Zillow Group, Inc. Class A
Q2 2016 Earnings Call Transcript

Published: 7 Aug 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zillow Group Q2 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. RJ Jones, Vice President of Investor Relations. Sir, you may begin.

[RJ Jones:]

Thank you, good afternoon and welcome to Zillow Group’s second-quarter 2016 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. We caution you to consider the risk factors described in our SEC filings, which could cause actual results to differ materially from those in the forward-looking statements made on this call. The date off this call is August 4, 2016 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 the call, we will discuss GAAP and non-GAAP measures. We encourage you to read our earnings press release, as it contains important information about our reported and non-GAAP 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, interest expense, and income taxes. This call is being broadcast on the internet and is available on the Investor Relations section of the Zillow Group website, along with our earnings press release. A copy of management’s prepared remarks has already been posted to the quarterly results section of our Investor Relations website. A recording of the call will be available later today. Today we will open the call with prepared remarks. We will follow prepared remarks with live Q&A. During Q&A, we will answer questions via Twitter, and take questions from those dialed into the call. Individuals may submit questions by tweeting @ZillowGroup using #ZEarnings. I will now turn the call over to Spencer.

[Spencer Rascoff:]

Thank you for joining the call today to discuss our second-quarter 2016 financial results. Once again, Zillow Group delivered tremendous results, as we continued to build upon our momentum from the first half of the year. Total revenue for the quarter grew 31% year over year to a record of more than $208 million and came in at the high end of our guidance range. Premier Agent revenue of more than $147 million also came in at the high end of our outlook. GAAP net loss was $156.1 million and includes the impact of the $130-million litigation settlement and the $12.5 million in related legal costs. Excluding litigation settlement, Q2 EBITDA was $28.7 million, well ahead of our expectation. Toward the end of 2014, we said that 2015 would be a transition year for Zillow Group, as we focused on the creation of shared services across Zillow Group in areas such as sales and data management, as well as Trulia’s audience turnaround. As the calendar turned into 2016, we said that this year would be the year that we began to reap the benefits of merging our two companies. Six months into 2016, the acceleration in our business is strong and all of our marketplaces are performing at or above our expectation. We are on track to deliver 2016 year-over-year revenue growth of approximately 30%. With a solid foundation for growth in place, we are excited about the second half of 2016. We continue to focus on our four strategic priorities

[Kathleen Philips:]

