ZILLOW GROUP, INC. [ZG] Filings

10-Q 1 z-20240930.htm 10-Q z-20240930

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, 2024


☐			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 30, 2024, 54,324,808 shares of Class A common stock, 6,217,447 shares of Class B common stock and 173,016,890 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, 2024

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		Page
PART I – FINANCIAL INFORMATION

	Glossary of Terms	1
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	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	44

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 5.	Other Information	48
Item 6.	Exhibits	49

	Signatures	50

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GLOSSARY OF TERMS

As used in this Quarterly Report on Form 10-Q, the terms identified below have the meanings specified below unless otherwise noted or the context indicates otherwise:


Abbreviation or Acronym						Definition
Zillow Group, “the Company,” “we,” “us” and “our”						Refers to Zillow Group, Inc., unless the context indicates otherwise as used in this Quarterly Report on Form 10-Q
2020 Plan						Zillow Group, Inc. 2020 Incentive Plan
2024 Notes						0.75% Convertible Senior Notes due September 1, 2024
2025 Notes						2.75% Convertible Senior Notes due May 15, 2025
2026 Notes						1.375% Convertible Senior Notes due September 1, 2026
Aryeo						Aryeo, Inc., a wholly owned subsidiary acquired on July 31, 2023
Board						Board of Directors of Zillow Group, Inc.
FASB						Financial Accounting Standards Board
Follow Up Boss						Enchant, LLC, d/b/a Follow Up Boss, a wholly owned subsidiary acquired on December 8, 2023
GAAP						Generally accepted accounting principles in the United States
IRLC						Interest rate lock commitment
Lenders						UBS AG, JPMorgan Chase Bank, N.A., and prior to the master repurchase agreement expiration in March 2024, Atlas Securitized Products, L.P.
MBS						Mortgage-backed security
NAR						National Association of REALTORS®
Notes						Aggregate of outstanding convertible senior notes, inclusive of the 2025 Notes, the 2026 Notes, and prior to their maturity in September 2024, the 2024 Notes
OECD						Organization for Economic Co-operation and Development
Pillar Two						Pillar Two Global Anti-Base Erosion
Repurchase Authorizations						A series of authorizations from the Board to repurchase Class A common stock, Class C capital stock, Notes, or a combination thereof
SEC						United States Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate
Spruce						Refers to substantially all assets and liabilities of Spruce Holdings, Inc. and certain affiliated entities, which assets and liabilities were acquired on September 11, 2023

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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,” “potential,” “might” 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, 2023, 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, homeowners insurance rates, labor shortages and supply chain issues;

•our ability to manage advertising and product 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 rules and requirements promulgated by NAR, multiple listing services, or other real estate industry groups or governing bodies, or decisions to repeal, amend, or not enforce such rules and requirements;

•our ability to navigate industry changes, including as a result of past, pending or future class action lawsuits, settlements or government investigations, which may include lawsuits, settlements or investigations in which we are not a named party, such as the NAR settlement agreement entered into on March 15, 2024;

•uncertainties related to the November 2024 elections in the United States;

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

•our ability to effectively invest resources to pursue new strategies, develop new products and services and expand existing products and services into new markets;

•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, geopolitical events, 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 past, pending or future litigation and other disputes or enforcement actions, which may include lawsuits or investigations to which we are not a party;

•our ability to attract, engage, 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, including as a result of generative artificial intelligence;

•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 our debt, settle conversions of our Notes, or repurchase our Notes upon a fundamental change;

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

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

•actual or perceived inaccuracies in 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.

NOTE REGARDING INDUSTRY AND MARKET DATA

This Quarterly Report on Form 10-Q contains market and industry data that are based on our own internal estimates and research, as well as independent industry publications, trade or business organizations and other statistical information from third parties. Third-party information generally states that the information contained therein has been obtained from sources believed to be reliable. We have not independently verified any of the data from third-party sources nor have we validated the underlying economic assumptions relied on therein. The content of, or accessibility through, these market and industry data sources, except to the extent specifically set forth in this Quarterly Report on Form 10-Q, does not constitute a portion of this report and are not incorporated herein, and any sources are an inactive textual reference only.

WHERE YOU CAN FIND MORE INFORMATION

Our filings with the 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 Site (https://investors.zillowgroup.com)

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

•Zillow Group X Account (https://X.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, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	1,072	$	1,492
Short-term investments	1,101		1,318
Accounts receivable, net	117		96
Mortgage loans held for sale	164		100
Prepaid expenses and other current assets	212		140
Restricted cash	3		3
Total current assets	2,669		3,149
Contract cost assets	24		23
Property and equipment, net	356		328
Right of use assets	61		73
Goodwill	2,818		2,817
Intangible assets, net	211		241
Other assets	20		21
Total assets	$	6,159	$	6,652
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	53	$	28
Accrued expenses and other current liabilities	114		107
Accrued compensation and benefits	49		47
Borrowings under credit facilities	148		93
Deferred revenue	57		52
Lease liabilities, current portion	15		37
Convertible senior notes, current portion	418		607
Total current liabilities	854		971
Lease liabilities, net of current portion	86		95
Convertible senior notes, net of current portion	497		1,000
Other long-term liabilities	66		60
Total liabilities	1,503		2,126
Commitments and contingencies (Note 12)
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 — 54,324,808 and 55,282,702 shares as of September 30, 2024 and December 31, 2023, 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 — 172,993,333 and 171,853,566 shares as of September 30, 2024 and December 31, 2023, respectively	—		—
Additional paid-in capital	6,482		6,301
Accumulated other comprehensive income (loss)	4		(5)
Accumulated deficit	(1,830)		(1,770)
Total shareholders’ equity	4,656		4,526
Total liabilities and shareholders’ equity	$	6,159	$	6,652

