Zillow Group, Inc. Class C
Q3 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zillow Group Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, today's conference maybe recorded. I would like to introduce your host for today's conference Mr. Raymond Jones. Sir, please go ahead.

[Raymond Jones:]

Thank you. Good afternoon, and welcome to Zillow Group's third quarter 2015 earnings conference call. Joining me today to talk about our results are Spencer Rascoff, Chief Executive Officer, and Kathleen Philips, Chief Financial Officer. During the call, we will make forward-looking statements regarding future financial performance and events. Although, we believe the expectations reflected in the forward-looking statements are reasonable, we can't guarantee these results, and actual results may differ materially. We caution you to consider the risk factors in our SEC filings, which could cause actual results to differ materially from those in the forward-looking statements made in the press release and on this call. The date of this call is November 3, 2015, and forward-looking statements made today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will discuss GAAP and non-GAAP measures. We will also discuss results on both a reported and pro forma basis. Reported results were prepared in accordance with GAAP. For comparative purposes, pro forma results assume the February 2015 acquisition of Trulia occurred on January 1, 2014, and reflect certain adjustments and exclusions described in our SEC filings. We encourage you to read our press release, as it contains important information about our reported and pro forma results, including reconciliation of non-GAAP financial measures. In our remarks, the non-GAAP financial measure adjusted EBITDA is referred to as EBITDA, which excludes other income, depreciation and amortization expense, share-based compensation expense, acquisition-related costs, restructuring costs, loss on divestiture of business, interest expense, and income tax benefit. This call is being broadcast on the Internet and is available on the Investor Relations section of the Zillow Group website. A recording will be available after 8

[Spencer M. Rascoff:]

