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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
 
x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36853
 
 
ZILLOW GROUP, INC.
(Exact name of registrant as specified in its charter)
Washington
 
47-1645716
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
1301 Second Avenue, Floor 31,
Seattle, Washington
 
98101
(Address of principal executive offices)
 
(Zip code)
(206) 470-7000
@ZillowGroup
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Class A Common Stock, par value $0.0001 per share
 
The Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per share
 
The Nasdaq Global Select Market
(Title of each class)
 
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None

 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  x    No  ☐
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act:    Yes  ☐    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x

 
Accelerated filer
 
☐
 
 
 
 
 
 
 
Non-accelerated filer
 
☐  
 
Smaller reporting company
 
☐
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ☐    No  x
As of June 30, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant’s Class A common stock and Class C capital stock held by non-affiliates based upon the closing price of such shares on The Nasdaq Global Select Market on such date was $10,442,769,057.
As of February 15, 2019, 58,111,740 shares of the Registrant’s Class A common stock, 6,217,447 shares of Class B common stock and 140,268,416 shares of Class C capital stock were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated in this Report by reference to the Registrant’s definitive proxy statement relating to the 2019 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2018 fiscal year.
 

Table of Contents

ZILLOW GROUP, INC.
Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 2018
TABLE OF CONTENTS
 
 
 
Page
PART I
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
PART III
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
PART IV
 
 
 
Item 15.
Item 16.
 
 

Table of Contents

As used in this Annual Report on Form 10-K, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and “Business,” contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

2
Table of Contents

PART I
Item 1. Business.
Mission
Our mission is to build the largest, most trusted and vibrant home-related marketplace in the world.
Overview
Zillow Group, Inc. operates the largest portfolio of real estate and home-related brands on mobile and the web which focus on all stages of the home lifecycle: renting, buying, selling and financing. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes and connecting them with great real estate professionals. The Zillow Group portfolio of consumer brands includes Zillow, Trulia, Mortgage Lenders of America, StreetEasy, HotPads, Naked Apartments, RealEstate.com and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate, rental, and mortgage professionals maximize business opportunities and connect with millions of consumers. Beginning in April 2018, Zillow Offers provides homeowners in certain metropolitan areas with the opportunity to receive offers to purchase their home from Zillow. When Zillow buys a home, it makes certain repairs and lists the home for resale on the open market. In October 2018, we completed the acquisition of Mortgage Lenders of America, L.L.C. (“MLOA”), a licensed mortgage lender, through which we originate residential mortgages to consumers. Zillow Group operates a number of business brands for real estate, rental and mortgage professionals, including Mortech, dotloop, Bridge Interactive and New Home Feed. Zillow, Inc. was incorporated as a Washington corporation in December 2004, and we launched the initial version of our website, Zillow.com, in February 2006. Zillow Group, Inc. was incorporated as a Washington corporation in July 2014 in connection with our acquisition of Trulia. Upon the closing of the Trulia acquisition in February 2015, each of Zillow and Trulia became wholly owned subsidiaries of Zillow Group.
Our living database of approximately 110 million U.S. homes, including homes for sale, homes for rent and homes not currently on the market, attracts an active and vibrant community of users. Individuals and businesses that use Zillow’s mobile applications and websites have updated information on more than 80 million homes, creating exclusive home profiles not available anywhere else. These profiles include detailed information about homes, including property facts, listing information and purchase and sale data. We provide this information to our users where, when and how they want it, through our industry-leading mobile applications and websites. Using complex, proprietary automated valuation models, we provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 million U.S. homes.
For the year ended December 31, 2018, we generated revenue of $1,333.6 million, as compared to $1,076.8 million for the year ended December 31, 2017, an increase of 24%. We generate revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, rental and mortgage industries. We also generate revenue through the resale of homes on the open market through our Zillow Offers program which was announced in April of 2018, as well as through mortgage originations through our October 2018 acquisition of MLOA, a licensed mortgage lender.
As of the second quarter of 2018, Zillow Group had two reportable segments: the Internet, Media & Technology (“IMT”) segment, our historical operating and reportable segment, and the Homes segment. In our IMT segment, we generate revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, rental and mortgage industries. These professionals include real estate, rental and mortgage professionals and brand advertisers. The four revenue categories within our IMT segment are Premier Agent, Rentals, Mortgages and Other.
Premier Agent revenue is generated by the sale of advertising under our Premier Agent and Premier Broker programs, which offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising goals, while growing and managing their businesses and brands. We primarily offer our Premier Agent and Premier Broker advertising products on a cost per impression basis. Impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites. Rentals revenue primarily includes advertising sold to property managers and other rental professionals on a cost per lead, cost per click, cost per impression or cost per lease generated basis, and beginning in 2018, it includes revenue generated through our rental applications product. Rentals revenue also includes revenue generated through our StreetEasy products and services, which is primarily generated on a cost per listing basis. Mortgages revenue primarily includes advertising sold to mortgage lenders and other mortgage professionals on a cost

3
Table of Contents

per lead basis, including our Connect (formerly known as Long Form) and Custom Quote services, as well as revenue generated by Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform. Beginning in the fourth quarter of 2018, mortgages revenue also includes revenue generated from mortgage originations and the sale of mortgages on the secondary market through our acquisition of MLOA. Other revenue primarily includes revenue generated by new construction and display, as well as revenue from the sale of various other advertising and business software solutions and services and technology solutions for real estate professionals, including dotloop. New construction revenue primarily includes advertising services sold to home builders on a cost per residential community basis. Display revenue primarily consists of graphical mobile and web advertising sold to advertisers promoting their brands on our mobile applications and websites.
In our Homes segment, we generate revenue from the resale of homes on the open market through our Zillow Offers program. We began buying homes through the Zillow Offers program in April of 2018. We began selling homes in July of 2018.
On October 31, 2018, we completed the acquisition of MLOA, a licensed mortgage lender. This acquisition is consistent with our strategy of moving further down funnel and closer to the real estate transaction to create better consumer experiences. The total purchase price for the acquisition of MLOA was approximately $66.7 million in cash.
Beginning with the Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2019, Zillow Group expects to report financial results for three reportable segments: the IMT segment, the Homes segment and the Mortgages segment. The IMT segment will include the financial results for the Premier Agent, Rentals and new construction marketplaces, as well as dotloop, display and other advertising and business software solutions. The Homes segment will include the financial results from Zillow Group’s buying and selling of homes directly. The Mortgages segment will include the financial results for advertising sold to mortgage lenders and other mortgage professionals, mortgage originations through MLOA and the sale of mortgages on the secondary market, as well as Mortech mortgage software solutions. We expect the Mortgages segment, with the inclusion of MLOA, to have a material impact on our consolidated balance sheets, statements of operations and cash flows in 2019.
Portions of our business may be affected by seasonal fluctuations in the residential real estate market, advertising spending, and other factors. We believe our rapid growth may be masking the underlying seasonality of our business. As we continue to expand our Zillow Offers service, we expect seasonal variances may become more pronounced, causing our operating results to fluctuate. For example, costs and expenses typically peak in the three months ended June 30th, primarily attributable to increases in sales and marketing expenses which are, in turn, primarily attributable to increased investment in marketing and advertising initiatives to attract consumers across online and offline channels during peak seasons for home sales activity. For the year ended December 31, 2018, costs and expenses peaked in the three months ended September 30th, primarily attributable to the addition of our Homes business. In addition, the average number of unique users and visits have historically peaked during the three months ended June 30th or September 30th, also consistent with peak residential real estate activity in the spring and summer months. Because the number of unique users and visits may impact impression inventory, leads to real estate professionals, and graphical display inventory that we monetize, this trend in the average number of unique users and visits may result in seasonality of revenue. Also, as our Homes business revenue depends in part on users accessing our mobile applications and websites to engage in the sale and purchase of homes with Zillow Group on the open market, the impact of increased real estate activity in the spring and summer months may result in seasonality of revenue.
Industry Dynamics
The Importance of Homes
Homes are the center of peoples’ lives, the focus of some of their most important decisions and often their most valuable assets. In addition to whether to buy, sell or rent, consumers frequently make many other important home-related decisions, including decisions relating to home financing and home equity loans. Residential real estate is one of the largest sectors of the U.S. economy and supports millions of professionals that provide services related to home purchases and sales, rentals and home financings.
Large Market Opportunities
Based on external and internal assessments, we believe our current addressable markets include the following:

4
Table of Contents

Purchase and Sale—In the United States, there are 212.8 million people residing in owner-occupied housing, according to data published by the U.S. Census Bureau in November 2018. Approximately 34% of movers in 2018, or 10.9 million people, were homeowners, according to the U.S. Census Bureau migration data published in November 2018.
Sales of approximately 5.4 million existing and over 600 thousand new homes in the United States in 2018 had an aggregate transaction value of approximately $1.8 trillion, according to data published in 2018 by the U.S. Census Bureau and in 2019 by the National Association of REALTORS®. Estimated real estate commission revenue was approximately $87 billion in 2018, according to data from REAL Trends in 2017, and data published in 2018 by the U.S. Census Bureau, and in 2019 by the National Association of REALTORS®. In an effort to acquire new client relationships and sell homes, U.S. real estate agents and brokers will spend an estimated $8.3 billion on residential advertising in 2019, based on the most recent forecast from Borrell Associates released in 2019. In addition, U.S. real estate developers will spend an estimated $715 million on residential advertising in 2019, also based on the most recent forecast from Borrell Associates released in 2019.
Based on current purchase criteria, which considers home value, square footage, year built and other parameters, if Zillow Offers were available in the top 200 metro areas in the U.S., sellers of nearly half of the existing homes sold in 2018 across the entire nation, or approximately 2.7 million homes, would have been eligible to receive offers from Zillow to buy their home.
Home Financing—According to a forecast from the Mortgage Bankers Association published in January 2019, approximately 4.2 million U.S. residential mortgage purchase originations occurred in 2018 for a total value of $1.2 trillion. Based on quarterly performance data released by the Mortgage Bankers Association, estimated annual production revenue by purchase loan originators was approximately $44 billion in 2018. U.S. residential mortgage providers will spend approximately $7.1 billion in 2019 marketing their services and loan products to mortgage borrowers, based on the most recent forecast from Borrell Associates released in 2019.
Rentals—In the United States, there are 106.5 million people residing in rental housing units, according to data published by the U.S. Census Bureau in 2018. Approximately 66% of movers in 2018, or 21.4 million people, were renters, according to the U.S. Census Bureau migration data published in November 2018.
In the third quarter of 2018, there were approximately 46.8 million rental housing units in the United States, with a national vacancy rate of 7.1%, according to data published by the U.S. Census Bureau in October 2018. According to data published by the U.S. Census Bureau from the 2015 Rental Housing Finance Survey, approximately:
 
•
26.8% of rental units (12.5 million) are located in buildings with 50 or more units;
•
8.6% of rental units (4.0 million) are located in buildings with 25 to 49 units;
•
10.4% of rental units (4.9 million) are located in buildings with 5 to 24 units;
•
13.7% of rental units (6.4 million) are located in small multi-family structures of 2-4 units;
•
40.6% of rental units (19.0 million) are 1-unit structures.
According to an IBISWorld industry report on property management in the United States published in 2018, residential landlords spend an estimated $44.0 billion on property management services annually. Based on the most recent forecast from Borrell Associates released in 2019, U.S. rental property managers will spend an estimated $2.7 billion on advertising in 2019, which excludes lease concessions.
Highly Fragmented, Local and Complex Market
The market for residential real estate transactions and home-related services is highly fragmented, local and complex. Each home has unique characteristics, including location, value, size, style, age and condition. Each consumer approaches home-related transactions with a personal set of objectives, priorities and values. Real estate professionals generally operate in local markets, often as independent contractors with different experiences and skills. These conditions create challenges for consumers and real estate, rental and mortgage professionals alike. Consumers are challenged to find information about homes and to find real estate, rental and mortgage professionals who fit their individual needs. Real estate, rental and mortgage professionals are challenged to efficiently advertise their services and identify new clients, nurture those clients through to transactions, and to measure the effectiveness of their marketing efforts.
Preeminent Role of Mobile Devices in Lives of Consumers
Consumers are increasingly turning to mobile devices to access real estate information and services via the internet, as well as to complete transactions. With the widespread adoption of mobile and location-based technologies, consumers increasingly expect home-related information and the ability to transact to be available via their mobile devices where, when

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and how they want it. According to Comscore data published in December 2018, Zillow Group brands represent nearly three quarters of market share of all mobile exclusive visitors to the real estate category. More than two-thirds of our flagship brand Zillow’s usage occurs on a mobile device. We believe that the technological platform shift from desktop computers to mobile devices benefits technology leaders like Zillow Group that are quick to innovate.
Competitive Advantages
We believe we have the following competitive advantages:
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Powerful Brand and Scale. We have established a powerful brand identity that includes a portfolio of the largest and most vibrant brands, and we have built a large user community. The majority of our traffic comes direct, not dependent on search engines, with demonstrated consumer intent to visit Zillow Group’s brands. Traffic to Zillow Group brands’ mobile applications and websites reached a seasonal peak of more than 195 million monthly unique users in July 2018, an increase of 4% year over year. Visits to Zillow Group brands’ mobile applications and websites, including Zillow, Trulia, StreetEasy and RealEstate.com, increased 14% to 7,182.1 million for the year ended December 31, 2018 compared to the year ended December 31, 2017. For additional information regarding unique users and visits, see “Unique Users” and “Visits” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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Inimitable Database of Homes. Our living database of homes is the result of years of substantial investment, sophisticated economic and statistical analysis, complex data aggregation and millions of user contributions. Our dynamic and comprehensive living database includes detailed information on more than 110 million U.S. homes, and includes homes for sale by third party sellers, homes for sale owned by Zillow, homes for rent and recently sold, as well as properties not currently on the market. This database is central to the value we provide to consumers and real estate, rental and mortgage professionals. It contains extensive information that users can search, through an easy-to-use interface, to identify, analyze and compare homes. Our database is relevant to a broad range of users, including buyers, sellers, renters, homeowners, real estate agents and other real estate professionals. It includes information such as:
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Property facts: Zestimate and its corresponding value range, number of bedrooms, number of bathrooms, square footage, lot size, assessed tax value and property type such as single-family, condominium, apartment, multifamily, manufactured home or land.
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Listing information: price, price history and reductions, dollars per square foot, days on the market, listing type (such as for sale by agent, for sale by owner, pre-market inventory, which includes foreclosure, pre-foreclosure, Coming Soon and Make Me Move listings, new construction and rental homes), open houses, property photos and estimated monthly mortgage payment.
•
Purchase and sale data: prior sales information and recent sales nearby.
We synthesize data from hundreds of automated feeds, representing information from tens of thousands of public and private sources. Applying extensive computer analytics to the data, we transform it into information that is accessible, understandable and useful.
We refer to the database as “living” because the information is continually updated by the combination of our proprietary algorithms, synthesis of third-party data from hundreds of sources, and through improvements by us and, importantly, by our community of users. User-generated content from owners, agents and others enriches our database with photos, videos, and additional property information. Individuals and businesses that use Zillow’s mobile applications and websites have updated information on more than 80 million homes in our database, creating exclusive home profiles not available anywhere else. Our inimitable database enables us to create content, products and services not available anywhere else, and attracts an active, vibrant community of users. As of December 31, 2018, we had published more than 4.4 million reviews, including more than 3.7 million reviews of local real estate agents and approximately 649,000 reviews of mortgage professionals submitted by our users on Zillow.
•
Zestimates and Rent Zestimates. We have developed industry-leading automated home valuation models that use advanced statistical methods and complex, proprietary algorithms. We use these models to provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 million U.S. homes. Based on our Zestimates, we produce Zillow Home Value Indexes at the neighborhood, zip code, city, metropolitan statistical area, county and national levels. Our Zillow Home Value Indexes have been cited by

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government entities such as the Federal Reserve Bank and the Congressional Oversight Panel, university studies and respected national publications. For historical comparisons, we provide up to 15 years of Zestimate history on each home and valuable information about property and real estate market trends. Our Zestimates, Rent Zestimates and Zillow Home Value Indexes allow consumers to evaluate homes and neighborhoods, and to easily evaluate historical trends, as they contemplate critical home-related decisions.
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Mobile Leadership and Monetization. We have developed and operate the most popular suite of mobile real estate applications across all major platforms. For example, on our flagship Zillow brand, during December 2018, nearly 880 million homes, or 328 homes per second, were viewed on a mobile device. More than two-thirds of our flagship brand Zillow’s usage occurs on a mobile device. We operate one of the most popular suites of mobile real estate applications with more than fifty applications across all major mobile platforms. We monetize our marketplace business on our mobile platform in the same way we do on our web platform.
•
Independent Market Positions and Consumer Focus. Zillow Group has been built independent of any real estate industry group. We maintain an unwavering commitment to giving consumers free access to as much useful information as possible. We provide information, products and services, designed to empower consumers to make informed decisions about homes and the residential real estate market. We believe our independence enables us to create compelling products and services with broad consumer appeal.
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Multiple Robust Home-Related Marketplaces. We have created trusted and transparent marketplaces in real estate, rentals and mortgages where consumers can identify and connect with local professionals that are best suited to meet their needs. Our living database of homes provides a foundation on which we can build new consumer and professional marketplaces in other home-related categories.
•
Technology Solutions for Professionals. We offer a suite of marketing and technology solutions to help real estate, rental and mortgage professionals grow their businesses and personal brands including our Premier Agent app that allows real estate professionals to manage their business from wherever they are, dotloop that has digitized the real estate transaction, and Bridge Interactive which has streamlined listing data management.
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Consumer-Oriented Mortgage Marketplace. Unlike other sources of mortgage rate quotes, consumers can anonymously submit mortgage loan information requests and receive an unlimited number of personalized mortgage quotes directly from hundreds of consumer-rated lenders, including MLOA, through which we originate mortgages. Because we operate this marketplace as part of our real estate home shopping experience, we can efficiently attract motivated users to the marketplace and prioritize the consumer’s experience. For the year ended December 31, 2018, there were approximately 25.4 million mortgage loan information requests submitted on Zillow Group platforms by consumers.
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Personalized Experience. We present homebuyers and sellers and real estate, rental and mortgage professionals with many opportunities to personalize their Zillow Group experience, leading to more informed home shopping and financing decisions. As immediacy is paramount in the home search experience, all Zillow Group mobile applications and websites empower users by allowing them to set the criteria that matters most to them, while we take on the action of alerting them when a home or rental that matches their criteria hits the market.
•
Proven Management Team. We believe the broad experience and depth of our management team are distinct competitive advantages in the complex and evolving industry in which we compete. The Zillow Group management team has a mix of extensive experience building successful consumer internet companies and real estate and mortgages businesses. We believe the collective skills and experiences of our executives provide our management team with immense strategic insight and ability.
Growth Strategies
Our growth strategies are:
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Improve the Home-Related Transaction Experience for the Consumer. Maintain our unwavering focus on empowering consumers with information and products and services that they love to use to make home-related decisions. Develop seamless end-to-end technology offerings that meet the ever-changing expectations of today’s consumers in an on-demand economy, with a goal of earning consumers’ preference for Zillow Group products and services across all stages of the home lifecycle.