Thank you, Spencer, and hello to everyone joining us on today’s call. Let’s dive into our financial results. Total revenue for the second quarter increased 22% year over year to a record of $208.4 million from $171.3 million in the same period last year. Excluding Market Leader from last year’s results, total revenue increased 31% year over year. Looking at our primary revenue category, marketplace revenue was $191.6 million, representing an increase of 32% year over year. Excluding Market Leader from last year’s results, marketplace revenue increased 44% year over year. Marketplace revenue now accounts for 92% of our total revenue as compared to 85% during the same period last year. As a reminder, our marketplace category includes Premier Agent, other real estate, and mortgages revenue. Zillow Group Premier Agent revenue increased 28% year over year to a record $147.1 million in the second quarter. The annualized run rate for our agent advertising business reached $586 million at the end of the quarter compared to $456 million at the same time last year. Our top agents and teams continued to realize the benefits of advertising on Zillow Group’s platform and are willing to spend more of their advertising budgets with us. We ended the quarter with 91,184 agent advertisers, in line with our expectations and relatively flat compared to the end of the first quarter of 2016. For the second quarter of 2016, average revenue per advertiser, or ARPA was $536, increasing 43% year over year. As a reminder, we will no longer report on the number of agent advertisers and ARPA beginning in 2017. Sales to same agent advertisers, or those who have been on our platform for more than one year, grew by more than 57% compared to the prior year. New sales to existing advertisers made up 70% of total bookings in the second quarter. Year-over-year growth of the agent advertiser cohort that spends more than $5,000 per month was 73% on a total dollar basis and 68% in advertiser count. Churn in this cohort continues to be minimal. We continue to support more agent teams, as well as independent broker agents represented by one account who buy advertising at much higher levels than the average. We are accelerating the larger trend across the real estate agent population of higher producing agents gaining market share from those who are less competitive. Second-quarter revenue for our other real estate sub category grew 254% year over year to $26.1 million. Other real estate revenue includes agent services, dotloop, StreetEasy, Naked Apartments, rentals, and other offerings to our endemic advertisers that are not traditional display advertising. Moving now to our mortgages marketplace, our revenue reached $18.4 million in the quarter, which represents a 77% increase year over year. Although the number of loan information requests decreased 49% year over year, average revenue per loa- information request increased 247% year over year. The decrease in the number of loan-information requests and corresponding increase in average revenue per loan information request was driven by our strategic decision to improve the quality of those requests by asking consumers to provide more details before a loan-information request is sent to a lender. These changes have increased consumer and advertiser adoption of mortgage advertising products that yield higher revenue. In our display category, revenue was $16.8 million, a decrease of approximately 35% over the same period last year and within our expectations. Our intentional shift from traditional display advertising revenue continues, as we focus on providing consumers with personalized experiences that lead to valuable connections for our marketplace advertisers. Moving now from revenue to our expenses. Total operating expenses were $363.7 million in the second quarter. Taking a closer look at our operating expenses by line item, our cost of revenue during the quarter was $17.2 million, or 8% of revenue. Sales and marketing expense was $99.3 million, or 48% of revenue. Our advertising investments for our brands were executed as planned, and were effective in growing our audience to record levels. Technology and development costs in the second quarter were $67.4 million, or 32% of revenue, which was higher than internal forecasts due primarily to lower-than-expected capitalized wages. General and administrative costs in the second quarter were $179.6 million, including the impact of a $130-million litigation settlement and $12.5 million in related legal costs. Moving on to our bottom line, GAAP net loss was $156.1 million, GAAP basic and diluted net loss per share was $0.87. Our EBITDA for the quarter was a loss of $101.3 million. Excluding the $130-million litigation settlement, EBITDA was $28.7 million, or 14% of revenue, and above our outlook range. Zillow Group ended the second quarter with 2,571 employees and over $421 million in cash and investments. Now turning to our Zillow Group outlook for the third-quarter and full-year 2016. I encourage you to review our press release that was issued this afternoon. It is available on our Investor Relations website and includes detailed Q3 and full-year 2016 guidance and related GAAP reconciliations. Third-quarter 2016 total revenue is expected to be in the range of $217 million to $222 million. Premier Agent revenue in the third quarter is expected to be in the range of $156 million to $158 million. Display revenue is expected to be in the range of $15 million to $16 million. EBITDA in the third quarter is expected to be in the range of $48 million to $53 million. For the full-year 2016, as Spencer noted, we are raising our revenue outlook by $5 million to a range of $830 million to $840 million. We are raising our Premier Agent revenue outlook for the year to be in the range of $597 million to $602 million. We also are raising our display revenue outlook to a range of $60 million to $62 million. EBITDA for the full-year 2016 is expected to be in the range of $125 million to $135 million. For illustrative purposes, this EBITDA outlook range excludes the impact of our $130 million June litigation settlement. As Spencer alluded to earlier, we avoided approximately $24 million of anticipated legal expenses due to this settlement; about half will flow through to EBITDA. We are investing the remaining half of the savings by accelerating allocations to talent acquisition, product development, initiatives in our emerging marketplaces, and advertising, with about three-quarters of the investment weighted toward hiring and product. We are taking advantage of long-term growth opportunities that we see for our business while also progressing toward our long-term targets of more than 40% EBITDA margin at scale. One final administrative item

[Operator:]

Thank you. [Operator Instructions] Our first question will come from Robert Peck from SunTrust. Your line is now open.

[Rodney Hull:]

Yes, good afternoon, Spencer and Kathleen. This is Rodney for Bob. I just wanted to address the issue on guidance and maybe the decision-making process around how much of the legal savings were decided to be passed through and maybe the gating factors in how you decided where to allocate those funds? And then perhaps taking that then out into the future, how should we think about that as it applies to your leverage going forward and reaching that ultimate 40% goal at scale? How should we think about those buckets of allocation of expenses going forward and maybe where the leverage will really come from? Thanks so much.

[Kathleen Philips:]

Great, thank you Rodney. As we looked at the anticipated savings from the legal expenses, we look at it through the lens we look at all investments, which is it’s early days and we’re in growth mode. As you know and as we say on every call, we continue to prioritize revenue growth over margins, and we want slow and steady growth on the margins while still aiming for the 40% target at scale. So we looked to see where we could make investments that we believed would pay dividends in the long term and those were talent, product development, new initiatives in our emerging marketplaces, and advertising. As we said, it was about half and half, at the end of the day, and we made this assessment in the same way that we always do. In terms of impact on the longer term, for next year, I think you can see us making these same tradeoffs between investing in long-term growth and slow and steady progress against the margin expansion.

