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Zillow (NASDAQ:Z)

Q1 2014 Results Earnings Conference Call

May 07, 2014, 05:00 PM ET

Executives

Raymond Jones - IR

Spencer Rascoff - CEO

Chad Cohen - CFO

Analysts

Rohit Kulkarni - RBC Capital Markets

Christopher Merwin - Barclays Capital

Robert Peck - SunTrust

Heath Terry - Goldman Sachs

Ron Josey - JMP Securities

Brian Nowak - SIG

Neil Doshi - CRT Capital

Aaron Kessler - Raymond James

Lloyd Walmsley - Deutsche Bank

James Cakmak - Telsey Advisory

Daniel L. Kurnos - The Benchmark Company

Operator

Good day, ladies and gentlemen, and welcome to the Zillow's First Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. RJ Jones, Zillow's Investor Relations Officer. You may begin.

Raymond Jones

Thank you. Good afternoon, and welcome to Zillow's first quarter 2014 earnings conference call. Joining me today to talk about our results are Spencer Rascoff, Chief Executive Officer; and Chad Cohen, Chief Financial Officer.

Before we get started, as a reminder, during the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. We caution you to consider the important risk factors that could cause the company's actual results to differ materially from those in the forward-looking statements made in the press release and on this conference call.

These risk factors are described in our press release and are more fully detailed under the caption Risk Factors in Zillow's Annual Report on Form 10-K for the year ended December 31, 2013, and in our other filings with the SEC.

In addition, please note that the date of this conference call is May 7, 2014, and any forward-looking statements that we make today are based on the assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events.

During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. In our remarks, the non-GAAP financial measure adjusted EBITDA will be referred to simply as EBITDA, which excludes share-based compensation.

This call is being broadcast on the Internet and is available on the Investor Relations section of the Zillow website at investors.zillow.com. A recording of this call will be available after 8 p.m. Eastern Time today.

Please note that the earnings press release is available on our website. And after the call, a copy of today's prepared remarks along with exhibits of our business metrics will also be available on our website.

Today we will deliver 20 minutes of prepared remarks to start. And then we will host a live question-and-answer session for 40 minutes. During the Q&A, we will entertain questions asked via Twitter and Facebook, in addition to questions from those dialed into the call. Individuals may submit questions by tweeting @Zillow using the #ZEarnings hashtag or to the official Zillow Facebook page.

After the call, Ron Josey from JMP Securities and Mike Graham from Canaccord Genuity will moderate a 15 minutes follow-up Q&A session with Spencer via Twitter with the same #ZEarnings hashtag.

We are very pleased to welcome Ron and JMP Securities to the Twitters page.

I will now turn the call over to Spencer.

Spencer Rascoff

Thank you for joining us today to discuss our first quarter 2014 results. We had a terrific quarter ahead of expectations, which flows through our raised full year outlook that we'll discuss later in the call.

Traffic on mobile and Web continues to grow quickly with over 50% year-over-year growth in average monthly unique users during the quarter.

We reached a new traffic record of nearly 77 million unique users in March, which we just toped with a new record of almost 79 million unique users in April.

Both months represented an absolute gain of over 26 million unique users year-over-year. And mobile continues to represent the majority of our visits with two-thirds of Zillow visits now coming from the mobile device.

Mobile usage nearly doubled from the first quarter of 2013. And in April a record of more than 460 million homes were viewed on Zillow mobile, which equates to 178 homes every second. When we went public three years ago, this was about 21 homes per second.

In addition to audience growth we see positive momentum across our entire business. In the first quarter, we exceeded a record of $66 million in revenue up 70% year-over-year and representing the 14th consecutive quarter of above 67% year-over-year growth. For comparison, we generated $66 million in revenue for all of 2011 just three years ago when we went public.

A key contributor to this growth was our Premier Agent business which closed the quarter with over $180 million annualized revenue run rate up from more than $150 million annualized revenue run rate last quarter.

Moving from the top to the bottom line, our adjusted EBITDA approached $9 million for the quarter higher than expectations to the strong sales. While we increased our strategic investments this year in advertising, the incremental EBITDA indicates the potential for margin expansion in our model longer term.

Overall we are off to a great start for 2014, as we execute on our three strategic priorities of growing our audience, growing our Premier Agent business and growing our advancing marketplaces. I'll now touch briefly on progress in all three of these areas.

Our first priority is audience. We believe that by attracting the largest audience from our category over the long term, we will win as a leading share of revenue and profits. Advertisers follow audience.

Audience starts with products and we are continuously expanding and improving our living database at our homes to provide better data and better experiences on mobile and Web.

Today we are approaching 50 million homes in our data base that have been improved and edited by homeowners and real estate agents. That's nearly half of all homes on Zillow.

These user contributions coupled with continuous additions and improvements of data are creating the largest and most complete depository of information on homes in U.S. anywhere.

Additionally, we recently crossed two significant milestones for our flagship Zestimate product, which helps homeowners, buyers and sellers understand the value of homes.

First, we made significant improvements nationwide on Zestimate accuracy. Our medium margin of error on Zestimate, which we measure by comparing Zestimate to actual sales prices on individual homes is now less than 7%.