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Grow our Audience and Increase Engagement Across all Brands. Expand our targeted marketing and advertising programs, public relations, social media initiatives and content distribution to efficiently increase consumer awareness across all brands in our portfolio. Increase footprint via international expansion, as well as into local markets with new products and services. Launch new brands, products and services that target specific demographics or geographies.
•
Continuously Provide Growth Opportunities for Residential Real Estate Agents and Brokers, Home Builders, Rental Property Managers, and Mortgage Lenders. Provide real estate, rental and mortgage professionals participating in our marketplaces continuous opportunities to grow their respective businesses and increase transactions by creating opportunities for high-quality consumer-initiated connections. Support participating professionals by developing a broad variety of marketing software, technology solutions, productivity tools and other support services to help those professionals manage and grow their businesses and personal brands.
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Deepen and Expand Our Marketplaces Across the Lifecycle of Homes. Deepen and expand our platform beyond advertising services for real estate, rental and mortgage professionals through direct market participation, by purchasing homes from, selling homes to, and originating mortgages for consumers. In the future, develop other ancillary products and services to address friction in residential real estate transactions for consumers and industry professionals. Also, pursue commercial relationships and acquisitions to strengthen our market position, enhance our technology offerings and accelerate our growth.
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Leverage our Data Advantage. Enhance the information in our database of more than 110 million homes, and use it as the foundation for new analyses, insights and tools that inform strategic decisions. Our living database of homes provides a foundation on which we can build new consumer and professional marketplaces in other home-related categories. Our unmatched audience size and traffic pattern data also provides us with a competitive advantage.
Real Estate Products and Services
We provide advertising products and services for real estate, rental and mortgage professionals that enable them to create and promote useful content for consumers. Additionally, in 2018 we introduced new services to enable consumers to directly buy and sell homes through our Zillow Offers program and to help consumers finance real estate transactions through our acquisition of MLOA.
Premier Agent and Premier Broker Programs
Our Premier Agent and Premier Broker programs offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising goals, while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive access to a dashboard portal on our mobile application or website that provides individualized program performance analytics, our customer relationship management, or CRM, tool that captures detailed information about each contact made with a Premier Agent or Premier Broker through our mobile and web platforms and our account management tools.
We primarily offer our Premier Agent and Premier Broker advertising products on a cost per impression basis. Payment is received prior to the delivery of impressions. Impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites. We determine the cost per impression delivered in each zip code using an auction-based pricing method in consideration of the total amount spent by Premier Agents and Premier Brokers to purchase impressions in the zip code during the month. A Premier Agent’s or Premier Broker’s share of voice in a zip code is determined by their proportional monthly budgeted spend in that zip code as a percentage of the total monthly budgeted spend of all Premier Agents and Premier Brokers in that zip code. The cost per impression that we charge is dynamic - as demand for impressions in a zip code increases or decreases, the cost per impression in that zip code may be increased or decreased accordingly.
In April 2018, we began testing a new form of lead validation and distribution related to our auction-based pricing model whereby the share of voice purchased by Premier Agents and Premier Brokers represents both the share of impressions delivered as advertisements appearing on pages viewed by users of our mobile applications and websites, as well as the proportion of validated consumer connections a Premier Agent or Premier Broker receives. When consumers who are interested in connecting with a real estate professional do not select a specific Premier Agent or Premier Broker advertisement on one of Zillow Group’s mobile applications or websites, the validated consumer leads will be distributed to Premier Agents and Premier Brokers in proportion to their share of voice. We believe distributing validated consumer connection leads on the basis of share of voice creates better experiences for consumers and further strengthens our partnerships with real estate professionals. We substantially completed the nationwide adoption of this new lead distribution model in the fourth quarter of 2018.

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In October 2018, we began testing a new Flex Pricing model for Premier Broker and Premier Agent advertising services in limited markets. With the Flex Pricing model, Premier Brokers and Premier Agents are provided with validated leads at no upfront cost, and they pay a performance advertising fee only when a real estate transaction is closed with one of their leads.
Zillow Group Rentals
Zillow Group continues to develop its rental marketplace across mobile applications and websites, that serve both consumers and rental professionals. Zillow Group Rentals is the largest rental network on the internet and includes listing distribution across Zillow, Trulia and HotPads, reaching millions of rental shoppers each month. Zillow Group Rentals advertisers gain access to the leading technology and marketing platform that connects rental properties with consumer contacts and, beginning in 2018, to tools to effectively convert contacts into tenants, including through a rental applications product.
Mortgages
We offer two mortgage advertising products – Connect (formerly known as “Long Form”) and Custom Quotes. In Zillow Group’s Connect platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive contacts based on data such as location and customer reviews. In our Custom Quotes mortgage marketing platform, lending institutions display their mortgage rates directly to consumers who are shopping for refinance and purchase rates. In Custom Quotes, consumers request free, personalized quotes in response to their submission of limited anonymous data, such as specific loan amount, zip code, purchase price or estimated home value, and credit score. Consumers decide if and when to contact the mortgage professionals who provide quotes. For the year ended December 31, 2018, there were approximately 25.4 million mortgage loan information requests submitted on Zillow Group platforms by consumers through Connect and Custom Quotes. User-generated ratings and reviews of mortgage professionals are provided as a powerful tool to help consumers shop for their loans. Our Connect and Custom Quote services are operated by our wholly owned subsidiary, Zillow Group Marketplace, Inc. (formerly Zillow Group Mortgages, Inc.), a licensed mortgage broker, pursuant to a support services agreement.
In October 2018, we completed the acquisition of MLOA, a licensed mortgage lender. This acquisition is consistent with our strategy of moving further down funnel and closer to the real estate transaction to create better consumer experiences. Thus, beginning in the fourth quarter of 2018, Zillow’s suite of products now includes mortgage originations. This acquisition will allow Zillow to streamline and shorten the home-buying process for consumers who purchase homes through Zillow Offers.
Zillow Group New Construction
Zillow Group’s new construction marketing platform, Promoted Communities, allows home builders to showcase their available inventory to our millions of in-market home shoppers across the web. Promoted Communities continues to drive discoverability for home builders through dynamic listings of their available lots, plans, spec homes, and community details pages, while our Builder Boost products with Precision Targeting let home builders enhance their community’s presence on Zillow, Trulia and Facebook®. Zillow Group marketing partners also receive exclusive access to robust data and consumer insights to help them make informed marketing decisions.
Zillow Offers
In 2017, we began testing the Zillow Instant Offers marketplace, a way for homeowners to sell their homes quickly by providing them with offers from investors and a comparative market analysis from a local real estate agent as an estimate for what the home might fetch on the open market. Beginning in April 2018, Zillow discontinued the Instant Offers marketplace and launched the Zillow Offers service, which allows homeowners to either sell their home directly to Zillow or have Zillow connect them with a Premier Agent to assist in the sale of their home through a traditional listed transaction. If a homeowner accepts an offer from Zillow Offers, Zillow buys the house, makes certain repairs and updates, and then lists it for sale on the open market. The Zillow Offers service provides sellers with certainty, control, and convenience, allowing them to avoid the many complexities of a traditional residential sale process. As of December 31, 2018, Zillow Offers was buying and selling homes in 5 metropolitan areas across the U.S.
Information Products and Services
We provide consumers with information products and services to enable them to make intelligent decisions about homes.
Zestimates and Rent Zestimates
Our Zestimate and Rent Zestimate valuations are computed using complex, proprietary algorithms we have developed and refined through years of statistical analysis and technological development.

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A Zestimate is our estimated current market value of a home. We generate Zestimates using a variety of information, including:
 
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Physical attributes: location, lot size, square footage, number of bedrooms and bathrooms and many other details.
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Tax assessments: property tax information, actual property taxes paid, exceptions to tax assessments and other information provided in the tax assessors’ records.
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Prior and current transactions: actual sale prices over time of the home itself and comparable recent sales of nearby homes.
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User data: data provided directly by millions of users of our mobile applications and websites.
We use proprietary automated valuation models that apply advanced algorithms to analyze our data to identify relationships within a specific geographic area between home-related data and actual sales prices. We provide current home value estimates, or Zestimates, on approximately 100 million U.S. homes. Home characteristics, such as square footage, location or the number of bathrooms, are given different weights according to their influence on home sale prices in each specific geographic area over a specific period of time, resulting in a set of valuation rules, or models, that are applied to generate each home’s Zestimate.
To improve the accuracy of our Zestimates, our algorithms automatically remove or reconcile data that would otherwise inappropriately skew the valuation rules. In addition, our algorithms will automatically generate a new set of valuation rules based on the constantly changing universe of data included in our database. This allows us to provide timely home value information on a massive scale, updated daily. In 2017, we announced Zillow Prize, a machine learning competition to improve Zestimate accuracy, with a grand prize of up to $1 million to the person or team who submits the most improved Zestimate algorithm model, and in January 2019, we awarded the $1 million prize to the winning team, which beat the Zillow benchmark model by approximately 13%.
We publicly disclose the accuracy of our Zestimates to further empower consumers in assessing a home’s value. The accuracy may be impacted by a variety of factors, including the amount of data about homes we have for a particular geographic area.
A Rent Zestimate is our estimated current monthly rental price of a home, computed using automated valuation models, similar to our Zestimates, which we have designed to address the unique attributes of a rental home. We estimate rental prices on approximately 100 million homes, including apartments, single-family homes, condominiums and townhomes. Our Rent Zestimates are updated daily.
Rich, Searchable Home-Related Data and Analysis
We provide consumers and real estate professionals with a rich set of home-related information. Through our mobile applications and websites, users can access detailed information about homes, including:
 

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Value Information
 
Zestimate
 
Regional foreclosure statistics
 
 
Zestimate Forecasts
 
Prior sale prices
 
 
Rent Zestimate
 
Historical Zestimate values
 
 
For sale price
 
Historical Rent Zestimate values
 
 
Estimated mortgage payment
 
Zillow Home Value Index
 
 
Estimated down payment
 
Zillow Home Value Index Forecasts
 
 
Rental price
 
Tax-assessed value
 
 
Make Me Move price
 
Property taxes paid
 
 
Easy links to county assessor records
 
Price per square foot
 
 
Regional 12-month home value forecast
 
 
 
 
 
 
 
Home Details
 
Bedrooms
 
Number of stories
 
 
Bathrooms
 
Number of units in building
 
 
Square footage
 
Finished basement
 
 
Lot size
 
Cooling system
 
 
Year built
 
Heating system
 
 
Property type
 
Heat source
 
 
County
 
Fireplace
 
 
Parcel number
 
Exterior material
 
 
Legal description
 
Parking type
 
 
Construction quality
 
Garage size
 
 
Location
 
 
 
 
 
 
 
Neighborhood Information
 
School district
 
School ratings
 
 
Elementary school
 
Crime data
 
 
Middle school
 
Transit access
 
 
High school
 
Boundaries
 
 
Neighborhood and school reviews
 
Photos
 
 
Amenities
 
 
 
 
 
 
 
For Sale Listing Details
 
Price
 
Days on Zillow or Trulia
 
 
Listing agent information
 
MLS number
 
 
Listing brokerage information
 
Foreclosure stage and type
 
 
Link to listing source
 
Home overview description
 
 
Property type and property features
 
Neighborhood name and description
 
 
Open house dates and times
 
Coming Soon on market date
 
 
Virtual tour
 
Community information for newly
 
 
Video walkthroughs
 
constructed homes in developments
 
 
Home photos
 
Building name and information
 
 
Price reductions
 
3D tours
 
 
 
 
 
Rental Listing Details
 
Building name and number of stories
 
Property manager
 
 
Rent amount and lease terms
 
Parking availability
 
 
Application and deposit fees
 
Utilities and amenities
 
 
Historical rental listings
 
3D tours
Consumers and real estate professionals can update property information by, for example, adding home photos and personalized information regarding the neighborhood or school district, creating exclusive home profiles not available anywhere else.
Our map-based user interface enables our users to search, navigate and zoom to areas of interest and find and compare home information quickly and efficiently from a variety of different perspectives across homes, neighborhoods, cities, counties and other geographic regions. Our consumer search experience supports complex search queries and filters across our data set of homes, allowing consumers to customize their searches and gain actionable insights.

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Our team of economists and statisticians generates unbiased local and national real estate data and analysis on 933 metropolitan areas and approximately 15,000 individual neighborhoods that we provide to consumers and real estate, rental and mortgage professionals at no cost. This gives our users access to local market trends and data, such as home price cuts, list to sale price ratio and foreclosure data that was historically not easily obtained, if available at all. Users can compare these metrics across neighborhoods and different time periods using our real-time charting and filtering.
For Sale and Rental Listings
We provide comprehensive for sale and rental listings through relationships with real estate brokerages, real estate listings aggregators, multiple listing services, apartment management companies, home builders, and other third parties. In addition, we provide consumers with access to exclusive home listings, such as our Make Me Move listings, which are a homeowner’s posted price at which they would be willing to move. We also show listings that may not be available on other sources, including for sale by owner, pre-market inventory, including our Coming Soon listings, New Construction listings and rental listings as well as listings that are owned by Zillow through the Zillow Offers program and which are available for sale.
Marketplace of Real Estate Agents
We present consumers with ratings and contact information for the listing agent and local buyer’s agents alongside home profiles and listings for homes to assist them in evaluating and selecting the real estate agent best suited for them. We enhance this offering by providing an online professional directory for consumers to search and contact real estate professionals that they might wish to engage. Our directory includes rich profiles of real estate professionals, including more than 3.7 million ratings and reviews provided by our users, allowing consumers to evaluate these agents based on a number of criteria, including neighborhood specialization and number of listings.
Marketplace of Mortgage Professionals
In our mortgages marketplace, consumers can answer a series of questions to find a local lender, and mortgage professionals receive contacts based on data such as location and customer reviews, or consumers can anonymously request free, personalized mortgage quotes from consumer-rated-and-reviewed mortgage professionals. Consumers can then choose to contact those mortgage professionals at their discretion. For the year ended December 31, 2018, there were approximately 25.4 million mortgage loan information requests submitted on Zillow Group platforms by consumers. More than half of consumers who submit a loan information request do so on a mobile device. As of December 31, 2018, we had published approximately 649,000 reviews of mortgage professionals submitted by our consumers.
Mobile Access
We operate one of the most popular suites of mobile real estate applications with more than fifty applications across all major mobile platforms. Our mobile real estate applications provide consumers and real estate, rental and mortgage professionals with location-based access to many of our products and services, including Zestimates, Rent Zestimates, for sale and rental listings and extensive home-related data. Through our mobile applications, for example, a consumer can learn about the home’s for-sale price, Zestimate, number of bedrooms, square footage and past sales, as well as similar information about surrounding homes. The consumer can connect with a real estate professional through our mobile applications to get more information or schedule a showing. For example, on our flagship Zillow brand, during December 2018, nearly 880 million homes were viewed on a mobile device, which equates to 328 homes per second.
Marketing
We believe Zillow Group has considerable opportunity to increase brand awareness and grow traffic through product development, targeted advertising programs and strategic partnerships. As such, we opportunistically advertise to consumers and professionals in various online and offline channels that have tested well for us and pursue strategic partnerships that drive traffic and brand awareness for Zillow Group.
At Zillow Group, marketing begins with effective product development, which then becomes amplified by impactful brand advertising and marketing communications. We create immersive consumer products that people want to use frequently, talk about and share. More recently, we also began creating products that alleviate the stress of activities like selling or buying a home, such as Zillow Offers. The engaging nature of our products enables us to execute compelling advertising campaigns integrated with our robust and viral communications program, which together comprise the primary drivers of our brand awareness and traffic acquisition efforts.