[Operator:]

Thank you. Our next question comes from Mark Mahaney from RBC Capital. Your line is open.

[Mark Mahaney:]

Thanks. Spencer, a question for you in terms of thinking about where your brand awareness is now, how you think about the toggling your overall advertising brand spend. And do you feel like – I know that it’s something that’s been increasing focus in a ramp up of the Company over the last year. Do you want to keep it at these levels? Is there a reason to accelerate that brand spend? Any way you can quantify for us how much you think the brand awareness has improved over the last 12 months. Thanks a lot.

[Spencer Rascoff:]

Sure, thanks, Mark, good question. Brand awareness for Zillow brand has improved a lot since we started advertising, and a good proof point there is, of course, the Google trend stat that I cited where more people are searching Google for the Zillow than search for the term real estate. That having been said, we still think there’s a long way to go to get Zillow to the level of brand awareness that we aspire to, where at true household brand status on par with other tech giants like Netflix and Google, in terms of brand awareness. So we have a long way to go, and certainly, our other brands have an even longer way to go. In terms of how we think about what the right level of advertising is for overall Zillow Group or allocated to individual brands, as Kathleen mentioned, we really think about revenue growth and EBITDA margin expansion as two peas in a pod. So we try to solve for the sum of revenue growth and EBITDA margin. So for example, for full-year 2016 our guidance has around 30%-ish year-over-year revenue growth and around 16%-ish EBITDA margin. So that’s, call it 46% is the sum of those two. As we look towards 2017 and beyond, we are going to continue to try to increase the combination of those two. So it’s a tradeoff between revenue growth and EBITDA. We could have a lot higher margin but lower revenue growth; we could have higher revenue growth and lower margin, and we look at the two in concert with one another.

[Mark Mahaney:]

Thank you, Spencer.

[Spencer Rascoff:]

Next question please, operator?

[Operator:]

Thank you. Our next question comes from Michael Graham from Canaccord. Your line is now open.

[Michael Graham:]

Yes, thank you, quick clarification on that question. Just Spencer, did you mean to say like 46% is a good target for that or that you want that revenue growth plus EBITDA margin to expand over time? And then I also just wanted to ask about pricing for the inventory. Just wondering – I think over the long term we should see pricing go up on Zillow over time, and I’m just wondering where you think we are in that evolution?

[Spencer Rascoff:]

Sure. The sum of the two should go up. So in 2015 revenue growth was I think 24% year over year and EBITDA margin was 14%, so that’s 38% for the sum of the two. In 2016, the sum of those two is around 47%, so we’re focused on raising the combined sum of those two numbers, revenue growth and EBITDA margin. On pricing, this is a long-term opportunity for us. It’ still really early days; we’re helping agents form teams, scale their business, gain share, build bread in their local markets, and grow. And so, we’re priced on the Premier Agent business for adoption, and therefore we’re delivering, in most cases, outsized ROIs so that these agents can build their businesses. Meantime, we’re investing heavily in tools like dotloop and tools like our own PA app to improve their lead conversion. And as this marketplace matures over time and more successful agents are at greater scale, we’ll find ways for agents to still drive meaningful profit to themselves, even as our marketplace is much larger and more efficient.

[Michael Graham:]

Okay, thanks.

[Spencer Rascoff:]

Sure. Thanks, Mike, next question please?

[Operator:]

Thank you. Our next question comes from Ron Josey from JMP Securities. Your line is open.

[Ron Josey:]

Great, thanks for taking the question. Last quarter you talked about, I think your self-service products, launching your self-service products and the adoption of like the shopping cart. So I wanted to ask a little more about the rollout process. Maybe on a region-by-region basis, is it aligned to your salesforce and any early learning from this self-service process? I think it’s still early days. And then really how it sets the stage for 2017, thanks.

[Kathleen Philips:]

Yes, thanks, Ron. You’re right, it’s still early days. We approach things like the shopping cart and pricing and all of our other product initiatives, whether they be designed for consumers or agents, in an iterative way and we learn along the way. We don’t have anything to report at this time about the rollout of self-service or any related initiatives. But as Spencer just highlighted, we are well positioned to continue to help agents to grow their business and they can increase their profits, which we believe ultimately will increase our revenue. For 2017, I think you can expect more of the same in terms of the continuing evolution of pricing and all of our other products. We continue to invest heavily in all of these development efforts, as we still view our business as early days in growth mode.

