Zillow Group, Inc. Class C
Q1 2021 Earnings Call Transcript

Published: 4 May 2021

[Operator:]

Good afternoon. My name is Riley and I will be your conference operator today. At this time, I would like to welcome everyone to the Zillow Group First Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Please note, this event is being recorded. I would now like to turn the conference over to Brad Berning, Vice President, Investor Relations. Please go ahead.

[Brad Berning:]

Thank you, Riley. Good afternoon, and welcome to Zillow Group's first quarter 2021 conference call. Joining me today to discuss our Q1 results are Zillow Group's Co-Founder and CEO, Rich Barton; and CFO, Allen Parker. During the call, we will make forward-looking statements about our future performance and operating plans based on our current expectations and assumptions. These statements are subject to risks and uncertainties and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. This call is being broadcast on the Internet and is accessible on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA. We encourage you to read our shareholder letter and our earnings release, which can be found on our Investor Relations website, as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. In addition, please note, we will refer to our Internet, Media & Technology segment as our IMT segment. We will now open the call with brief remarks followed by live Q&A. And with that, I'll turn over the call to Rich.

[Rich Barton:]

Thank you, Brad. Good afternoon, everyone. And thank you for joining our first quarter 2021 earnings call. We are in a much better place compared to one long year ago. And I'm so grateful and impressed these miraculous COVID vaccines are now widely available across the country. I hope that you and yours are beginning to find some normalcy after such a trying year. In a typical year, spring begins the traditional home buying season. But we know that this past year was anything but typical. Home buying never really slowed down. A great reshuffling driven by changes in what we want and need out of our homes have fueled continued interest in moving. And we expect this movie demand to continue as we all adjust to a safer world ahead. Our research team recently published a survey based mover report, which we have hyperlink to from the shareholder letter. It's a great read when you have the time. The report indicates that the pandemic has indeed caused people to rethink where they live, and concludes that approximately 8 million existing homeowner households that have been on the sidelines may enter a real estate market already be set by unrelenting demand. Additionally, 8.9% of consumers plan to purchase a home in the next six months near a 20 year high per the conference board's April consumer confidence survey.

[Allen Parker:]

Thank you, Rich. As Rich discussed Zillow Group delivered another strong quarter reporting Q1 consolidated revenue of 1.2 billion in EBITDA of 181 million, both exceeding the high end of our outlook range. Q1 IMT segment revenue of 446 million grew 35% year-over-year, as we continue to see accelerated growth in Premiere Agent and strong growth in rentals. IMT segment EBITDA was 209 million in Q1 or 47% of IMT segment revenue. Accelerating revenue growth, combined with year-over-year declines in operating costs, translated into 143% year-over-year EBITDA growth in Q1. Premiere Agent revenue grew 38% year-over-year in Q1, the accelerated growth was primarily driven from connections growing faster than traffic, as well as our focus on providing outstanding service and optimizing to connect high intent customers with high performing partner agents. Growth in Zillow Offers continued to reaccelerate in Q1. We reported home segment revenue of 704 million, which exceeded the high-end of our outlook with 1,965 home sales. Resale velocity was above our expectations. In Q1, we sold 128% of the beginning inventory of 1,531 homes was contributed to inventory decline at the end of Q1 to 1,422 homes. Purchases increased to 1,856 homes in the quarter from 1,789 homes purchased in Q4. But not quite at the pace we planned as we continued to work on refining our models to catch up with the rapid acceleration in home price appreciation. During Q1, we continued to focus on unit costs, automation, adding capacity, and sharpening pricing models to improve offer strength as we continue to scale. Our Q1 Zillow offers unit economics of 549 basis points return before interest expense was above the plus or minus 200 basis point guard rails we've set for ourselves while working to scale the business. The outsides economic results were impacted by the ongoing strong housing market, which is temporal in nature. We made progress during the quarter on improving offer strength and sharpen pricing that tightened our unit economics by approximately 120 basis points from that of Q4. The durable operational improvements in overall cost per home contributed 280 basis points improvement from Q1 2020.