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,
	2024		2023		2024		2023
Revenue	$	581	$	496	$	1,682	$	1,471
Cost of revenue	140		110		393		306
Gross profit	441		386		1,289		1,165
Operating expenses:
Sales and marketing	217		164		588		493
Technology and development	145		142		436		419
General and administrative	123		131		386		407
Impairment and restructuring costs	—		1		6		9
Acquisition-related costs	1		1		1		2

Total operating expenses	486		439		1,417		1,330
Loss from operations	(45)		(53)		(128)		(165)
Loss on extinguishment of debt	—		—		(1)		—
Other income, net	34		34		101		108
Interest expense	(9)		(9)		(28)		(27)
Loss before income taxes	(20)		(28)		(56)		(84)
Income tax expense	—		—		(4)		(1)
Net loss	$	(20)	$	(28)	$	(60)	$	(85)

Net loss per share - basic and diluted	$	(0.08)	$	(0.12)	$	(0.26)	$	(0.36)


Weighted-average shares outstanding - basic and diluted	232,521		233,295		233,553		235,560

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,
	2024		2023		2024		2023
Net loss	$	(20)	$	(28)	$	(60)	$	(85)
Other comprehensive income (loss):
Net unrealized gains (losses) on investments	15		(2)		9		(6)
Total other comprehensive income (loss)	15		(2)		9		(6)
Comprehensive loss	$	(5)	$	(30)	$	(51)	$	(91)

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 Income (Loss)		Total Shareholders’ Equity

	Shares	Amount
Balance at July 1, 2024	231,407	$	—	$	6,322	$	(1,810)	$	(11)	$	4,501
Issuance of Class C capital stock upon exercise of stock options	893	—		35		—		—		35
Vesting of restricted stock units	1,442	—		—		—		—		—
Share-based compensation expense	—	—		124		—		—		124
Settlement of capped call transactions	(2,141)	—		—		—		—		—
Settlement of convertible senior notes	1,935	—		1		—		—		1

Net loss	—	—		—		(20)		—		(20)
Other comprehensive income	—	—		—		—		15		15
Balance at September 30, 2024	233,536	$	—	$	6,482	$	(1,830)	$	4	$	4,656


	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 Class C 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 Class C 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

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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 Income (Loss)		Total Shareholders’ Equity

	Shares	Amount
Balance at January 1, 2024	233,354	$	—	$	6,301	$	(1,770)	$	(5)	$	4,526
Issuance of Class C capital stock upon exercise of stock options	2,517	—		96		—		—		96
Vesting of restricted stock units	4,967	—		—		—		—		—
Share-based compensation expense	—	—		385		—		—		385
Settlement of capped call transactions	(2,141)	—		—		—		—		—
Settlement of convertible senior notes	1,935	—		1		—		—		1
Repurchases of Class A common stock and Class C capital stock	(7,096)	—		(301)		—		—		(301)
Net loss	—	—		—		(60)		—		(60)
Other comprehensive income	—	—		—		—		9		9
Balance at September 30, 2024	233,536	$	—	$	6,482	$	(1,830)	$	4	$	4,656



	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 Class C 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 Class C 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

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,
	2024		2023
Operating activities
Net loss	$	(60)	$	(85)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	178		134
Share-based compensation	329		342
Amortization of right of use assets	8		18
Amortization of contract cost assets	14		16
Amortization of debt issuance costs	4		4
Impairment costs	6		6
Accretion of bond discount	(23)		(29)
Other adjustments to reconcile net loss to net cash provided by operating activities	14		(3)
Changes in operating assets and liabilities:
Accounts receivable	(21)		(26)
Mortgage loans held for sale	(64)		(55)
Prepaid expenses and other assets	(73)		(22)
Contract cost assets	(15)		(16)
Lease liabilities	(31)		(24)
Accounts payable	25		7
Accrued expenses and other current liabilities	8		(3)
Accrued compensation and benefits	2		4
Deferred revenue	5		4
Other long-term liabilities	—		(4)
Net cash provided by operating activities	306		268
Investing activities
Proceeds from maturities of investments	906		1,136
Proceeds from sales of investments	13		—
Purchases of investments	(668)		(638)
Purchases of property and equipment	(109)		(101)
Purchases of intangible assets	(21)		(24)
Cash paid for acquisitions, net	—		(34)
Net cash provided by investing activities	121		339
Financing activities
Net borrowings on warehouse line of credit and repurchase agreements	55		54
Repurchases of Class A common stock and Class C capital stock	(301)		(336)
Settlement of long-term debt	(697)		—
Proceeds from exercise of stock options	96		56
Net cash used in financing activities	(847)		(226)
Net increase (decrease) in cash, cash equivalents and restricted cash during period	(420)		381
Cash, cash equivalents and restricted cash at beginning of period	1,495		1,468
Cash, cash equivalents and restricted cash at end of period	$	1,075	$	1,849
Supplemental disclosures of cash flow information
Noncash transactions:
Capitalized share-based compensation	$	56	$	56
Write-off of fully depreciated property and equipment	63		29
Write-off of fully amortized intangible assets	21		4
Value of Class C capital stock issued in connection with an acquisition	—		20

