Company Quick10K Filing
Zillow
Price29.53 EPS-1
Shares207 P/E-30
MCap6,113 P/FCF-9
Net Debt-920 EBIT-208
TEV5,193 TEV/EBIT-25
TTM 2019-09-30, in MM, except price, ratios
10-K 2020-12-31 Filed 2021-02-12
10-Q 2020-09-30 Filed 2020-11-05
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-19
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-02-21
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-08
10-K 2017-12-31 Filed 2018-02-15
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-02-07
10-Q 2016-09-30 Filed 2016-11-02
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-04
10-K 2015-12-31 Filed 2016-02-12
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-12
8-K 2020-11-05
8-K 2020-10-11
8-K 2020-09-17
8-K 2020-08-06
8-K 2020-06-09
8-K 2020-06-02
8-K 2020-05-15
8-K 2020-05-12
8-K 2020-05-07
8-K 2020-04-06
8-K 2020-03-23
8-K 2020-03-23
8-K 2020-03-17
8-K 2020-02-19
8-K 2019-11-18
8-K 2019-11-07
8-K 2019-10-04
8-K 2019-09-04
8-K 2019-09-04
8-K 2019-09-03
8-K 2019-08-07
8-K 2019-06-04
8-K 2019-05-09
8-K 2019-05-03
8-K 2019-04-23
8-K 2019-02-21
8-K 2018-11-13
8-K 2018-11-06
8-K 2018-10-31
8-K 2018-10-16
8-K 2018-08-03
8-K 2018-08-02
8-K 2018-06-28
8-K 2018-06-28
8-K 2018-06-25
8-K 2018-05-31
8-K 2018-05-03
8-K 2018-04-12
8-K 2018-02-08

Z 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Organization and Description of Business
Note 2. Summary of Significant Accounting Policies
Note 3. Fair Value Measurements
Note 4. Cash and Cash Equivalents, Short - Term Investments and Restricted Cash
Note 5. Accounts Receivable, Net
Note 6. Inventory
Note 7. Contract Cost Assets
Note 8. Property and Equipment, Net
Note 9. Equity Investment
Note 10. Intangible Assets, Net
Note 11. Deferred Revenue
Note 12. Leases
Note 13. Debt
Note 14. Income Taxes
Note 15. Share - Based Awards
Note 16. Net Loss per Share
Note 17. Commitments and Contingencies
Note 18. Self - Insurance
Note 19. Employee Benefit Plan
Note 20. Segment Information and Revenue
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 q12019form10-qex101.htm
EX-10.3 q12019form10-qex103.htm
EX-31.1 q12019form10-qex311.htm
EX-31.2 q12019form10-qex312.htm
EX-32.1 q12019form10-qex321.htm
EX-32.2 q12019form10-qex322.htm

Zillow Earnings 2019-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02013201520172020
Assets, Equity
0.80.60.40.20.0-0.22013201520172020
Rev, G Profit, Net Income
1.30.90.50.2-0.2-0.62013201520172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-Q
_____________________________________________________
 
x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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 31, Seattle, Washington
 
98101
(Address of principal executive offices)
 
(Zip Code)
(206) 470-7000
@ZillowGroup
(Registrant’s telephone number, including area code)
 _____________________________________________________ 
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  x    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  x    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x

 
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  x
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
As of May 1, 2019, 58,318,212 shares of Class A common stock, 6,217,447 shares of Class B common stock, and 140,633,463 shares of Class C capital stock were outstanding.
 


Table of Contents

ZILLOW GROUP, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 2019
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 
 

i

Table of Contents

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 year ended December 31, 2018. 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.
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.
WHERE YOU CAN FIND MORE INFORMATION
Our filings with the Securities and Exchange Commission, or 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 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 (http://investors.zillowgroup.com)
Zillow Group Investor Relations Blog (http://www.zillowgroup.com/ir-blog)
Zillow Group Twitter Account (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. 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 Twitter account are as inactive textual references only.