[Operator:]

Our first question today will come from Ron Josey with JMP Securities.

[Ron Josey:]

I wanted to ask clearly so much going on. I wanted to maybe zero in on Zillow Offers here first. I mean, significant demand in the quarter sales pulled forward. Allen you talked about that, Zestimate driving even more demand, maybe with supply seems being a little bit harder here and you're sharpening pricing to offset that. Rich, can you just talk about the broader market for offers in a stronger real estate market? Just how do you acquire the inventory relative demand? How do you balance those two things together? Thank you.

[Rich Barton:]

Hey, Ron, thanks. I mean, we are rapidly learning how ZO lives in this, really this unprecedented home price appreciation environment. The appreciation over the last six months is the largest move up or down that we observe in the data set over the last 35 years, right. So it's a very fluid market. But as you noted in your question and Allen talked about in his script, our top of funnel indicators are good. Like, it turns out, speed, certainty and convenience are attractive to sellers no matter what kind of market they are in. So we are seeing record levels of folks raising their hand to get a Zillow offer. I think part of that is driven by this really nifty feature we launched last quarter that we internally called Zestimate offers which is this, live initial -- having the Zestimate via a live initial offer for lots of the homes inside of the buy box in Zillow Offers markets. So anyway, we're also really happy with this kind of glow that we're seeing across the business from this positive reinforcement we have from having all of these linked businesses and having this very large, single funnel of customer demand coming in. And the IMT and adjacent business numbers are really, really commendable. But on ZO in particular Ron, we're leaning in like -- we're leaning in, we're expanding in the 25 markets. We're heavily staffing as I think we made an announcement maybe Allen just talked about it too. We are we are planning as a company hiring a net 2000 people in 2021. And a lot of that will be for Zillow Offers and we're making other investments in ZO as well. So we are comfortable with that increased investment because of what we're seeing top of funnel because what we know about the consumer value proposition. And also, we're leaning in because most consumers don't even know what Zillow Offers is yet. They don't even know, we've got to take Zillow 2.0 out of the kind of quarterly conference call realm and into the consumer awareness realm. And so we got a lot of work to do there and basis points penetrated in the business overall. So long answer, but we're feeling we're leaning in and feeling good.

[Allen Parker:]

Hey, Ron and Rich, I will just add. Just to give a little color to the guidance for Q2 with respect to home segment revenue. We've called out the resale velocity pulling some sales in the Q1. And I just want to call it even with strong top of funnel activity, there is a lag as we go through between offer, purchase and an eventual sale and when we see the revenue and so a lot of this top of funnel activity will start to show up more in Q3 and that's part of the reason for the Q2 guide that's reflected -- that lag is reflected in the Q2 guide.

[Operator:]

Our next question comes from Naved Khan with Truist Securities.

[Naved Khan:]

There is couple of questions. So maybe just one Zillow 2.0, how do we measure the progress that you're making on the initiative and how do you think about the long-term profitability potential in the 2.0. And then, just maybe on hiring? What are the areas that are seeing the biggest increase in headcount?

[Rich Barton:]

Okay. Hey, Naved. The 2.0 bet is all about the fact that we believe customers want speed, simplicity, integration, value, like these are not risky bets to make on consumer behavior, okay. They're kind of timeless features of what customers demand. And we also believe that our brand and our traffic give us a competitive advantage, relative to point solution competitors, because we have a large audience, we can spread any customer acquisition costs we may have for those customers over a much larger revenue, profit and transaction base. So that's kind of the Business School answer to why we like the competitive advantage. So that's why we've made the bet. So we've made these big bets over the last two and a half years when we really leaned into 2.0. And building out all the 2.0 components, like Zillow Offers, mortgages, Zillow closing services, even rentals. Anyway, the short answer to your question is, it's working. All the children appear to be above average. I don't know if we're getting any chuckles out there to the Garrison Keillor reference, but all the businesses are performing really well beyond our expectations. So that's a terrific proof point that the integrated strategy and the transaction strategy is working our revenue and profit on a per user basis and steadily rising, which is really nice to see and it's still quite low. So we have a ways to go. I said in my script, to kind of introduce a new kind of TAM and penetration concept. This less than 2% gross profit penetration into the total addressable market of services in the industry. We keep struggling for ways to talk about the full opportunity in quarters past we talked about trying to estimate transaction share, and what share of transactions we touched, that is fraught, because we don't exactly know how many transactions we touched, or were, I challenged the team to try to figure out if there's maybe a gross profit penetration metric, we can come out to communicate the opportunity for ourselves and for you all. So that could be interesting. Anyway, there's still a ton of work to do on 2.0 not the least of which as I said before, is awareness of 2.0. That's where you're seeing marketing investment, increased marketing investment from us anyway. Stay tuned, we're on the path, we like the path, things look clear and lots of green lights out the front windshield.