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	10
Note 2.	Summary of Significant Accounting Policies	11
Note 3.	Financial Instruments	12
Note 4.	Property and Equipment, net	15
Note 5.	Acquisitions	15
Note 6.	Intangible Assets, net	18
Note 7.	Debt	18
Note 8.	Income Taxes	21
Note 9.	Share Repurchase Authorizations	21
Note 10.	Share-Based Awards	22
Note 11.	Net Loss Per Share	23
Note 12.	Commitments and Contingencies	23
Note 13.	Revenue and Contract Balances	26

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, dedicated partners and agents, and easier buying, selling, financing and renting experiences.

Our portfolio of affiliates, subsidiaries and brands includes Zillow Premier Agent, Zillow Home Loans, our mortgage origination 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 ShowingTime+, Spruce and Follow Up Boss.

Certain Significant Risks and Uncertainties

We operate in a dynamic industry and, accordingly, can be affected by a variety of factors, which are uncertain and difficult to predict. For example, we believe that potential changes in any of the following areas may have a significant impact on us in terms of our future financial position, results of operations or cash flows: 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, homeowners insurance rates, labor shortages and supply chain issues; our ability to navigate industry changes, including as a result of certain or future class action lawsuits, settlements or government investigations; our ability to manage advertising and product inventory and pricing and maintain relationships with our real estate partners; our ability to comply with current and future rules and requirements promulgated by NAR, multiple listing services, or other real estate industry groups or governing bodies, and to maintain or establish relationships with listing 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, geopolitical events, and other catastrophic events (including public health crises) on our ability to operate, demand for our products or services or general economic conditions; outcomes of legal proceedings; our ability to attract, engage, and retain a highly skilled workforce; protection of Zillow Group’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.

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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 GAAP and applicable rules and regulations of the 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, 2023. The condensed consolidated balance sheet as of December 31, 2023, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

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, 2024 and our results of operations, comprehensive loss, and shareholders’ equity for the three and nine month periods ended September 30, 2024 and 2023, and cash flows for the nine month periods ended September 30, 2024 and 2023. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, for any interim period, or for any other future year.

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, 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, business combinations, including the initial and subsequent fair value measurements of assets (primarily intangible assets), liabilities and contingent consideration, 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 housing market and broader economy 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 November 2023, the FASB issued guidance to improve existing disclosure requirements for segment reporting, primarily through enhanced disclosures about significant segment expenses and new disclosure requirements applicable to entities with a single reportable segment. This guidance is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, on a retrospective basis. We expect to adopt this guidance for the annual period ending December 31, 2024. We expect this guidance to result in additional disclosures primarily related to significant segment expenses that are regularly provided to our chief operating decision maker.

In December 2023, the FASB issued guidance to enhance the income tax rate reconciliation disclosure requirements and to provide clarity on disclosure requirements for income taxes. This guidance is effective for annual periods beginning after December 15, 2024, and can be applied on a prospective or retrospective basis, with early adoption permitted. We expect to adopt this guidance for the annual period ending December 31, 2025. While we anticipate this guidance will result in additional disclosures related to income taxes, we do not expect this new guidance to have a significant impact on our consolidated financial statements.

In November 2024, the FASB issued guidance that will require disclosure of specified information about certain costs and expenses included within an entity’s consolidated financial statements. This guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, and can be applied on a prospective or retrospective basis, with early adoption permitted. We have not yet determined the impact the adoption of this guidance will have on our consolidated financial statements.

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Note 3. Financial Instruments

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).

Restricted cash — The carrying value of restricted cash approximates fair value due to the short period of time that amounts are held in escrow (Level 1).

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 MBSs that are utilized as economic hedging instruments is calculated by reference to quoted prices for similar assets (Level 2).

Contingent consideration — In December 2023, Zillow Group acquired Follow Up Boss for $399 million in cash, net of cash acquired, and contingent consideration of up to $100 million, payable over a three-year period upon achievement of certain performance metrics. The fair value of the contingent consideration is estimated using a Monte Carlo simulation which considers the probabilities of the achievement of certain performance metrics (Level 3).

The discount rates used in our valuation of contingent consideration are based on our estimated cost of debt and are directly related to the fair value of contingent consideration. An increase in the discount rate, in isolation, would result in a decrease in the fair value measurement. Conversely, a decrease in the discount rate, in isolation, would result in an increase in the fair value measurement. The probabilities of achieving the relevant performance metrics used in our valuation of contingent consideration are directly related to the fair value of contingent consideration, as an increase in the probability, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the probability, in isolation, would result in a decrease in the fair value measurement.

During the three and nine month periods ended September 30, 2024, there were no material changes in the unobservable inputs used in determining the fair value of contingent consideration included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

IRLCs — 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 canceled or expired, 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

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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, 2024	December 31, 2023
Range	51% - 100%	45% - 100%
Weighted-average	85%	85%

We manage our interest rate risk related to IRLCs and mortgage loans held for sale through the use of derivative instruments, generally forward contracts on MBSs, which are commitments to either purchase or sell a financial instrument at a future date for a specified price, and mandatory loan commitments, which are an obligation by an investor to buy loans at a specified price within a specified time period. We do not enter into or hold derivatives for trading or speculative purposes, and our derivatives are not designated as hedging instruments. Changes in the fair value of our derivative financial instruments are recognized in revenue in our condensed consolidated statements of operations.