[Ron Josey:]

That makes perfect sense and maybe I can follow-up with, to Michael’s question on pricing. I think you talked about we were seeing tremendous growth in ARPA. I just want to ask if you can highlight or give some sort of sense on Premier Agent adoption of newer products like the pack or the foreclosures tools, just to maybe have a better understanding of perhaps what’s driving pricing higher. Is it the new products that you’re launching? Thanks, guys.

[Kathleen Philips:]

I would say that the primary driver of increasing ARPA, at this point, is the team-agent dynamic that we talk about. And essentially, the best characterization of that is we have teams of agents who simply buy more because they are building teams, creating leverage, and increasing their own profits, so they’re willing to invest more. We think this is an exceptional foundation moving forward, as we continue to develop products for them, give them more visibility into where their leads are coming from, greater ability to increase the velocity of their closings and make more commission. And from there, we think ultimately, that scale will yield great revenue for us.

[Spencer Rascoff:]

Ron, just to add our ARPA growth is not coming from ancillary product. It’s coming from the changing composition of our advertiser base.

[Kathleen Philips:]

Right sorry. I skipped that.

[Spencer Rascoff:]

And next question I’ll take from Twitter. Neil Doshi cleverly skips the conference line queue by coming in through Twitter with his Yoda avatar. On Twitter, he writes, if a broker can’t handle leads, he might give those leads to another broker. If the broker makes the sale, he then shares the commission with the original referring broker. So there seems to be a big market on broker referrals. Will ZG potentially move more into this market? Neil is right; that definitely a dynamic is agents by impressions from us generate leads, and then either refer those leads out to agents on their team or agents in their office or other agents that they have some sort of a partnership with. We welcome that dynamic. We think that the consumer actually gets a high level of service and response in situations like that, because the referring agent is highly motivated to make sure that it’s handled by somebody that will treat the consumer well. And so yes, that certainly happens and we welcome that. Next question, operator, from the call please?

[Operator:]

Our next question comes from Brian Nowak from Morgan Stanley.

[Brian Nowak:]

I think I was trying to tweet it in. Question is on lead growth. How should we think about, Spencer, your comments on lead growth normalizing? Can you just talk to the pace of deceleration that you expect throughout the back half of the year. And it looks like leads per unique visitor were down a little bit year on year on the first quarter. Just talk on the second quarter, just talk about some of the drivers you’re seeing to get the leads per UB up over time, thanks.

[Spencer Rascoff:]

Sure. The point I was trying to make on the script is that you’ve seen two or three quarters of exceptionally high year-over-year lead volumes in the 50% plus range. And that’s because of easier comps, comparing current lead volumes to relatively lower Trulia traffic numbers from a year or more ago. And now that we’re starting to lap tougher comps where Trulia traffic, starting next quarter for the traffic a year ago, was stronger, that makes the year over year lead volumes harder to comp to. So we desire for lead volumes to grow faster than traffic. I think unique to this quarter, we’re up 20% year over year. Leads were up 50% odd year over year, and so clearly, leads are growing faster than traffic. But the point I was trying to make is that they won’t grow that much faster than traffic going forward. The initiatives we do to try to improve leads per [indiscernible] are myriad, everything around product development, whether it be personalization or AB testing or our brand advertising campaign that positions Zillow or Trulia as a great place to shop for a home, or our improvements in listings quality, which mean that the listings are fresher and more accurate for home shoppers on the site. All of those initiatives and many more are focused on improving leads per unique user.

[Brian Nowak:]

Great, thank you.

[Spencer Rascoff:]

Sure. Thank you, Brian. Next question please, operator?

[Operator:]

Thank you. Our next question comes from John Campbell from Stephens Incorporated. Your line is open.

[Hayden Blair:]

Hi guys, this is Hayden Blair sitting in for John. So Project Upstream has lost some of its headline impact recently, but I know they’re still gathering their forces, so to speak. So does this Bridge Interactive acquisition provide an answer to some of the risk faced by that upstream movement, or is that more of a complementary technology to what they’re trying to do? Thanks for taking my question.

[Spencer Rascoff:]

Well, we don’t – upstream, we’re not affected by Upstream, at least at the present time. Upstream is still figuring out what it is and what it’s going to be, and I don’t suspect it will have much, if any, impact on us. So we’re just going about our business trying to solve the problems that face the industry. And there are significant problems that face agents and brokers around listings quality and listings security, and there are significant challenges faced by MLSs trying to assure that they have a role in the future real estate ecosystem. And Bridge helps address all of the problems facing those three constituencies, or many problems facing those three constituencies. So we’re excited about Bridge. It’s a very small Company, just to set the stage of – to manage expectations here around its potential impact. It has very powerful technology and solves a very important problem for listing agents, their brokers, and for MLSs. But it has very minimal adoption at the present time. So I’m excited about it, and we’ll see how – we’ll see what progress it makes over the next couple of quarters.