1

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
736,507

 
$
651,058

Short-term investments
780,963

 
903,867

Accounts receivable, net of allowance for doubtful accounts of $4,942 and $4,838 at March 31, 2019 and December 31, 2018, respectively
70,605

 
66,083

Inventory
325,154

 
162,829

Mortgage loans held for sale
29,469

 
35,409

Prepaid expenses and other current assets
69,292

 
61,067

Restricted cash
27,595

 
12,385

Total current assets
2,039,585

 
1,892,698

Contract cost assets
46,176

 
45,819

Property and equipment, net
142,146

 
135,172

Right of use assets
102,056

 

Goodwill
1,984,907

 
1,984,907

Intangible assets, net
207,933

 
215,904

Other assets
16,763

 
16,616

Total assets
$
4,539,566

 
$
4,291,116

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
7,708

 
$
7,471

Accrued expenses and other current liabilities
63,212

 
63,101

Accrued compensation and benefits
30,300

 
31,388

Revolving credit facilities
246,028


116,700

Warehouse lines of credit
27,991

 
33,018

Deferred revenue
36,105

 
34,080

Deferred rent, current portion

 
1,740

Lease liabilities, current portion
19,561

 

Total current liabilities
430,905

 
287,498

Deferred rent, net of current portion

 
19,945

Lease liabilities, net of current portion
102,405

 

Long-term debt
707,860

 
699,020

Deferred tax liabilities and other long-term liabilities
15,264

 
17,474

Total liabilities
1,256,434

 
1,023,937

Commitments and contingencies (Note 17)

 

Shareholders’ equity:
 
 
 
Preferred stock, $0.0001 par value; 30,000,000 shares authorized; no shares issued and outstanding

 

Class A common stock, $0.0001 par value; 1,245,000,000 shares authorized; 58,315,359 and 58,051,448 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
6

 
6

Class B common stock, $0.0001 par value; 15,000,000 shares authorized; 6,217,447 shares issued and outstanding as of March 31, 2019 and December 31, 2018
1

 
1

Class C capital stock, $0.0001 par value; 600,000,000 shares authorized; 140,597,526 and 139,635,370 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
14

 
14

Additional paid-in capital
4,022,218

 
3,939,842

Accumulated other comprehensive income (loss)
197

 
(905
)
Accumulated deficit
(739,304
)
 
(671,779
)
Total shareholders’ equity
3,283,132

 
3,267,179

Total liabilities and shareholders’ equity
$
4,539,566

 
$
4,291,116

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data, unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Revenue:
 
 
 
IMT
$
298,272

 
$
280,856

Homes
128,472

 

Mortgages
27,360

 
19,023

Total revenue
454,104

 
299,879

Cost of revenue (exclusive of amortization) (1):
 
 
 
IMT
24,251

 
22,594

Homes
122,419

 
86

Mortgages
4,678

 
1,239

Total cost of revenue
151,348

 
23,919

Sales and marketing
161,587

 
137,291

Technology and development
107,770

 
93,933

General and administrative
95,774

 
56,073

Acquisition-related costs

 
27

Integration costs
352

 

Total costs and expenses
516,831

 
311,243

Loss from operations
(62,727
)
 
(11,364
)
Other income
9,168

 
2,446

Interest expense
(16,466
)
 
(7,073
)
Loss before income taxes
(70,025
)
 
(15,991
)
Income tax benefit (expense)
2,500

 
(2,600
)
Net loss
$
(67,525
)
 
$
(18,591
)
Net loss per share — basic and diluted
$
(0.33
)
 
$
(0.10
)
Weighted-average shares outstanding — basic and diluted
204,514

 
191,464

 ____________________
(1) Amortization of website development costs and intangible assets included in technology and development
$
14,400

 
$
22,549

See accompanying notes to condensed consolidated financial statements.


3

Table of Contents

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Net loss
$
(67,525
)
 
$
(18,591
)
Other comprehensive income (loss):
 
 
 
Unrealized gains (losses) on investments
1,144

 
(332
)
Currency translation adjustments
(42
)
 
(22
)
Total other comprehensive income (loss)
1,102

 
(354
)
Comprehensive loss
$
(66,423
)
 
$
(18,945
)
See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data, 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 December 31, 2018
203,904,265

 
$
21

 
$
3,939,842

 
$
(671,779
)
 
$
(905
)
 
$
3,267,179

 
Issuance of common and capital stock upon exercise of stock options
729,788

 

 
13,564

 

 

 
13,564

 
Vesting of restricted stock units
496,347

 

 

 

 

 

 
Shares and value of restricted stock units withheld for tax liability
(68
)
 

 
(2
)
 

 

 
(2
)
 
Share-based compensation expense

 

 
68,814

 

 

 
68,814

 
Net loss

 

 

 
(67,525
)
 

 
(67,525
)
 
Other comprehensive income

 

 

 

 
1,102

 
1,102

 
Balance at March 31, 2019
205,130,332

 
$
21

 
$
4,022,218

 
$
(739,304
)
 