Without ever stepping into our house, we are able to algorithmically estimate the home's value within 7%, which is the best medium margin of error we've ever had in our eight-year history and the best published accuracy rate of any automated valuation model that exists today. This is a significant analytical feet, a core competency of Zillow's and a strategic competitive mode.

Secondly, we recently launched Zestimate's forecast on more than 50 million individual homes. This latest data layer predicts a home's value change for the coming 12 month and is shown on individual home detail pages on mobile and Web.

For consumers who are looking to buy a home and for homeowners who might consider selling their home, Zestimate's forecast which is only viewable on Zillow provides yet another reason to use Zillow during their real estate search process.

Complementing the advances in our product, we continue to execute extremely well in marketing, both in our organic and PR efforts as well as advertising.

During the first quarter, we went back on-air with TV advertising after being off-air for most of the fourth quarter of 2013. We also added a new layer of product integration into various television shows including NBC's primetime home renovation show, American Dream Builders, as well as an integration with cult-favorite Portlandia on cable channel IFC and continued work with HGTV.

We measure the impact of our advertising carefully and all metrics are showing extremely positive results, which contributed to the record traffic and revenue for the quarter.

For competitive reasons, we're not showing the makeup of our acquisition funnel or specific advertising results, instead letting our business results speak for themselves. We are firing on all cylinders in marketing and its having a significant and meaningful impact on our business.

We continue to have high confidence in our plan to advertising investment in 2014 across channels and have plans to build on our momentum throughout the spring and summer home shopping season.

Moving now to an update on our second priority of growing our Premier Agent business. We continue to reach new heights on the strength of our product depths and audience growth.

At the end of the first quarter, we had nearly 53,000 Premier Agents. In addition, average monthly revenue per agent or ARPU was 286, an increase of $27 or 10% from a year ago and a new high for this measure.

Another way to look at our ARPU growth among Premier Agent is by comparing same-store sales. Agency who are subscribers with us for a year or more or spending nearly 50% more on average now than they were one year ago.

In fact an increasing number of existing Premier Agents want to spend more with us to accelerate their business. This quarter 60% of our new bookings came from existing Premier Agents buying more advertising.

One of the ways we help agents succeed is through our Tech Connect program where we provide our subscribers the ability to easily connect to the CRM tools of their choice, whether its Zillow's free CRM or CRM provided by their brokerage or MOS or one that they pay for from a technology provider.

We have now connected to 15 different CRM platforms up from two launch partners, when we first announced this program in November of 2013 with the lengthy pipeline with more to come.

The beauty of Tech Connect is that we are technology agnostic here preferring to provide an open platform and let agents use whatever software they want. We focus on selling them more media impressions rather than trying to shoehorn and cross-sell them into any specific, expensive or legacy CRM.

Turning now to our third strategic priority of growing our advancing marketplaces. We continue to gain traction on each growth path we have taken. In mortgages we are experiencing steady growth and deepening our relationships with our lenders even in the rising rate environment.

In Zillow mortgage marketplace consumers have now created nearly 75,000 lender reviews, a strong testament to this marketplace's vibrancy, best-in-class shopping experience and growing network effect.

Our new consumer pre-approval product has been positively received providing our lenders with more opportunities to serve the millions of home buyers on our site.

In our New York City marketplace, the largest and most important local real estate market in the U.S., our StreetEasy acquisition is performing extremely well. We have added more than a dozen new employees to the talented team of 30 at the time of acquisition last August. And have already redesigned the StreetEasy website and re-launched it without a payroll.

We are now hedged down, building up the mobile offering and multi screen experience for StreetEasy.

We are building fantastic new products and features that combines Zillow's deep understanding of the consumer and our industry leading mobile expertise with StreetEasy's deep data connection to New York City. We have much to export in New York in the coming months.

In our rentals marketplace, we are very pleased with our progress in monetization. Based on our own goals and historically how we have left in other marketplaces we are ahead of schedule.

To conclude, our terrific results this quarter indicate our strong potential or sustainable growth and leadership in the category. As a leader, we continuously attract the most talented personal to our cause within power and consumers.

In the quarter, we hired over 45 new members in our technology and development teams across our offices. And we welcome to Board two of the real estate industries distinguished thought leaders, Errol Samuelson and Curt Beardsley as well.

Our teams gets excited about data and looking at the 2013 U.S. housing market staff, the estimated transaction value of sales of new and existing homes was more than 1.4 trillion leading to approximately 75 billion in commissions paid.

Agents and brokers typically spend 10% to 20% of total commissions on advertising annually. In addition to the billions of dollars of advertising spent for professionals in the mortgages, rentals, and home improvements basis.

Our market opportunity remains massive and in the early stages of online migration, especially on mobile. The further we pull away now, the better things get and yet we are still just getting started.

With that, I'll turn the call over to Chad.

Chad Cohen

Thanks Spencer. I'll start off with our terrific usage growth in the first quarter and then move into operating results.