Thank you for joining us today on our Q3 call. I'll start with some highlights from the quarter and then talk about our long-term strategy. Then Kathleen will take us through a deeper dive on our financials. We'll then open the call up to questions. The third quarter was a remarkable one for Zillow Group. In August, we completed our most ambitious undertaking to date. We finished the final phase of our Trulia integration, four months ahead of schedule, and launched our unified Premier Agent advertising platform. More on that in a moment. Even as we transitioned our agent ad platform during the quarter, our financial results were solid. Revenue for the third quarter was nearly $177 million and at the high end of our outlook. Our Premier Agent revenue grew 25% year-over-year in-line with our outlook, and our mortgages, rentals and New York City marketplaces all grew revenue even faster. Looking at the top of the funnel traffic across our portfolio, our seasonal traffic peak hit nearly 150 million unique users in the month of July. We now have around 60% market share of unique users across mobile and web in the category according to comScore. And more importantly, on mobile, Zillow Group brands get around 70% of all mobile-exclusive users in the category. Moreover, our two largest brands, Zillow and Trulia, each grew leads to agents faster than their top of the funnel traffic stats, and Zillow Group combined grew leads to Premier Agents 36% year-over-year in Q3. We're also off to a strong start in Q4, with October leads to Premier Agents up 37% year-over-year, and Trulia has leads to Premier Agents particularly strong over the last few weeks. On the last earnings call, I said there was uncertainty going into the ad product integrations, but that we were well prepared. We also baked that into our outlook for Q3, and I'm pleased to report that our preparation and execution mitigated those potential risks. As a result, we recorded a significant beat on EBITDA, which Kathleen will elaborate on shortly. As a result of the strong Q3 results, we're updating our full year 2015 estimates. We now expect $675 million to $680 million in revenue, which is in line with last quarter's guidance, excluding Market Leader in the fourth quarter, and $95 million to $100 million in EBITDA, which is an increase over last quarter's guidance of $85 million to $90 million. Revenue is tracking right where we expected it to be, and we're ahead on EBITDA. These numbers include our estimate of DotLoop's revenue from the date of the acquisition's closing on August 20 through the end of 2015, and now exclude Market Leader's fourth quarter revenue since it sold on September 30. It also includes Trulia for the full year 2015. Turning to our Premier Agent business, we had a very successful annual event with 1,000 of our top Premier Agent advertisers in Las Vegas where we announced a brand new free Premier Agent mobile app to a very warm reception. The new app will help agents convert their Zillow Group leads into transactions more efficiently. This Premier Agent branded CRM is in addition to our more than 50 CRM partners who participate in our Zillow Tech Connect program, which sends Zillow Group leads directly into agents' CRM of choice. The Premier Agent forum was energizing and inspiring, as it was clear on social media from the many posts by Premier Agents on Twitter, Instagram and Facebook. It was similar to last year's successful event, but there was one big difference. The number of high-performing agents who have built big businesses on top of the Zillow Group platform has grown immensely. These agents understand and embrace technology, lead conversion, reputation management and online marketing; and they have put Zillow Group in the center of their business plans for local market leadership. We're continuing to focus on growing revenue from these high producing agents, and not from increasing the overall number of advertisers. These higher-spending agents typically deliver better service to consumers, and we prioritize the sale of ad impressions to them. We anticipate these highly productive agents will continue to increase their spend with us to grow their business and grow their market share in their respective cities. In line with this, we will continue to encourage lower performing agents to leave and resell their inventory to agents with higher ROI. This will reduce our number of advertisers and connect more home shoppers with better agents, and we expect this will reduce our sales and support costs over time as well. As I've said it many times, we do not manage our business to the metric of advertiser counts; we manage our business to total Premier Agent revenue, which is growing 25% year-over-year. We're in the midst now of our 2016 planning process and although it's early, we are targeting a higher total revenue growth rate in 2016 than the expected 2015 revenue growth rate of 18% including Market Leader, or 24% excluding Market Leader. We are also prioritizing revenue growth over margin expansion, given the huge TAM in agent advertising, rentals, mortgages, and New York City. Our largest business, agent advertising is still a very small fraction of what agents spend on total advertising, and we are investing very heavily in its growth. We will also continuing investing in product development and advertising for our consumer brands in 2016, along with growing awareness of our mortgages and rentals products. Over the past four years as a public company, we've evolved into the definitive category leader. By consolidating and rationalizing the category through the Trulia acquisition, and completing the integration quickly, we have entered the next phase of our evolution in a position of strength. We further enabled our team to focus on innovating and accelerating our growth, now untethered from factors that previously held us back. From accessing direct listings feeds with more than 350 MLS partners, to establishing the foundation for our brand portfolio strategy through our unified advertising platform, to focusing on attracting highly productive advertisers across our marketplaces and providing them with products to help drive increased conversion, we are more in control of our destiny now than ever before. Moving beyond integration, our strategic priorities remain the same

[Kathleen Philips:]

Thank you, Spencer, and hello to those who have joined us on today's earnings call. For comparative purposes, I will discuss year-over-year comparisons of our third quarter financial results on a pro forma basis unless otherwise noted, or the context otherwise requires. Next, I will provide our outlook for Q4, and for the full year 2015, and recap our 2016 preview. Finally, we'll open up the call for questions. As we get started, I would like to remind everyone that our pro forma results assume the close of Trulia occurred on January 1, 2014, and do not include the impact of acquisition-related costs and restructuring costs, in addition to certain other adjustments. Note that our GAAP and certain pro forma financial results, along with our pro forma comparisons, have been included in our third quarter 2015 financial results press release, which contains important information about how the pro formas were prepared. For the third quarter, our GAAP and pro forma financial results are similar, with the exception of net loss, which includes acquisition-related costs and restructuring costs on a GAAP basis, and excludes them on a pro forma basis. Now, let's dive into our results, starting with traffic. In the third quarter of 2015, as we completed the most challenging portion of the Trulia integration, we attracted over 142 million average monthly unique users to Zillow Group's mobile applications and websites, achieving a peak of nearly 150 million unique users in July. As a reminder, our unique user metric is a combined measure, reflecting traffic across all four of our consumer-facing brands

[Operator:]

Thank you. And our first question comes from the line of Dean Prissman with Morgan Stanley. Your line is open. Please go ahead.

[Dean J. Prissman:]

Thank you for taking my questions. So, I was wondering if you could comment on Trulia ad spend, more specifically as you've been reworking the platform and user experience, how would you prioritize spend on the brand and how are you thinking about this going forward? And then, separately, you know, I know a meaningful portion of the sales and marketing line relates to your salesforce. Since agent count is less of a driver going forward, how should we think about operating leverage with increasing sales productivity going forward?