$
197

 
$
3,283,132

 
 
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 December 31, 2017
190,115,148

 
$
20

 
$
3,254,146

 
$
(592,243
)
 
$
(1,100
)
 
$
2,660,823

 
Cumulative-effect adjustment from adoption of guidance on revenue from contracts with customers

 

 

 
40,322

 

 
40,322

 
Issuance of common and capital stock upon exercise of stock options
2,414,214

 

 
52,906

 

 

 
52,906

 
Vesting of restricted stock units
394,844

 

 

 

 

 

 
Shares and value of restricted stock units withheld for tax liability
(607
)
 

 
(28
)
 

 

 
(28
)
 
Share-based compensation expense

 

 
32,863

 

 

 
32,863

 
Portion of conversion recorded in additional paid-in-capital in connection with partial conversion of convertible notes maturing in 2020
20,727

 

 
500

 
 
 

 
500

 
Net loss

 

 

 
(18,591
)
 

 
(18,591
)
 
Other comprehensive loss

 

 

 

 
(354
)
 
(354
)
 
Balance at March 31, 2018
192,944,326

 
$
20

 
$
3,340,387

 
$
(570,512
)
 
$
(1,454
)
 
$
2,768,441



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Table of Contents

ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(67,525
)
 
$
(18,591
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
20,525

 
26,906

Share-based compensation expense
66,124

 
30,741

Amortization of right of use assets
4,440

 

Amortization of contract cost assets
8,746

 
9,296

Amortization of discount and issuance costs on convertible notes maturing in 2023 and 2021
8,840

 
4,708

Deferred income taxes
(2,500
)
 
2,600

Loss on disposal of property and equipment
1,704

 
1,803

Bad debt expense
128

 
(267
)
Deferred rent

 
(3,090
)
Accretion of bond discount
(1,733
)
 
(137
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(4,650
)
 
105

Inventory
(162,325
)
 

Mortgage loans held for sale
5,940

 

Prepaid expenses and other assets
(8,537
)
 
(19,923
)
Lease liabilities
(7,010
)
 

Contract cost assets
(9,103
)
 
(11,440
)
Accounts payable
(133
)
 
1,672

Accrued expenses and other current liabilities
328

 
(6,747
)
Accrued compensation and benefits
(1,088
)
 
3,637

Deferred revenue
2,025

 
3,379

Other long-term liabilities
290

 

Net cash provided by (used in) operating activities
(145,514
)
 
24,652

Investing activities
 
 
 
Proceeds from maturities of investments
302,187

 
61,386

Purchases of investments
(176,412
)
 
(76,729
)
Purchases of property and equipment
(14,202
)
 
(15,791
)
Purchases of intangible assets
(3,269
)
 
(1,098
)
Net cash provided by (used in) investing activities
108,304

 
(32,232
)
Financing activities
 
 
 
Proceeds from borrowing on revolving credit facilities
129,328



Net repayments on warehouse lines of credit
(5,025
)
 

Proceeds from exercise of stock options
13,564

 
52,906

Value of equity awards withheld for tax liability
2

 
(28
)
Net cash provided by financing activities
137,869

 
52,878

Net increase in cash, cash equivalents and restricted cash during period
100,659

 
45,298

Cash, cash equivalents and restricted cash at beginning of period
663,443

 
352,095

Cash, cash equivalents and restricted cash at end of period
$
764,102

 
$
397,393

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
4,956

 
$

Noncash transactions:
 
 
 
