Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ZILLOW GROUP, INC. (1617640) 10-Q published on May 08, 2018 at 11:46 am
Reporting Period: Mar 30, 2018
In April 2018, we announced Zillow Group’s participation as a purchaser of homes in the Instant Offers marketplace. Through Instant Offers, interested home sellers submit information about their home and receive investor offers for a sale alongside a real estate agent’s analysis of what the home might sell for on the open market. Each time Zillow Group purchases a home it intends to quickly update and resell the home on the open market. As a participant in the Instant Offers marketplace, Zillow Group began buying homes in May of 2018. Beginning in the second quarter of 2018, Zillow Group will report financial results for two reportable segments: the Internet, Media & Technology (“IMT”) segment and the Homes segment. The IMT segment will include the financial results for the Premier Agent, Rentals, Mortgages and new construction marketplaces, as well as dotloop, display and other advertising and business software solutions. The Homes segment will include the financial results from Zillow Group’s buying and selling of homes directly.
In April 2018, we announced Zillow Group’s participation as a purchaser of homes in the Instant Offers marketplace. Through Instant Offers, interested home sellers submit information about their home and receive investor offers for a sale alongside a real estate agent’s analysis of what the home might sell for on the open market. Each time Zillow Group purchases a home it intends to quickly repair and resell the home on the open market. As a participant in the Instant Offers marketplace, Zillow Group began buying homes in May of 2018. Beginning in the second quarter of 2018, Zillow Group will report financial results for two reportable segments: the Internet, Media & Technology (“IMT”) segment and the Homes segment. The IMT segment will include the financial results for the Premier Agent, Rentals, Mortgages and new construction marketplaces, as well as dotloop, display and other advertising and business software solutions. The Homes segment will include the financial results from Zillow Group’s buying and selling of homes directly through the Instant Offers marketplace. Zillow Group’s preparation to participate in the Instant Offers marketplace did not have a material impact on our financial results for the three months ended March 31, 2018. However, we do expect the Homes segment to have a material impact on our consolidated balance sheets, statements of operations and cash flows for the remainder of 2018. We expect to hold approximately 300 to 1,000 homes in inventory as of December 31, 2018.
In April 2018, we began testing a new method of consumer lead distribution to our Premier Agent and Premier Broker advertisers related to our auction-based pricing model. With this new method of consumer lead distribution, the share of voice, or an agent advertiser’s share of total advertising purchased in a particular zip code, purchased by Premier Agents and Premier Brokers will represent both the share of impressions delivered as advertisements (as it did previously) and, now, the proportion of validated consumer connections a Premier Agent or Premier Broker receives. A validated consumer connection is made when a consumer does not select a specific Premier Agent or Premier Broker with whom they want to connect through one of our mobile applications or websites. Applying the new model, these validated connections will be distributed to Premier Agents and Premier Brokers in proportion to their share of voice. We believe distributing validated connection leads on the basis of share of voice creates better experiences for consumers and further strengthens our partnerships with real estate professionals. We expect to apply this new form of lead distribution more broadly with full adoption by the end of 2018. We are unable to predict whether this change will have a material impact on revenue or other results of operations.
Rentals revenue was $29.1 million for the three months ended March 31, 2018 compared to $21.5 million for the three months ended March 31, 2017, an increase of $7.5 million, or 35%. The increase in rentals revenue was partially attributable to an increase in the number of average monthly rental listings on our mobile applications and websites, which increased 86% to 35,247 average monthly rental listings for the three months ended March 31, 2018 from 18,926 average monthly rental listings for the three months ended March 31, 2017. Average monthly rental listings include the average monthly monetized, deduplicated rental listings for the period, which are displayed across all of our mobile applications and websites. An increase in rental listings on our mobile applications and websites increases the likelihood that a consumer will contact a rental professional, which in turn increases the likelihood of a lead, click, or lease that we monetize. The increase in average monthly rental listings was primarily a result of our monetization of rental listings on our StreetEasy brand mobile application and website beginning in the third quarter of 2017. The revenue per average monthly rental listing decreased 28% to approximately $825 for the three months ended March 31, 2018 from approximately $1,138 for the three months ended March 31, 2017, due primarily from the monetization of rental listings on StreetEasy beginning in the third quarter of 2017, which typically generate less revenue per listing than larger rental properties. We calculate revenue per average monthly rental listing by dividing total rentals revenue for the period by the average monthly deduplicated rental listings for the period. The increase in rentals revenue was also driven in part by the 15% increase in visits to 1,764.8 million for the three months ended March 31, 2018, which s
business depends in part on our ability to efficiently acquire, renovate, and sell properties. In determining whether to purchase a property, we may make assumptions, including the estimated time from purchase to sale, update costs, market conditions and potential resale proceeds, closing costs, and holding costs. These assumptions may be inaccurate. Our estimates of what homes are worth, and the algorithms and other data points used to inform those estimates, may not be accurate and we may pay more for homes than the price at which we are able to resell them. In addition, we may not timely discover latent home construction or environmental hazards or other issues which may decrease the value of properties we own. As a result, we may overpay for properties we acquire, and we may not be able to resell them for the price we anticipated or at all. We plan to use third party service providers to make upgrades to and perform maintenance on homes we acquire and, as a result, we may not be able to effectively control the timing and costs of those projects. Further, homes we purchase may suffer decreases in value due to natural disasters, catastrophic events, or other forces outside of our control. The homes we own may not be insured against all damages and losses.