, as defined by the governing agreements, or Bloomberg Short-Term Bank Yield Index Rate plus an applicable margin, as defined by the governing agreements. The repurchase agreements and warehouse line of credit include customary representations and warranties, covenants and provisions regarding events of default. As of September 30, 2023, Zillow Home Loans was in compliance with all financial covenants and no event of default had occurred. The repurchase agreements and warehouse line of credit are recourse to Zillow Home Loans, and have no recourse to Zillow Group or any of its other subsidiaries.

For additional details related to our repurchase agreements and warehouse line of credit, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Convertible Senior Notes

Effective January 1, 2022, we adopted guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Refer to Note 2 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for additional information regarding the adoption of this guidance.

The following tables summarize certain details related to our outstanding convertible senior notes as of the dates presented or for the periods ended (in millions, except interest rates):


								September 30, 2023				December 31, 2022
Maturity Date	Aggregate Principal Amount		Stated Interest Rate		Effective Interest Rate		Semi-Annual Interest Payment Dates	Unamortized Debt Issuance Costs		Fair Value		Unamortized Debt Issuance Costs		Fair Value
September 1, 2026	$	499	1.375	%	1.57	%	March 1; September 1	$	3	$	598	$	4	$	504
May 15, 2025	565		2.75	%	3.20	%	May 15; November 15	4		571		5		531
September 1, 2024	608		0.75	%	1.02	%	March 1; September 1	1		706		3		629
Total	$	1,672						$	8	$	1,875	$	12	$	1,664


	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
Maturity Date	Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense		Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense
September 1, 2026	$	2	$	—	$	2	$	2	$	—	$	2
May 15, 2025	4		—		4		4		1		5
September 1, 2024	1		1		2		1		1		2
Total	$	7	$	1	$	8	$	7	$	2	$	9


	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
Maturity Date	Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense		Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense
September 1, 2026	$	6	$	1	$	7	$	5	$	—	$	5
May 15, 2025	12		1		13		12		2		14
September 1, 2024	3		2		5		4		1		5
Total	$	21	$	4	$	25	$	21	$	3	$	24

The convertible notes maturing in 2026 (“2026 Notes”), 2025 (“2025 Notes”) and 2024 (“2024 Notes”) (together, the “Notes”) are senior unsecured obligations. The 2026 Notes and 2025 Notes are classified as long-term debt and the 2024 Notes are classified as current liabilities in our condensed consolidated balance sheets based on their contractual maturity dates. Interest on the convertible notes is paid semi-annually in arrears. The estimated fair value of the convertible senior notes is classified as Level 2 and was determined through consideration of quoted market prices in markets that are not active.

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The Notes are convertible into cash, shares of Class C capital stock or a combination thereof, at our election, and may be settled as described below. They will mature on their respective maturity dates, unless earlier repurchased, redeemed or converted in accordance with their terms.

The following table summarizes the conversion and redemption options with respect to the Notes:

Maturity Date

Early Conversion Date

Conversion Rate

Conversion Price

Optional Redemption Date

September 1, 2026

March 1, 2026

22.9830

43.51

September 5, 2023

May 15, 2025

November 15, 2024

14.8810

67.20

May 22, 2023

September 1, 2024

March 1, 2024

22.9830

43.51

September 5, 2022

The following table summarizes certain details related to the capped call confirmations with respect to the convertible senior notes:


Maturity Date	Initial Cap Price		Cap Price Premium
September 1, 2026	$	80.5750	150	%
September 1, 2024	72.5175		125	%

There were no conversions of the Notes during the three and nine months ended September 30, 2023 or 2022.

The last reported sale price of our Class C capital stock did not exceed 130% of the conversion price of each series of the Notes for more than 20 trading days during the 30 consecutive trading days ended September 30, 2023. Accordingly, each series of the Notes is not redeemable or convertible at the option of the holders during the three months ending December 31, 2023.

For additional details related to our convertible senior notes, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Note 10. Income Taxes

We are primarily subject to income taxes in the United States (federal and state), as well as certain foreign jurisdictions. As of September 30, 2023 and December 31, 2022, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. We have accumulated federal tax losses of approximately $1.8 billion as of December 31, 2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $63 million (tax effected) as of December 31, 2022.

Our income tax expense or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account for the relevant period. We update our estimate of the annual effective tax rate on a quarterly basis and make year-to-date adjustments to the tax provision or benefit, as applicable. Income tax expense (benefit) for the three and nine months ended September 30, 2023 and the nine months ended September 30, 2022 was not material. We recorded income tax expense of $3 million for the three months ended September 30, 2022, primarily related to state income taxes.

Note 11. Share Repurchase Authorizations

Prior to July 31, 2023, the Board authorized the repurchase of up to $1.8 billion of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. For additional information on these authorizations, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. This additional authorization (together with the previous authorizations, the “Repurchase Authorizations”) increased our total cumulative Repurchase Authorizations to $2.5 billion.

Repurchases of stock under the Repurchase Authorizations may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, share price, trading volume, cash needs and other business factors,

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in each case as permitted by securities laws and other legal requirements. As of September 30, 2023, $914 million remained available for future repurchases pursuant to the Repurchase Authorizations.

The following table summarizes our Class A common stock and Class C capital stock repurchase activity under the Repurchase Authorizations for the periods presented (in millions, except share data, which are presented in thousands, and per share amounts):


	Three Months Ended September 30, 2023				Three Months Ended September 30, 2022
	Class A common stock		Class C capital stock		Class A common stock		Class C capital stock
Shares repurchased	965		932		772		4,225
Weighted-average price per share	$	52.57	$	52.80	$	35.52	$	35.18
Total purchase price	$	50	$	50	$	27	$	149


	Nine Months Ended September 30, 2023				Nine Months Ended September 30, 2022
	Class A common stock		Class C capital stock		Class A common stock		Class C capital stock
Shares repurchased	1,775		5,411		3,349		13,943
Weighted-average price per share	$	48.71	$	46.15	$	46.13	$	44.40
Total purchase price	$	86	$	250	$	154	$	619

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Note 12. Share-Based Awards

In addition to the option awards and restricted stock units typically granted under the Zillow Group, Inc. 2020 Incentive Plan (the “2020 Plan”) which vest quarterly over four years, during the first quarter of 2023, the Compensation Committee of the Board approved option and restricted stock unit awards granted under the 2020 Plan in connection with the 2022 annual review cycle that vest quarterly over three years. The exercisability terms of these equity awards are otherwise consistent with the terms of the option awards and restricted stock units typically granted under the 2020 Plan. For additional information regarding our share-based awards, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

On August 3, 2022, upon the recommendation of the Compensation Committee, the Board approved adjustments to the exercise price of certain outstanding vested and unvested option awards for eligible employees. The exercise price of eligible option awards was reduced to $38.78, which was the closing market price of our Class C capital stock on August 8, 2022. No other changes were made to the terms and conditions of the eligible option awards. We have accounted for the reprice of the eligible option awards as an equity modification whereby the incremental fair value attributable to the repriced option awards, as measured on the date of reprice, will be recognized as additional share-based compensation expense. The reprice impacted 7 million stock option awards, affected 3,348 employees and was expected to result in incremental share-based compensation expense of $66 million in total over the remaining requisite service period of the original awards. The weighted-average total fair value of options repriced in August 2022 was $67.58.

Option Awards

The following table summarizes option award activity for the nine months ended September 30, 2023:

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