We attracted a record, $70.7 million average monthly unique users to Zillow's mobile applications and websites in the first quarter, growing 51% year-over-year, a four percentage point acceleration over last years 47% growth rate on a much larger user base.

Turning to our operating results, total revenue for the first quarter increased 70% year-over-year to a record $66.2 million from $39 million in the same quarter last year. Total revenue in the first quarter exceeded the mid point of our guidance of $62.5 million, by $3.7 million or 6%.

We saw continued shift in our revenue mix as we ended the first quarter with 81% of our revenue coming from our marketplace category or 19% came from display.

Taking a deeper dive into our primary revenue category, marketplace revenue grew 72% year-over-year to $53.4 million as we continued to see strong growth across our real estate and mortgage sub-categories

Growing further into our real estate sub-category, which includes Premier Agent, Diverse Solutions StreetEasy and Rentals. Our revenue accelerated sequentially for the second quarter in a row and grew 77% year-over-year to reach $46.2 million compared to $26.1 million last year.

Our Premier Agent business continues to execute, and during the quarter we added 4,654 net new Premier Agents, ending the period with 52,968 subscribers.

The vast majority of additions were at the platinum level, continuing the trend we've seen throughout the last few years. As Spencer noted 60% of our new sales bookings in the first quarter went to existing agents purchasing more impressions across mobile and Web, up from 55% in the fourth quarter, which signifies strong underlying demand and positively impacts average monthly revenue per subscriber, or ARPU.

Premier Agent ARPU was a record $286 in the first quarter, which was 10% higher than the figure in the same period last year and 6% higher sequentially. As a reminder, ARPU reflects average contract size and how we price subscriptions in a market. Pricing of our Platinum Premier Agent subscriptions is predicated on local home values, contact liquidity and demand for impressions in a ZIP code.

Moving from real estate to mortgages, which consists of Zillow Mortgage Marketplace and Mortech, revenue reached $7.1 million and grew 45% year over year, which includes a full period of Mortech revenue in the current and prior years. Mortech's contribution was $1.5 million in the quarter this year.

In Zillow Mortgage Marketplace, 5.8 million loan requests were submitted, during the quarter, growing 29% year over year, with purchase loan requests representing the vast majority of the mix.

Looking at our Display category, revenue in the first quarter grew 62% year-over-year to $12.9 million and we achieved our highest first quarter growth rate in Display since going public.

This represents the third consecutive quarter of robust 50% or greater growth, and to the positive reflection of our sustained audience growth, the efforts of our display sales team, and the value we provide to both endemic and non-endemic advertisers.

Shifting now from revenue to our operating costs, total operating expenses were $72.7 million compared to $42.8 million during the first quarter 2013, inline with last year as a percentage of revenue.

I'll now talk through the expense line items, comparing the first quarter results this year to last year. First, our cost of revenue during the quarter was $6.2 million, or 9% of revenue, compared to $4.1 million, or 11% of revenue last year. Favorable leverage resulted from higher growth of our owned and operated mobile apps and websites versus those of our partners with whom we have revenue sharing arrangements.

Next, sales and marketing expense was $34.9 million, or 53% of revenue, versus $19.8 million last year, which is two percentage points of revenue higher and slightly below our guidance range of $36 million to $37 million. Total advertising spend in the first quarter was unplanned.

Technology and development costs in the quarter were $17 million, or 26% of revenue, compared to $10.6 million, or 27% of revenue, in the first quarter 2013. The increase in costs reflects higher depreciation and amortization, and increased headcount-related expenses year-over-year.

G&A costs in the first quarter were $14.7 million, or 22% of revenue, as compared to the first quarter 2013 of $8.2 million, at 21% of revenue. The increase in absolute dollars year-over-year is primarily attributed to higher headcount and services costs, as well as higher facilities costs to support our growth.

GAPP net loss was $6.3 million in the first quarter compared to $3.7 million in the first quarter 2013. First quarter 2014 basic and diluted loss per share were $0.16, based on $39.3 million weighted average shares outstanding. And on a non-GAAP basis, which excludes share based compensation, basic and diluted earnings per share were $0.02.

EBITDA for the quarter was $8.7 million, exceeding the mid point of our EBITDA outlook by $4.5 million and representing 13% of revenue. This was up from prior years quarterly EBITDA of $5.1 million and represented the same percentage of revenue.

Along with our revenue upside flow through to earnings, we had positive variances versus our plans related to favorable headcount costs and from timing shifts on expenses.

Turning briefly to our balance sheet, we ended the quarter with approximately $447 million in cash, cash equivalents and investments, and had no debt.

Zillow ended the first quarter of 2014 with nearly 900 full time employees, up from nearly 650 a year ago. And we continue to grow in support of our strategic priorities which are growing our audience, increasing the size of our Premier Agent marketplace, and developing our advancing marketplaces.

Now turning to our outlook for the second quarter 2014 and the full fiscal year. Our revenue for the second quarter of 2014 is expected to be in the range of $75.5 million to $76.5 million. This outlook represents 62% year-over-year growth at the midpoint of the range.