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The communications team for our flagship Zillow brand includes former journalists who have established Zillow Group as an authoritative source for information on a broad range of home and real estate-related subjects. A typical week includes commentary from our real estate experts across dozens of national print and broadcast media outlets, guest opinion pieces or blog posts by our chief economists, and wide-ranging national and local media coverage of Zillow Group products, including Zillow Offers, listings, data and consumer tips.
In September 2018, we released the third annual Zillow Group Report on Consumer Housing Trends, which highlights our latest consumer research. The report has garnered the attention of media outlets such as the Wall Street Journal, New York Times, Fox Business, Associated Press and Money Magazine and serves to establish Zillow Group as the authority on residential real estate consumers and their needs, aspirations and challenges.
We focus substantial public relations effort around the marketing of our Zillow Real Estate Market Reports, which are in-depth reports produced by our economics and analytics bureau for 909 U.S. markets. Data is released on a monthly and quarterly basis, and the data is widely used by government entities such as the Federal Reserve and Congressional Oversight Panel, as well as regularly featured in respected media outlets such as the Wall Street Journal, New York Times, Bloomberg, Reuters and across numerous national network and cable news shows including CNBC, CNN, Fox News and Bloomberg. We believe the considerable effort we have spent on public relations and social media has allowed us to build large and credible brands.
Our living database of homes creates significant opportunities for home-ownership lifecycle marketing. A typical person will at various times in life be a renter, buyer, homeowner, mortgage refinancer or seller, and this presents opportunities to communicate with consumers over many years before, during and after a transaction. We actively communicate with our users through email and social media channels.
Sales, Consumer Care and Customer Support
Our sales teams are responsible for generating customers across our mobile applications and websites.
Our largest sales teams sell our Premier Agent and Premier Broker products to real estate agents, and are located in Seattle, Washington, Denver, Colorado, Irvine, California, and New York, New York. We also have sales teams in Seattle, Washington, Denver, Colorado, New York, New York, and Irvine, California that sell our rental products to rental professionals. In addition, we have sales teams in Seattle, Washington and Lincoln, Nebraska that support sales in our mortgage marketplaces. We also have sales teams in Seattle, Washington, Denver, Colorado, and San Francisco, California that sell our new construction marketing solutions. We attract customers through a combination of outbound calling and inbound customer requests generated from our websites and event marketing activities. We also maintain field sales teams in San Francisco, California and New York, New York to specifically target larger advertising customers in the real estate and related content categories, such as real estate brokerages, home builders, lenders and home service providers, as well as advertisers in the telecommunications, automotive, insurance and other industries. Beginning in October 2018, as a result of our acquisition of MLOA, we maintain a team of loan origination officers in Overland Park, Kansas that support sales of mortgage originations.
We believe that consumer care and customer support are important to our success. Our consumer care and customer support teams are located in Seattle, Washington and Denver, Colorado. Our customer support team responds to commercial and technical issues from our advertisers, and our consumer care team responds to consumer issues from our user community. In addition, our Zillow Offers consumer care team works with consumers during the home selling process as the main point of contact for consumers, helping coordinate a transaction between the consumer and the local agent representing Zillow, or providing Premier Agents with listing appointment opportunities. The Zillow Offers consumer care teams are located in Seattle, Washington, Denver, Colorado, Atlanta, Georgia, and Dallas, Texas.
Technology and Infrastructure
Zillow Group is a data- and technology-driven company. Our technical infrastructure, mobile applications and websites are built to provide consumers and real estate, rental and mortgage professionals with access to rich real estate data and powerful online tools to help them accomplish their home-related goals. Our success depends on our ability to innovate and enhance our products and services, adapt to changes in technology, and support new devices and operating systems.
Research and development costs are expensed as incurred and are recorded in technology and development expenses. For the years ended December 31, 2018, 2017 and 2016, expenses attributable to research and development for our business totaled $298.1 million, $193.0 million and $170.1 million, respectively. We expect to continue making significant investments in research and development as we explore new ways to deliver greater value to our consumer users and advertiser customers. For

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information about our research and development costs, see Note 2 of the accompanying notes to our consolidated financial statements included within this annual report.
Many of our services are available through real-time web-based application programming interfaces that allow our information to be easily integrated into third-party websites. We provide HTML and JavaScript-based widgets to allow easy integration of Zillow Group information onto other websites, with little custom programming. Our technology platform is built using industry-leading third-party and internally developed software as well as open source technologies. This combination allows for rapid development and release of high-performance software in a cost-effective and scalable manner. Our mobile applications and websites are designed to have high availability, from the internet connectivity providers we choose, to the servers, databases and networking hardware that we deploy. We design our systems so that the failure of any individual component is not expected to affect the overall availability of our platform. We also leverage content delivery networks and use other third-party cloud computing services, including map-related and ad serving services, to ensure fast and local access to content. We employ a host of encryption, antivirus, firewall, monitoring, and patch-management technology to protect and maintain our systems.
To deliver web and mobile Zillow Group brand content while ensuring scalability and redundancy, we utilize both third-party web services for cloud computing and storage and shared data centers in Seattle, Washington and Santa Clara, California.
Intellectual Property
We protect our intellectual property through a combination of trademarks, trade dress, domain names, copyrights, trade secrets and patents, as well as contractual provisions and restrictions on access to our proprietary technology.
Our trademarks registered in the United States and several other jurisdictions include, but are not limited to, “Zillow,” “Trulia,” “Zestimate,” “Premier Agent,” “Make Me Move,” “Mortech,” “Marksman,” “Hotpads,” “StreetEasy,” “dotloop,” “Find Your Way Home,” “Naked Apartments,” “New Home Feed,” the Z in a house logo, the Trulia marker logo, as well as logos that correspond with several of our other trademarks. We also have filed other trademark applications, including an application for “Zillow Offers,” in the United States and certain other jurisdictions and will pursue additional trademark registrations to the extent we believe it will be beneficial and cost-effective.
We are the registered holder of a variety of domestic and international domain names that include, but are not limited to, “Zillowgroup.com,” “Zillow.com,” “Trulia.com,” “RealEstate.com,” “Mortech.com,” “HotPads.com,” “Streeteasy.com,” “DotLoop.com,” “Retsly.com,” “NakedApartments.com,” “BridgeInteractive.com,” “NewHomeFeed.com,” “Mortgagelendersofamerica.com,” and other similar variations. We view the strength of brand awareness and loyalty with respect to both our consumer- and business-facing brands as a key differentiator. As a result, our ability to protect these intellectual property assets is very important to our business.
We have 28 patents of varying lengths issued in the United States and internationally. These patents cover proprietary techniques that relate to determining a current value for a real estate property, performing summarization of geographic data points in response to zoom selection, the incorporation of individual aerial images and incorporating visual information into a master planar image, the collection, storage and display of home attribute values, providing for a multi-faceted search, and other proprietary techniques relevant to our products and services. Our Zestimate home valuation, for example, which we consider to be a significant competitive advantage with respect to consumer engagement, is currently protected by a patent. We have 47 patent applications pending in the United States and internationally, which seek to cover proprietary techniques relevant to our products and services. We intend to pursue additional patent protection to the extent we believe it will be beneficial and cost-effective.
In addition to the protection provided by our intellectual property rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment provisions. We further control the use of our proprietary technology and intellectual property through provisions in both our general and product-specific terms of use on our mobile applications and websites.
Competition
We face competition to attract consumers to our mobile applications, websites, and services and to attract advertisers to purchase our advertising products and services.

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Competition for Consumers
Our business model depends on our ability to attract consumers to our mobile applications, websites, and services and enhance their engagement with our products and services in a cost-effective manner. New entrants join the categories in which we operate at a rapid pace. Our competitors include companies that provide, or could develop, technology, products and services for real estate, rental, new construction and mortgage professionals and other residential real estate market participants, including operators of mobile applications and websites. We also compete with companies and individuals purchasing and selling homes in the metropolitan areas where we offer our Zillow Offers service and with companies originating mortgage loans in the states in which MLOA is a licensed lender. We compete for consumers primarily on the basis of the quality of the consumer experience, the utility of the data and services we provide, the breadth, depth and accuracy of information, brand awareness and reputation, and the value we offer to home buyers and sellers. We believe we compete favorably on these factors.
Competition for Advertisers
We face intense competition from traditional and online or mobile media sources to attract advertisers. Online and on mobile, we compete with website operators dedicated to providing real estate, rental, new construction, and mortgage information and services to real estate professionals and consumers, local brokerage sites and major internet portals, general search engines, e-commerce, and social media sites, as well as other technology and media companies. We also compete for a share of advertisers’ overall marketing budgets with traditional media such as television, magazines, newspapers and home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate professionals to advertise their qualifications and listings. We compete for advertising revenue based on perceived return on investment and perceived transaction readiness and overall quality of consumer leads, the effectiveness and relevance of our advertising products, pricing structure and our ability to effectively deliver types of ads to targeted demographics. We believe we compete favorably on these factors.
Government Regulation
We operate in an increasingly complex legal and regulatory environment. Our business and the products and services that we offer are affected by a continually expanding and evolving range of local, state, federal, and international laws and regulations.
Our IMT segment, which includes the provision of advertising services, marketing software, and technology solutions to businesses and professionals primarily associated with the residential real estate, rental and mortgages industries, is subject to a variety of laws and regulations relating to the collection, use, and disclosure of data collected from our users, including those promulgated and enforced by the U.S. Federal Trade Commission and certain states, such as the California Consumer Privacy Act of 2018, which we expect to come into effect on January 1, 2020. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the internet, may be applicable to our business, such as the Telephone Consumer Protection Act, the Telemarketing Sales Rule, the CAN-SPAM Act, and similar state consumer protection laws.
By providing a medium through which users can post content and communicate with one another, we may also be subject to laws governing intellectual property ownership, obscenity, libel, and privacy, among other issues. In addition, the real estate agents, mortgage professionals, banks, property managers, rental agents and certain of our other customers and advertisers are subject to various state and federal laws and regulations, including, but not limited to those relating to real estate, rentals and mortgages, which may impact their use of our mobile applications and websites. We endeavor to ensure that any content created by Zillow Group is consistent with such laws and regulations by obtaining assurances of compliance from our advertisers and consumers for their activities through, and the content they provide on, our mobile applications and websites.
Certain of our mortgage marketing products are operated by our wholly owned subsidiary, Zillow Group Marketplace, Inc. (formerly Zillow Group Mortgages, Inc.), a licensed mortgage broker, and in October 2018 we completed the acquisition of MLOA, a licensed mortgage lender, through which we originate residential mortgages. Mortgage products are regulated at the state level by licensing authorities and administrative agencies, with additional oversight from the Bureau of Consumer Financial Protection (“BCFP”) and other federal agencies. Zillow Group Marketplace, Inc. and MLOA are subject to stringent state and federal laws and regulations and to the scrutiny of state and federal government agencies as a licensed mortgage broker and licensed mortgage lender, respectively, including numerous consumer protection laws.
As a buyer and seller of residential real estate through our Zillow Offers business, we may be subject to additional local, state and federal laws and regulations governing such transactions, including those administered by the BCFP, the Department of Housing and Urban Development, and the states and municipalities in which we transact.

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The real estate, mortgages, and rentals industries in which we operate and provide services are subject to significant state, local and federal laws and regulation, and certain of our activities may be deemed to be covered by these industry-specific laws and regulations. Since the laws and regulations governing real estate, rentals and mortgages are constantly evolving and striving to keep pace with innovations in technology and media, it is possible that we may have to materially alter the way we conduct some parts of our business activities or be prohibited from conducting such activities altogether at some point in the future. See “Risk Factors” for a discussion of our regulatory risks.
Employees
As of December 31, 2018, we had 4,336 full-time employees.
Where You Can Find More Information
Our filings with the Securities and Exchange Commission, or SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available on the “Investors” section of our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Annual Report on Form 10-K or any other document we file with the SEC.
Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters and for complying with its disclosure obligations under Regulation FD:
 
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Zillow Group Investor Relations Webpage (http://investors.zillowgroup.com)
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Zillow Group Investor Relations Blog (http://www.zillowgroup.com/ir-blog)
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Zillow Group Twitter Account (https://twitter.com/zillowgroup)
The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Annual Report on Form 10-K or any other document we file with the SEC, and the inclusion of our website addresses and Twitter account are as inactive textual references only.
Item 1A. Risk Factors.
Our business is subject to numerous risks. You should carefully consider the following risk factors, as any of these risks could harm our business, results of operations, and future financial performance. Recovery pursuant to our insurance policies may not be available due to policy definitions of covered losses or other factors, and available insurance may be insufficient to compensate for damages, expenses, fines, penalties, and other losses we may incur as a result of these and other risks. In addition, risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and operating results. If any of these risks occur, the trading price of our common and capital stock could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
If Real Estate, Rental and Mortgage Professionals, Home Builders or Other Advertisers Reduce or End Their Advertising Spending With Us or if We Are Unable to Effectively Manage Advertising Inventory or Pricing, Our Business Would Be Harmed.
Our current financial model depends in due part on revenue generated primarily through sales of advertising products and services to real estate agents and brokerages, rental professionals, mortgage professionals, home builders, and other advertisers in categories relevant to real estate. Our ability to attract and retain advertisers, and ultimately to generate advertising revenue, depends on a number of factors, including how successfully we can:

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increase the number of consumers who use our products and services, provide them with tools to promote engagement between real estate market participants, and enhance their user experience so we can retain them;
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offer an attractive return on investment to our advertisers for their advertising spending with us;
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continue to develop our advertising products and services to increase adoption by and engagement with advertising customers;
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keep pace with and anticipate changes in technology to provide industry-leading products and services to advertisers and consumers; and
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compete effectively for advertising dollars with other online media companies.
Premier Agent revenue, derived from our flagship Premier Agent program and Premier Broker program, accounted for 67% of total revenue for the year ended December 31, 2018. This level of revenue concentration suggests that even modest decreases in individual agent advertiser spending across the advertiser population, caused by actual or perceived decreases to return on investment, preference for a competitive service, or other factors, could have a significant negative impact on our results of operations. We do not have long-term contracts with most of our advertisers. Our advertisers could choose to modify or discontinue their relationships with us with little or no advance notice. For example, our auction-based account interface for Premier Agent advertisers allows agent advertisers to independently control the duration of their advertising commitments. We may not succeed in retaining existing advertisers’ spending or capturing a greater share of such spending if we are unable to convince advertisers of the effectiveness or superiority of our products as compared to alternatives, including traditional offline advertising media such as television and newspapers. In addition, we continually evaluate and utilize various pricing and value delivery strategies in order to better align our revenue opportunities with the growth in usage of our mobile and web platforms. In 2016, for example, we implemented a new auction-based pricing method for our Premier Agent products, and in the second quarter of 2018, we began testing a new form of lead validation and distribution related to our auction-based pricing model whereby the share of voice purchased by Premier Agents and Premier Brokers represents both the share of impressions delivered as advertisements appearing on pages viewed by users of our mobile applications and websites, as well as the proportion of validated consumer connections a Premier Agent or Premier Broker receives. These changes combined with other market factors led to an increase in cost-per-lead and a decrease in leads delivered to certain advertisers in the third quarter of 2018, which resulted in higher than expected advertiser churn. Future changes to our pricing or lead delivery methodologies for advertising services or product offerings may cause advertisers to reduce or end their advertising with us or negatively impact our ability to manage revenue opportunities. If advertisers reduce or end their advertising spending with us, or if we are unable to effectively manage inventory and pricing, our advertising revenue and business, results of operations and financial condition would be harmed.
If We Do Not Innovate or Provide High-Quality Products and Services on Mobile and the Web That Are Attractive to Our Users and to Our Advertisers, Our Business Could Be Harmed.
Our success depends on our continued innovation to provide new, and improve upon existing, products and services that make our mobile applications, websites and other products and services useful for consumers and real estate, rental and mortgage professionals, and attractive to our advertisers. As a result, we must continually invest significant resources in research and development to improve the attractiveness and comprehensiveness of our products and services, adapt to changes in technology, and support new devices and operating systems. If we are unable to provide products and services that users, including real estate professionals, want to use, on the devices they prefer, then users may become dissatisfied and use competitors’ mobile applications, websites, products and services. If consumers begin to access real estate information and services through other media and we fail to innovate, our business may be negatively impacted. If we are unable to continue offering high-quality, innovative products and services, we may be unable to attract additional users and advertisers or retain our current users and advertisers, which could harm our business, results of operations and financial condition.
We Face Competition for Consumers in the Real Estate Category, Which Could Impair Our Ability to Attract Users of Our Mobile Applications, Websites and Other Products and Services, Which Would Harm Our Business, Results of Operations and Financial Condition.
Our business model depends on our ability to continue to attract consumers to our mobile applications, websites and other services and enhance their engagement with our products and services in a cost-effective manner. New entrants continue to join the category at a rapid pace. Our existing and potential competitors include companies that operate, or could develop, national and local real estate, rental, new construction and mortgage mobile applications and websites. Such competitors range from companies offering traditional offline advertising media, like newspapers, to new mobile- or web-only technology companies. These companies could devote greater financial, technical and other resources than we have available to sales, advertising, or research and development, have a more accelerated time frame for deployment, or leverage their existing user bases and proprietary technologies to provide products and services that consumers might view as superior to our offerings. Any of our

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future or existing competitors may introduce different solutions that attract consumers or provide solutions similar to our own but with better branding or marketing resources. If we are not able to continue to attract consumers to our mobile applications, websites and other services, our business, results of operations and financial condition would be harmed.
We May Not Be Able to Compete Successfully Against Our Existing or Future Competitors in Attracting Advertisers, Which Could Harm Our Business, Results of Operations and Financial Condition.
We face intense competition from traditional and online or mobile media sources to attract advertisers. Online and on mobile, we compete against websites dedicated to providing real estate, rental, new construction, and mortgage information and services to real estate professionals and consumers, major internet portals, general search engines, e-commerce, and social media sites, as well as other technology and media companies. We also compete for a share of advertisers’ overall marketing budgets with traditional media such as television, magazines, newspapers and home/apartment guide publications, particularly with respect to advertising dollars spent at the local level by real estate professionals to advertise their qualifications and listings. Large companies with significant brand recognition have large numbers of direct sales personnel and substantial proprietary advertising inventory and web traffic, which may provide a competitive advantage. To compete successfully for advertisers against future and existing competitors, we must continue to invest resources in developing our advertising platform and proving the effectiveness and relevance of our advertising products and services. Pressure from competitors seeking to acquire a greater share of our advertisers’ overall marketing budget could adversely affect our pricing and margins, lower our revenue, and increase our research and development and marketing expenses. If we are unable to compete successfully against our existing or future competitors, our business, results of operations or financial condition would be harmed.
We Compete in a Dynamic Industry, and We May Invest Significant Resources to Pursue Strategies and Develop New Products and Services That Do Not Prove Effective.
The industry for residential real estate technology, information marketplaces, services, and advertising is dynamic, and the expectations and behaviors of consumers and professionals shift constantly and rapidly. We continue to learn a great deal about the behaviors and objectives of residential real estate market participants as the industry evolves and are investing significant resources to develop, test, and launch products and services to address the needs of the market and improve the homebuying, selling, financing, building, and renting experience. Changes or additions to our products and services may not attract or engage our users, and may reduce confidence in our products and services, negatively impact the quality of our brands, upset other industry participants, expose us to increased market or legal risks, subject us to new laws and regulations, or otherwise harm our business. For example, our Zillow Offers service, which allows home sellers to request an offer from Zillow to purchase their home, may not engage home sellers as we think it will. Further, if we do not realize the benefits we expect from strategic relationships we enter into, including for example, the generation of additional advertising revenue opportunities, our business could be harmed. We may not successfully anticipate or keep pace with industry changes, and we may invest considerable financial, personnel, and other resources to pursue strategies that do not, ultimately, prove effective such that our results of operations and financial condition may be harmed.
Zillow Offers Could Fail to Achieve Expected Results and Cause Harm to Our Financial Results, Operations, and Reputation.
Beginning in April 2018, Zillow purchases homes, makes certain repairs and updates, and attempts to sell the homes back into the market through its Zillow Offers service (the “Homes business”). This initiative may expose us to a variety of financial, legal, and reputational risks. The success of the Homes business depends in part on our ability to efficiently acquire, renovate, and sell properties. In determining whether to purchase a property, we may make assumptions, including the estimated time from purchase to sale, update costs, market conditions and potential resale proceeds, closing costs, and holding costs. These assumptions may be inaccurate. Our estimates of what homes are worth may not be accurate, and we may pay more for homes than the price at which we are able to resell them. In addition, we may not timely discover latent home construction or environmental hazards or other issues which may decrease the value of properties we own. As a result, we may not be able to resell them for the price we anticipated or at all. Further, homes we purchase may suffer decreases in value due to natural disasters, catastrophic events, or other forces outside of our control. The homes we own may not be insured against all damages and losses.
We may compete with other purchasers for the acquisition of properties, and some of those competitors may be willing to pay more for such homes than we are or have greater financial or other resources than we do. Competition for the purchase of homes may result in our purchase of fewer properties, higher purchase prices, and lower margins - or losses - realized on the sale of our homes.
The supply of and demand for homes, and the amounts prospective homebuyers are willing to pay for properties, are impacted by the strength of the overall economy, employment levels, availability of credit, tax or other governmental incentives