[Spencer M. Rascoff:]

Thanks Dean. So, on the Trulia ad spend, per se, let me just remind everyone that we sell Zillow Group combined. So, when a real estate agent or a mortgage lender or a home builder or a rental property manager buys advertising, you can't buy Zillow or Trulia, you're buying Zillow Group and the combination of that audience scale was 60% to 70% share of a category, it's huge. So, that having been said, Trulia growth at the bottom of the funnel, leads to real estate agent is very strong, 30+% year-over-year. Top of the funnel is not growing as fast as we'd like, and we're working very hard on improving that, and I'm sure we will get it moving in the right direction. We are spending money right now, advertising the Trulia brand online. We don't breakout how much online advertising we do or offline advertising we do for that matter, across the brand that we are advertising the Trulia brand right now. But for us, it does start with products and there's a lot of hard work being done by the Trulia product teams to improve the user experience and reduce the ad load, which directly speaks to usability and to consumer satisfaction. So, it starts with product, it gets amplifies through PR, e-mail, and social, and SEO, and then, advertising is an important part of it, as well. On your second question around sales team productivity, if I can – let me try to understand the question. I think you're saying, so now that you've integrated the ad products and integrated the sales team, and you've got a couple of weeks under your belt, you have a better sense of what the right side for the Premier Agent sales team, rental sales team, mortgage sales team should be across the Zillow Group, now that it's representing both brands. The answer there – if that was the question – the answer there is there it's a little early to tell. We've only been selling on a joint basis for a handful of weeks now, so I don't have a good sense yet of what sort of steady-state sales team should be for any of our business lines now that we're selling on a combined basis. It does feel like – I mean we're already experiencing some of the synergies that we talked about from the merger and from that combined sales team. And so, we have – we're still growing the sales teams across the different business lines, but much more slowly than we would have individually. And remember, we did reduce the size of the sales team by over a 100 people at the time of the closing of the acquisition couple of months ago. So, I'll probably have a better read on salesforce productivity and kind of right-size salesforce efficiencies when we give full 2016 numbers in the New Year. Operator, next question please.

[Dean J. Prissman:]

Great. Thanks for the color.

[Spencer M. Rascoff:]

Thanks, Dean. Next question please.

[Operator:]

Our next question comes from the line of Ron Josey with JMP Securities. Your line is open. Please go ahead.

[Ron Victor Josey:]

Great. Thanks for taking the questions. Two please. So, first on just 2016. Spencer and Kathleen, you talked about accelerating revenue growth. Wondering what gives you confidence there? Is it newer ad products, greater share of wallet from the top producing agents like you're seeing today, that would be helpful and clearly we're looking at new products that you've launched like Premier Agent Assist, how does that factor in? And then secondly, with your comments on focusing on growth, not necessarily margin expansion. I want to understand little bit more on just your overall advertising spend, which maybe Dean, was talking about before, 3Q was another quarter we diverted spend out of 3Q into the quarter coming going forward. So wondering, you've got great traffic, you've got a very strong brand, understanding you've to continue to spend brand marketing, some dollars on brand marketing, what do you think the optimal spend going forward for advertising overall, maybe this year's $100 million budget is going to be a little too much? Thank you.

[Kathleen Philips:]

Great. Thank you, Ron. So, for 2016 revenue growth, you're correct in pointing out that one of the major reasons we have confidence in reacceleration of our growth is through the continued growth of our high spending agents. And we're very focused on that, and we believe that trend will continue. We're investing a lot in products and tools to make those agents even more effective and efficient and to create greater value in the advertising they purchase. Similarly, as we said we continue to see the trend of departing low ARPA agent spending less and being replaced by these higher spending agents. Further to that is that much of the distraction of the integration that had our focus through Q2 and Q3 has now disappeared and we can refocus our energy on the overall revenue growth of the business and we feel that we will be able to achieve significant efficiencies. We already have demonstrated that we've done that, obviously given these current results, but we're feeling good about 2016 in that regard. As for overall ad spend, it's hard to predict what the optimal number would be. Obviously, we love our category growth and that also gives us confidence to the 2016 revenue growth, but the way we look at ad spend and the reason that ad spend came in lower in both Q2 and Q3 than we expected is we're making an investment in both short and long-term growth of our audience. So we set our growth goals, and then moderate our advertising to make sure that we're realizing the benefits of both types of spend. There is not an immediate return on the spend, but we also don't want to invest in the long-term in a way that doesn't make sense when we look at ROI. So as for what next year will look like, stay tuned, and we'll fill in our thoughts on that in the New Year, but in the near-term, I hope that's helpful on how we think about it.