For our second quarter outlook on EBITDA, we expect a range of $6 million to $6.5 million. At the midpoint of our range, this represents an approximate 8% margin. Also for the quarter we expect depreciation and amortization in the range of $8 million to $9 million, and share-based compensation in the range of $7 million to $8 million.

Although we are not providing the GAAP EPS outlook for the second quarter, we expect a basic and diluted weighted average share count of approximately $40 million and $43 million shares respectively.

As Spencer mentioned, we are raising our full year 2014 revenue and EBITDA outlook. Based on performance to date, we now expect revenue to be in the range of approximately $304 million to $308 million, representing an increase of $15 million at the midpoint of the range.

And we expect EBITDA to be in the range of approximately $48 million to $50 million, representing a $10 million increase at the midpoint.

We remain committed to investing in advertising across multiple channels, and we also plan on ramping our investments in product development as we pursue our strategic priorities.

As you know, we run Zillow with a focus on long term value creation and as such we might modify our spending strategies as we identify opportunities to better serve our consumers.

Moving quickly to reconciling items to EBITDA for the year, we expect depreciation and amortization to be in the range of $36 million to $39 million, share-based compensation to be in the range of $28 million to $30 million, and CapEx and capitalized purchased data content to be in the range of $19 million to $21 million.

We expect full year 2014 basic and diluted share counts to be approximately $40.5 million and $43.5 million weighted average shares outstanding, respectively.

In summary, Zillow had a terrific first quarter. We remain focused on accelerating our growth and advancing our home-related marketplaces, and we are extremely excited about our potential in 2014 and beyond.

With that I'll open it up for questions from those dialed into the call, and to questions submitted via Twitter and Facebook with the hashtag #ZEarnings.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Mark Mahaney of RBC Capital Market. Your line is now open.

Rohit Kulkarni – RBC Capital Markets

Great. Thank you. This is Rohit Kulkarni, I'm filling in for Mark. I guess, quick question on your sales and marketing spend, as I said it was slightly shy of what you had guided to, any more color that you can give as to what you are seeing with regards to your ROI on sales and marketing spend and how should we think about that going forward?

Spencer Rascoff

Hey Rohit, this is Spencer Rascoff, I'll take the first. Sales and marketing is obviously comprised - the sales team headcount but also our marketing team headcount and our ad expense. So, I guess, I'll take the ad side of things and then try to add on the, sales side of things.

We're very pleased with our advertising investments to date. You can see it comes through in the traffic number where regardless of which third-party measurement service you look at, whether it's comScore or Experian Hitwise or Google Analytics and regardless of the platform that you look at, whether it's desktop or mobile Web or mobile apps, Zillow continues to runaway with this thing.

And we now have according to comScore, total which is desktop and mobile combined we have 47% of the category, and that includes the long tail 100s of 1000s of real estate websites with more than twice as big as the number two company.

So, and just this morning comScore desktop came out for example and we left 13% year-over-year on a desktop, our main competitors were down 8% year-over-year in April on the desktop, and down 5% year-over-year in April on the desktop. So, well, that's one of the largest and we're also growing much faster, so our share gains, our share gains continue.

Part of that coming from advertising, part of it's coming from product development and we're very happy with how the team is performing in the ROI and in the advertising investment.

Rohit Kulkarni – RBC Capital Markets

All right.

Chad Cohen

Hey Rohit, this is Chad. In terms of, I guess the other side of that is probably headcount and although we grew the sales team, we were able to grow the sales team, I think more efficiently than we planned.

We're seeing really nice efficiencies in terms of the inside sales team, in terms of their ability to generate multi recurring revenue and more bookings and as such, we didn't grow the team, I don't think quite as fast as we had initially planned.

The goal of which is to make sure that we hire the right sales people to bring on the right Premier Agent, and so, we're not just going to bring anybody into the sales team, who doesn't fit that criteria.

Rohit Kulkarni – RBC Capital Markets

Okay. Great quarter and nice base.

Chad Cohen

Thank you.

Operator

Thank you. Our next question comes from Christopher Merwin of Barclays. Your line is now open.

Christopher Merwin – Barclays Capital

Great. Thanks. So, just joining into your 2Q revenue guidance a bit more, how should we think about the relative contribution of agents in ARPU? Obviously in 1Q we saw very healthy step up in ARPU, I'm just wondering if we should expect that to continue in 2Q and 3Q, which I know historically have been very seasonally strong quarters for you in terms of agent net ad, and often times those agents can come on the platform out of lower ARPU initially.

And then secondly, if you wouldn't mind just giving us an update on rentals monetization. Are you bringing some more rental sales people in the platform, and what are you most focused on in terms of achieving a long term revenue target you gave in the last call? Thanks.

Chad Cohen

Hey Chris. I'll answer the first part of the question, then give you over to Spencer. I think in terms of ARPU, they're following the trends that I believe I communicated on the last call, which is - we expected them to go up because we're seeing a clear delivery of value in ROI to our Premier Agents, and you're seeing that in a couple of different metrics, one is, that existing agents are continuing to buy more of the impressions that we create as a function of the investments that are making a consumer products, as well as the investments that we're making as a growing audience. And, so, this quarter 60% of our inventory went to, - new inventory went in 15 agents who bought more.