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that encourage homeownership, and regulation of mortgage interest rates, among other factors. Changes to these factors may negatively impact our ability to purchase a sufficient number of properties to realize benefits of scale and sell properties at the amounts we anticipated, if at all.
The actual or perceived quality of the homes we sell may be poor due to factors both within and beyond our control, such as our decision to make certain upgrades but not others and latent defects in properties of which we are not aware. Properties may experience unsafe conditions while we own them or soon after we resell them, which may cause harm to person or property. We may be subject to new legal, regulatory, local ordinance, and other requirements, as well as disputes with consumers, service providers, and others arising from our purchase, renovation, or resale of properties. These and other factors may reduce consumer confidence in our services and negatively impact our business reputation.
We use local and national third-party vendors and service providers to make upgrades to and perform maintenance on homes, and we can provide no assurances that we will have uninterrupted or unlimited access to their services or that we will be able to effectively control the timing and costs of their projects. If we do not select and maintain appropriate third parties to provide these services, our reputation and financial results may suffer.
We attempt to ensure that our properties are adequately insured to cover casualty losses while we hold them. However, there are certain losses, including losses from floods, fires, earthquakes, wind, pollution, certain environmental hazards, security breaches, and others for which we may not be insured because it may not be deemed economically feasible or prudent to do so, among other reasons. Any losses resulting from lack of insurance coverage could cause our financial results to suffer.
We have limited experience purchasing, upgrading, and selling homes, and our forecasts of financial results for this new business segment may vary significantly from our actual results. The accounting treatment, operational demands, and other aspects of the Homes business are very different from our Internet, Media, and Technology (“IMT”) business and may impact our overall results in ways that are difficult to predict.
Our Entry into the Mortgage Lending Business Could Fail to Achieve Expected Results and Cause Harm to Our Financial Results, Operations, and Reputation.
In October 2018, we completed the acquisition of Mortgage Lenders of America, L.L.C. (“MLOA”), a licensed mortgage lender. This acquisition and our operation of a mortgage lending business may expose us to a variety of financial, legal, and reputational risks. MLOA has historically funded its lending operations using its warehouse credit facilities, intending to sell all loans and corresponding servicing rights to third-party financial institutions after a holding period. Sales of loans to third parties are subject to origination quality standards, investor guidelines, and applicable laws, and these institutions still retain contractual and other rights to reject the loans after they are sold. If MLOA is unable to sell its loans or is required to repurchase the loans from third parties due to representation and warranty or other claims, MLOA may be required to hold the loans for investment or sell them at a discount.
Additionally, for residential mortgage loans that we originate, MLOA is required to comply with complex mortgage regulations, laws, and third-party guidelines. Borrowers may allege that the origination of the loans did not comply with applicable laws or regulations in one or more respects and assert such violation as an affirmative defense to payment or in an action seeking statutory and other damages in connection with such violation. If we are not successful in demonstrating that the loans in dispute were originated in accordance with applicable statutes and regulations, we could become subject to monetary damages and other civil penalties. Similarly, the third-party financial institutions to whom we sell the loans may claim that the origination of the loans did not comply with the terms of our agreements or applicable guidelines, laws or regulations, and may require MLOA to repurchase loans upon discovery of a breach. In addition, the government sponsored entities that insure some of the loans that MLOA originates may allege that the loans do not comply with the terms of their programs or applicable guidelines, laws or regulations, and may require MLOA to indemnify them for losses incurred in connection with such loans.
Historically, MLOA has offered a limited number of mortgage products to consumers under conventional and government guaranteed loan programs. If these programs do not meet the financing needs of our consumers, and we do not adapt to market changes and consumer preferences, consumers may opt to obtain financing from other lenders who offer different or more competitive loan products, including second mortgages, reverse mortgages, home equity lines of credit, or higher priced mortgage loans. Similarly, if any of the government sponsored entities amend the terms of an existing loan program, cease offering the program, limit our ability to use the program in connection with our Zillow Offers business, or revoke the authority of MLOA to offer such programs, we may have to make changes to or discontinue the mortgage products that we offer, which may negatively affect our business.

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We may use derivatives and other instruments to hedge our mortgage lending interest rate risk. We may not hedge all of our risk, and we may not be successful in hedging any of the risk. Hedging is a complex process, requiring sophisticated models and constant monitoring. We may hedge our interest rate risk by utilizing forward loan sale commitments which may not adequately mitigate the impact of changes in interest rates. We could incur losses from our hedging activities. There may be periods where we elect not to use derivatives and other instruments to hedge mortgage lending interest rate risk.
Our recent entry into the mortgage lending business may also cause a negative reaction within the mortgage industry, including among some of our mortgage advertisers, which could harm our reputation, results of operations and financial condition.
We Depend on the Real Estate Industry, and Changes to That Industry, Including to Supply and Demand in the Real Estate Market or Mortgage Lending Regulation, Could Reduce the Demand for, or Restrict Our Ability to Provide, Our Products and Services.
Our financial results significantly depend on real estate market participants using our products and services. Real estate shopping patterns depend on the overall health of the real estate market. Changes to the regulation of the real estate industry, including mortgage lending, may negatively impact the prevalence of home ownership, the amount home buyers are willing and able to spend, and the ability of market participants to close transactions.
Changes to the real estate industry, including to supply and demand in the real estate market, regulation of rental properties, or mortgage interest rates, could reduce demand for our services. In addition, real estate, rental, and mortgage professionals are subject to comprehensive, and rapidly evolving, federal, state, and local laws and regulations which may cause them to significantly alter, decrease, or terminate their purchase of our products and services. Seasonality, micro- and macroeconomic factors, government regulation, tax laws, and other factors may decrease consumer usage as well as sales to our advertisers and other customers, which could harm our results of operations and financial condition.
Certain of our mortgage marketing products are operated by our wholly owned subsidiary, Zillow Group Marketplace, Inc. (formerly Zillow Group Mortgages, Inc.), a licensed mortgage broker, and in October 2018 we completed the acquisition of MLOA, a licensed mortgage lender, through which we originate residential mortgages. Zillow Group Marketplace, Inc. and MLOA are subject to stringent state and federal laws and regulations and to the scrutiny of state and federal government agencies as a licensed mortgage broker and licensed mortgage lender, respectively. Further, due to the geographic scope of our operations and the nature of the services we provide, we maintain real estate brokerage, mortgage broker, and mortgage lender licenses in certain states in which we operate, including in connection with Zillow Offers. In connection with such licenses, we are required to designate individual licensed brokers of record, qualified individuals and control persons. We cannot assure you that we, or our licensed personnel, are and will remain at all times, in full compliance with state and federal real estate and mortgage licensing laws and regulations and we may be subject to fines or penalties in the event of any non-compliance. If in the future a state agency were to determine that we are required to obtain additional licenses in that state in order to operate our business, or if we lose or do not renew an existing license or are otherwise found to be in violation of a law or regulation, we may be subject to fines or legal penalties, lawsuits, enforcement actions, or our business operations in that state may be suspended or prohibited. Compliance with these laws and regulations is complicated and costly and may inhibit our ability to innovate or grow. Any failure to comply with applicable laws and regulations may limit our ability to expand into new markets, offer new products or continue to operate in one or more of our current markets.
Natural Disasters and Catastrophic Events May Disrupt Real Estate Markets and our Business.
The occurrence of a significant natural disaster or other catastrophic event, such as earthquake, hurricane, fire, flood, terrorist attack or other similar event, may damage or disrupt our operations, local and regional real estate markets or economies, and negatively impact our business, results of operations and financial condition. Our largest offices are located in Seattle, Washington, Denver, Colorado, and San Francisco, California, and our mortgage origination business is located in Overland Park, Kansas; an earthquake or other natural disaster in any of these cities could disrupt our engineering, sales and/or mortgage origination teams and equipment critical to the operation of our business. Similarly, a significant natural disaster or other catastrophic event in any major U.S. city could negatively impact a large number of our advertisers and users, and cause a decrease in our revenue or traffic. For example, in connection with the hurricanes and wildfires that occurred during the second half of 2017, we worked closely with our Premier Agents and other advertisers in affected areas to help manage their advertising budgets, and we provided relief initiatives, which included billing credits and other forms of advertiser assistance. We also experienced a temporary decline in traffic to our mobile applications and websites from consumers in impacted areas during September 2017. Though our relief initiatives and the temporary decline in traffic did not have a material impact on our results of operations and financial condition for 2017, our results of operations and financial condition may be negatively affected by natural disasters in the future. In addition, through Zillow Offers, Zillow purchases, updates and sells homes in certain metropolitan areas, and through MLOA, we originate loans in over 40 states. The occurrence of a natural disaster or

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other catastrophic event in any of these localities could have a significant negative impact on those real estate markets and the success of our Homes and mortgage origination businesses in the affected regions.
We May Not Be Able to Maintain or Establish Relationships With Real Estate Brokerages, Real Estate Listing Aggregators, Multiple Listing Services, Property Management Companies, Home Builders and Other Third-Party Listing Providers, Which Could Limit the Information We Are Able to Provide to Our Users.
Our ability to attract users to our mobile applications, websites and other tools depends to some degree on providing timely access to comprehensive and accurate for-sale, new construction and rental listings. To provide these listings, we maintain relationships with real estate brokerages, real estate listing aggregators, multiple listing services (“MLSs”), property management companies, home builders, other third-party listing providers, and homeowners and their real estate agents to include listing data in our services. Many of our agreements with real estate listing providers are short-term agreements that may be terminated with limited notice. Many of our competitors and other real estate websites have similar access to MLSs and listing data, and may be able to source real estate information faster or more efficiently than we can. Another industry participant or group could create a new listings data service, which could impact the relative quality or quantity of information of our listing providers. The loss of existing relationships with MLSs and other listing providers, whether due to termination of agreements or otherwise, changes to our rights to use or timely access listing data, or an inability to continue to add new listing providers or changes to the way real estate information is shared, may negatively impact our listing data quality. This could reduce user confidence in the sale and rental data we provide and make us less popular with consumers, which could harm our business, results of operations and financial condition.
We May Not Be Able to Maintain or Establish Relationships With Data Providers, Which Could Limit the Information We Are Able to Provide to Our Users and Impair Our Ability to Attract or Retain Users.
We obtain real estate data, such as transaction history, property descriptions, tax-assessed value and property taxes paid, under licenses from third-party data providers. We use this data to enable the development, maintenance and improvement of our marketplace and information services, including Zestimates, Rent Zestimates and our living database of homes. We have invested significant time and resources to develop proprietary algorithms, valuation models, software and practices to use and improve on this specific data. We may be unable to renew our licenses with these data providers, enter into new data license agreements, or we may be able to do so only on terms that are less favorable to us, which could harm our ability to continue to develop, maintain and improve these information services and could harm our business, results of operations and financial condition.
If Our Data Integrity Suffers Real or Perceived Harm, Consumers and Advertisers May Decrease Use or Cease Using Our Products and Services, and We May Be Subject to Legal Liability.
Because homes represent significant investments, and many consumer decisions regarding homes are data-driven, our ability to attract and retain users and advertisers to our information products and services is dependent upon our ability to publish, and reputation for publishing, accurate and complete residential real estate information through our mobile applications and websites. As discussed above, a significant amount of the data we publish on our mobile applications and websites are licensed from third parties, and we have limited ability to control the quality of the information we receive from them. We also publish a significant amount of user-generated content, and our tools and processes designed to ensure the accuracy, quality, and legality of such content may not always be effective. Data we generate independently are subject to error, unauthorized modification by way of third-party viruses, and other factors. As the volume of data we publish increases, and potential threats to data quality become more complex, the risk of harm to our data integrity also increases. If our data integrity suffers real or perceived harm, we may be subject to legal liability, and consumers and advertisers may decrease their use or cease using our products and services, which would harm our results of operations and financial condition.
Our Dedication to Making Decisions Based Primarily on the Best Interests of Consumers May Cause Us to Forgo Short-Term Gains.
Our guiding principle is to build our business by making decisions based primarily on the best interests of consumers, which we believe has been essential to our success in increasing our user growth rate and engagement and has served the long-term interests of our company and our shareholders. In the past, we have forgone, and we will in the future forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of consumers, even if such decisions negatively impact our short-term results of operations. In addition, our philosophy of putting consumers first may negatively impact our relationships with our existing or prospective advertisers. This could result in a loss of advertisers, which could harm our revenue and results of operations. For example, we believe that some real estate agents have chosen not to purchase our Premier Agent advertising product because we display a Zestimate on their for-sale listings. We believe, however, that it is valuable to consumers to have access to a valuation starting point on all homes and so we display a Zestimate on every home in the Zillow database for which we have sufficient data to produce the Zestimate. Our consumer focus may also

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negatively impact our relationships with real estate brokerages, MLSs, and other industry participants on whom we rely for listings information. Our Zillow Offers product and our acquisition of MLOA, for example, may be perceived as impinging upon the business models of real estate agents, brokerages and lenders, which may cause them to terminate their listings agreements with us or, with respect to brokerages and lenders, cease advertising with us. Such risks could have a materially negative impact on our results of operations. Our principle of making decisions based primarily on the best interests of consumers may not result in the long-term benefits that we expect, in which case our user traffic and engagement, business and results of operations could be harmed.
We Are Subject to Disputes Regarding the Accuracy or Display of Our Zestimates and Rent Zestimates.
We provide our users with Zestimate and Rent Zestimate home and rental valuations. Zestimates are our estimated current market values of a home based on our proprietary automated valuation models that apply advanced algorithms to analyze our data; they are not appraisals. A Rent Zestimate is our estimated current monthly rental price of a home, using similar automated valuation models that we have designed to address the unique attributes of rental homes. We are, from time to time, involved in disputes with property owners and others who disagree with the accuracy or display of a Zestimate or Rent Zestimate, and such disputes may result in costly litigation in the future. Further, revisions to our automated valuation models, or the algorithms that underlie them, poor data quality, or other factors may cause certain Zestimates or Rent Zestimates to vary from expectations for those Zestimates or Rent Zestimates. Any such dispute or variation in Zestimates or Rent Zestimates could result in distraction from our business or potentially harm our reputation and financial condition.
We Rely on Internet Search Engines and Mobile Application Marketplaces to Connect with Consumers.
We rely on organic traffic generated from search engines like Google to attract users to our websites. This organic traffic is dependent in part upon the way in which links to and information from our websites are featured on search engine result pages. The ranking and other display features of links to and information from our websites is impacted by a variety of factors, many of which are not within our control, such as a change to the search engine ranking algorithm. We devote significant time and resources to digital marketing initiatives, such as search engine optimization, to improve our search result rankings and increase visits to our sites. These marketing efforts may prove unsuccessful due to a variety of factors, including increased costs to use online advertising platforms, ineffective campaigns and increased competition. We also rely on mobile application marketplaces like Apple’s App Store and Google Play to connect users with our mobile applications. These marketplaces may change in a way that negatively affects the prominence of or ease with which users can access our mobile applications. Such changes to Internet search engines or mobile application marketplaces may adversely impact our ability to connect with consumers, which could have a material negative effect on our results of operations and financial condition.
We May Be Unable to Increase Awareness of the Zillow Group Brands Cost-effectively, Which Could Harm Our Business.
We believe the Zillow Group brands, including Zillow and Trulia, are key assets of our company. Awareness and perceived quality and differentiation of the Zillow Group brands are important aspects of our efforts to attract and expand the number of consumers who use our mobile applications and websites. Should the competition and costs for awareness and brand preference increase among providers of mobile or online real estate information, we may not be able to successfully maintain or enhance the strength of our brand. We expect to continue to invest in our paid advertising to increase brand awareness and grow traffic. Paid advertising may not continue to be successful or cost-effective. If we are unable to maintain or enhance user and advertiser awareness of our brands cost-effectively, or if we are unable to recover our additional marketing and advertising costs through increased usage of our products and services, our business, results of operations and financial condition could be harmed.
If We Fail to Manage Our Growth and Multi-Brand Portfolio Effectively, Our Reputation, Results of Operations and Business Could Be Harmed.
We have experienced rapid and significant growth in our headcount and related operations, including as a result of the February 2015 Trulia acquisition and other acquisitions. We have also acquired or launched several new business-to-consumer and business-to-business brands in recent years, including the October 2018 acquisition of MLOA, a consumer-facing mortgage lending business, the April 2018 launch of Zillow Offers, the 2017 acquisition of New Home Feed, a listing management technology company, and the launch of OutEast.com, a consumer-facing website for real estate in the Hamptons. This growth adds complexity to business operations, including internal controls and compliance, and places substantial demand on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture, and successfully manage a diverse portfolio of brands. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer, which could harm our brand, results of operations and overall business.