[Hayden Blair:]

Thanks, Spencer.

[Spencer Rascoff:]

Sure. Next question please, operator?

[Operator:]

Thank you. Our next question comes from Mark May from Citi. Your line is open.

[Mark May:]

Thanks a lot guys. Thanks for taking my questions. A follow-up on the one earlier on the lead volume growth commentary in the prepared remarks. Just wondering if you could give us a sense again of how much did the merger and integration benefit lead growth? And just trying to get a better sense of as we do comp those issues, how we should be thinking about the growth going forward. And then on the reinvesting side, I think you mentioned three-quarters of that is related to hiring and product development. Wondering, Spencer, if you could just comment a little bit on specifically some of the areas that you’re hiring and products that you’re developing or reinvesting in there. Thanks.

[Kathleen Philips:]

Great, so I’ll go ahead and take the first part of that on lead growth and the impacts that the Trulia merger had on lead growth, and then I’ll turn it back to Spencer. Obviously, we’re benefiting from the scale of Trulia and Zillow together. We are twice the size of our nearest competitor, and Spencer shared the nice share numbers that we have now with two out of three total online and four out of five mobile. So obviously with traffic growth comes lead growth. But the other thing that we’ve seen is that Trulia actually delivers a disproportionately high lead volume as compared to the Zillow brand. Their bottom of the funnel is the best among the portfolio, so we’re learning from them and benefiting from their awesome performance in terms of lead development and growth.

[Spencer Rascoff:]

And Mark, I started writing down some of the areas that we are investing in and I realized that I basically was writing down every part of the Company. So I’m not sure how helpful it will be, but here is how far I got. At the group level, so at Zillow Group, we’re investing in, for example, people in marketing, performance marketing, which we do cross-brand centrally. So we do our performance marketing for all brands at the group level. Premier Agent sales at the group level, rental sales team at the group level, mortgage sales at the group level. Product development at the Zillow brand level and the Trulia brand level. StreetEasy sales team, Naked Apartments sales team, Naked Apartments product development, dotloop product development and on and on. So it’s really across the board, no specific areas that I want to discuss in more detail right now. It’s pretty broad.

[Mark May:]

Thanks.

[Spencer Rascoff:]

Next question please.

[Operator:]

Thank you. Our next question comes from Lloyd Walmsley from Deutsche Bank. Your line is now open.

[Aki Aggarwal:]

Hi, this is Aki Aggarwal stepping in for Lloyd. Thanks for taking the question. So just wondering if you can talk about how you changed your segment piece of the business between display and marketplace. And anything you can do to quantify the impact or the magnitude of those changes? Thank you.

[Kathleen Philips:]

Yes, so as we’ve been saying I think going on now a couple of years, we’ve never viewed display as strategic to our business, and we feel actually pretty privileged that we’re in a place where we can deemphasize the display revenue in favor of other placements and other revenue sources across our portfolio of brands. We believe ultimately, this benefits the consumer, which is consistent with our mission all along. And we think it just is a far better long-term strategy. As we noted in the script, display revenue is now, I think, 8% of our total revenue, which is year over year down from I think about 15% the prior year, maybe even a little bit more. So things are going according to plan and we’re happy with the outcome.

[Aki Aggarwal:]

Okay, thank you.

[Spencer Rascoff:]

Next question please.

[Operator:]

Thank you. Our next question comes from Aaron Kessler from Raymond James. Your line is open.

[Aaron Kessler:]

Great, a couple questions. Just on the other real estate revenues, could you help us understand maybe the magnitude of the components there? Also, sequentially, I believe revenues were up about 45%. What was driving such a strong growth sequentially? Thank you.

[Kathleen Philips:]

Yes, so the components of the other revenue category, essentially it’s our emerging marketplaces, and we see a ton of strength there. As Spencer noted, taking the New York properties all together, StreetEasy, Naked Apartments, we’re seeing nearly 80% year-over-year growth there. Rentals is a part of that. Rentals we have the highest rentals traffic across the category, as well as 100% year-over-year growth. Other – and there are some other things in there. Dotloop remains a significant contributor to that, as well as some agent services and other non-display indemic advertising there. So in terms of magnitude, they are all nascent businesses, We see, as I said, a lot of strength in our rentals and New York City businesses, but we don’t break it down specifically.