Capitalized share-based compensation
$
2,690

 
$
2,120

Write-off of fully depreciated property and equipment
$
6,269

 
$
7,379

Write-off of fully amortized intangible assets
$
3,200

 
$
10,687

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

ZILLOW GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Description of Business
Zillow Group, Inc. operates the largest portfolio of real estate and home-related brands on mobile and the web which focus on all stages of the home lifecycle: renting, buying, selling and financing. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes and connecting them with great real estate professionals. The Zillow Group portfolio of consumer brands includes Zillow, Trulia, Zillow Home Loans, StreetEasy, HotPads, Naked Apartments, RealEstate.com and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate professionals maximize business opportunities and connect with millions of consumers. Zillow Offers provides homeowners in certain metropolitan areas with the opportunity to receive offers to purchase their home from Zillow. When Zillow buys a home, it makes certain repairs and lists the home for resale on the open market. Zillow also provides consumers with the opportunity to receive mortgage financing through Zillow Home Loans, a licensed mortgage lender. Zillow Group operates a number of business brands for real estate, rental and mortgage professionals, including Mortech, dotloop, Bridge Interactive and New Home Feed. Zillow, Inc. was incorporated as a Washington corporation in December 2004, and we launched the initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia, Inc. (“Trulia”). Upon the closing of the Trulia acquisition in February 2015, each of Zillow, Inc. and Trulia became wholly owned subsidiaries of Zillow Group.
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: rates of revenue growth; our ability to manage advertising inventory or pricing; engagement and usage of our products; our investment of resources to pursue strategies that may not prove effective; competition in our market; the stability of the residential real estate market and the impact of interest rate changes; changes in government regulation affecting our business; outcomes of legal proceedings; natural disasters and catastrophic events; scaling and adaptation of existing technology and network infrastructure; management of our growth; our ability to attract and retain qualified employees and key personnel; our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments; protection of customers’ information and other privacy concerns; protection of our brand and intellectual property; and intellectual property infringement and other claims, 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 U.S. 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 year ended December 31, 2018, which was filed with the SEC on February 21, 2019. The condensed consolidated balance sheet as of December 31, 2018, 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 March 31, 2019, our results of operations, comprehensive loss and cash flows for the three month periods ended March 31, 2019 and 2018. The results of the three month period ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any interim period or for any other future year.

7

Table of Contents

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 net realizable value of inventory, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets with definite lives, share-based compensation, income taxes, business combinations, and the recoverability of goodwill and indefinite-lived intangible assets, among others. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected.
Recently Adopted Accounting Standards
In February 2018, the Financial Accounting Standards Board (“FASB”) issued guidance on income tax accounting related to the Tax Cuts and Jobs Act (the “Tax Act”). This guidance permits a reclassification from accumulated other comprehensive income (loss) to accumulated deficit for the adjustment of deferred taxes due to the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate under the Tax Act. It also requires certain disclosures regarding these reclassifications. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. This guidance must be applied either on a prospective basis in the period of adoption or retrospectively to each period in which the effect of the change in the corporate income tax rate is recognized. We adopted this guidance on January 1, 2019. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.
In March 2017, the FASB issued guidance related to the premium amortization on purchased callable debt securities. This guidance shortens the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. This guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We adopted this guidance on January 1, 2019. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued guidance on leases. This guidance requires the recognition of a right of use asset and lease liability on the balance sheet for all leases. This guidance also requires more detailed disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued certain targeted improvements to the accounting and disclosure requirements for leases, including an additional optional transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. When adopting the lease guidance, an entity may elect a practical expedient package, under which it need not reassess (a) whether any expired or existing contracts are or contain leases; (b) the lease classification for any expired or existing leases; and (c) initial direct costs for any existing leases. These three practical expedients must be elected as a package and must be consistently applied to all existing leases at the date of adoption. We adopted the new guidance on leases on January 1, 2019 using the optional transition method and elected to adopt the practical expedient package. Under this approach, we did not restate the prior financial statements presented. Based on our lease portfolio as of December 31, 2018, we recorded on our consolidated balance sheet right of use assets of $106.5 million as well as operating lease liabilities of $129.0 million, and we removed the existing deferred rent balance of $22.5 million. The adoption of the standard did not have a material impact to our condensed consolidated statements of operations.
Recently Issued Accounting Standards Not Yet Adopted
In August 2018, the FASB issued guidance related to a customer’s accounting for implementation costs incurred in hosting arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in cloud computing arrangements with the requirements for capitalizing costs to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. This guidance may be applied either retrospectively or prospectively. We expect to adopt this guidance on January 1, 2020. We have not yet determined the impact the adoption of this guidance will have on our financial position, results of operations or cash flows.

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In August 2018, the FASB issued guidance related to disclosure requirements for fair value measurements. This guidance removes, modifies and adds disclosures related to fair value measurements. This guidance is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim and annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We expect to adopt this guidance on January 1, 2020. We have not yet determined the impact the adoption of this guidance will have on our financial statement disclosures.
In June 2016, the FASB issued guidance on the measurement of credit losses on financial instruments. This guidance requires the use of an expected loss impairment model for instruments measured at amortized cost. For available-for-sale debt securities, an entity is required to recognize credit losses through an allowance for credit losses rather than as a write-down. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The adoption of this guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We expect to adopt this guidance on January 1, 2020. We have not yet determined the impact the adoption of this guidance will have on our financial position, results of operations or cash flows.
Note 3. Fair Value Measurements
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
 