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We Rely on the Performance of Highly Skilled Personnel, and if We Are Unable to Attract, Retain and Motivate Well-Qualified Employees, Our Business Could Be Harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our management and our highly skilled team of employees, including our software engineers, statisticians, marketing professionals and advertising sales staff. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. The loss of any of our senior management or key employees could materially adversely affect our ability to build on the efforts they have undertaken and to execute our business plan, and we may not be able to find adequate replacements. The market for highly skilled personnel is very competitive. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees in a cost-effective manner, our business could be harmed.
We May Make Acquisitions and Investments, Which Could Result in Operating Difficulties, Dilution and Other Harmful Consequences.
We continue to evaluate a wide array of potential strategic opportunities, including acquisitions and investments. For example, we acquired MLOA in October 2018, and acquired Hamptons Real Estate Online, or HREO, and New Home Feed, and purchased an equity interest in a privately held corporation, in the year ended December 31, 2017. Any transactions that we enter into could be material to our financial condition and results of operations. The acquisitions may not result in the intended benefits to our business, and we may not successfully evaluate or utilize the acquired products, technology, or personnel, or accurately forecast the financial impact of an acquisition transaction. The process of integrating an acquired company, business or technology could create unforeseen operating difficulties and expenditures. The areas where we face risks include:
 
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diversion of management time and focus from operating our business to acquisition integration challenges;
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consumer and industry acceptance of products and services offered by the acquired company;
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implementation or remediation of controls, procedures and policies at the acquired company;
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coordination of product, engineering and sales and marketing functions;
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retention of employees from the acquired company;
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liability for activities of the acquired company before the acquisition;
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litigation or other claims arising in connection with the acquired company; and
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impairment charges associated with goodwill and other acquired intangible assets.
For example, during the year ended December 31, 2018, we recognized a non-cash impairment charge of $10.0 million related to a June 2017 equity investment and a non-cash impairment for $69.0 million related to the indefinite-lived Trulia trade names and trademarks intangible asset.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business, results of operations and financial condition.
Our Fraud Detection Processes and Information Security Systems May Not Successfully Detect All Fraudulent Activity by Third Parties Aimed at Our Employees or Users of Our Mobile Applications and Websites, Which Could Adversely Affect Our Reputation and Business Results.
Third-party actors have attempted in the past, and may attempt in the future, to conduct fraudulent activity by engaging with users of our mobile applications and websites by, for example, posting fake real estate listings on our sites and attempting to solicit personal information or money from users, and by engaging with our employees by, for example, making fake requests for transfer of funds. With the addition of our Zillow Offers and mortgage lending businesses, we now make a large number of wire transfers in connection with loan and real estate closings. Though we have sophisticated fraud detection processes and have taken other measures to identify fraudulent activity on our mobile applications, websites and internal systems, we may not be able to detect and prevent all such activity. Similarly, the third parties we use to effectuate these transactions may fail to maintain adequate controls or systems to detect and prevent fraudulent activity. Persistent or pervasive fraudulent activity may cause users and advertisers to lose trust in us and decrease or terminate their usage of our products and services, or could result in financial loss, thereby harming our business and results of operations.
We Are Subject to Multiple Risks Related to the Credit Card and Debit Card Payments We Accept.
We accept payments through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could harm our business, financial condition and results of operations.

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We depend on processing vendors to complete credit and debit card transactions, both for payments owed to Zillow Group directly and for payments to other third-parties, such as payments made by renters to landlords in our rental payments product. If we or our processing vendors fail to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data are compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.
We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We are required to comply with payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors. Any failure to comply fully also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss, or misuse of data pertaining to credit and debit cards, card holders and transactions.
If we are unable to maintain our chargeback rate or refund rates at acceptable levels, our processing vendors may increase our transaction fees or terminate their relationships with us. Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our service to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.
Risks Related to Our Intellectual Property and Technology
If Our Security Measures or Technology Systems Are Compromised, We May Be Subject to Legal Claims and Suffer Significant Losses, and Consumers May Curtail Use of Our Products and Services and Advertisers May Reduce Their Advertising on Our Mobile Applications and Websites.
Our products and services involve the transmission, processing, and/or storage of users’ information, some of which may be private or include personally identifiable information such as social security numbers, financial account information, and credit card information. For example, our dotloop real estate transaction management software stores sensitive personal and financial information, our Mortech mortgage product and pricing software for mortgage professionals processes social security numbers, our rental applications product allows consumers to obtain credit and background checks containing sensitive personal and financial information, and MLOA, our mortgage origination business, receives, handles and transmits highly sensitive personal and financial information about its borrowers. Security breaches and administrative or technical failures could expose us to a risk of data loss or exposure, including both consumer and customer data as well as intellectual property and other confidential business information, which could result in potential significant liability and litigation. Like all mobile application and website providers, our mobile applications and websites are vulnerable to computer viruses, break-ins, phishing attacks, or other attacks, any of which could lead to loss of critical data or the unauthorized disclosure or use of personal or other confidential information. Further, outside parties may attempt to fraudulently induce employees, officers, directors, users or advertisers to disclose sensitive information in order to gain access to our information or our users’ or advertisers’ information, and our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to user error, malfeasance or other disruptions. If we experience compromises to our security that result in the loss or unauthorized disclosure of confidential information, our users and advertisers may lose trust in us, users may decrease the use of our mobile applications or websites or stop using our mobile applications, websites, or services in their entirety, advertisers may decrease or stop advertising on our mobile applications or websites, and we may be subject to legal claims, government investigation and additional state and federal legal requirements.
We engage a variety of vendors to process and store certain user information, some of which may be private or include personally identifiable information. We also depend on vendors to host many of the systems and infrastructure used to provide

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our products and services. If our data storage vendors fail to maintain adequate information security systems and our systems or our users’ information is compromised, our business, results of operations and financial condition could be harmed. A security breach at our vendor could be perceived by consumers or our customers as a breach of our systems and could result in damage to our reputation and expose us to other losses.
Further, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address all these techniques or to implement adequate preventative measures. Any or all of these issues could negatively impact our ability to attract new users and increase engagement by existing users, cause existing users to curtail or stop use of our products or services or close their accounts, cause existing advertisers to cancel their contracts, cause us to incur significant costs to notify affected individuals and upgrade our technology, or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby harming our business, results of operations and financial condition.
Any Significant Disruption in Service on Our Mobile Applications or Websites or in Our Network Could Damage Our Reputation and Brands, and Result in a Loss of Users of Our Products and Services and of Advertisers, Which Could Harm Our Business, Results of Operations and Financial Condition.
Our brand, reputation and ability to attract users and advertisers depend on the reliable performance of our network infrastructure and content delivery processes. Our mobile applications and websites are exposed to attempts to overload our servers with denial-of-service attacks or similar disruptions from unauthorized use of our computer systems. We have experienced minor interruptions in these systems in the past, including server failures that temporarily slowed the performance of our mobile applications and websites, and we may experience interruptions in the future. Interruptions in these systems, whether due to system failures, computer viruses, software errors or physical or electronic break-ins, could affect the security or availability of our products and services on our mobile applications and websites and prevent or inhibit the ability of users to access our services. Since our users may rely on our products and services, including our customer relationship management tools, for important aspects of their businesses, problems with the reliability, availability or security of our systems could damage our users’ businesses, harm our reputation, result in a loss of users of our products and services and of advertisers and result in additional costs, any of which could harm our business, results of operations and financial condition. In October 2016, for example, traffic to our websites zillow.com and trulia.com was impacted by a distributed denial of service attack against one of our domain name system providers. This incident did not have a material adverse effect on our business, and there is no indication that our internal controls were compromised. Despite the additional network detection tools and other processes we implemented, and our continual work to install new, and upgrade existing, information technology systems and provide employee awareness training around phishing, malware, and other cyber risks, we cannot ensure that we will not experience similar incidents in the future.
To deliver web and mobile Zillow Group brand content while ensuring scalability and redundancy, we utilize both third-party web services for cloud computing and storage and shared data centers in Seattle, Washington and Santa Clara, California.
We do not own or control the operation of certain of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of the foregoing events could result in damage to our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for losses that may occur.
A failure of our systems at one site could result in reduced functionality for our users, and a total failure of our systems could cause our mobile applications or websites to be inaccessible. Problems faced by our third-party web-hosting providers with the telecommunications network providers with which they contract or with the systems by which they allocate capacity among their customers, including us, could adversely affect the experience of our users. Our third-party web-hosting providers could decide to close their facilities without adequate notice. Any financial difficulties, such as bankruptcy reorganization, faced by our third-party web-hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party web-hosting providers are unable to keep up with our growing needs for capacity, our business could be harmed. In addition, if distribution channels for our mobile applications experience disruptions, such disruptions could adversely affect the ability of users and potential users to access or update our mobile applications, which could harm our business.
We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, which may result from interruptions in our service as a result

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of system failures. Any errors, defects, disruptions or other performance problems with our services could harm our reputation, business, results of operations and financial condition.
We Rely Upon Certain Third-Party Services to Support Critical Functions of Our Business and Any Disruption of or Interference with our Use of those Third -Party Services Could Adversely Impact Our Operations and Our Business.
A limited number of third-party services support essential functions of our business, including Amazon Web Services (“AWS”) and certain other Software-as-a-Service technologies hosted by third parties (“SaaS Services”). AWS provides us with a distributed computing infrastructure platform for business operations, which is commonly referred to as a “cloud” computing service. Certain of our computer systems utilize data processing, storage capabilities and other services provided by AWS, and we currently run the vast majority of computing to power our mobile applications, websites, and other technology products and services on AWS. In addition, we use SaaS Services to support important functions of our business, including enterprise resource planning and customer relationship management. We store a significant amount of information about our users, customers, employees, and business on AWS and in the SaaS Services, and we rely on these third-party service providers to provide services on a timely and effective basis. Their failure to perform as expected or as required by contract could result in significant disruptions and costs to our operations. In light of our reliance on AWS and SaaS Services, coupled with the complexity of obtaining replacement services, any disruption of or interference with our use of these third-party services could adversely impact our operations and business.
We May Be Unable to Adequately Protect Our Intellectual Property, Which Could Harm the Value of Our Brands and Our Business.
We regard our intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection and contracts to protect our proprietary rights. If we are not successful in protecting our intellectual property, the value of our brands and our business, results of operations and financial condition could be harmed.
While we believe that our issued patents and pending patent applications help to protect our business, we cannot ensure that our operations do not, or will not, infringe valid, enforceable patents of third parties or that competitors will not devise new methods of competing with us that are not covered by our patents or patent applications. We cannot ensure that our patent applications will be approved, that any patents issued will adequately protect our intellectual property, that such patents will not be challenged by third parties or found to be invalid or unenforceable, or that our patents will be effective in preventing third parties from utilizing a “copycat” business model to offer the same products or services. Our Zestimate home valuation, for example, which we consider to be a key competitive advantage with respect to consumer engagement, is currently protected by a patent, the loss of which could benefit comparable services provided by our competitors and result in decreased user traffic and engagement with our mobile applications and websites, thereby harming our results of operations and financial condition.
Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our products and services may be provided. The laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect intellectual property and our proprietary technology adequately against unauthorized third-party copying or use, which could harm our competitive position. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that might diminish the value of our proprietary rights or harm our reputation, even if we have agreements prohibiting such activity. Though certain of these third parties are obligated to indemnify us for breaches of our intellectual property rights, they may be unable to meet these obligations. In addition, we rely on intellectual property and technology developed or licensed by third parties, and we may not be able to obtain licenses and technologies from these third parties on reasonable terms or at all. Any of these events could harm our business, results of operations or financial condition.
In addition, we may actively pursue entities that infringe our intellectual property, including through legal action. Taking such action may be costly, and we cannot ensure that such actions will be successful. Any increase in the unauthorized use of our intellectual property could make it more expensive for us to do business and harm our results of operations or financial condition.
Intellectual Property Disputes Are Costly to Defend and Could Harm Our Business, Results of Operations, Financial Condition and Reputation.
From time to time, we face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties. We are currently subject to intellectual property infringement claims. These claims allege, among other things, that aspects of our technology infringe upon the plaintiffs’ intellectual property. If we are not successful in defending ourselves against these claims, we may be required to pay damages and may be subject to injunctions, each of which

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could harm our business, results of operations, financial condition and reputation. As we grow our business and expand our operations, we expect that we will continue to be subject to intellectual property claims and allegations. Patent and other intellectual property disputes or litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering certain products, services or features, purchase licenses that may be expensive to procure, or modify our products or services. In addition, patent or other intellectual property disputes or litigation may result in significant settlement costs. Any of these events could harm our business, results of operations, financial condition and reputation.
In addition, we use open source software in our services and will continue to use open source software in the future. From time to time, we may be subject to claims brought against companies that incorporate open source software into their products or services, claiming ownership of, or demanding release of, the source code, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, and we may be required to purchase a costly license or remove open source software, devote additional research and development resources to changing our products or services, make generally available the source code for our proprietary technology, or waive certain of our intellectual property rights, any of which would have a negative effect on our business and results of operations.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them could harm our business, results of operations, financial condition and reputation.
We May Be Unable to Continue to Use the Domain Names That We Use in Our Business, or Prevent Third Parties From Acquiring and Using Domain Names That Infringe on, Are Similar to, or Otherwise Decrease the Value of Our Brand or Our Trademarks or Service Marks.
We have registered domain names for our websites that we use in our business. If we lose the ability to use a domain name, we may incur significant expenses to market our products and services under a new domain name, which could harm our business. In addition, our competitors could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names and determining the rights of others may require litigation, which could result in substantial costs and diversion of management’s attention.
Confidentiality Agreements With Employees and Others May Not Adequately Prevent Disclosure of Trade Secrets and Other Proprietary Information.
In order to protect our technologies and strategic business and operations information, we rely in part on confidentiality agreements with our employees, independent contractors, vendors, licensees, and other third parties. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The loss of trade secret protection could make it easier for third parties to compete with our products by copying functionality. Others may independently discover our trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties. Further, if our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Any changes in, or unfavorable interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation and competitive position.
We May Not Be Able to Halt the Operations of Websites That Aggregate or Misappropriate Our Data.
From time to time, third parties have misappropriated our data through website scraping, robots or other means, and aggregated this data on their websites with data from other companies. In addition, copycat websites have misappropriated data on our network and attempted to imitate our brand or the functionality of our websites. When we have become aware of such websites, we have employed technological or legal measures in an attempt to halt their operations. We may not be able, however, to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the impact of the operation of such websites. In addition, if such activity creates confusion among consumers or advertisers, our brands and business could be harmed. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition.

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Risks Related to Regulatory Compliance and Legal Matters
We Are, and May in the Future Become, Subject to a Variety of International, Federal, State, and Local Laws, Many of Which Are Unsettled and Still Developing and Which Could Subject Us to Claims or Otherwise Harm Our Business.
With offices and owned properties located throughout the United States and an office in Vancouver, British Columbia, we are currently subject to a variety of, and may in the future become subject to additional, international, federal, state, and local laws that are continuously evolving and developing, including laws regarding the real estate, rental and mortgage industries, mobile- and internet-based businesses and other businesses that rely on advertising, as well as privacy and consumer protection laws, including the Telephone Consumer Protection Act, the Telemarketing Sales Rule, the CAN-SPAM Act, the Fair Credit Reporting Act, the Canadian Anti-Spam Law, the Personal Information Protection and Electronic Documents Act, along with employment laws, including those governing wage and hour requirements; in connection with Zillow Offers, laws addressing the purchase, upgrade, and sale of homes, including those governing hazardous substances; and in connection with Mortgage Lenders of America, laws and regulations governing mortgage loan origination activities. These laws are complex and can be costly to comply with, require significant management time and effort, and subject us to claims, government enforcement actions, civil and criminal liability or other remedies, including suspension of business operations. These laws may conflict with each other, and if we comply with the laws of one jurisdiction, we may find that we are violating laws of another jurisdiction.
If we are unable to comply with these laws or regulations in a cost-effective manner, we may modify impacted products and services, which could require a substantial investment and loss of revenue, or cease providing the impacted product or service altogether. If we are found to have violated laws or regulations, we may be subject to significant fines, penalties, and other losses.
We assist with the processing of customer credit card transactions and consumer credit report requests, originate mortgage loans, buy and sell homes, and provide other product offerings, which results in us receiving or facilitating transmission of personally identifiable information. This information is increasingly subject to legislation and regulation in the United States. These laws and regulations are generally intended to protect the privacy and security of personal information, including credit card information that is collected, processed and transmitted. For example, the recently enacted California Consumer Privacy Act, which will become effective on January 1, 2020, will impose restrictions on companies’ use of personal data. We could be adversely affected if government regulations require us to significantly change our business practices with respect to this type of information or if the third-parties that we engage with to provide processing and screening services violate applicable laws and regulations.
We are From Time to Time Involved In, or May In the Future be Subject to, Claims, Suits, Government Investigations, and Other Proceedings That May Result In Adverse Outcomes.
We are from time to time involved in, or may in the future be subject to, claims, suits, government investigations, and proceedings arising from our business, including actions with respect to intellectual property, privacy, consumer protection, information security, mortgage lending, real estate, environmental, data protection or law enforcement matters, tax matters, labor and employment, and commercial claims, as well as actions involving content generated by our users, shareholder derivative actions, purported class action lawsuits, and other matters, including those matters described in Part II, Item 8 in Note 19 under the subsection titled “Legal Proceedings” in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. Such claims, suits, government investigations, and proceedings are inherently uncertain, and their results cannot be predicted with certainty. Regardless of the outcome, any such legal proceedings can have an adverse impact on us because of legal costs, diversion of management and other personnel, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in reputational harm, liability, penalties, or sanctions, as well as judgments, consent decrees, or orders preventing us from offering certain features, functionalities, products, or services, or requiring a change in our business practices, products or technologies, which could in the future materially and adversely affect our business, operating results and financial condition.
In some instances, third parties may have an obligation to indemnify us for liabilities related to litigation or governmental investigations, and they may be unable to, or fail to, fulfill such obligations. If such third parties failed to indemnify us, we would be financially responsible, which could adversely affect our financial condition and cash flow. For example, on October 31, 2018, Zillow Group’s wholly owned subsidiary, ZGM Holdco, Inc., acquired MLOA by way of purchase of the then-outstanding equity of MLOA. Prior to the acquisition, on February 2, 2018, a former MLOA employee, Beau Charbonneau, filed a complaint against MLOA in United States District Court for the District of Kansas. The complaint alleges, among other things, that MLOA improperly classified its team leader roles as exempt from the overtime provisions of the Fair Labor Standards Act and that it failed to pay its loan officers for all hours worked in excess of 40 hours in any work week. The complaint also asserts wage-related claims under the Kansas Wage Payment Act and under Kansas common law. On December