[Ron Victor Josey:]

Great. Thank you.

[Spencer M. Rascoff:]

And Ron, let me just – because it is so important to the conversation. Let me just give a little more color on 2016 revenue growth. So, I mean, rentals, mortgages, and StreetEasy are growing revenue quite a bit faster than we were talking about sort of them in the mid-20s%. And we've divested Market Leader which was shrinking and display is intentionally declining year-over-year because we keep diverting adjutants away from display and more towards marketplace, but total marketplace revenue is now almost 90% of revenue. So, then that leaves you with the big piece, which is of course Premier Agent. And there is something happening in the industry right now which is, we could feel it happening a year ago, but it feels like it's happening even more so now than ever before. I try to – it's pretty hard to communicate through numbers, but one stat was the $5,000 a month agent spends about $60,000 a month – sorry, $60,000 a year, that those types of agents are spending, that being up 57% year-over-year. I mean these are people that are putting $60,000 a year on their credit card, right. So, they are not really individual agents. They are forming teams, they are building businesses on Zillow Group, and it was very clear from our Las Vegas event that there is just many of those people than ever before. So, when you look at our strategy of doing more agent training, focusing on selling impressions, on basically churning, low performing agents to free up impressions for these top performing agents, building out our own CRM connecting to other CRMs, all these pieces are falling into place where we're helping these top agents to be even more successful. And it's a combination of all those things. The high growth rates of some of our emerging businesses, divesting of Market Leader and growing Premier Agent that gives us confidence. Thanks Ron. Operator, next question please.

[Operator:]

Thank you. Our next question comes from the line of Robert Peck with SunTrust. Your line is open. Please go ahead.

[Robert S. Peck:]

Hi. Just a few quick questions here. One is you talked about leads growing around 36%, even growing 37% in October. Could you give us how the cadence of has been and where you expect that to go? And then tied with that, could you give us an update on conversion rates and how that's been trending? And then just one follow-up.

[Spencer M. Rascoff:]

Sure. You know, it's really hard to know where that metric goes, because there are so many things that go into it, obviously it starts with traffic, but then we do so many different things on the site to try to improve that metric. I guess, with the way I look at it, Bob, I mean part of the conversation, is this has to tie to TAM. And let me combine your two questions, I guess, if you take a 3% to 5% conversion rate on those leads, we're probably responsible, for less than 5% of all the commission checks being earned in the U.S. So said another way, all the homes that sold yesterday, we were probably responsible for 3% to 5% of those agents finding those clients. So, in other words, I think that lead number can continue to grow a lot over the next five years or 10 years. And I'm not going to give guidance on that particular metric, but it still feels very early relative to where it can get to. On conversion rate, we historically told investors that although we don't know for sure what the conversion rate is, from a lead to a commission check, we've thought it was around 3%, I now think it's higher than that, probably closer to 5%. But again, we don't know for sure. The reasons that I think it's increasing are several fold. Firstly, the overall level of agent education on Internet lead conversion continues to increase as less tech-savvy agents leave the industry, and the types of agents that don't do a good job following-up Internet leads lose share. Secondly, we've made a very concerted effort to make sure that our impressions and therefore leads, get tilted in favor of the agents, with high conversion rate. Third, more and more agents are using some sort of a CRM through our Tech Connect program, and leads are going to a CRM, more likely to convert at a higher rate. Four, the growth in agent teams that allows for a faster follow-up on the leads, and better lead incubation. So, if an agent follows-up on a consumer right way, and the consumer is not available, the combination of software and a team approach kind of keep helps turn that sort of dead lead into an active lead down the road, and that's more likely to become a commission check as well. So, there are a lot of good tailwinds on driving that lead conversion rate, although it is hard for us to know exactly what it is, what the metric is.