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
We applied 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. The fair value measurement of corporate notes and bonds, commercial paper, U.S. government agency securities and certificates of deposit 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.
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.
Restricted cash — Restricted cash consists of cash received from the resale of homes through Zillow Offers which is used to repay amounts borrowed on our revolving credit facilities (see Note 13) and amounts held in escrow related to funding home purchases in our mortgage origination business. The carrying value of restricted cash approximates fair value due to the short period of time amounts borrowed on the revolving credit facilities are outstanding.
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.
Interest rate lock commitments—The fair value of interest rate lock commitments (“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. We generally only issue IRLCs for products that meet specific purchaser guidelines. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close.

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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 hedging instruments are calculated by reference to quoted prices for similar assets.
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 thousands):
 
March 31, 2019
 
Total
 
Level 1
 
Level 2
Cash equivalents:
 
 
 
 
 
Money market funds
$
578,037

 
$
578,037

 
$

Commercial paper
9,940

 

 
9,940

Short-term investments:
 
 
 
 
 
U.S. government agency securities
531,006

 

 
531,006

Corporate notes and bonds
115,682

 

 
115,682

Commercial paper
82,755

 

 
82,755

Municipal securities
33,331

 

 
33,331

Foreign government securities
14,965

 

 
14,965

Certificates of deposit
3,224

 

 
3,224

Mortgage origination-related:
 
 
 
 
 
Mortgage loans held for sale
29,469

 

 
29,469

Interest rate lock commitments
1,257

 

 
1,257

Forward contracts - other current assets
19

 

 
19

Forward contracts - other current liabilities
(226
)
 

 
(226
)
        Total
$
1,399,459

 
$
578,037

 
$
821,422

 
December 31, 2018
 
Total
 
Level 1
 
Level 2
Cash equivalents:
 
 
 
 
 
Money market funds
$
541,575

 
$
541,575

 
$

Commercial paper
3,999

 

 
3,999

Short-term investments:
 
 
 
 
 
U.S. government agency securities
646,496

 

 
646,496

Corporate notes and bonds
112,933

 

 
112,933

Commercial paper
85,506

 

 
85,506

Municipal securities
39,306

 

 
39,306

Foreign government securities
14,915

 

 
14,915

Certificates of deposit
4,711

 

 
4,711

Mortgage origination-related:
 
 
 
 
 
Mortgage loans held for sale
35,409

 

 
35,409

Interest rate lock commitments
847

 

 
847

Forward contracts - other current liabilities
(125
)
 

 
(125
)
        Total
$
1,485,572

 
$
541,575

 
$
943,997


At March 31, 2019, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $41.6 million and $49.7 million for our interest rate lock commitments and forward contracts, respectively. At December 31, 2018, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $26.7 million and $28.8 million for our interest rate lock commitments and forward contracts, respectively. We do not have the right to offset our forward contract derivative positions.
See Note 13 for the carrying amount and estimated fair value of the Company’s Convertible Senior Notes due in 2023, Convertible Senior Notes due in 2021 and Trulia’s Convertible Senior Notes due in 2020.

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We did not have any material Level 3 assets or liabilities as of March 31, 2019 or December 31, 2018.
Note 4. Cash and Cash Equivalents, Short-term Investments and Restricted Cash
The following tables present the amortized cost, gross unrealized gains and losses and estimated fair market value of our cash and cash equivalents, available-for-sale investments and restricted cash as of the dates presented (in thousands):
 
March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Market
Value
Cash
$
148,530

 
$

 
$

 
$
148,530

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
578,037

 

 

 
578,037

Commercial paper
9,940

 

 

 
9,940

Short-term investments:
 
 
 
 
 
 
 
U.S. government agency securities
530,938

 
268

 
(200
)
 
531,006

Corporate notes and bonds
115,648

 
65

 
(31
)
 
115,682

Commercial paper
82,755

 

 

 
82,755

Municipal securities
33,263

 
74

 
(6
)
 
33,331

Foreign government securities
14,963

 
2

 

 
14,965

Certificates of deposit
3,224

 

 

 
3,224

Restricted cash
27,595

 

 

 
27,595

        Total
$
1,544,893

 
$
409

 
$
(237
)
 
$
1,545,065

 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Market
Value
Cash
$
105,484

 
$

 
$

 
$
105,484

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
541,575

 

 

 
541,575

Commercial paper
3,999

 