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6, 2018, the court issued an order conditionally certifying the case as a collective action under the Fair Labor Standards Act and authorized the plaintiff’s attorneys to send notice of the case to impacted team leaders and loan officers advising them of the case and their opportunity to join as a plaintiff. The court has not made any determinations regarding the merits of the claims asserted in the complaint, nor has it found that the matter should be tried as a collective or class action. Zillow Group and its affiliates are indemnified for losses incurred in connection with this matter by certain of the prior stockholders of MLOA. Additionally, in accordance with the equity purchase agreement governing the acquisition of MLOA, any costs incurred related to this matter will be paid directly by those same certain prior stockholders of MLOA. Although we do not believe a loss to Zillow Group is probable, should the sellers of MLOA fail to indemnify us for losses related to this matter, our financial condition may be negatively impacted.
The Requirements of Being a Public Company May Strain Our Resources and Distract Our Management, Which Could Make It Difficult to Manage Our Business.
We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements can be time-consuming and results in increased costs to us and could harm our business, results of operations and financial condition.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These requirements could strain our systems and resources. The Exchange Act also requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Exchange Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have committed significant resources, hired additional staff and provided additional management oversight. We have implemented additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. For example, new revenue recognition guidance was issued by the Financial Accounting Standards Board (“FASB”), which we adopted on January 1, 2018, requiring additional personnel time and other costs to implement. In addition, we are investing additional personnel time and other costs to implement new guidance on leases, which we adopted on January 1, 2019. Sustaining our growth will require us to commit additional management, operational and financial resources to identify new professionals to join us and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns and could make it difficult to manage our business, which could harm our business, results of operations, financial condition and cash flows. In addition, if we identify any material weaknesses in our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the market price of our capital stock to decline.
Risks Related to Our Financial Statements
We Incurred Significant Operating Losses in the Past and We May Not Be Able to Generate Sufficient Revenue to Be Profitable Over the Long Term.
We have incurred significant net operating losses in the past and, as of December 31, 2018, we had an accumulated deficit of $671.8 million. Although we have experienced significant growth in revenue, our revenue growth rate may decline in the future as the result of a variety of factors, including the maturation of our business. At the same time, we also expect our costs to increase in future periods as we continue to expend substantial financial resources to develop and expand our business, including with respect to:
•
expansion of Zillow Offers
•
expansion of our mortgage origination business
•
product development;
•
sales and marketing;
•
technology infrastructure;
•
strategic opportunities, including commercial relationships and acquisitions; and
•
general and administrative expenses, including legal and accounting expenses related to being a public company.
These investments may not result in increased revenue or growth in our business. If we fail to continue to grow our revenue and overall business and to manage our expenses, we may incur significant losses in the future and not be able to achieve or maintain profitability.

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Servicing Our Debt Requires a Significant Amount of Cash, and We May Not Have Sufficient Cash Flow From Our Business to Pay Our Substantial Debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the remaining outstanding $9.6 million aggregate principal under Trulia’s Convertible Senior Notes due in 2020 (the “2020 Notes”), the $460.0 million aggregate principal under our Convertible Senior Notes due in 2021 (the “2021 Notes”), and the $373.8 million aggregate principal amount under our Convertible Senior Notes due in 2023 (the “2023 Notes”), depends on our future performance, which is subject to economic, industry, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
We May Need to Raise Additional Capital to Grow Our Business and We May Not Be Able to Raise Additional Capital on Terms Acceptable to Us, or At All.
Growing and operating our business, including through the development of new and enhanced products and services, may require significant cash outlays, liquidity reserves and capital expenditures. If cash on hand, cash generated from operations and cash equivalents and investment balances are not sufficient to meet our cash and liquidity needs, we may need to seek additional capital and we may not be able to raise the necessary cash on terms acceptable to us, or at all. For example, our Homes business will require significant cash to acquire, update and sell homes. We entered into two revolving credit facilities, one in July 2018 and another in January 2019, to support operations of the Homes business. In addition, our mortgage lending business will require significant cash to originate mortgages Our acquisition of MLOA in October 2018 also includes the assumption of warehouse facilities to finance its mortgage origination activities. Financing arrangements we pursue or assume may require us to grant certain rights, take certain actions, or agree to certain restrictions, that could negatively impact our business. If additional capital is not available to us on terms acceptable to us or at all, we may need to modify our business plans, which would harm our ability to grow our operations.
We Rely on Assumptions, Estimates, and Business Data to Calculate our Key Performance Indicators and Other Business Metrics, and Real or Perceived Inaccuracies in These Metrics May Harm our Reputation and Negatively Affect our Business.
Certain of our performance metrics are calculated using third party applications or internal company data that have not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring such information. For example, our measurement of unique users and visits may be affected by applications that automatically contact our servers to access our mobile applications and websites with no user action involved, and this activity can cause our system to count the user associated with such a device as a unique user or as a visit on the day such contact occurs.
We regularly review and may adjust our processes for calculating our performance metrics to improve accuracy. Our measure of certain metrics may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If real estate professionals, advertisers or investors do not perceive our unique users or visits to be an accurate representation of our user engagement, or if we discover material inaccuracies in our unique users or visits, our reputation may be harmed, and real estate professionals and advertisers may be less willing to allocate their resources to our products and services, which could negatively affect our business and operating results.
We Expect Our Results of Operations to Fluctuate on a Quarterly and Annual Basis.
Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside our control. The other risk factors discussed in this “Risk Factors” section may contribute to the variability of our quarterly and annual results. In addition, our results may fluctuate as a result of fluctuations in the quantity of, and the price at which we are able to sell, our remnant advertising, seasonal variances of home sales, which historically peak in the spring and summer seasons, and the size and seasonal variability of our advertisers’ marketing budgets. The seasonal variance and cyclical nature of home sales may contribute to the variability of our revenue and results of operations for the Homes and mortgage lending businesses, in particular. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price.

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We Could Be Subject to Additional Income Tax Liabilities and Our Ability to Use Our Net Operating Loss Carryforwards and Certain Other Tax Attributes May Be Limited.
We are subject to federal and state income taxes in the United States and in Canada. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating these taxes. Our effective tax rates could be affected by numerous factors, such as entry into new businesses and geographies, changes to our existing business and operations, acquisitions and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations. For example, On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain untaxed earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (“AMT”) and how AMT credits are utilized; and (5) the additional limitations on deducting executive compensation under IRC section 162(m); and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The Tax Act significantly changes how the U.S. taxes corporations. The Tax Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Tax Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies have not implemented all relevant regulations or issued substantive guidance to-date and could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our current interpretation.
As of December 31, 2018, we had federal net operating loss carryforwards of approximately $1,081.7 million, state net operating loss carryforwards of approximately $32.5 million (tax effected), and net tax credit carryforwards of approximately $48.8 million. Under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an ownership change, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income or income tax liability may be limited. In connection with our August 2013 public offering of our Class A Common stock, we experienced an ownership change that triggered Sections 382 and 383, which may limit our ability to utilize net operating loss and tax credit carryforwards. In connection with our February 2015 acquisition of Trulia, Trulia experienced an ownership change that triggered Section 382 and 383, which may limit Zillow Group’s ability to utilize Trulia’s net operating loss and tax credit carryforwards.
Risks Related to Ownership of Our Common and Capital Stock and Debt Instruments
Our Class A Common Stock and Class C Capital Stock Prices May Be Volatile, and the Value of an Investment in Our Class A Common Stock and Class C Capital Stock May Decline.
An active, liquid and orderly market for our Class A common stock and Class C capital stock may not be sustained, which could depress the trading price of our Class A common stock and Class C capital stock. The trading price of our Class A common stock and Class C capital stock has at times experienced price volatility and may continue to be volatile. For example, since shares of our Class A common stock began trading in February 2015, the closing price of our Class A common stock has ranged from $17.06 per share to $65.21 per share (adjusted for the August 2015 stock split effected in the form of a dividend) through December 31, 2018. Since shares of our Class C capital stock began trading in August 2015, the closing price of our Class C capital stock has ranged from $16.01 per share to $65.57 per share through December 31, 2018. The market price of our Class A common stock and Class C capital stock could be subject to wide fluctuations in response to many of the risk factors discussed in this Annual Report on Form 10-K and others beyond our control, including:
•
actual or anticipated fluctuations in our financial condition and results of operations;
•
changes in projected operational and financial results;
•
addition or loss of significant customers;
•
actual or anticipated changes in our growth rate relative to that of our competitors;
•
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;
•
announcements of technological innovations or new offerings by us or our competitors;
•
additions or departures of key personnel;

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•
changes in laws or regulations applicable to our services;
•
fluctuations in the valuation of companies perceived by investors to be comparable to us;
•
the inclusion, exclusion, or deletion of our Class A common stock and Class C capital stock from any trading indices, such as the S&P 500 Index;
•
issuance of new or updated research or reports by securities analysts;
•
sales of our Class A common stock and Class C capital stock by us or our shareholders;
•
issuances of our Class A common stock upon conversion of the 2020 Notes and issuances of our Class C capital stock upon conversion of our 2021 Notes;
•
stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and
•
general economic and market conditions.
Furthermore, the stock markets in recent years have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of the equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our Class A common stock and Class C capital stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have in the past been and are currently the target of this type of litigation, and we may continue to be the target of this type of litigation in the future. Past, current, and future securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could harm our business, results of operations or financial condition.
The Structure of Our Capital Stock as Contained in Our Charter Documents Has the Effect of Concentrating Voting Control With Our Founders, and Limits Your Ability to Influence Corporate Matters.
Since Zillow Group’s inception, our capital structure has included authorized Class A common stock and authorized Class B common stock. Our Class A common stock entitles its holder to one vote per share, and our Class B common stock entitles its holder to 10 votes per share. All shares of Class B common stock have been and are held or controlled by our founders, Richard Barton and Lloyd Frink. As of December 31, 2018, Mr. Barton’s holdings and Mr. Frink’s holdings represented approximately 31.5% and 20.5%, respectively, of the voting power of our outstanding capital stock.
For the foreseeable future, Mr. Barton and Mr. Frink will therefore have significant control over our management and affairs and will be able to control most matters requiring shareholder approval, including the election or removal (with or without cause) of directors and the approval of any significant corporate transaction, such as a merger or other sale of us or our assets. In addition, because our Class C capital stock carries no voting rights (except as required by applicable law or as expressly provided in our amended and restated articles of incorporation), the issuance of Class C capital stock (instead of Class A common stock) could prolong the duration of Mr. Barton’s and Mr. Frink’s relative ownership of our voting power. This concentrated control could delay, defer or prevent a change of control, merger, consolidation, takeover, or other business combination involving us that you, as a shareholder, may otherwise support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock or Class C capital stock due to the limited voting power of such stock relative to the Class B common stock and might harm the market price of our Class A common stock and Class C capital stock.
Future Sales of Our Stock in the Public Market Could Cause Our Stock Price to Decline.
Our Class A common stock began trading on The Nasdaq Global Select Market on February 18, 2015, and our Class C capital stock began trading on The Nasdaq Global Select Market on August 17, 2015. We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the prevailing trading price of our Class A common stock and Class C capital stock from time to time. There is currently no contractual restriction on our ability to issue additional shares, and all of our outstanding shares are generally freely tradable, except for shares held by our “affiliates” as defined in Rule 144 under the Securities Act, which may be sold in compliance with the volume restrictions of Rule 144. Sales of a substantial number of shares of our Class A common stock and Class C capital stock could cause our stock price to decline. In addition, we may in the future issue shares of Class C capital stock for financings, acquisitions or equity incentives. If we issue shares of Class C capital stock in the future, such issuances would have a dilutive effect on the economic interest of our Class A common stock.

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If Securities or Industry Analysts Do Not Publish Research or Publish Inaccurate or Unfavorable Research About Our Business, Our Class A Common Stock and Class C Capital Stock Price and Trading Volume Could Decline.
The trading market for our Class A common stock and Class C capital stock depends in part on the research and reports that securities or industry analysts publish about our company. If few or no securities or industry analysts cover our company, the market price of our publicly-traded stock could be negatively impacted. If securities or industry analysts cover us and if one or more of such analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of the analysts covering us fail to publish reports on us regularly, demand for our stock could decline, which could cause our stock price and trading volume to decline.
If We Issue Additional Equity Securities or Issue Additional Convertible Debt to Raise Capital, It May Have a Dilutive Effect on Shareholders’ Investment.
If we raise additional capital through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution in their percentage ownership of us. Moreover, any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.
The Capped Call Transactions May Affect the Value of Our 2021 Notes, Our 2023 Notes, and Our Class C Capital Stock.
In connection with the pricing of each of the 2021 Notes and 2023 Notes, we entered into capped call transactions with certain financial institutions (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution upon conversion of the 2021 Notes or 2023 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be.
The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our Class C capital stock and/or purchasing or selling our Class C capital stock or other securities of ours in secondary market transactions prior to the maturity of each of the 2021 Notes and 2023 Notes (and are likely to do so during any observation period related to a conversion of 2021 Notes or 2023 Notes or in connection with any repurchase of 2021 Notes or 2023 Notes by us). This activity could cause or avoid an increase or a decrease in the market price of our Class C capital stock, the 2021 Notes or the 2023 Notes.
Anti-Takeover Provisions in Our Charter Documents and Under Washington Law Could Make an Acquisition of Us More Difficult, Limit Attempts by Shareholders to Replace or Remove Our Management and Affect the Market Price of Our Stock.
Provisions in our articles of incorporation and bylaws, as amended and restated, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated articles of incorporation or amended and restated bylaws include provisions, some of which will become effective only after the date, which we refer to as the threshold date, on which the Class B common stock controlled by our founders represents less than 7% of the aggregate number of shares of our outstanding Class A common stock and Class B common stock, that:
 
•
set forth the structure of our capital stock, which concentrates voting control of matters submitted to a vote of our shareholders with the holders of our Class B common stock, which is held or controlled by our founders;
•
authorize our board of directors to issue, without further action by our shareholders, up to 30,000,000 shares of undesignated preferred stock, subject, prior to the threshold date, to the approval rights of the holders of our Class B common stock;
•
establish that our board of directors will be divided into three classes, Class I, Class II and Class III, with each class serving three-year staggered terms;
•
prohibit cumulative voting in the election of directors;
•
provide that, after the threshold date, our directors may be removed only for cause;
•
provide that, after the threshold date, vacancies on our board of directors may be filled only by the affirmative vote of a majority of directors then in office or by the sole remaining director;
•
provide that only our board of directors may change the board’s size;
•
specify that special meetings of our shareholders can be called only by the chair of our board of directors, our board of directors, our chief executive officer, our president or, prior to the threshold date, holders of at least 25% of all the votes entitled to be cast on any issue proposed to be considered at any such special meeting;
•
establish an advance notice procedure for shareholder proposals to be brought before a meeting of shareholders, including proposed nominations of persons for election to our board of directors;

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•
require the approval of our board of directors or the holders of at least two-thirds of all the votes entitled to be cast by shareholders generally in the election of directors, voting together as a single group, to amend or repeal our bylaws; and
•
require the approval of not less than two-thirds of all the votes entitled to be cast on a proposed amendment, voting together as a single group, to amend certain provisions of our articles of incorporation.
Prior to the threshold date, our directors can be removed with or without cause by holders of our Class A common stock and Class B common stock, voting together as a single group, and vacancies on the board of directors may be filled by such shareholders, voting together as a single group. Given the structure of our capital stock, our founders, Richard Barton and Lloyd Frink, who hold or control our Class B common stock, will have the ability for the foreseeable future to control these shareholder actions. See the risk factor above titled “The Structure of Our Capital Stock as Contained in Our Charter Documents Has the Effect of Concentrating Voting Control With our Founders, and Limits Your Ability to Influence Corporate Matters.”
The provisions described above, after the threshold date, may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which board is responsible for appointing our management. In addition, because we are incorporated in the State of Washington, we are governed by the provisions of Chapter 23B.19 of the Washington Business Corporation Act, which prohibits certain business combinations between us and certain significant shareholders unless specified conditions are met. These provisions may also have the effect of delaying or preventing a change of control of our company, even if this change of control would benefit our shareholders.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We have various operating leases for office space, which are summarized as of December 31, 2018 in the table below. We believe that our facilities are adequate for our current needs.
Location
 
Purpose
 
Approximate Square
Feet
 
Principal Lease
Expiration Dates
Seattle, Washington
 
Corporate headquarters for Zillow Group
 
307,237

 
2024
San Francisco, California
 
General office space
 
105,897

 
2023
Denver, Colorado
 
General office space
 
73,781

 
2021
Overland Park, Kansas
 
General office space
 
70,373

 
2024
Irvine, California
 
General office space
 
60,074

 
2022
New York, New York
 
General office space
 
53,200

 
2024
We lease additional office space in Chicago, Illinois, Cincinnati, Ohio, Lincoln, Nebraska, Atlanta, Georgia, Scottsdale, Arizona, Los Angeles, California, New York, New York and Vancouver, British Columbia. See Note 19 of Part II, Item 8 of this Annual Report on Form 10-K for more information about our lease commitments.
Item 3. Legal Proceedings.
For information regarding legal proceedings in which we are involved, see Note 19 under the subsection titled “Legal Proceedings” in our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures.
Not applicable.