[Robert S. Peck:]

And Spencer, really – sorry, go ahead.

[Spencer M. Rascoff:]

Go ahead, Bob.

[Robert S. Peck:]

I was going to say is, and if you can give us an update on the $100 million of synergies, given that you are moving faster and integrating quicker than maybe you'd previously expected. Is there an update on the $100 million number for 2016?

[Kathleen Philips:]

Yes. I mean, the update on it is that, we believe we have achieved what we set out to achieve with those synergies. And to put into perspective, where those cost avoidances and cost savings came from, they're primarily driven by the costs we would have incurred in running two separate brands. Trulia would have spent quite a lot of money on offline advertising and Zillow would have spent much more than we did. Similarly, we both would have spent a lot more on head count. So, the way we think about the $100 million in cost synergies is behind us. We've achieved the servings that we wanted to. And as we think about 2016, we're thinking about a clean slate with revenue growth faster than 2015, though we will continue to prioritize growth revenue over EBITDA margin expansion.

[Robert S. Peck:]

Thanks so much.

[Spencer M. Rascoff:]

Thanks, Bob. So, let's take a couple of questions from Twitter. All is sort of similarly themed. One is from @sedquis who asks how do the super agents feel about the accelerating 2016 price increases? And @sedquis also says, hey #ZEarnings, what happened to same agent ARPA growth? And (35

[Operator:]

Thank you. Our next question comes from the line of John Campbell with Stephens. Your line is open. Please go ahead.

[John Campbell:]

Hey, guys. Just, I mean it sounds like a lot of the profit beat this quarter came from I guess maybe structural cost take-out and just not necessarily tapering outspend, is that fair to say?

[Kathleen Philips:]

Yes.

[John Campbell:]

Okay. And then, with regard to the roll off of the Market Leader rev, how should we be thinking about the impact just total company gross margin, is that going to move the needle there?

[Kathleen Philips:]

The answer we have provided is still accurate, which for Q4 as you are thinking about the model, it was about $10 million in revenue, if that helps you.

[John Campbell:]

Yeah. That's helpful. Thank you.

[Spencer M. Rascoff:]

Next question please.

[Operator:]

And our next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is open, please go ahead.

[Mark S. Mahaney:]

Thanks. If I could try to get off three questions. First, Spencer, how long do you think this transition will take, a way towards the higher quality, higher spend advertisers? Secondly, Kathleen in terms of this, kind of your margin comments for next year, with kind of mid-20s% revenue growth, you could do a lot with margins and I understand a lot of that selective, just can you put any more fine color, because you've done around the revenue, but what margins, do you want to run margins kind of flattish 15% to 16%? And then finally, just a square one point up. If the leads are going 37% year-over-year, really robust growth, but the real estate revenues are still robust, but they are only 27%. What's the give in between those two numbers? Why aren't those two numbers more similar? I'm trying to square that one. All right. Thanks a lot.

[Spencer M. Rascoff:]

Sure. Good questions, Mark. I'll take the first one, Kathleen will take the second and then I'll probably take the third. So, transition to higher ARPA agents is underway, I mean, you can see it in the ARPA growth year-over-year. You see it even more in the metrics around the top ARPA agents, the $5000 a month cohort, up 57% year-over-year. If you are in the field talking with our top-performing agents as I'm constantly, you feel that even more. This is the one of the single biggest leverage opportunities for us, as it relates to our revenue growth and to that extent, our EBITDA growth as well is cultivating more of these agents. We have many, many leads, and we need them to go to great agents that will convert them into a commission check at a 5%, 10%, 20% conversion rate. And I guess, I'll hit your third question at the same point, which is basically the answer comes out of my statement here, you're saying, well if leads are up 37%, and revenue is up – Premier Agent revenue is up 25% to 27% what's the delta? And the answer is obviously cost per lead is declining, because what we're doing is we're focused on sell-through and focused on increasing the number of leads that are going to top performing agents rather than increasing price. So if you just do the math around the implied cost per lead, and then you improve the conversion just even ever so slightly, you can see that the ROI for the typical Premier Agent mathematically has to be increasing. And so that is very deliberate, we are not taking price here, we are growing revenue share, we're growing wallet share, we're focused on creating these super agents and growing their business rather than reducing their ROI, we think that it's much more important for us to build up these super agents, and raise ARPAs than reduce ROI for them, at this stage. And then, Kathleen you want to talk about this his tech question?