[Naved Khan:]

Thank you, Rich. And maybe on the headcount and give us some more clarity on the areas where these are…

[Rich Barton:]

Maybe Allen, if you want to answer that?

[Allen Parker:]

Yes. I mean, I guess what I would just say is, I would classify, we're continuing to make investments across a variety of our businesses where we feel like there's a lot of opportunity to accelerate innovation for our customer, shop and dream, buy with, sell with. And so there's quite a bit of tech and dev, but there's also transactional type resources that are necessary as we scale the business. And so I think you're seeing kind of a mix of those, there are some additional innovative ideas around 3D tours and other things. So, most of the initiatives we talk about, we are looking at where we need the resource and to accelerate our investment. But it's spread across the company. And, I'll just take this moment to say we continue to prioritize, our existing resources as well, to make sure we're making bets on the right thing. But we like the results we're seeing, we like the inputs that we're tracking and look forward to execution.

[Operator:]

Our next question comes from Lloyd Walmsley with Deutsche Bank.

[Lloyd Walmsley:]

Thanks. Two questions. First, you're recognizing better growth in the second quarter guide on that kind of normalized basis excluding the better together discounts? Can you just talk about the sustainability of the PA business, particularly into the second half as comms get harder? What are some of the drivers behind the outlook for 2Q and that can help in the second half? And then, secondly, you've put up the 47% segment margin in IMT guidance implies first margins about 44%. So if full year margins are going to be kind of flashed with last year, it implies a big step up in the second half, can you give us a better sense of what you're investing in? How it's going to flow across the segments? And then, what specifically will we be weighing on IMT segment margins in the second half, given disciplined on cost growth there for multiple years now? Thanks for your help there.

[Rich Barton:]

Thanks Lloyd . That sounds like an Allen question.

[Allen Parker:]

Sure. Thanks, Lloyd. So on growth, yes, in Q1 Premier Agent growth of 38% year-over-year, if you compare it to the underlying growth rates we talked about in Q4 was 27%. And in Q4 2020 was 27% and in Q3 of 2020, was 20%. So we've seen this accelerating underlying growth trend in Premiere Agent. If you look in our Q2 outlook, the underlying growth rate of 38%, at the midpoint, after you adjust for the better together discounts, is a continuation of the inputs that we're seeing. We have a large audience, strong top of the funnel. And when you combine that with a focus on some of the inputs of customer satisfaction and conversion and revenue per lead, we're just seeing very encouraging trends on the inputs. And I think it's all predicated by this focus on helping the customer get through the transaction. In terms of the second half, we are not providing guidance, but what I would call out is that the Premier Agent Q2, two year growth rate of 49%, we pulled out in the shareholder letter, at the midpoint of our range is probably a good way to think about growth, as you look at your models on how to model forward through this weird year that we had in 2020. So hopefully, that helps. With respect to margin, our Q2 IMT margin, we expect to be 41% at the midpoint of our outlook that is down sequentially from the 47% in Q1. As we position ourselves to drive sustainable, profitable long-term growth, we do expect this margin rate to reflect accelerated investments in marketing and staffing and technology to provide innovation on behalf of the customer. And so we do expect that to increase from Q1 levels and we expect further acceleration in Q3. When I think about full year, given your question, what I'd say is, we do expect either dollar growth, but that growth more in line with revenue growth rates, rather than expansion off the 38% margin rate we put it in 2020. So hopefully that helps.