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders
Our Class A common stock has traded on The Nasdaq Global Select Market under the symbol “ZG” since August 17, 2015 and under the symbol “Z” from July 20, 2011 through August 14, 2015.
Our Class B common stock is not listed and there is no established public trading market.
Our Class C capital stock has traded on The Nasdaq Global Select Market under the symbol “Z” since August 17, 2015. Prior to that time, there was no public market for our Class C capital stock.
Holders of Record
As of February 15, 2019, there were 90, three, and 134 holders of record of our Class A common stock, our Class B common stock, and our Class C capital stock, respectively.
Dividends
We have never declared or paid a cash dividend on our common or capital stock and we intend to retain all available funds and any future earnings to fund the development and growth of our business. We therefore do not anticipate paying any cash dividends on our common or capital stock in the foreseeable future. Any future determinations to pay dividends on our common or capital stock would depend on our results of operations, our financial condition and liquidity requirements, restrictions that may be imposed by applicable law or our contracts, and any other factors that our board of directors may consider relevant.
Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the year ended December 31, 2018.
Purchases of Equity Securities by the Issuer
None.
Performance Graph
The following graph compares our cumulative total shareholder return on Zillow Group’s common and capital stock with the Nasdaq Composite Index and the RDG Internet Composite Index.
For our Class A common stock, this graph covers the period from December 31, 2013 through December 31, 2018. This graph assumes that the value of the investment in Zillow Group’s Class A common stock and each index (including reinvestment of dividends) was $100 on December 31, 2013.
For our Class C capital stock, this graph covers the period from August 3, 2015, using the closing price for the first day of trading during the when-issued trading period prior to the August 2015 stock split effected in the form of a dividend through December 31, 2018. This graph assumes that the value of the investment in Zillow Group’s Class C capital stock (including reinvestment of dividends) was $100 on August 3, 2015.





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The information contained in the graph is based on historical data and is not intended to forecast possible future performance.
a5yearcomparisonoftotalret.jpg

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PART II
Item 6. Selected Financial Data.
The selected financial data set forth below should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and our previously audited financial statements that are not included herein. We have included Trulia, Inc. in Zillow Group’s results of operations prospectively after February 17, 2015, the date of acquisition. We have given retroactive effect to prior period share and per share amounts in our consolidated statements of operations for the August 2015 stock split effected in the form of a dividend so that prior periods are comparable to current period presentation. Our historical results are not necessarily indicative of our results to be expected in any future period.

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Year Ended December 31,
 
2018

2017

2016

2015

2014
 
(in thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
IMT
$
1,281,189

 
$
1,076,794

 
$
846,589

 
$
644,677

 
$
325,893

Homes
52,365

 
—

 
—

 
—

 
—

Total revenue
1,333,554

 
1,076,794

 
846,589

 
644,677

 
325,893

Cost of revenue (exclusive of amortization) (1)(2):
 
 
 
 
 
 
 
 
 
IMT
104,330

 
85,203

 
69,262

 
60,127

 
29,461

Homes
49,260

 
—

 
—

 
—

 
—

Total cost of revenue
153,590

 
85,203

 
69,262

 
60,127

 
29,461

Sales and marketing (1)
552,621

 
448,201

 
382,419

 
308,125

 
169,462

Technology and development (1)
410,818

 
319,985

 
255,583

 
184,477

 
84,669

General and administrative (1)
262,153

 
210,816

 
332,007

 
184,984

 
65,503

Impairment and restructuring costs (1)
79,000

 
174,000

 
—

 
35,551

 
—

Acquisition-related costs
2,332

 
463

 
1,423

 
16,576

 
21,493

Integration costs
2,015

 
—

 
—

 
—

 
—

Loss (gain) on divestiture of businesses
—

 
—

 
(1,251
)
 
4,368

 
—

Total costs and expenses
1,462,529

 
1,238,668

 
1,039,443

 
794,208

 
370,588

Loss from operations
(128,975
)
 
(161,874
)
 
(192,854
)
 
(149,531
)
 
(44,695
)
Loss on debt extinguishment
—

 
—

 
(22,757
)
 
—

 
—

Other income
19,270

 
5,385

 
2,711

 
1,501

 
1,085

Interest expense
(41,255
)
 
(27,517
)
 
(7,408
)
 
(5,489
)
 
—

Loss before income taxes
(150,960
)
 
(184,006
)
 
(220,308
)
 
(153,519
)
 
(43,610
)
Income tax benefit (expense)
31,102

 
89,586

 
(130
)
 
4,645

 
—

Net loss
$
(119,858
)
 
$
(94,420
)
 
$
(220,438
)
 
$
(148,874
)
 
$
(43,610
)
Net loss per share—basic and diluted
$
(0.61
)
 
$
(0.51
)
 
$
(1.22
)
 
$
(0.88
)
 
$
(0.36
)
Weighted average shares outstanding—basic and diluted
197,944

 
186,453

 
180,149

 
169,767

 
120,027

(1) Includes share-based compensation as follows:
 
 
 
 
 
 
 
 
 
Cost of revenue
$
4,127

 
$
3,884

 
$
3,550

 
$
2,384

 
$
1,844

Sales and marketing
22,942

 
22,735

 
23,320

 
25,391

 
7,320

Technology and development
56,673

 
39,938

 
31,466

 
26,849

 
11,681

General and administrative
65,342

 
47,014

 
48,582

 
50,590

 
13,240

Impairment and restructuring costs
—

 
—

 
—

 
14,859

 
—

Total
$
149,084

 
$
113,571

 
$
106,918

 
$
120,073

 
$
34,085

(2) Amortization of website development costs and intangible assets included in technology and development
$
79,309

 
$
94,349

 
$
87,060

 
$
63,189

 
$
29,487


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At December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
(in thousands)
Balance Sheet Data:
 
 
 
 
 
 
Cash, cash equivalents and investments
$
1,554,925

 
$
762,539

 
$
507,515

 
$
520,289

 
$
455,920

Working capital
1,605,200

 
723,138

 
485,617

 
493,672

 
352,141

Property and equipment, net
135,172

 
112,271

 
98,288

 
85,523

 
41,600

Total assets
4,291,116

 
3,230,517

 
3,149,677

 
3,135,700

 
649,730

Long-term debt
699,020

 
385,416

 
367,404

 
230,000

 
—

Deferred tax liabilities and other long-term liabilities
17,474

 
44,561

 
136,146

 
132,482

 
—

Total shareholders’ equity
3,267,179

 
2,660,823

 
2,533,587

 
2,679,053

 
588,779


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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those described in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Risk Factors”.
Overview of our Business
Zillow Group, Inc. operates the largest portfolio of real estate and home-related brands on mobile and the web which focus on all stages of the home lifecycle: renting, buying, selling and financing. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes and connecting them with great real estate professionals. The Zillow Group portfolio of consumer brands includes Zillow, Trulia, Mortgage Lenders of America, StreetEasy, HotPads, Naked Apartments, RealEstate.com and Out East. Beginning in April 2018, the Zillow Offers service provides homeowners in select metropolitan areas with the opportunity to receive offers to purchase their homes from Zillow. When Zillow buys a home, it makes certain repairs and lists the home for resale on the open market. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions to help real estate professionals maximize business opportunities and connect with millions of consumers. Zillow Group also operates a number of business brands for real estate, rental and mortgage professionals, including Mortech, dotloop, Bridge Interactive and New Home Feed.
Reportable Segments and Revenue Overview
As of the second quarter of 2018, Zillow Group has two reportable segments: the Internet, Media & Technology (“IMT”) segment, our historical operating and reportable segment, and the Homes segment. In connection with our IMT segment, we generate revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, rental and mortgage industries. These professionals include real estate, rental and mortgage professionals and brand advertisers. Our four primary revenue categories within our IMT segment are Premier Agent, Rentals, Mortgages and Other.
Premier Agent revenue is generated by the sale of advertising services, as well as marketing and technology products and services, to help real estate agents and brokers grow and manage their businesses. We offer these products and services through our Premier Agent and Premier Broker programs. Premier Agent and Premier Broker advertising products are primarily sold on a cost per impression basis. Impressions are delivered when a sold advertisement of a Premier Agent or Premier Broker appears on pages viewed by users of our mobile applications and websites.
Rentals revenue primarily includes advertising sold to property managers and other rental professionals on a cost per lead, cost per click or cost per lease generated basis. Beginning in 2018, rentals revenue also includes revenue generated through our rental applications product, whereby potential renters can submit applications to multiple properties over a 30-day period for a flat service fee.
Mortgages revenue primarily includes advertising sold to mortgage lenders and other mortgage professionals on a cost per lead basis, including our Connect (formerly known as Long Form) and Custom Quote services, as well as revenue generated by Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform. Beginning in October 2018, following our acquisition of Mortgage Lenders of America, L.L.C. (“MLOA”), mortgages revenue also includes revenue generated through mortgage originations and the sale of mortgages on the secondary market.
On October 31, 2018, we completed the acquisition of MLOA, a licensed mortgage lender. This acquisition is consistent with our strategy of providing services closer to real estate transactions to create better consumer experiences. The total purchase price for the acquisition of MLOA is approximately $66.7 million in cash. For additional information about the acquisition of MLOA, see Note 9 to our consolidated financial statements.
Other revenue primarily includes revenue generated by new construction and display advertising, as well as revenue from the sale of various other advertising and business technology solutions for real estate professionals, including dotloop. New construction revenue primarily includes advertising services sold to home builders on a cost per residential community basis. Display revenue primarily consists of graphical mobile and web advertising sold to advertisers promoting their brands on our mobile applications and websites.

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In our Homes segment, we generate revenue from the resale of homes on the open market through our Zillow Offers service. We began buying homes through the Zillow Offers service in April 2018, and we began selling homes in July 2018
Beginning with the Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2019, Zillow Group expects to report financial results for three reportable segments: the IMT segment, the Homes segment and the Mortgages segment. The IMT segment will include the financial results for the Premier Agent, Rentals and new construction marketplaces, as well as dotloop, display and other advertising and business software solutions. The Homes segment will include the financial results from Zillow Group’s buying and selling of homes directly through the Zillow Offers service. The Mortgages segment will include the financial results for advertising sold to mortgage lenders and other mortgage professionals, mortgage originations through MLOA and Mortech mortgage software solutions. We expect the Mortgages segment, with the inclusion of MLOA, to have a material impact on our consolidated balance sheets, statements of operations and cash flows in 2019.
Overview of Significant Milestones and Results
The following is a summary of certain of our significant milestones for the year ended December 31, 2018:
 
•
In January, we launched Out East™, a new Hamptons-focused real estate brand. Out East replaces Hamptons Real Estate Online (HREO.com), which Zillow Group acquired in January 2017.

•
In February, we launched a new national advertising campaign, “Many Ways Home”, with three national TV spots illustrating the diversity of the housing market today and the many different paths people take to find a new home.

•
In March, we announced the top three teams from round one of our Zillow Prize competition, a machine learning competition to improve Zestimate accuracy, with a grand prize of up to $1 million to the person or team who submits the most improved Zestimate algorithm model. In January 2019, we awarded the $1 million prize to the winning team, which beat the Zillow benchmark model by approximately 13%.

•
In March, we launched the “My Agent” feature, which creates an exclusive relationship between a Premier Agent and a home shopper on Zillow Group’s mobile applications and websites.

•
In April, we announced the launch of our Homes business, Zillow Offers. We believe the Zillow Offers service offers transparency, convenience and more choice for home sellers, and gives them certainty over their property sale price and timing of their move. As of December 31, 2018, the Zillow Offers service is available in Phoenix, Las Vegas, Atlanta, Denver, and Charlotte.

•
In the second half of 2018, we made important changes to the Premier Agent and Premier Broker programs. For example, and as discussed in greater detail below, we implemented a new form of consumer lead validation and distribution to our Premier Agent and Premier Broker advertisers in an effort to deliver higher quality leads, which resulted in a decrease in the total number of leads received by some advertisers. The initial changes resulted in advertiser churn at a rate higher than we expected. Based on feedback from our Premier Agents and Premier Brokers, we subsequently made further adjustments to these processes, for example, by decreasing the number of screening questions posed to consumers as part of consumer lead validation, in an effort to return to prior lead volumes. We also implemented pricing caps in certain high-demand zip codes to help ease pressure on cost-per-lead increases resulting from growing demand in our auction-based pricing model. Beginning in the fourth quarter of 2018, we introduced Premier Agent and Premier Broker Flex Pricing products in a limited number of markets. With the Flex Pricing products, Premier Agents and Premier Brokers are provided validated consumer leads at no upfront cost and pay a performance advertising fee only when a real estate transaction is closed with one of their leads. We plan to expand this pricing model further in 2019.

•
In June, we announced that we entered into an agreement to receive a direct listing feed from CENTURY 21 Canada to enable Zillow Group to feature Canadian listings on Zillow.com. We entered into additional listing agreements and marketing partnerships with other Canadian real estate enterprises throughout the year.

•
In July, we introduced new tools for renters and landlords. Renters can apply for multiple rental units with one application, including background and credit reports and pay their rent through new features on Zillow.

•
In July, we issued $373.8 million aggregate principal amount of 1.50% Convertible Senior Notes due 2023 (the “2023 Notes”), which includes $48.8 million principal amount of 2023 Notes sold pursuant to the underwriters’ option to purchase additional notes. We received net proceeds of $364.0 million after deducting underwriting

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discounts and commissions and offering expenses payable by us. We used approximately $29.4 million of the net proceeds from the issuance of the 2023 Notes to pay the cost of the Capped Call Confirmations. For additional information regarding the 2023 Notes, see Note 14 to our consolidated financial statements.

•
In July, we issued and sold 6,557,017 shares (of which 855,263 shares were related to the exercise of the underwriters’ option to purchase additional shares) of our Class C capital stock at a public offering price of $57.00 per share. We received net proceeds of $360.3 million after deducting underwriting discounts and commissions and offering expenses payable by us. For additional information regarding the issuance, see Note 16 to our consolidated financial statements.

•
In August, the company announced its entrance into a revolving credit agreement with Credit Suisse AG, Cayman Islands Branch, as the directing lender, and certain other parties thereto (the “Revolving Credit Facility”). The agreement provided for a maximum borrowing capacity of $250.0 million with an initial borrowing capacity of $20.0 million. On December 31, 2018 we increased the maximum borrowing capacity related to the Revolving Credit Facility to $500.0 million. As of December 31, 2018, the Revolving Credit Facility had a current borrowing capacity of $126.7 million.

•
In October, we acquired MLOA, a licensed mortgage lender headquartered in Overland Park, Kansas.

•
In October, we announced the “Best of Zillow” program, a data-driven program based on consumer feedback that will highlight real estate agent advertisers who provide exceptional customer service and reward them with additional marketing benefits such as designations as “Best of Zillow” or “Best of Trulia”.

For the years ended December 31, 2018, 2017, and 2016, we generated revenue of $1,333.6 million, $1,076.8 million and $846.6 million, respectively, representing year-over-year growth of 24%, 27% and 31%, respectively. The increases in total revenue were primarily driven by growth in our Premier Agent program, which generated revenue of $898.3 million, $761.6 million, and $604.3 million, respectively, for the years ended December 31, 2018, 2017 and 2016. We believe we were able to achieve these levels of revenue growth because of user traffic to and engagement with our mobile applications and websites, which create monetization opportunities for us through the sale of advertising and other products and services. The average number of monthly unique users for the three months ended December 31, 2018, 2017 and 2016 were 157.2 million, 151.6 million and 140.1 million, respectively, representing year-over-year growth of 4%, 8% and 13%, respectively. Visits for the years ended December 31, 2018, 2017 and 2016 were 7,182.1 million, 6,314.4 million and 5,323.2 million, respectively, representing year-over-year growth of 14%, 19% and 33%, respectively. This increase in visits increased the number of impressions we could monetize in our Premier Agent marketplace. Premier Agent revenue per visit for the years ended December 31, 2018, 2017 and 2016 was $0.125, $0.121 and $0.114, respectively, representing year-over-year growth of 4%, 6% and 1%, respectively. We believe Premier Agent revenue was also positively impacted by market forces continuing to take effect within the auction-based pricing method we deployed for our Premier Agent and Premier Broker products in 2016 and 2017, which may have increased demand for our advertising platform. Total revenue also increased due to the launch of our Zillow Offers business in April 2018, which generated revenue of $52.4 million for the year ended December 31, 2018 due to the sale of 177 homes at an average selling price of $295.8 thousand per home.
Employees
As of December 31, 2018, we had 4,336 full-time employees compared to 3,181 full-time employees as of December 31, 2017.
Key Metrics
Management has identified unique users and visits as relevant to investors’ and others’ assessment of our financial condition and results of operations.
Unique Users
Measuring unique users is important to us because much of our Premier Agent, Rentals, Mortgages and other advertising revenue depends in part on our ability to enable real estate, rental and mortgage professionals to connect with our consumer users - home buyers and sellers, renters, and individuals with or looking for a mortgage. Our display revenue depends in part on the number of impressions delivered to our users, and our Homes revenue depends in part on users accessing our mobile applications and websites to engage in the sale and purchase of homes with Zillow Group. Growth in consumer traffic to our mobile applications and websites increases the number of impressions, clicks, leads and other events we can monetize to

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generate revenue. In addition, our community of users improves the quality of our living database of homes with their contributions, which in turn attracts more users.
We count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses more than one of our mobile applications within a given month, the first access to each mobile application is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Zillow, StreetEasy, HotPads, Naked Apartments (as of March 2016) and RealEstate.com (as of June 2017) measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics (formerly called Omniture analytical tools).
 
Three Months Ended
December 31,
 
2017 to 2018
% Change
 
2016 to 2017
% Change
 
2018

2017

2016
 
 
(in millions)
 
 
 
 
Average Monthly Unique Users
157.2

 
151.6

 
140.1

 
4
%
 
8
%
Visits
The number of visits is an important metric because it is an indicator of consumers’ level of engagement with our mobile applications, websites and other services. We believe highly engaged consumers are more likely to be transaction-ready real estate market participants and therefore more sought-after by our real estate professional advertisers or more likely to participate in our Zillow Offers program.
We define a visit as a group of interactions by users with the Zillow, Trulia, StreetEasy (as of March 2017) and RealEstate.com (as of June 2017) mobile applications and websites, as we monetize our Premier Agent and Premier Broker products on these mobile applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months.
Zillow, StreetEasy and RealEstate.com measure visits with Google Analytics, and Trulia measures visits with Adobe Analytics. Visits to Trulia end after thirty minutes of user inactivity. Visits to Zillow, StreetEasy and RealEstate.com end either: (i) after thirty minutes of user inactivity or at midnight; or (ii) through a campaign change. A visit ends through a campaign change if a visitor arrives via one campaign or source (for example, via a search engine or referring link on a third-party website), leaves the mobile application or website, and then returns via another campaign or source.
 