In terms of same store sales, if you look back a year, existing agents were with us a year ago, bought 50% more in this period and over the past year.

So, we're seeing growth in terms of existing bookings, we're seeing growth in terms of same store sales, and I think, those two trends together, we need to believe that you're going to see ARPU continue to grow up into the right over the next few quarters.

Spencer Rascoff

And Chris, on rentals I'd say, as you know, we have the audience on rentals, the audience numbers are now around 14 million, 14.5 million monthly unique users, shopping for Zillow and also rentals, and we started the monetization plan, starting this week last in Q4 of last year.

We're ahead of our internal goals but we're not going to give any other insight into it, for competitive reasons. I feel like, we're going to keep something little bit close to the vet, the strategy playbook that we're using as Zillow is clearly working and you can see that if you look at the scoreboard, I like the results that the scoreboard is showing between us and competitors and, sort of tired, given others the secret ingredients in the playbook. So on some of these things, we're going to be may be a little bit less communication might have been in the past, but I am very pleased with our progress.

Christopher Merwin – Barclays Capital

Thanks a lot.

Spencer Rascoff

Okay, so, I'll take some calls from some questions from Twitter. (indiscernible), wondering what trends Zillow counts the earnings seasons and housing market down in the voice concerns in this video. So yeah or [Dr. Yah] ((ph) obviously testified this morning. I called some of the testimony and the team was going through it today.

We’re going to give you the quick state of your housing market. So, home values nationwide are up about 6% year-over-year, and as we look out for amongst we think home values would be up about 3% year-over-year.

So, the media sometimes reports that as the real estate market is cooling. I don't really view it that way, I kind of view it more as the rate of the upturn is slowing, taking a long term perspective, 3% year-over-year growth in home value is still very significant.

And, when we look at our Zestimate Forecast, that we just announced today on 50 million homes, 96% of those are up 12 months from now. So in other words, basically 96% of all -- of Americans looking at what their house will be working on Zillow 12 months from now we’ll see an increase in their Zestimate Forecast.

So for almost all the country, home values are increasing. So the housing market is -- the rate is slowing, but it still is very healthy housing market, in terms of how that translates to us, agents are earning more commission revenues, we get an updated view on the commission dollar pilots.

We think it's probably $75 billion. We sometimes cited $60 billion in past conversations. We think it's probably $75 billion in 2013 commission dollars and when agents spend money, or rather when agents earn more money and more commission and more optimistic about the business, they choose to invest in and growing and grow the beneficiary of that.

So capacity in the housing market that we are operating in.

And one more question from Twitter and then we'll go back to the call, [Brian] (ph) asked, how far do you think Clear-com for Zillow in terms of user generated content any thoughts for users?

So in terms of user generated content I mean the most notable UGC that we have is we let homeowners and agents rectify the property records to change their bedroom and bathroom square footage for example and there we certainly reached the velocity with around $50 million, merely half of all the homes in the US now had their property record updated on Zillow over the last nine years.

Other forms of UGC includes reviews of real estate agents where I think the last number we were at 750,000 reviews of real estate agents, 600,000 sorry, 600,000 reviews of real estate agents at around 75,000 reviews of mortgage lenders.

So there is huge amount of UGC review content on real estate mortgage professionals on Zillow.

Operator, we’ll go back to the call for the next couple of questions.

Operator

All right. Our next question comes from Heath Terry of Goldman Sachs. Your line is now open.

Heath Terry - Goldman Sachs

Great. You touched on the fact that you’ve got multiple agents or a significant number of your agents that are looking for more volume off of the platform.

How do you see that sort of resolving itself? Does that mean you need to be more aggressive in terms of price increases or is there more than you can do in terms of creating volume obviously the television campaign seems to be having a lot to do with that, but are there more levers that you can sort of push in that direction and how should we think about the rate at which you are able to sort of capitalize on the excess demand that exist in the system?

Spencer Rascoff

Thank Heath. So, yes, it's a good problem to have, when you have a lot of meant to your product trying to find how supply meets demand and sort of how much price it takes, these are the high class problems, we are fortunate to have. And those problems obviously comes from the audience, the audience leadership which is where all goodness, from where all goodness stems.

To tie a fact to the tam, the way I look at it, agents are spending now around $180 million a year annualized, so that's up from $150 million a year annualized a year -- or a quarter ago. And that $180 million first to the six to 10 billion in agent ad spend.

So basically we have about 3% -- 2% to 3% of what agents spend on advertising mix and on Zillow, but between 40% and 50% of our consumer usage is real estate information online on desktop and mobile is on Zillow. So that’s the delta that I look at and get excited about, 2% to 3% lot of shares, 2% to 3% of that advertising share versus 40% to 50% of audience share and growing.

So that of course the question is, how do you accelerate that migrations, so that you get the 40% or 50% of the 6% billing in ad spend or as we see in most other categories quite frankly, the wallet share ends catapulting kind of leapfrogging over the audience share, something usually 10 to 20 points higher than the audience share to the market leader.