[Kathleen Philips:]

Sure, going back to the 2016 outlook I mean, it's still early days in our planning process and as I am sure you can imagine we've just reached the end of this pretty massive integration and transition, so we are really just turning in earnest to 2016 planning right now. As we said, revenue growth we expect will be faster than in 2015 in terms of prioritizing revenue growth over EBITDA margin, now more than ever, we take a very long-term view of this business we've consolidated the category and we feel like, next year will be a terrific year for us to continue to build that foundation with higher revenue growth, but also continued investments that will pay dividends in the future. Beyond that, we don't have anything to share, but I will reiterate that we still are taking a long-term view of eventually 40% EBITDA margins, as we've guided before.

[Mark S. Mahaney:]

Thank you, Kathleen.

[Spencer M. Rascoff:]

Thanks, Mark. And operator, next question please.

[Operator:]

Thank you. Our next question comes from the line of Heath Terry with Goldman Sachs. Your line is open. Please go ahead.

[Heath Patrick Terry:]

Great. Spencer, just want to get a better sense as we look out to next year. The plans for traffic growth versus pricing that's embedded in that guidance for better growth next year – better revenue growth next year versus what we've seen this year. Can you give us a sense of how that breaks down? And I know you've touched on some of the other products that are being developed, how much is reliant on success in those products versus the core agent lead generation product?

[Spencer M. Rascoff:]

So, our segment that we think we can reaccelerate revenue growth above the 18% to 24% that we achieved in 2015, 18% including Market Leader, 24% excluding Market Leader, does not – it doesn't require the creation of any brand new, from the scratch, ad products in our Premier Agent business or any other business. So, we do have a number of things that – we always have a number of things that are in different stages of development, but it doesn't require any dramatic reinvention of the business model or (43

[Heath Patrick Terry:]

Great. Thanks.

[Spencer M. Rascoff:]

Thanks, Heath. Next question, operator, please.

[Operator:]

Our next question comes from the line of Mark May with Citi. Your line is open. Please go ahead.

[Mark A. May:]

Thanks. Most of mine have been answered, but just going back on the high performing agent topic, can you give us a sense – I'm sorry, if I missed this already of the total Premier Agents that you report? Kind of what portion of those fit the definition of this high performing agent that you're talking about? And for that group, I think – some of them are spending as much as $60,000 a year I believe you said. Can you give us a sense for that typical high spending agent about how many closed leads in a given year that they may be getting through Zillow today? Thanks.

[Kathleen Philips:]

Sure. So, we don't breakout the cohorts of the agent specifically. What we share about that is that they are growing and they're growing nicely. As we said, in terms of agent numbers that's 45% year-over-year and total spend is 57% year-over-year. In terms of side and closed transactions, we can only extrapolate that agents are behaving rationally, and when we look at the spend as a cohort of the 5,000 plus agents. Those agents likely are closing about 100 deals a year. And so, we think that there is still significant upside as they close more transactions, they'll continue to spend more, which is why we also are investing in tools to make that happen.