[Lloyd Walmsley:]

Yes. No, that's great. And just to clarify, when you say kind of a two year growth kind of consistent is a good way to think about it. Is that excluding the better together? Or is that just on headline basis?

[Allen Parker:]

That's on a headline basis. It's the 49%, if you just take Q2 2019 for instance, Q2 2021 midpoint, that's 49% growth. And we think that's a good way to pin your models.

[Operator:]

Our next question comes from Ryan McKeveny with Zelman & Associates.

[Ryan McKeveny:]

Thank you. Congrats on the results and great to see the momentum continuing. So the first question, I apologize if I've missed this, but can you share an update on the transition to using in-house agents or employees on the high buyer transactions? Maybe what share transactions in the quarter were working in-house? And how that transition is going versus your expectations? And second question on the mortgage business, so the stat on the 90% share of refi is very interesting thing, it seems to be a bit of a kind of early confirmation signal that the overall Zillow business is moving from something that was once servicing and monetizing buyers, to then sellers and now homeowners that might want to refi. So I guess I'm curious on the mortgage space. Can you talk about the strategy and maybe that interplay between driving the actual attachment on the high buyer purchase product and driving mortgage value more generally because I know, there can, of course, be a lot of differences in just strategy to the approach of kind of purchase versus refi share over time. So hoping you can maybe separate those pieces and talk a bit about strategy. Thanks so much.

[Allen Parker:]

All right. I'll start and Rich or Brad jump in. But on Zillow brokerage services, we're operating in just a few of the 25 markets. So that's still relatively nascent, it's going well. We're excited about initial results. But there's nothing with respect to attach or any kind of data point yet. Over time, we do believe that's a great way to have a better integrated customer experience. But we still work with partners across all our markets. And we're learning the services that we can provide, but it's still relatively new. And then, our mortgage, I guess, the way I would describe it, as you think about our mortgage strategy coming together. When we purchased mortgage lenders of America way back in 2018, they were really a direct consumer non-conforming origination shop. Our initial strategy was to move to a broader mix of conforming mortgages, while updating and transforming the platform and bringing in new leadership. In 2020, we started to share, our focus on building the factory to bringing in the loan officers and loan processors and building the systems. And we did that off of the strong refinance demand. And we continue to do that in the Q1. I think over time, you'll see that mix normalize more to industry standards. But we want to have a compelling and great customer experience and we're continuing to work with customers and learn. And I think over time, we expect to provide all more good services that a customer may want, whether it be refi our customer, both those that are doing other services within Zillow, as well as refi customers who come looking for refi. So we're very excited about what the team has done and where we are. And we think that mortgage is a very important part of the Zillow 2.0 and we're continuing to expand there.

[Operator:]

Our next question comes from Ygal Arounian with Wedbush Securities.

[Ygal Arounian:]

So just one question on Zillow Offers and one on Premier Agent. So let's go back to Allen's comment, hope I'm not miss quoting it, highlighted purchases were not at the pace that you were expecting kind of over the course of the quarter and do work to kind of catch up with HPA and really strong environment, can you expand on that and what you're doing to catch up for that and fix the model or just the model to what we're seeing, especially in light of some data that we've seen from your competitors continuing to accelerate some of their purchases there. And then, on PA, you highlighted improvements in PA connections and that's what I was hoping, you could talk about that a little bit. And then, listings are still challenged overall. Can you talk about the impact that has the PA business down significantly year-over-year? Does that have a meaningful impact? Thanks.

[Rich Barton:]

You want to start with the ZO stuff, Allen?