[Aaron Kessler:]

Got it. Grear, thank you.

[Spencer Rascoff:]

Operator, I’ll take the next question from Twitter. Michael Strika asks is Zillow offering or considering offering homeowners ability to list their homes directory on ZG sites? We do, we always have. So homeowners can post their own listing, if they choose to, on the site, and some small portion of people do. The vast majority of our listings come from brokerage or MLS fees though, not from individual homeowners. We do also provide a lot of software tools, or I should say analytic tools, for homeowners to track how their listing is performing often the site, regardless of whether they post it themselves or whether their brokers, MLS, or their agent’s MLS posted it. And so we increasingly are letting homeowners track and take control of their listing’s performance on our sites. Operator, next question please?

[Operator:]

And our next question comes from Tom White from Macquarie. Your line is open.

[Tom White:]

Great, thanks for taking my question. I had one on the team dynamic that you guys are fostering there with the agents. And I jumped on a little late, so I hope I didn’t miss it. But any sense that you guys can provide or any work that you’ve done to indicate maybe how many agents that Premier Agent business is actually touching that might not be reflected in that paying subscriber number, which as you guys have said is more like number of credit cards you’ve charged. And then just any update on what inning you guys are at in terms of pruning off the lower caliber subs off the platform? Thanks.

[Spencer Rascoff:]

Hi Tom. Good questions, hard questions to answer. Not sure we know the answer to either of them. On the first one, which is teams, we don’t have good data on that, and it’s very hard for us to know. We did launch team profiles, and so now agents can associate themselves as part of a team. We haven’t released data on what – on how many of our subscribing Premier Agents are parts of teams. But even with the team profile features launched, it’s hard to know because of the other dynamic that we mentioned from Neil’s question about agents that refer leads to other agents. On the pruning of agents and making sure that only top agents are spending on the platform, it’s a continual work in process. Hard for me to put my finger on how far along it is. It’s been, we’ve been focused on it for two years, maybe three years, but we’re constantly trying to up-level the industry and train agents to be better at being great agents. So it’s probably something that’s never done; it’s a job that’s never complete, but we are a couple years into it. So I feel much better today about the consumer experience. When we deliver these approximately 4 million leads a quarter to agents, I feel that those 4 million people or those 4 million leads are being handled with much greater care than they were a couple of years ago. But hard for me to predict what that might look like two or three years from now.

[Tom White:]

Okay. Thank you.

[Spencer Rascoff:]

Thanks, Tom. Next question please, operator?

[Operator:]

Thank you. Our next question comes from Shyam Patil from SIG. Your line is open.

[Shyam Patil:]

Hi, thank you, guys. I had a couple questions. The first one, Spencer, is there any color you could provide on what percent of ZIP codes are sold out? And then for the agent team dynamic that you’re talking about, is that primarily in these sold-out ZIP codes or is it more broad-base? And then I have a follow-up.

[Spencer Rascoff:]

Hi Shyam, we don’t disclose what percent of ZIPs are sold out. But the team question is not related to that question. Agents – to be clear, agents have been joining teams for a lot longer than even Zillow Group has been around. So agents join teams for all sorts of reasons, one of which is to manage their work/life balance a little bit better so that they can have somebody on their team that’s always available to a client. But the Zillow Group business model of selling impressions in a given ZIP code and whether or not it’s sold out doesn’t have bearing on the team issue. Did you have another question, Shyam?

[Shyam Patil:]

One more. There’s been a lot of talk in the industry about a Broker Public Portal. Just wanted to get your thoughts on that and what impact it could potentially have.

[Spencer Rascoff:]

I don’t know much about it, haven’t heard much about it lately. It’s hard to build a tech company. It’s hard to build a tech company that attracts a massive audience through innovation. It’s even harder if it’s an industry consortium initiative. I think that I feel very good about our consumer audience and our collection of brands, and there will always be competitors existing and potential future competitors competing for audience. But I feel like we have a good advantage, a good corporate culture, and good audience lead that helps in inoculate us from competitors today and tomorrow.

[Shyam Patil:]

Great, thank you.

[Spencer Rascoff:]

Any other questions, operator?

[Operator:]

And I’m showing no further questions from our phone lines. I would now like to turn the conference back over to Spencer Rascoff for any closing remarks.

[Spencer Rascoff:]

All right, well, with that, I will thank you all for joining us today on the call and I look forward to giving you an update on our progress again in November. Thanks very much. Bye, bye.

[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 wonderful day.