[Spencer M. Rascoff:]

DotLoop would be an example of that. So I mean, I had one of our – he is probably a $10,000 a month spend agent. I think he was from Kansas City. He told me at the Las Vegas Summit two weeks ago. He said, a good year for me, used to be five sides a year. This year, I'm on track to do 50 sides a year, 50 sides in 2015. The only reason I'm able to do 50 sides this year is because of the lead volume from Zillow and Trulia from Zillow Group and because I use DotLoop. And so, as I stand here today in Las Vegas I closed five deals yesterday from my iPhone using DotLoop which in the past I never could have done remotely. I would have had to be back in the office in order to close those deals. So, when I hear stories like that, I think, okay, copy paste. How do we extrapolate somebody like that, so that there are dozens of them in every major city in the country. And Mark, I don't have an update as how many agents I would put into that category, but certainly, 50, 100 plus sides a year is pretty common for top performing Premier Agents like that. Remember also, these agents are not sole practitioners, they're typically – they have an admin or transaction coordinator maybe three buyers agents to ten buyers agents, sometimes they have a listing agent or two and they are really small business owners that sit on top of the larger agent team and if they are spending $50,000 to a couple hundred thousand dollars a year with us on spend, they're business owners that have other expenses. So that's how to think about them not really as individual agents anymore.

[Kathleen Philips:]

And likewise because they have these team built up, they can continue to grow those teams as spend, as they are successful, they will grow their teams and will spend more because they are realizing significant ROI on their investment with us.

[Spencer M. Rascoff:]

Thanks, Mark. So I'll turn back to Twitter. Operator, there's a question from @11banthony, who asks about, what's happening in the housing sector. Housing sector is having quarter-over-quarter gains, prices are rising. So sort of what impact does that have on your business? So, the Trulia economist and Zillow economist estimate that home values are increasing, about 4% year-over-year, nationwide, there are certain parts of the country like San Francisco, and Dallas where home values are increasing double-digits because of very strong job growth, there are other parts of the country like Baltimore and Philadelphia where home values, are not increasing at all, because they have weaker job growth. The real story in housing right now is rent affordability, where the average American is spending 30% of their income on rent, and the historical average is 24%. And the reason for that is 10 million Americans, during the downturn, stopped being owners and started being renters. And there was not enough rental inventory available to meet that increased demand. And so, rents have spiked way up, I think in LA, the average renter is now spending more than 50% of their monthly income on rents, and in San Francisco I believe it is 47% the monthly income towards rent, those are unsustainably high portion of income to go towards rent, obviously, it's got to come out of other discretionary purchases or out of savings, or just out of somewhere. So, anyway that's what's happening in housing now, is the multifamily industry is scrambling to bring rental inventory online, and renter grappling with high rents. The impact for us – it, we don't have a direct read through from the housing, macro housing to Zillow Group results. We do well, when agents make money, and earn commissions, but frankly, agents, earn commission during upturns and during downturns. And so, – I wouldn't read too much into short-term macro housing trends, and their impact on our results. Next question from Twitter was from @jwan584 says that Zillow Group, could you address the prior question regarding long-term opportunity, given the focus on high spend agents only? I probably addressed that, I guess, I would just say there is a significant change underway, in the real estate industry, which Zillow Group is accelerating and that is this shift away from the part-time agents who dabbles and is a hobbyist to the professional real estate team leader who is a business owner and is uses software and embraces technology. And that trend – we are in the middle of that trend, we are helping catalyze that trend and we're the beneficiary of that trend. Eventually, most of the $60 billion in commissions will go to agents like that. And agents like that, tend to spend a lot of money advertising on Zillow Group. I'll do one more Twitter and then, back to the call. @_BDaws asks, how will DotLoop improve your analytics on agent productivity, conversion rates et cetera? It is true that DotLoop has productivity data kind of inside of the software, because it shows whether a lead becomes a transaction. That's not really why we acquired DotLoop, although that is interesting data to be sure. The real reason that we acquired DotLoop is to improve agents' efficiency and improve brokerages ability to track the success of their agents. So just as a story, I shared already of an agent being able to be much more productive than he ever could in the past, that is created and empowered by DotLoop and that's what it's all about. Okay. I think, we'll go back to the call please operator. Are there any questions on the call?

[Operator:]

And our next question comes from the line of Lloyd Walmsley with Deutsche Bank. Your line is open, please go ahead.