So how does that happen and what ARPU number, what sub counts and what timeframe through which levers whether its price increase or volume increase or both.

We've said to investors many times that we don’t manage the business ARPU or in sub count that we manage the business in total revenue and so, that’s still the way that we look at it.

We certainly have some Premier Agent subscribers that spent tens of thousands of dollars a month and we are thrilled to have them. We also eagerly bringing on new subs on to the platform at a very low ARPU because some of those agents will grow into being the whales that spent kind of $50,000 a month later.

And so, I don't know hopefully that a helpful perspective and its -- for me it paints the picture of how early stage all this is relative to what I look as at kind of an end game a couple of years down the road where advertiser dollars have caught up with audience.

Heath Terry - Goldman Sachs

Great. Thanks Spencer.

Operator

Thank you. Our next question comes from the line of Ron Josey of JMP. Your line is now open.

Ron Josey – JMP Securities

Great. Thanks for taking the question. Very nice quarter guys. So two quickly please. First just on data, talking about Z Pro, I think you now have 1,000 partners, comes on the heel of a couple of MLS partnerships as well under Zillow partnerships.

So are you getting to a point where maybe you feel you have direct connect and direct access to most of the listings that are out there. And then the second question is just more along the lines of the (indiscernible) partnership and wondering if you can see others like that from other countries? Thank you.

Spencer Rascoff

Thanks, Ron. So on data quality and industry relations more broadly, I feel like our inventory relations are in the best position they have ever been, where we have various strong relationships with most every major broker and almost every major franchise or kind of other key industry participants.

I think we’ve gotten a lot better at communicating our value proposition to MLS and to brokerages than we had in the past. We have a terrific team, with great leadership, focused on this and then I spend some nice time focus on as well.

And in terms of how all that impacts the product and the end user, data quality is certainly a big part of it. So now as you mentioned we have over 1,000 brokers participating in the Zillow Pro Program wherein the brokers sell us directly and we have many in the losses that kind of direct fees as well.

The last point on data quality that I would just make is you have to remember that one of the key points of differentiation of Zillow is the fact that we are not so much focused on the listings of content that is available on every other real estate website.

We are also focused on unique proprietary content, which is not available on other websites. So for example the million foreclosure listings and pre foreclosure listings that are only available for free on Zillow and Zestimate forecast, which are only on Zillow and the Zestimates which are only on Zillow and other alternative listing packs that make me move.

So when I think of data quality and how the end user interacts with it, I focus not just on the commoditized listing information, but also on the proprietary content.

The second part of your question was about international partnerships, what Rob was referring to for those less familiar was we announced a partnership with one of the largest Chinese real estate site wherein Zillow will power their U.S. listings inventory.

The partnerships are an important part of Zillow’s strategy. The fact is that there is a big world out there on the internet and it's fragmented in terms of different websites that people use and they think that a monolithic strategy of trying to get everybody just to use your website and for taking partnerships that to me is a very odd strategy.

So partnerships like the one we have with AOL where we power listings on AOL, and partnerships like the Yahoo! one where we power listings on Yahoo! are important, our HGTV partnership is important, was about listings on front door with HGTV's website.

Our partnership with Google and Android now is important, sorry, on Google Now and Android devices is important. Its data partnerships including the one in China are important. I don't know of any specific to now just that my strategy is quite yet where we are certainly investing in the importance of partnership.

Unidentified Analyst

Thank you.

Spencer Rascoff

Next question operator.

Operator

Our next question comes from Robert Peck of SunTrust. Your line is now open.

Robert Peck – SunTrust

Thank you so much for having me. Spencer could you talk a little bit about the ROI for agents and the impact you are seeing from the co-marketing program with the mortgage lenders, thanks so much.

Spencer Rascoff

Sure. Hey Bob. So there are probably a dozen benefits that Premier Agents have as part of the program, features and benefits for example Premier Agents can put free ad their past side. So what homes they top -- our clients buy or sell, they can add those to their profile, on Zillow and also gets up to the home depot pages as well.

They can use ram or they can put free connect Zillow to whatever they use. They can have clients write reviews for them on Zillow. They can get a MLS-powered website for free from Zillow. They can have as you mentioned lender co-marketing where a mortgage lender pays part of their Premier Agent prescription fee and on and on, so there are lots of benefits that Premier Agent get.

We don't give specific take rates or kind of talk to which of these features are more or less beneficial in individual Premier Agents for competitive reasons. Taken as whole the value proposition to Premier Agents is quite clear, which is why it's revenue line is growing so quickly.

So just our Premier Agent revenue this quarter grew 76% year-over-year. Last quarter it was 68% year-over-year and quarter to quarter I think it was 65% year-over-year. So we are actually accelerating on revenue growth rate for our Premier Agent business, which given the fact that the base is growing so quickly is pretty shocking to me actually and exciting.

So I guess no specific answer on your lender co-marketing question, but clearly it is something -- there was a magic that we hit upon, which stems from our obvious leadership and is now flowing through the agents advertising and option.