[Allen Parker:]

Sure. Yes. So, yes, I mean, I think Rich, hit it pretty well. What I'd say is, if you look at our unit economics and as I mentioned 549 basis points of return on home sold before interest expense, being above our plus or minus 200 basis point guardrails, the driver that's there that has improved from Q4 is home acquisition cost as a percent of the sale. So it's at 87% of homes revenue versus 85.9 in Q4, but still higher than, we would expect and that's reflective of this resale velocity and our selling of homes at rates higher than we would have expected or underwrote to, when we acquired them. And so, this expansion that we're catching up with, there's also a lot of nuance just in the offers and how we present them. That we're also iterating. So I guess what I would describe is, we are continually figuring out how to improve our offer strength in the way we communicate that to our customers, the top of funnel and the interest is strong. We're seeing early trends in Q2 that give us confidence that this is something that we are going to be able to do. The guide that I provided in Q2 is reflective of the lag as we purchased those homes, renovate them and then we sell them, as well as the Q1, kind of overperformance. But we're very confident that we have a compelling offer that high-buying is something customers want even in this market. And the early signs give us confidence that we can continue to grow and scale this business. So hopefully that helps.

[Rich Barton:]

Before I -- let me editorialize on that just a little bit that the risk of keeping this issue open. Allen, the unit economics, the margins that we're earning on a unit basis right now are, not what our goal is? I'll just reiterate that. We want this and know this can be a giant business. And it's only going to be a giant business when the pricing is perceived to be fair to consumers. So it's not our goal, to have 549 basis points or whatever it is we just printed on a unit basis. No, it's slightly better than last quarter. In other words, it's lower. But what we're aiming to do is to provide a fair offer and charge a fair fee to our customers. And thus we believe we maximize the TAM, we maximize the number of transactions we can touch and participate in. And we have the ability to sell a bunch of adjacent services around those transactions. So it's worth pausing there for a sec. All right. On the listings, question, yes, listings are really, really skinny, inventories really, really low. I think I said this last quarter, it's kind of like the flight attendant on the airplane when she says even though the airbag does not appear to inflate the oxygen will flow. That is what's happening clearly in the market volumes are up, price appreciation is way up to but homes are just moving really, really fast. And so, we like to see a market where lots of activity is happening. We see offline to online shifts happening. We see demographic shifts happening. We see great reshuffling things happening all to put wind in the sails of our pa business and our business indeed overall.

[Ygal Arounian:]

Thanks guys. I think a real quick follow up on Zillow Offers, would it be wrong to characterize that maybe you're slowing your purchases or being more cautious on your purchases based on what's going on with HPA.

[Rich Barton:]

Risk is always an important component of pricing, of course and forecast of home price appreciation is a very important part of pricing as well. And needless to say, we're in a really -- just in a really fluid environment on that and we're learning really quickly so.

[Operator:]

Our next question comes from John Campbell with Stephens Inc.

[John Campbell:]

Congrats on the continued success. You guys have a couple of positive things kind of spinning up across the product set, obviously, but it feels like rentals just seems to kind of fly under the radar. You guys put up some good growth this quarter, last couple quarters of good growth. Just curious about the drivers there and how much lift you seen from kind of a shift in the monetizing of the rentals. And then, maybe also the broader opportunity ahead for Zillow rental manager?

[Allen Parker:]

Yes. I mean, 46% year-over-year growth rate is fantastic. We're really pleased with our rentals business. It comes from and it's driven by a lot of the decisions we've made to invest in a fairly good streamline set of product innovations. And I think we're starting to see the benefit of some of those over the last few years that we've made. A lot of those are integrated services like one click applications, payments, listings and these services are all kind of coming together. In fact, as we talked about, Zillow, 2.0, getting closer to the transactions, I believe we're seeing that in the rental space. It's also assisted though by this continued strength in top of funnel and our large audience. And even some of the demographics we talked about on the housing market, the broader, the great reshuffling and these demographic trail wins are also helping our rentals business. So we're excited with the progress. The growth has been strong. And we're excited about the products and services that we're able to deliver both to our customers and to our property managers. I don't know, Rich, if you want to add anything.

[Rich Barton:]

No, that was completely great. Thanks, Allen.

[John Campbell:]

And then, one more follow up and appreciate the color, that's very helpful. On the IDX shift for you guys, Allen, I don't know if you've ever framed this up, because maybe help us understand kind of the offset on operating costs from the shift.