The following table presents the notional amounts of the economic hedging instruments related to our mortgage loans held for sale as of the dates presented (in millions):


	September 30, 2024		December 31, 2023
IRLCs	$	340	$	167
Forward contracts(1)	$	410	$	218
(1) Represents net notional amounts. We do not have the right to offset our forward contract derivative positions.

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The following table presents the amortized cost, as applicable, and estimated fair market value of assets and liabilities measured at fair value on a recurring basis by category as of the dates presented (in millions):


	September 30, 2024				December 31, 2023
	Amortized Cost		Estimated Fair Market Value		Amortized Cost		Estimated Fair Market Value
Assets
Cash	$	9	$	9	$	50	$	50
Cash equivalents:
Money market funds	978		978		1,440		1,440
U.S. government treasury securities	85		85		2		2

Short-term investments:
U.S. government treasury securities(1)	833		834		1,149		1,143
Corporate bonds(2)	248		251		160		161
U.S. government agency securities	14		14		14		14
Commercial paper	2		2		—		—
Mortgage origination-related:
Mortgage loans held for sale	—		164		—		100
IRLCs - other current assets	—		6		—		3
Forward contracts - other current assets	—		1		—		—
Restricted cash	3		3		3		3
Total assets measured at fair value on a recurring basis	$	2,172	$	2,347	$	2,818	$	2,916
Liabilities
Mortgage origination-related:
Forward contracts - accrued expenses and other current liabilities	$	—	$	1	$	—	$	1
Contingent consideration:
Contingent consideration - accrued expenses and other current liabilities	—		32		—		30
Contingent consideration - other long-term liabilities	—		57		—		51
Total liabilities measured at fair value on a recurring basis	$	—	$	90	$	—	$	82

(1) The estimated fair market value includes $1 million of gross unrealized gains and $6 million of gross unrealized losses as of September 30, 2024 and December 31, 2023, respectively.
(2) The estimated fair market value includes $3 million and $1 million of gross unrealized gains as of September 30, 2024 and December 31, 2023, respectively.

The following table presents available-for-sale investments by contractual maturity date as of September 30, 2024 (in millions):


	Amortized Cost		Estimated Fair Market Value
Due in one year or less	$	469	$	469
Due after one year	628		632
Total	$	1,097	$	1,101

See Note 7 for the carrying amounts and estimated fair values of our Notes.

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Note 4. Property and Equipment, net

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


	September 30, 2024		December 31, 2023
Website development costs	$	536	$	452
Leasehold improvements	44		48
Computer equipment	17		19
Office equipment, furniture and fixtures	16		20
Construction-in-progress	6		—
Property and equipment	619		539
Less: accumulated amortization and depreciation	(263)		(211)
Property and equipment, net	$	356	$	328

We recorded depreciation expense related to property and equipment (other than website development costs) of $3 million and $6 million for the three months ended September 30, 2024 and 2023, respectively, and $11 million and $18 million for the nine months ended September 30, 2024 and 2023, respectively.

We capitalized website development costs of $46 million and $49 million for the three months ended September 30, 2024 and 2023, respectively, and $152 million and $144 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense for website development costs included in cost of revenue was $40 million and $30 million for the three months ended September 30, 2024 and 2023, respectively, and $109 million and $79 million for the nine months ended September 30, 2024 and 2023, respectively.

Note 5. Acquisitions

Acquisition of Follow Up Boss

On December 8, 2023, Zillow Group acquired Follow Up Boss, a customer relationship management system for real estate professionals, for $399 million in cash, net of cash acquired, and contingent consideration of up to $100 million in cash, payable over a three-year period upon achievement of certain performance metrics. See Note 3 for additional information regarding the preliminary fair value of contingent consideration. The acquisition is consistent with our strategy to invest in a more integrated software experience for our agent customers. The acquisition of Follow Up Boss has been accounted for as a business combination, and assets acquired and liabilities assumed were generally recorded at their preliminary estimated fair values, in accordance with the applicable accounting guidance. 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 recorded in connection with the acquisition is deductible for tax purposes.

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


Preliminary purchase price:
Cash	$	403
Contingent consideration	81
Total preliminary purchase price	$	484

Identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	4
Goodwill	402
Intangible assets	86
Deferred revenue	(7)
Other liabilities	(1)
Total preliminary purchase price	$	484

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


	Preliminary Estimated Fair Value		Estimated Weighted-Average Useful Life (in years)
Developed technology	$	50	4
Customer relationships	34		7
Trade names and trademarks	2		7
Total	$	86

Estimated fair values of the identifiable intangible assets acquired were determined by management, based in part on a preliminary valuation performed by an independent third-party valuation specialist. We used an income approach to measure the fair value of the customer relationships intangible asset acquired 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 an income approach to measure the fair value of the developed technology and trade names and trademarks based on the relief-from-royalty method. These fair value measurements were based on Level 3 inputs under the fair value hierarchy.