So just to in terms of Twitter now let's see. Ron Josey, sell-side analyst to JMP Internet, he writes, please provide some updated metrics on Zillow rentals specifically rental lease and number of properties on Z Rentals.

So the -- our rental metrics are about -- the rental metrics that we share are about audience size. So unfortunately 0.5 million unique users shopping for rentals on Zillow and then that does not include StreetEasy which also has a significant rentals audience, which I think is slightly separately.

Other than to say we feel that we are ahead on schedule on authorization and ahead of the pace that we monetize other marketplaces like mortgages for competitive reasons Ron, we are not sharing kind of the rentals revenue ramp or other rental specific metric.

And then at JMP Internet, also Ron Josey asked, what was the growth rate of consumer leads to agents? And hereto you make it a dissatisfying answer Ron, I apologize again.

We have competitors that are past followers and so some of these things we just we center point people to our financial metrics and kind of the points on the scoreboard and let some of these more specific questions that are kind of not provided inside in some of the more specific questions like this one.

So let's see, operator are there other questions on the call?

Operator

Our next question will come from the line of Brian Nowak of SIG. your line is now open.

Brian Nowak - SIG

Thanks so much. I have a couple. The first one very strong ARPU growth and I think you mentioned 60% of new Premier Agent sales are coming from exiting agents, Spencer just curiously drawn to that a little bit more between macro drivers and micro drivers. How much of this pricing growth is being driven by higher housing values enabling your price is more as opposed to micro drivers such as lead conversion improving or more leads.

And how should we think about ARPU as into next year when housing pricing grows to your point slows from six down to three and I have one follow-up.

Spencer Rascoff

Yes, so Chad can take the first crack at it and then I will sure chime in.

Chad Cohen

So certainly price is one of the drivers in terms of where ARPU is today and as Spencer mentioned, it's not a metric that we use to evaluate the health of the business side. I will point you to the growth in our total Premier Agent revenues. It dropped to 76%.

But I would say of that 286 and 10% growth, certainly price is a part of it. I don't think we have yet a very efficient wave with keeping up with pricing growth across the platform for existing agents certainly new agents are paying new prices that reflect the new local market dynamics, but existing agents don't really, we don't really have an efficient way to deploy that with existing agents.

So some of that came from price, I would say a lot more of it certainly came from impression and we mange impression growth pretty carefully across the platform. We want to make sure that the impressions that we are delivering to our agents are of high quality and so that's super important to us.

High quality means good contact liquidity within those impressions and within those page views and so to answer your question, some from price, probably more from impressions and impressions that have a high quality delivery.

Brian Nowak - SIG

Okay. And then the one follow up I had was just on the slight deceleration in the net ads on the subs, any specific drivers you can call out to that and then how should we think about the cadence of the net broker ads for the rest of the year, thanks.

Spencer Rascoff

Yes, so in terms of agents ads, nearly 4700 in the quarter that's more than we delivered in the fourth quarter about 3600 more than we delivered this time last time, we feel really good about agent ads. As you know because of the same store sales metric that we pointed to and the new bookings metric where 60% of our bookings are going to existing agents that drives a lot more of that inventory to existing, which doesn’t improve sub number.

So I am looking at those two metrics in conjunction with one another to really think about the health of the business and again more importantly overall revenue numbers.

And as I mentioned before, we are continuing to add more impressions as a result of investing in our consumer platform, on mobile and on the web. We are investing in audience, which drives more impressions as well and so we feel really good about our ability to not only grow ARPU over the long term, but grow agent ads as well through the rest of the year.

So now let’s take a couple from Twitter now. [Jason] (ph) what's the best housing environment for Zillow? There is a little slowness created and easier to increase agents and spend?

This is a good question. So overall a good housing market for Zillow is one where agents are making money and we've had that environment for the last probably two to three years where agents have been doing well and then they are reinvesting in their business.

What the housing downturn did was it started to sort of jumpstart people's migration from their ad spend from offline to online. You always this when there's dislocation in the category, it accelerates trends that might otherwise take a lot longer.

So, that downturn from 2007 to 2009 certainly helped, even print spend down pretty dramatically and then when they picked their head up out of the foxhole, as the real estate market started to turn, they started spending online because that's where the audience was.

We've had a lot of internal debate about what sort of the right cadence of seasonality should be on new bookings, because if you take this macro point that agents when they're feeling optimistic, they tend to be more advertising, taking down this sort of a micro basis, so through the cadence of the year, you might think well in November and December, when they're not really earning commission through January, they might be less likely to buy, because they don't have commission checks coming through.

We have seen a bit of countervails to that which a lot of agents do annual planning, where they sit down and write business plans, and think about how to approach their marketing for the next year. And they do that annual planning during the slower time when they have less work to do. And so that actually kind of helps counterbalance a seasonal bookings decline when commissions are drier in that part of the year.

(indiscernible) STG internet, Zillow made higher industry relations recently; can you talk about goals in Zillow's industry relation effort?

Spencer Rascoff

Sure, we have several goals. The first is to -- at a really high level explain ourselves. And what that means is teach those in the industry that we come in peace and that Zillow is a media company, we're not a brokerage, we're not MLS. We do not compete with brokerages, we do not compete with MLS'. We sell ads, we don't sell houses.