[Allen Parker:]

Yes. I guess what I'd say is, we're now taking feeds as we're MLS, there's some puts and takes across that there's I would say that we continue to invest to make that a great experience. And there is some costs that come with that. Whereas there's also some costs that are reduced from some of the other data acquisition costs that we may have had in the future. But it's not a big enough call, I think where we've disclosed one way or the other, what the savings are, what we really think it's a great customer experience. And it's just really consistent with our ability to have great information on the site and to provide a great experience to our customers. So that's the real win, I think on the IDX side.

[Brad Berning:]

Allen, I'll just jump in real quick and add, it was really Q3 of last year when we saw the largest net benefit. There's been other tangible benefits but there's been a clause to invest in the platform since then. So it's been in the expense restructure for a couple quarters already.

[Operator:]

Our next question comes from Mark Mahaney with Evercore ISI.

[Mark Mahaney:]

Two questions. Just talk through the EBITDA margins in the mortgages segment. And I'm sorry, if you touched on this before, seemed like they picked on a little bit, not assuming anything material, but just talk through that. And then, getting back to the unit economics on the homes business, so it sounds like that you want to run this business with those, I forget what you call them, the rail guards, whatever it is, plus 200 minus 200. And the strategy, Rich, I think is you extract economics from this, then to take those economics and bring them down to the guardrail. So that long-term, you can bring down commissions. And so you can expand TAMs and just feed this beast. So that's my understanding of the flywheel. Now there are scale advantages as you do more and more of this, where did the scale advantages most show up in terms of bringing those costs down as a percentage of revenue? And maybe that's really the question I'm asking here is, as you get more and more experience and more and more scale in homes business, where are you seeing and where you think the most leverage is going to come from in the expense line items that's going to allow you to get past more of those savings back to the consumer and feed that flywheel.

[Rich Barton:]

Hey, Mark, nice to see a brand new analyst from Evercore here on the call with us today. Congrats on the new job. I think Allen maybe start with the ZO margin question and then we can both tackle the –

[Allen Parker:]

Yes. I do mortgage, I'll start ZO and you can jump on. So Mark, thanks for the question. On mortgage, EBITDA margin what we see and what's reflected in the guide is that a significant portion of the revenue downtick in our guide compared to Q1 is related to the gain on sales spreads in our guidance. And so that kind of falls through we still are very excited about the platform we're building and we're continuing to build the factory. And so when you see that downtick, it has an effect, that kind of falls straight through the EBITDA versus Q1 performance. And so that's what's driving the majority of that downtick Q1 to Q2 on the mortgage margin rates. And on ZO, sorry, I think you hit it right on the head, what I'd say is, we still provided long-term targets, of 400, 500 basis points return before interest, but current period and in near term, our guidance that we provided is no -- this plus or minus 200 basis points because of the size of the opportunity and because it's important to get out there and provide a great experience as we learn. We're willing to invest in as plus or minus 200 as we learn the business. I'd say we see opportunities across all areas, we have improved 280 basis points, primarily across renovations and selling costs versus last year. You can imagine renovations, as you have more density in the area for your renovations. And as you get better and smarter about what needs to be done and what the customer is willing to pay for. Who is repurchasing the home that you'll see benefits in that area, right now is about 3% costs of revenue. Holding costs are reflected with a lot of things but there are definitely many things we can do to improve that's a relatively small cost. And then selling costs over time as we as we grow Zillow brokerage services. And as we reduce through automation and technology, some of these non-value added costs that currently happen in the world today, we expect that number to come down. And we expect acquisition costs to be to be reflective of a fair offer, as Rich mentioned, but solid cost structure. Our decision to be plus or minus 200 basis points is reflective of us reinvesting any improvements we make right now to be at this plus or minus 200, because of the size of the opportunity. And as we've mentioned several times, the fact that we're 549 is just saying that we're still working, you know, to catch up.