The purchase price allocation for the Follow Up Boss acquisition is preliminary and subject to change during the measurement period up to one year from the acquisition date. We made an initial allocation of the purchase price at the date of the acquisition based upon information available and our understanding of the estimates used to determine the preliminary fair value of acquired assets, assumed liabilities and contingent consideration. We are in the process of specifically identifying the amounts assigned to certain tangible assets acquired and liabilities assumed and contingent consideration. As of September 30, 2024, the measurement period (not to extend beyond one year) is open for the Follow Up Boss acquisition; therefore, assets acquired, liabilities assumed, and contingent consideration are subject to adjustment until the end of the measurement period.

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Acquisitions of Aryeo and Spruce

On July 31, 2023, Zillow Group acquired 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, 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 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 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 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 purchase price	$	38	$	24

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


	Aryeo			Spruce
	Estimated Fair Value		Estimated Useful Life (in years)	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 acquisitions, are included within acquisition-related costs in our condensed consolidated statements of operations and were expensed as incurred. Aggregate acquisition-related costs for the acquisitions of Follow Up Boss, Aryeo, and Spruce were not material to our financial statements.

Unaudited pro forma revenue and earnings information related to the acquisitions has not been presented as the aggregate effects of the acquisitions of Follow Up Boss, Aryeo and Spruce were not material to our condensed consolidated financial statements.

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Note 6. Intangible Assets, net

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


	September 30, 2024
	Cost		Accumulated Amortization		Net
Customer relationships	$	93	$	(26)	$	67
Software	93		(33)		60
Developed technology	100		(45)		55
Trade names and trademarks	47		(24)		23
Purchased content	20		(14)		6
Total	$	353	$	(142)	$	211


	December 31, 2023
	Cost		Accumulated Amortization		Net
Customer relationships	$	98	$	(19)	$	79
Developed technology	104		(30)		74
Software	84		(29)		55
Trade names and trademarks	47		(20)		27
Purchased content	17		(11)		6
Total	$	350	$	(109)	$	241

Amortization expense recorded for intangible assets was $20 million and $13 million for the three months ended September 30, 2024 and 2023, respectively and $58 million and $37 million for the nine months ended September 30, 2024 and 2023, respectively. We did not record any impairment costs related to our intangible assets for the three or nine months ended September 30, 2024 or 2023.

Note 7. Debt

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


	September 30, 2024		December 31, 2023
Master repurchase agreements:
JPMorgan Chase Bank, N.A.(1)	$	78	$	40
UBS AG(2)	70		45
Atlas Securitized Products, L.P.(3)	—		8
Total master repurchase agreements	148		93
Convertible senior notes
2026 Notes	497		496
2025 Notes	418		504
2024 Notes(4)	—		607
Total convertible senior notes	915		1,607
Total debt	$	1,063	$	1,700

(1)Agreement was amended and renewed on May 2, 2024, increasing the total maximum borrowing capacity from $100 million to $150 million.
(2)Agreement was amended and renewed on September 6, 2024, increasing the total maximum borrowing capacity from $100 million to $150 million.
(3)Agreement expired on March 11, 2024 and was not renewed.
(4) The 2024 Notes matured on September 1, 2024 and are no longer outstanding.

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Credit Facilities

We utilize master repurchase agreements to provide capital for Zillow Home Loans. The following table summarizes certain details related to our outstanding master repurchase agreements as of September 30, 2024 (in millions, except interest rates):


Lender	Maturity Date	Maximum Borrowing Capacity		Borrowings Outstanding		Available Borrowing Capacity		Weighted-Average Interest Rate
JPMorgan Chase Bank, N.A.	May 1, 2025	$	150	$	78	$	72	6.56	%
UBS AG	September 5, 2025	150		70		80		6.58	%
	Total	$	300	$	148	$	152

In accordance with the master repurchase agreements, 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, 2024 and December 31, 2023, $155 million and $99 million, respectively, in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.

Borrowings on the master repurchase agreements bear interest at a floating rate based on SOFR plus an applicable margin, as defined by the governing agreements. The master repurchase agreements include customary representations and warranties, covenants and provisions regarding events of default. As of September 30, 2024, Zillow Home Loans was in compliance with all financial covenants and no event of default had occurred. The master repurchase agreements 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, see Note 11 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Convertible Senior Notes

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


								September 30, 2024				December 31, 2023
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	$	2	$	733	$	3	$	681
May 15, 2025	419		2.75	%	3.20	%	May 15; November 15	1		461		3		560
September 1, 2024	—		0.75	%	1.02	%	March 1; September 1	—		—		1		825
Total	$	918						$	3	$	1,194	$	7	$	2,066


	Three Months Ended September 30, 2024						Three Months Ended September 30, 2023
	Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense		Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense
2026 Notes	$	2	$	—	$	2	$	2	$	—	$	2
2025 Notes	3		1		4		4		—		4
2024 Notes	—		—		—		1		1		2
Total	$	5	$	1	$	6	$	7	$	1	$	8

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	Nine Months Ended September 30, 2024						Nine Months Ended September 30, 2023
	Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense		Contractual Coupon Interest		Amortization of Debt Issuance Costs		Interest Expense
2026 Notes	$	5	$	1	$	6	$	6	$	1	$	7
2025 Notes	9		2		11		12		1		13
2024 Notes	3		1		4		3		2		5
Total	$	17	$	4	$	21	$	21	$	4	$	25

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

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:

Early Conversion Date

Conversion Rate

Conversion Price

Optional Redemption Date

2026 Notes

March 1, 2026

22.9830

43.51

September 5, 2023

2025 Notes

November 15, 2024

14.8810

67.20

May 22, 2023

The 2024 Notes matured on September 1, 2024. During the period from March 1, 2024 through the close of business on August 29, 2024, holders of the 2024 Notes elected to convert all outstanding 2024 Notes in accordance with the terms of the indenture. We settled these conversions with aggregate cash payments totaling $610 million, which included $608 million in principal repayments, $2 million for accrued interest and a nominal cash payment in lieu of fractional shares, and the issuance of 1.9 million shares of Class C capital stock.