 

 
3,999

Short-term investments:
 
 
 
 
 
 
 
U.S. government agency securities
647,266

 
51

 
(821
)
 
646,496

Corporate notes and bonds
113,109

 
1

 
(177
)
 
112,933

Commercial paper
85,506

 

 

 
85,506

Municipal securities
39,316

 
23

 
(33
)
 
39,306

Foreign government securities
14,929

 

 
(14
)
 
14,915

Certificates of deposit
4,711

 
1

 
(1
)
 
4,711

Restricted cash
12,385

 

 

 
12,385

        Total
$
1,568,280

 
$
76

 
$
(1,046
)
 
$
1,567,310


The following table presents available-for-sale investments by contractual maturity date as of March 31, 2019 (in thousands):
 
Amortized
Cost
 
Estimated Fair
Market Value
Due in one year or less
$
723,241

 
$
723,207

Due after one year through two years
57,550

 
57,756

Total
$
780,791

 
$
780,963



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Note 5. Accounts Receivable, net
The opening balance of accounts receivable, net was $66.1 million as of January 1, 2019.
The following table presents the changes in the allowance for doubtful accounts (in thousands):
Balance as of January 1, 2019
$
4,838

Bad debt expense
128

Less: write-offs, net of recoveries and other adjustments
(24
)
Balance as of March 31, 2019
$
4,942


Note 6. Inventory
The components of inventory, net of applicable lower of cost or net realizable value write-downs, were as follows (in thousands):
 
March 31,
2019
 
December 31,
2018
Work-in-progress
$
76,283

 
$
45,943

Finished goods
248,871

 
116,886

Inventory
$
325,154

 
$
162,829

We have not recorded any inventory write-downs for the three months ended March 31, 2019.
Note 7. Contract Cost Assets
As of March 31, 2019 and December 31, 2018, we had $46.2 million and $45.8 million, respectively, of contract cost assets. During the three months ended March 31, 2019 and 2018, we recorded no impairment losses. During the three months ended March 31, 2019 and 2018, we recorded $8.7 million and $9.3 million, respectively, of amortization expense related to contract cost assets.
Note 8. Property and Equipment, net
The following table presents the detail of property and equipment as of the dates presented (in thousands):
 
March 31,
2019
 
December 31,
2018
Website development costs
$
149,558

 
$
149,891

Computer equipment
22,675

 
22,477

Leasehold improvements
74,888

 
65,012

Construction-in-progress
26,027

 
29,037

Office equipment, furniture and fixtures
42,401

 
39,510

Property and equipment
315,549

 
305,927

Less: accumulated amortization and depreciation
(173,403
)
 
(170,755
)
Property and equipment, net
$
142,146

 
$
135,172


We recorded depreciation expense related to property and equipment (other than website development costs) of $6.0 million and $4.2 million, respectively, during the three months ended March 31, 2019 and 2018.

We capitalized $10.0 million and $8.6 million, respectively, in website development costs during the three months ended March 31, 2019 and 2018. Amortization expense for website development costs included in technology and development expenses was $3.4 million and $9.5 million, respectively, during the three months ended March 31, 2019 and 2018.

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Note 9. Equity Investment
In October 2016, we purchased a 10% equity interest in a privately held variable interest entity within the real estate industry for $10.0 million. The entity is financed through its business operations. We are not the primary beneficiary of the entity, as we do not direct the activities that most significantly impact the entity’s economic performance. Therefore, we do not consolidate the entity. Our maximum exposure to loss is $10.0 million, the carrying amount of the investment as of March 31, 2019. There has been no impairment or upward or downward adjustments to our equity investment as of March 31, 2019 that would impact the carrying amount of the investment. The equity investment is classified within other assets in the condensed consolidated balance sheet.
Note 10. Intangible Assets, net
The following tables present the detail of intangible assets subject to amortization as of the dates presented (in thousands):
 
March 31, 2019
 
Cost
 
Accumulated
Amortization
 
Net
Purchased content
$
42,224

 
$
(33,017
)
 
$
9,207

Software
24,770

 
(15,339
)
 
9,431

Customer relationships
103,600

 
(63,861
)
 
39,739

Developed technology
109,080

 
(73,459
)
 
35,621

Trade names and trademarks
4,400

 
(4,400
)
 

Zillow Home Loans lender licenses
400

 
(67
)
 
333

Intangibles-in-progress
5,602

 

 
5,602

Total
$
290,076

 
$
(190,143
)