[Lloyd Walmsley:]

Thanks. It doesn't look like MAU is growing that fast on a year-over-year basis, but you're obviously driving more leads, can you just give us a sense for what you're doing on the end consumer level to get more leads out of per MAU particularly at Trulia where you are kind of no longer sending the same lead to multiple agents. And then, second question if I can, can you just give us a sense for how much the mortgage co-advertising is contributing to agent revenue? And kind of where penetration is? Where you think it can go? And is the RESPA or CFPB kind of investigations into this is – is this something that should be a concern? Or something that you think is not really an issue?

[Spencer M. Rascoff:]

Sure, Lloyd. I'll take the first one on basically lead per visitor. There are a lot of things going on sort of under the hood that drive a higher rate of leads per active user. There are million little things on the sides that you might or might not ever noticed, and on the mobile apps, part of it is certainly the shift of our users more towards mobile who are more transaction ready, part of it is that our listings quality is dramatically better than a year ago as we now have many, many cities around the country, with full beautiful, clean, crisp, timely MLS quality data, and that makes our e-mail and push notifications more accurate and it improves the home shopper experience and makes us more useful for home shopper and that generates more serious home shopper traffic which generate to more leads per user. Part of it is the constant A/B Testing, that we're doing across different brands, we now have four brands, the four great testbeds for innovation, where we can take the learning, something that we try in one brand, and see what it does to traffic conversion statistics, and then take it across multiple brands. On the Trulia brand in particular, the team has been focused on features like collaboration, which help home shopper, and her spouse, or friend, or partner, parent, real estate agent, collaborate while shopping and that's the type of power user feature that is terrific, which drives a higher rate of leads per unique user. So, there is lot of different of – a lot of different things driving the stats that I've been sharing.

[Kathleen Philips:]

And on your questions about to co-marketing, co-marketing with lenders and agents is a very small part of our business, a small contributor to ARPA revenue. Importantly though, we are not seeing lenders depart from this programs notwithstanding all of the discussions in the marketplace about the CFPB and the CFPB's recent pronouncements and actions. I can assure you that we work diligently to comply with all of the rules put forth by government agencies and of course, we monitor the CFPB and the things that they are saying and doing to make sure that we remain in compliance and to make sure that we understand how their activities relate to our business.

[Spencer M. Rascoff:]

Operator, I think we'll go back to the caller. We probably have one, maybe one more question for us.

[Operator:]

Our last question comes from the line of Michael Graham with Canaccord. Your line is open. Please go ahead.

[Michael Graham:]

Hey, thank you. Just first on the super agents. Can you comment on, do they tend to work for major brokers or independent brokers or for themselves and does that impact your relationship with the major brokers? And then, I just wanted to get an update on your revenue or activity focused on buy-side agents versus sell-side agents and some of the things you might be doing to accelerate the sell-side? Thanks.

[Spencer M. Rascoff:]

Sure. Thanks. There is no clear pattern on these top performing agents, in some cases, they're with branded brokerages and other cases, they're with independent brokerages and still other cases there, their own broker and so, it's not, there is no clear pattern. Regarding buy-side, sell-side. So, we sell, we have an ad product called Trulia Seller Ads, which sells listing leads, it sells very well, it still sold as a separate independent ad products, not integrated with Premier Agents, Zillow Group Premier Agent ad impressions, all three of our sales centers in Seattle, Denver and Irvine sell Trulia Seller Ads. We've made a number of changes to that ad product to make it better for the consumer and better for the agent. For example, the consumer lead on a listing inquiry – oh, sorry, on a sell-side inquiry, if you will, so what's my house worth type lead only goes to one agent now instead to multiple agents and we think that's beneficial for the consumer and for the real estate agent buying that potential listing lead. We have still more improvements to make to that product, nothing to announce at this time, but it's certainly an important business for us. I think, I've said, RJ, so I'll just wrap-up by saying, we said this it would be a risky quarter because of the ad product and team integrations, we did it, the results were better than expected and we're reaping the benefits of the combination of Zillow and Trulia and you see that in the $30 million EBITDA versus $20 million EBITDA in expectations and we couldn't be more excited as we approach 2016 and expanding our revenue growth rate in 2016. So, thank you for your questions, and for those that have other questions on Twitter, we'll now take this – take the rest of the call over Twitter where we will respond to other questions that were submitted there. Thanks very much, everybody.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a good day.