In September 2024, we received 2.1 million shares of Class C capital stock from the settlement of the capped call transactions we entered into in connection with the issuance of the 2024 Notes. Under applicable Washington State law, the acquisition of a corporation’s own shares is not disclosed separately as treasury stock in the financial statements and such shares are treated as authorized but unissued shares. We record acquisitions of our shares of capital stock as a reduction to capital stock at the par value of the shares reacquired, then to additional paid-in capital until it is depleted to a nominal amount, with any further excess recorded to retained earnings. We recorded an offsetting increase to additional paid-in capital for the unwind of the capped call transactions.

There were no repurchases of Notes during the three months ended September 30, 2024. During the nine months ended September 30, 2024 and in accordance with our Repurchase Authorizations, we repurchased $88 million aggregate principal amount of the 2025 Notes through open market transactions for $89 million in cash, including accrued interest, resulting in a loss on extinguishment of debt of $1 million, recognized in our condensed consolidated statements of operations. On or after November 15, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date for the 2025 Notes, holders may convert the 2025 Notes at their option at the applicable Conversion Rate then in effect. Any conversions of the 2025 Notes will be settled on the maturity date.

On October 8, 2024, we submitted notice to the trustee to exercise our right to redeem the remaining $499 million in aggregate principal amount of the 2026 Notes on December 18, 2024 (the “Redemption Date”). We have elected to settle any conversions through a combination of cash and shares of Class C capital stock. The 2026 Notes may be converted by the holders at any time prior to 5:00 p.m. (New York City time) on December 17, 2024. The conversion rate for the 2026 Notes is 22.9830 shares of Class C capital stock per $1,000 principal amount of 2026 Notes converted (subject to adjustment under certain circumstances as set forth in the indenture governing the 2026 Notes). For any holder of the 2026 Notes that does not elect to convert their 2026 Notes, we will be required to redeem the 2026 Notes in cash at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the Redemption Date. These settlements will reduce our outstanding convertible senior notes, net of current portion in our condensed consolidated balance sheet.

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The following table summarizes certain details related to the capped call confirmations with respect to the 2026 Notes:


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

For additional details related to our Notes, see Note 11 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Note 8. Income Taxes

We are subject to income taxes in the United States (federal and state) and certain foreign jurisdictions. As of September 30, 2024 and December 31, 2023, 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 $1.4 billion as of December 31, 2023, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $56 million (tax effected) as of December 31, 2023.

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 was not material for the three or nine month periods ended September 30, 2024 and 2023.

Note 9. Share Repurchase Authorizations

The Board has authorized the repurchase of up to $2.5 billion of our Class A common stock, Class C capital stock, outstanding 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, 2023.

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, in each case as permitted by securities laws and other legal requirements. As of September 30, 2024, $381 million remained available for future repurchases pursuant to the Repurchase Authorizations.

There were no share repurchases during the three months ended September 30, 2024. The following tables summarize 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
		Class A common stock		Class C capital stock
Shares repurchased		965		932
Weighted-average price per share		$	52.57	$	52.80
Total purchase price		$	50	$	50


	Nine Months Ended September 30, 2024				Nine Months Ended September 30, 2023
	Class A common stock		Class C capital stock		Class A common stock		Class C capital stock
Shares repurchased	1,100		5,996		1,775		5,411
Weighted-average price per share	$	42.26	$	42.45	$	48.71	$	46.15
Total purchase price	$	46	$	255	$	86	$	250

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Note 10. Share-Based Awards

In addition to the option awards and restricted stock units typically granted under 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 14 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Option Awards

The following table summarizes option award activity for the nine months ended September 30, 2024:


	Number of Shares Subject to Existing Options (in thousands)	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2024	32,524	$	44.18	6.9	$	495
Granted	3,311	55.16
Exercised	(2,517)	38.11
Forfeited or canceled	(553)	44.24
Outstanding at September 30, 2024	32,765	45.75		6.4	639
Vested and exercisable at September 30, 2024	22,601	45.06		5.5	465

The following assumptions were used to determine the fair value of option awards granted for the periods presented:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Expected volatility	55%	62%	55% - 61%	55% - 62%
Risk-free interest rate	3.74%	4.34%	3.74% - 4.50%	3.75% - 4.34%
Weighted-average expected life	5.5 years	5.3 years	5.5 - 6.8 years	5.3 - 6.5 years
Weighted-average fair value of options granted	$30.96	$27.26	$31.80	$24.06

As of September 30, 2024, there was a total of $270 million in unrecognized compensation cost related to unvested option awards.