[Rich Barton:]

At the scale we are right now, thank you for clarifying what I said Allen, I didn't mean to imply we didn't want to make money natively off this business. But we are subscale dramatically subscale right now in our estimation and while we are scaling it, we're targeting this plus or minus 200. So anyway, thanks. Thanks for clarifying. And you have the flywheel right. That's the flywheel that we're making. We also bet in addition to the leverage, we see on the three line items Allen was talking about, we see leverage on customer acquisition costs, because we have a much cheaper customer funnel. The zestimate offer being just like the perfect characterization of that people come look at the zestimates and if more and more customers know that zestimate is alive, initial offer for their home, we are more likely to get first crack at them. Now the challenge is making sure that people even know Zillow Offers exists and what it is and is there a trick? Is it too good to be true and education and marketing? So we're in that early phase of doing that right now Mark.

[Operator:]

Our next question comes from Maria Ripps with Canaccord.

[Maria Ripps:]

I just wanted to follow up on the PA revenue growth, seems like a lot of strength there, can you maybe comment on how flex is performing relative to your core key business in this current strong environment. And are you able to share with us any color on how you are thinking about extending flex beyond your current market. And if so, sort of what determines what markets are suitable for this revenue model. And then I have a quick follow up.

[Allen Parker:]

Yes. Thanks, Maria. This is Allen. What I'd say is, our revenue growth in Q1 of 38% and compared to that underlying growth statistics, I gave a 27 in Q4 of 2020 and 20% in 3Q, obviously accelerating. There aren't any significant, there are no changes in revenue accounting or revenue recognition to call out in Q1. So that is the underlying growth rate and we've talked about the guide of 38%, adjusted in Q2 at the midpoint. That is a combination of both MVP and flex programs working together as two monetization tools that we have and they're both performing well. And again, if you go to the inputs of improving CSAT, driving more and more of our customers through our connections program and delivering high intent customers to high performing agents, those are all things -- the input dials that we're driving go across both flex and our MVP model and we're seeing results. We are continuing to look at and we expect to increase the flex representation across our pool. There's not any particular market, it requires us understanding and identifying agents that are willing to grow with us. And so, there's not really any particular attribute to call out or metric to give I think our growth rate is reflected last optimizing the process, the monetization models we have available and the inputs that we're driving around the customer and customer experience to help close transactions.

[Maria Ripps:]

Got it. That's very helpful. Thank you. And as a quick follow up on sort of adjacent services opportunity, especially around home insurance. Can you maybe just talk about how you thinking about -- potential to bring this sort of additional service to consumers within your platform. And any thoughts sort of around, though and after this opportunity on your own versus partnering with someone else in space?

[Rich Barton:]

Hey, Maria. This is Rich. We see lots of continued logical adjacency opportunities all around the transaction. We haven't targeted or begun talking about any additional ones other than the businesses we're in right now with mortgage titled escrow, etc. But we do obviously see other large adjacencies we're just going to knock things off one at a time and evaluate each additional one as the time calls for it. Thank you very much. One more maybe, Brad.

[Operator:]

Our last question today will come from Tom White with D.A. Davidson.

[Tom White:]

I'll ask just one and maybe a follow up on your comments about kind of your cost advantages in the offers business and the multiple opportunities you guys are kind of developing to sort of monetize customers that hopefully stick with you. Maybe I was just curious to hear your thoughts on like, your appetite for maybe increasing the prices of the homes that you're going after anytime soon, as a way to maybe increase your TAM.

[Rich Barton:]

Hey, Tom. Thanks for the question. We are constantly experimenting on a market-by-market basis with the buy box and what works and what doesn't. And we have lots of data streaming in not as much as I would like, I'd like it to be even bigger. If you step back and look at the overall number of transactions we've conducted here, it's still relatively low. So we want to get that up, keep the learning machine going and get the buy box as broad as we possibly can and as many markets as we possibly can.

[Tom White:]

All right. Thanks guys. Congrats on a nice quarter.

[Operator:]

This concludes our question-and-answer session. I'd like to turn the call back over to Rich Barton for any closing remarks.

[Rich Barton:]

Thank you very much and thank you all for your time today. We're really grateful to have you along for the journey. And we look forward to speaking with you again next quarter, if not sooner, talk to you soon.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.