Year Ended December 31,
 
2017 to 2018
% Change
 
2016 to 2017
% Change
 
2018
 
2017
 
2016
 
 
(in millions)
 
 
 
 
Visits
7,182.1

 
6,314.4

 
5,323.2

 
14
%
 
19
%

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Basis of Presentation
Revenue
We recognize revenue when (or as) we satisfy our performance obligations by transferring control of promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.
In our IMT segment, we generate revenue from the sale of advertising services and our suite of marketing software and technology solutions to businesses and professionals primarily associated with the residential real estate, rental and mortgage industries. These professionals include real estate, rental and mortgage professionals and brand advertisers. Our four primary revenue categories within our IMT segment are Premier Agent, Rentals, Mortgages and Other.
In our Homes segment, we generate revenue from the resale of homes on the open market through our Zillow Offers program.
Premier Agent Revenue. Premier Agent revenue is derived from our Premier Agent and Premier Broker programs. Our Premier Agent and Premier Broker programs offer a suite of marketing and business technology products and services to help real estate agents and brokers achieve their advertising goals, while growing and managing their businesses and brands. All Premier Agents and Premier Brokers receive access to a dashboard portal on our mobile application or website that provides individualized program performance analytics, our customer relationship management, or CRM, tool that captures detailed information about each contact made with a Premier Agent or Premier Broker through our mobile and web platforms and our account management tools. We have concluded that the marketing and business technology products and services promised to Premier Agents and Premier Brokers represent distinct performance obligations.
We primarily offer our Premier Agent and Premier Broker advertising products on a cost per impression basis. Payment is received prior to the delivery of impressions. Impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites. We determine the cost per impression delivered in each zip code using an auction-based pricing method in consideration of the total amount spent by Premier Agents and Premier Brokers to purchase impressions in the zip code during the month. A Premier Agent’s or Premier Broker’s share of voice in a zip code is determined by their proportional monthly budgeted spend in that zip code as a percentage of the total monthly budgeted spend of all Premier Agents and Premier Brokers in that zip code. The cost per impression that we charge is dynamic - as demand for impressions in a zip code increases or decreases, the cost per impression in that zip code may be increased or decreased accordingly. The price paid for each impression is representative of the price at which we would sell an impression separately to a customer, or the stand-alone selling price.
We have not allocated the transaction price to each performance obligation as the amounts recognized would be the same irrespective of any allocation. As such, we recognize revenue related to the Premier Agent and Premier Broker products and services based on the contractual spend recognized on a straight-line basis during the contractual period over which the products and services are provided. This methodology best depicts how we satisfy our performance obligations to customers, as we continuously transfer control of the performance obligations to the customer throughout the contractual period.
In October 2018, we began testing a new Flex Pricing model for Premier Broker and Premier Agent advertising services in limited markets. With the Flex Pricing model, Premier Brokers and Premier Agents are provided with validated leads at no upfront cost, and they pay a performance advertising fee only when a real estate transaction is closed with one of their leads. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions. As the amount of consideration is dependent upon factors outside our influence and our experience with this pricing model is limited, we fully constrain the estimated variable consideration. When a real estate transaction is closed with a Flex Pricing lead and payment is made, the uncertainty is resolved, and revenue is recognized in the period for the satisfied performance obligations.
Rentals Revenue. Rentals revenue includes the sale of advertising in our rentals information marketplace, as well as the sale of our suite of tools for rental professionals. Rentals revenue primarily includes revenue generated by advertising sold to property managers and other rental professionals on a cost per lead, cost per click or cost per lease generated basis. We recognize revenue as leads or clicks are provided to rental professionals, which is the amount for which we have the right to invoice. The number of leases generated through our rentals marketplace during the period is accounted for as variable consideration, and we estimate these amounts based on the expected number of qualified leases secured during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of leases secured is subsequently resolved.

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Beginning in 2018, rentals revenue also includes revenue generated from our rental applications product through which potential renters can submit applications to multiple rental properties over a 30-day period for a flat service fee. We recognize revenue for the rental applications product on a straight-line basis during the contractual period over which the customer has the right to access and submit the rental application.
Mortgages Revenue. Mortgages revenue primarily includes marketing products sold to mortgage professionals on a cost per lead basis, including our Custom Quote and a portion of our Connect services, and on a subscription basis, including a portion of our Connect service. Zillow Group operates Custom Quote and Connect through its wholly owned subsidiary, Zillow Group Marketplace, Inc., a licensed mortgage broker. For our Connect and Custom Quote cost per lead mortgage marketing products, participating qualified mortgage professionals typically make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Mortgage professionals who exhaust their initial prepayment prepay additional funds to continue to participate in the marketplace. For our Connect subscription mortgage marketing product, participating qualified mortgage professionals generally prepay a monthly subscription fee, which they then allocate to desired geographic counties. In Zillow Group’s Connect platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information, or leads, when the consumer chooses to share their information with a lender. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals.
For our cost per lead mortgages products, we recognize revenue when a user contacts a mortgage professional through our mortgages platform, which is the amount for which we have the right to invoice. For our subscription product, the opportunity to receive a consumer contact is based on the mortgage professional’s relative share of voice in a geographic county. When a consumer submits a contact, we contact a group of subscription mortgage professionals via text message, and the first mortgage professional to respond receives the consumer contact information. We recognize revenue based on the contractual spend recognized on a straight-line basis during the contractual period over which the service is provided. This methodology best depicts how we satisfy our performance obligation to subscription customers, as we continuously transfer control of the performance obligation to the customer throughout the contractual period.
Mortgages revenue also includes revenue generated by Mortech, which provides subscription-based mortgage software solutions, including a product and pricing engine and lead management platform, for which we recognize revenue on a straight-line basis during the contractual period over which the services are provided.
Beginning in the fourth quarter of 2018, mortgages revenue also includes revenue generated by our mortgage originations business. We elect the fair value option for our mortgage loans held for sale, which are initially recorded at fair value based on either sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loans are closed. Net origination costs and fees associated with mortgage loans are recognized as incurred at the time of origination. We sell substantially all of the mortgages we originate and the related servicing rights to third-party purchasers.
Other Revenue. Other revenue primarily includes revenue generated by new construction and display, as well as revenue from the sale of various other marketing and business products and services to real estate professionals. Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis, and revenue is recognized on a straight-line basis during the contractual period over which the communities are advertised on our mobile applications and websites. Consideration is billed in arrears. Display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites, which is the amount for which we have the right to invoice.
Homes Revenue. Homes revenue is derived from the resale of homes on the open market through our Zillow Offers program. Homes revenue is recognized at the time of the closing of the home sale when title to and possession of the property are transferred to the buyer. The amount of revenue recognized for each home sale is equal to the full sale price of the home and does not reflect real estate agent commissions, closing or other costs associated with the transaction.
Costs and Expenses
Cost of Revenue. For our IMT segment, our cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount expenses, such as salaries, benefits, bonuses, and share-based compensation expense, as well as credit card fees, ad serving costs paid to third parties, revenue-sharing costs related to our commercial business relationships, depreciation expense and costs associated with the operation of our data center and mobile

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applications and websites. Cost of revenue also includes expenses related to lead acquisition, systems directly used to originate mortgages and fees and processing costs incurred to originate mortgages.
For our Homes segment, our cost of revenue consists of the amount we pay to purchase each property, the costs of renovation we conduct on each property, associated headcount expenses, such as salaries, benefits, bonuses, and share-based compensation expense, as well as associated overhead costs.
Sales and Marketing. Sales and marketing expenses consist of advertising costs and other sales expenses related to promotional and marketing activities. Sales and marketing expenses also include headcount expenses, including salaries, commissions, benefits, share-based compensation expense and bonuses for sales, sales support, customer support, marketing and public relations employees, and for loan officers and specialists related to our mortgage originations business, and depreciation expense.
For our Homes segment, sales and marketing expenses also consist of selling costs, such as real estate agent commissions, escrow and title fees, and staging costs, as well as holding costs, including utilities, taxes and maintenance.
Technology and Development. Technology and development expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development and testing of our mobile applications and websites and the tools and applications that support our products. Technology and development expenses also include equipment and maintenance costs. Technology and development expenses also include amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangibles and other data agreement costs related to the purchase of data used to populate our mobile applications and websites, and amortization of intangible assets recorded in connection with acquisitions, including developed technology and customer relationships, amongst others. Technology and development expenses also include depreciation expense.
General and Administrative. General and administrative expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for executive, finance, accounting, legal, human resources, recruiting, corporate information technology costs and other administrative support. General and administrative expenses also include legal settlement costs, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.
Impairment Costs. Impairment costs for the year ended December 31, 2018 consist of a $10.0 million non-cash impairment related to our June 2017 equity investment and a $69.0 million non-cash impairment related to the indefinite-lived Trulia trade names and trademarks intangible asset. For additional information about the impairments, see Note 9 and Note 11 to our consolidated financial statements.
Acquisition-related Costs. Acquisition-related costs consist of investment banking, legal, accounting, tax, and regulatory filing fees associated with acquisitions.
Integration Costs. Integration costs consist of expenses incurred to incorporate operations, systems, technology, and rights and responsibilities of acquired companies, during both pre-closing and post-closing periods, into Zillow Group’s business. For the year ended December 31, 2018, integration costs primarily include consulting-related expenses incurred in connection with the acquisition of MLOA.
Gain on Divestiture of Business. The gain on divestiture of business recorded for the year ended December 31, 2016 consists of the gain recognized in connection with our August 2016 sale of our Diverse Solutions business.
Loss on Debt Extinguishment
The loss on debt extinguishment recorded for the year ended December 31, 2016 relates to the partial repurchase of Trulia’s Convertible Senior Notes due in 2020 (the “2020 Notes”) in December 2016.
Other Income
Other income consists primarily of interest income earned on our cash, cash equivalents and short-term investments.
Interest Expense
Interest expense consists of interest on the 2020 Notes we guaranteed in connection with our February 2015 acquisition of Trulia, interest on the Convertible Senior Notes due in 2021 (the “2021 Notes”) we issued in December 2016 and interest on

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the 2023 Notes we issued in July 2018. Interest is payable on the 2020 Notes at the rate of 2.75% semi-annually on June 15 and December 15 of each year. Interest is payable on the 2021 Notes at the rate of 2.00% semi-annually on June 1 and December 1 of each year. Interest is payable on the 2023 Notes at the rate of 1.50% semi-annually on January 1 and July 1 of each year.
Beginning in August 2018, interest expense includes interest on borrowings, funding fees and other fees, including the amortization of deferred issuance costs, on our revolving credit agreement with Credit Suisse AG, Cayman Islands Branch (the “Revolving Credit Facility”) related to our Zillow Offers business. Borrowings on our Revolving Credit Facility bear interest at a floating rate based on LIBOR plus an applicable margin, as defined in the credit agreement governing the Revolving Credit Facility.
Beginning in October 2018, interest expense also includes interest on warehouse lines of credit acquired as part of the acquisition of MLOA. Each line of credit provides for a current and maximum borrowing capacity of $50.0 million, or $100.0 million in total. Borrowings on the lines of credit bear interest at either the one-month LIBOR rate plus an applicable margin, as defined in the credit agreement governing the line of credit, or the daily adjusting LIBOR rate plus an applicable margin, as defined in the credit agreement governing the warehouse line of credit.
Income Taxes
We are subject to federal and state income taxes in the United States and in Canada. As of December 31, 2018 and December 31, 2017, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. Therefore, no material current tax liability or expense has been recorded in the consolidated financial statements. We have accumulated federal tax losses of approximately $1,081.7 million as of December 31, 2018, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $32.5 million (tax effected) as of December 31, 2018.
We recorded an income tax benefit of $31.1 million for the year ended December 31, 2018. Approximately $15.4 million of the income tax benefit relates to a $69.0 million non-cash impairment we recorded during the year ended December 31, 2018 related to the indefinite-lived Trulia trade names and trademarks intangible asset. For additional information about the non-cash impairment, see Note 11 to our consolidated financial statements. The remaining portion of our income tax benefit is primarily the result of net operating losses generated after December 31, 2017 with an indefinite carryforward period due to the Tax Cuts and Jobs Act of 2017 (“the Tax Act”). Current year net operating losses can now offset against the indefinite-lived deferred tax liabilities which resulted in a release of the valuation allowance and a resulting income tax benefit.
During the year ended December 31, 2018, we completed our accounting for the income tax effects related to the deduction limitations on compensation under the Tax Act. The Internal Revenue Service provided further guidance in applying the written binding contracts requirement under the Tax Act, and we believe certain of our executive compensation previously eligible to be deductible for tax purposes under Section 162(m) of the Internal Revenue Code will be considered grandfathered and, therefore, will continue to be deductible. Based on the clarification of these rules, the accounting related to the Section 162(m) limitation of the Internal Revenue Code is considered complete and as a result we recorded a $5.9 million tax benefit for the year ended December 31, 2018.
We recorded an income tax benefit of $89.6 million for the year ended December 31, 2017. Approximately $66.0 million of the income tax benefit relates to a $174.0 million non-cash impairment we recorded during the year ended December 31, 2017 related to the $351.0 million indefinite-lived intangible asset that we recorded in connection with our February 2015 acquisition of Trulia for Trulia’s trade names and trademarks. For additional information about the non-cash impairment, see Note 11 to our consolidated financial statements. The remaining $23.6 million of the income tax benefit primarily relates to our initial analysis of the impact of the rate decrease included in the Tax Act for the impact of the reduction in our net deferred tax liability related to our indefinite-lived intangible asset.

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Results of Operations
The following tables present our results of operations for the periods indicated and as a percentage of total revenue:
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands, except per share data)
Statements of Operations Data:
 
 
 
 
 
Revenue:
 
 
 
 
 
IMT
$
1,281,189

 
$
1,076,794

 
$
846,589

Homes
52,365

 
—

 
—

Total revenue
1,333,554

 
1,076,794

 
846,589

Cost of revenue (exclusive of amortization) (1)(2):
 
 
 
 
 
IMT
104,330

 
85,203

 
69,262

Homes
49,260

 
—

 
—

Total cost of revenue
153,590

 
85,203

 
69,262

Sales and marketing (1)
552,621

 
448,201

 
382,419

Technology and development (1)
410,818

 
319,985

 
255,583

General and administrative (1)
262,153

 
210,816

 
332,007

Impairment costs
79,000

 
174,000

 
—

Acquisition-related costs
2,332

 
463

 
1,423

Integration costs
2,015

 
—

 
—

Gain on divestiture of business
—

 
—

 
(1,251
)
Total costs and expenses
1,462,529

 
1,238,668

 
1,039,443

Loss from operations
(128,975
)
 
(161,874
)
 
(192,854
)
Loss on debt extinguishment
—

 
—

 
(22,757
)
Other income
19,270

 
5,385

 
2,711

Interest expense
(41,255
)
 
(27,517
)
 
(7,408
)
Loss before income taxes
(150,960
)
 
(184,006
)
 
(220,308
)
Income tax benefit (expense)
31,102

 
89,586

 
(130
)
Net loss
$
(119,858
)
 
$
(94,420
)
 
$
(220,438
)
Net loss per share—basic and diluted
$
(0.61
)
 
$
(0.51
)
 
$
(1.22
)
Weighted-average shares outstanding—basic and diluted
197,944

 
186,453

 
180,149

Other Financial Data:
 
 
 
 
 
Adjusted EBITDA (unaudited) (3)
___________
$
200,832

 
$
236,315

 
$
14,826

(1) Includes share-based compensation as follows:
 
 
 
 
 
Cost of revenue
$
4,127

 
$
3,884

 
$
3,550

Sales and marketing
22,942

 
22,735

 
23,320

Technology and development
56,673

 
39,938

 
31,466

General and administrative
65,342

 
47,014

 
48,582

Total
$
149,084

 
$
113,571

 
$
106,918

(2) Amortization of website development costs and intangible assets included in technology and development
$
79,309

 
$
94,349

 
$
87,060

(3) Adjusted EBITDA is a non-GAAP financial measure; it is not calculated or presented in accordance with U.S. generally accepted accounting principles, or GAAP. See “Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA for the year ended December 31, 2016 includes the impact of the settlement of a lawsuit in June 2016 whereby the Company paid $130.0 million in connection with a release of all claims.

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Table of Contents

 
Year Ended December 31,
 
2018
 
2017
 
2016
Percentage of Revenue:
 
 
 
 
 
Revenue
 
 
 
 
 
IMT
96
 %
 
100
 %
 
100
 %
Homes
4

 
0

 
0

Total revenue
100

 
100

 
100

Cost of revenue (exclusive of amortization):
 
 
 
 
 
IMT
8

 
8

 
8

Homes
4

 
0

 
0

Total cost of revenue
12

 
8

 
8

Sales and marketing
41

 
42

 
45

Technology and development
31

 
30

 
30

General and administrative
20

 
20

 
39

Impairment costs
6

 
16

 
0

Acquisition-related costs
—

 
—

 
—

Integration costs
—

 
0

 
0

Gain on divestiture of business
0

 
0

 
—

Total costs and expenses
110

 
115

 
123

Loss from operations
(10
)
 
(15
)
 
(23
)
Loss on debt extinguishment
0

 
0

 
(3
)
Other income
1

 
1

 
—

Interest expense
(3
)
 
(3
)
 
(1
)
Loss before income taxes
(11
)
 
(17
)
 
(26
)
Income tax benefit (expense)
2

 
8

 
—

Net loss
(9
)%
 
(9
)%
 
(26
)%
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA within this Annual Report on Form 10-K, a non-GAAP financial measure. We have provided a reconciliation below of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
We have included Adjusted EBITDA in this Annual Report on Form 10-K as it is a key metric used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
 
•
Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•
Adjusted EBITDA does not reflect impairment costs;
•
Adjusted EBITDA does not reflect acquisition-related costs;
•
Adjusted EBITDA does not reflect the gain on divestiture of business;
•
Adjusted EBITDA does not reflect interest expense or other income;
•
Adjusted EBITDA does not reflect the loss on debt extinguishment;

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Table of Contents

•
Adjusted EBITDA does not reflect income taxes; and
•
Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
B