Restricted Stock Units

The following table summarizes activity for restricted stock units for the nine months ended September 30, 2024:


	Restricted Stock Units (in thousands)	Weighted-Average Grant Date Fair Value
Unvested outstanding at January 1, 2024	12,038	$	45.42
Granted	6,868	55.18
Vested	(4,967)	47.47
Forfeited	(878)	47.87
Unvested outstanding at September 30, 2024	13,061	49.61

As of September 30, 2024, there was a total of $603 million in unrecognized compensation cost related to unvested restricted stock units.

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Share-Based Compensation Expense

The following table presents the effects of share-based compensation expense in our condensed consolidated statements of operations during the periods presented (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of revenue	$	3	$	4	$	11	$	12
Sales and marketing	19		18		57		53
Technology and development	40		42		124		123
General and administrative	46		45		137		154
Total share-based compensation	$	108	$	109	$	329	$	342

Note 11. Net Loss Per Share

For the periods presented, the following Class C capital stock equivalents were excluded from the calculations of diluted net loss per share because their effect would have been antidilutive (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Weighted-average Class C capital stock option awards outstanding	27,557	30,063	28,015	20,924
Weighted-average Class C capital stock restricted stock units outstanding	13,567	14,172	13,705	13,890
Class C capital stock issuable upon conversion of the Notes	27,276	33,855	30,826	33,855
Total Class C capital stock equivalents	68,400	78,090	72,546	68,669

Note 12. Commitments and Contingencies

Commitments

During the three and nine months ended September 30, 2024, there were no material changes to the commitments disclosed in Note 16 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Legal Proceedings

We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities, some of which are at preliminary stages and some of which seek an indeterminate amount of damages. We regularly evaluate the status of legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made if accruals are not appropriate. For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories presented. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial position, results of operations or cash flow. For the matters discussed below, we have not recorded any material accruals as of September 30, 2024 or December 31, 2023.

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On September 17, 2019, International Business Machines Corporation (“IBM”) filed a complaint against us in the U.S. District Court for the Central District of California, alleging, among other things, that the Company has infringed and continues to willfully infringe seven patents held by IBM and seeks unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. On November 8, 2019, we filed a motion to transfer venue and/or to dismiss the complaint. On December 2, 2019, IBM filed an amended complaint, and on December 16, 2019 we filed a renewed motion to transfer venue and/or to dismiss the complaint. The Company’s motion to transfer venue to the U.S. District Court for the Western District of Washington (the “Court”) was granted on May 28, 2020. On September 18, 2020, we filed four Inter Partes Review (“IPR”) petitions before the U.S. Patent and Trial Appeal Board (“PTAB”) seeking the PTAB’s review of the patentability with respect to three of the patents asserted by IBM in the lawsuit. On March 15, 2021, the PTAB instituted IPR proceedings with respect to two of the three patents for which we filed petitions. On March 22, 2021, the PTAB denied institution with respect to the last of the three patents. On January 22, 2021, the Court partially stayed the action with respect to all patents for which we filed an IPR and set forth a motion schedule. On March 8, 2021, IBM filed its second amended complaint. On March 25, 2021, we filed an amended motion for judgment on the pleadings. On July 15, 2021, the Court rendered an order in connection with the motion for judgment on the pleadings finding in our favor on two of the four patents on which we filed our motion. On August 31, 2021, the Court ruled that the parties will proceed with respect to the two patents for which it previously denied judgment, and vacated the stay with respect to one of the three patents for which Zillow filed an IPR, which stay was later reinstated by stipulation of the parties on May 18, 2022. On September 23, 2021, IBM filed a notice of appeal with the United States Court of Appeals for the Federal Circuit with respect to the August 31, 2021 judgment entered, which judgment was affirmed by the Federal Circuit on October 17, 2022. On March 3, 2022, the PTAB ruled on Zillow’s two remaining IPRs finding that Zillow was able to prove certain claims unpatentable, and others it was not. On October 28, 2022, the Court found one of the two patents upon which the parties were proceeding in this action as invalid, and dismissed IBM’s claim relating to that patent. Following the Court’s ruling, on October 28, 2022, the parties filed a joint stipulation with the Court seeking a stay of this action, which was granted by the Court on November 1, 2022. On November 25, 2022, Zillow filed a motion to join an IPR petition within Ebates Performance Mktg., Inc. d/b/a Rakuten Rewards v. Int’l Bus. Machs. Corp. (“Rakuten IPR”), IPR2022-00646 concerning the final remaining patent in this action, which the Court granted on April 20, 2023. On October 11, 2023, the PTAB ruled on the Rakuten IPR finding the claims of the patent asserted against Zillow unpatentable. IBM appealed the PTAB’s decision on November 21, 2023 (the “PTAB Appeal”), and cross appeals were filed by Ebates Performance Marketing Inc. on November 21, 2023 and by us on December 15, 2023. On March 20, 2024, IBM voluntarily dismissed all claims filed in this action against Zillow with prejudice, with the exception of those pertaining to the patent asserted within the pending PTAB Appeal. On June 21, 2024 we filed our response to the PTAB Appeal. On July 30, 2024, IBM filed its reply in further support of the PTAB Appeal. On September 3, 2024, we filed our reply in further support of our cross-appeal. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit.

On July 21, 2020, IBM filed a second action against us in Court, alleging, among other things, that the Company has infringed and continues to willfully infringe five patents held by IBM and seeks unspecified damages. On September 14, 2020, we filed a motion to dismiss the complaint filed in the action, to which IBM responded by the filing of an amended complaint on November 5, 2020. On December 18, 2020, we filed a motion to dismiss IBM’s first amended complaint. On December 23, 2020, the Court issued a written order staying this case in full. On July 23, 2021, we filed an IPR with the PTAB with respect to one patent included in the second lawsuit. On October 6, 2021, the stay of this action was lifted, except for proceedings relating to the one patent for which we filed an IPR. On December 1, 2021, the Court dismissed the fourth claim asserted by IBM in its amended complaint. On December 16, 2021 Zillow filed a motion to dismiss the remaining claims alleged in IBM’s amended complaint. On March 9, 2022, the Court granted Zillow’s motion to dismiss in full, dismissing IBM’s claims related to all the patents asserted by IBM in this action, except for the one patent for which an IPR was still pending. On March 10, 2022, the PTAB rendered its decision denying Zillow’s IPR. On August 1, 2022, IBM filed an appeal of the Court’s ruling with respect to two of the dismissed patents, which ruling was affirmed by the appeals court on January 9, 2024. On March 20, 2024, IBM voluntarily dismissed all claims filed in this action against Zillow with prejudice and the Clerk of Court was directed to close the case.

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On November 16, 2021, November 19, 2021 and January 6, 2022, three purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our stock between August 7, 2020 and November 2, 2021. The three purported class action lawsuits, captioned Barua v. Zillow Group, Inc. et al., Silverberg v. Zillow Group, et al. and Hillier v. Zillow Group, Inc. et al. were brought in Court and were consolidated on February 16, 2022 (the “Federal Securities Suit”). On May 12, 2022, the plaintiffs filed their amended consolidated complaint which alleges, among other things, that we issued materially false and misleading statements regarding our Zillow Offers business. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. We moved to dismiss the amended consolidated complaint on July 11, 2022, plaintiffs filed their opposition to the motion to dismiss on September 2, 2022, and we filed a reply in support of the motion to dismiss on October 11, 2022. On December 7, 2022, the Court rendered its decision granting defendants’ motion to dismiss, in part, and denying the motion, in part. On January 23, 2023, the defendants filed their answer to the consolidated complaint. On March 14, 2024, plaintiffs filed a motion for class certification, we filed our opposition on April 26, 2024 and plaintiffs filed their reply on June 7, 2024. On August 16, 2024, plaintiffs filed an amended complaint, and on September 13, 2024, we filed our answer to the amended complaint. On August 23, 2024, the Court issued an order granting class certification. On September 6, 2024, we filed a petition for permission to appeal the class certification order, on September 16, 2024 plaintiffs filed their opposition to our petition, and on September 23, 2024, we filed our reply in further support of the petition. On October 24, 2024, the Ninth Circuit issued an order granting Zillow permission to appeal. On November 1, 2024, the Court issued an order staying the Federal Securities Suit pending the outcome of the appeal. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in this consolidated lawsuit.

On March 10, 2022, May 5, 2022 and July 20, 2022, shareholder derivative suits were filed in Court and on July 25, 2022, a shareholder derivative suit was filed in the Superior Court of the State of Washington, King County (the “2022 State Suit”), against us and certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs (including the Company as a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties by failing to maintain an effective system of internal controls, which purportedly caused the losses the Company incurred when it decided to wind down Zillow Offers operations. Plaintiffs also allege, among other things, violations of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, insider trading and waste of corporate assets. On June 1, 2022 and September 14, 2022, the Court issued orders consolidating the three federal derivative suits and staying the consolidated action until further order of the Court, which stay was further continued by the Court on September 6, 2023. On September 15, 2022, the Superior Court of the State of Washington entered a temporary stay in the 2022 State Suit. Upon the filing of the defendants’ answer in the related securities class action lawsuit on January 23, 2023, the stay in the 2022 State Suit was lifted. A partial stay was then reentered in the 2022 State Suit, which expired on February 1, 2024. On May 17, 2024, the Superior Court issued an order staying the 2022 State Suit. On August 23, 2023, a second shareholder derivative suit was filed in the Superior Court of the State of Washington, King County (the “2023 State Suit”). On May 24, 2024, we filed a motion to dismiss and/or a motion to stay the 2023 State Suit. On September 13, 2024, the Superior Court issued an order staying the 2023 State Suit. On October 31, 2024, a shareholder derivative suit was filed in the U.S. District Court for the Western District of Washington, which is substantially similar to the other shareholder derivative suits. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable. The defendants deny the allegations of any wrongdoing and vigorously defend the claims in these lawsuits.

In addition to the matters discussed above, from time to time, we are involved in litigation and claims that arise in the ordinary course of business. Although we cannot be certain of the outcome of any such litigation or claims, nor the amount of damages and exposure that we could incur, we currently believe that the final disposition of such matters will not have a material effect on our business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters. For additional information regarding our indemnifications, 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, 2023.

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Note 13. Revenue and Contract Balances

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. See Note 2 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information on our revenue from contracts with customers and contract balances.

Disaggregation of Revenue

The following table presents our revenue disaggregated by category for the periods presented (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Residential	$	405	$	362	$	1,207	$	1,103
Rentals	123		99		337		264
Mortgages

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