And that's the number one goal of our industry relations effort. So, just to explain what Zillow is and what we're not, because there's a lot of disinformation that's sown by people in the industry and kind of misunderstanding. So, that's goal number one.

Goal number two is certainly to try to find mutually beneficial ways for us to work with the industry, which benefit our partners, Zillow Inc. and Zillow users. And so, for example, try to explain to brokerages and MLS' why they benefit from having their listings on Zillow for free on the largest real estate site on the Internet is a key goal of our industry relations effort.

What are the two other questions from Twitter? What's the breakdown between rental sales people and agent salespeople; is one expected to grow more than the other?

The rental sales team was a bit smaller than the agent sales team. I won't give breakdown in numbers, but surely at a percentage basis, the rental sales team will grow faster than the agent sales team. Are there other questions operator from the conference call?

Operator

Yes. Our next question comes from Neil Doshi of CRT Capital. Your line is now open.

Neil Doshi – CRT Capital

Great. Thanks for taking my question. Spencer, how should we think about mobile monetization, clearly right now it's still early days and you're including mobile for Premier Agents. But at what point do think it would make sense to monetize mobile for agents? And then also on the display side, we have noticed display ads on mobile apps, are there other better ways to monetize than mobile rather than putting display banners on mobile? Thanks.

Spencer Rascoff

Yeah. Thank you. I'll take the mobile one, and then you can chime in. So, Neil, one of the beautiful things about the Premier Agent program is that we don't make our agents, we choose between being a desktop agent or a mobile agent. So, we're effectively -- we effectively have mobile monetization across the entire platform, not only for Premier Agents.

Nearly two-thirds of our business are coming from mobile now, but also for Zillow Mortgage Marketplace and across many mobile applications that we deliver to our consumers, we have professional presence on them.

So, we're not -- we don't have a separate SKU, but certainly mobile monetization is weaved into all our SKUs that we provide to all the professionals that advertise on us. And from a display perspective, many of our buys now our mobile buys as well as package and we're seeing very strong CPMs that are in line with our desktop CPMs from a mobile perspective.

Chad Cohen

Or higher.

Spencer Rascoff

We probably monetize our mobile service better than -- I don't have data to support this, but my gut says, mobile on per visitor for EBIT is better than most every other mobile service in the Internet sphere. Because the -- even though we don't sell it is a separate SKU, because the use case is so clearly tied to the monetization occurrence, which is the lead, which is when a mobile shopper is trying around looking at house, he can click the call or e-mail the real estate agent.

And to the user that's not an ad, that's a service that we provide them the ability to choose which agent to contact based on agent reviews and then contact the agent in app. So, the mobile migration has been a huge boon to our model and as Chad said, we view it is a competitive advantage that we bundle that we sell jointly across desktop and mobile rather than selling into separate SKU.

Is there another question operator from the conference call?

Operator

Yes. Our next question comes from the line of Aaron Kessler of Raymond James. Your line is now open.

Aaron Kessler - Raymond James

Yes, hi guys, good quarter. Couple questions. First Spencer, just on the -- I think you mentioned $75 billion in commissions, can you provide the math behind those? I was just double checking some of my stats there. And just on the profitability, can you just give us maybe -- Chad profitability from selling to existing versus new agents? I would imagine selling to existing would be a lot more profitable. Thank you.

Spencer Rascoff

Sure. So, we can send you our spreadsheet on it, but on the commission TAM, but walking through verbally so, existing home sales in 2013 were about $5 million or $5.90 million with the median -- mean sale price of $245,000, that's $1.25 trillion in value according to the NAR and we'll send you the spreadsheet so you can see it.

And new homes were $429,000 with a mean price of $325,000, so that's another $139 billion of census data. So that $1.4 trillion in value and 5.4% commission rate, which is from real trends in 2012. That's the rate of commission percentage that we can find -- $75 billion in commissions. So, that's our flow through and we can -- Marie or RJ can send if you'd like. Chad, on the second part of the question?

Chad Cohen

Let me try to think through this, so I think both are highly profitable. And we do have a nice contribution margins from sales to both new and existing.

I would say that existing agents who sort of understand the value proposition don't -- we don't need to spend an excessive amount of time with them, walking them through, all the various benefits that they get from being a Premier Agent, working with them to upload their pat size, teaching them, and walking them through CRM, getting their reviews uploaded. And so that handholding costs us probably a little more on new agents than existing agents in terms of the education there.

So, it’s a -- an existing agent probably is slightly more profitable on the margin than a new agent and also some of our investments that we're making in terms of sales and marketing are geared to attracting new agent. So, I'd say you have to take that into consideration as well.

Aaron Kessler - Raymond James

And just quick question on ad spend for the year, before you gave $65 million in guidance, is that going to still ballpark, is the right range to think about?

Chad Cohen

So, we provided some direction on the February call, $65 million, but we're not going to update that today.

Aaron Kessler - Raymond James

Okay, great. Thank you.

Operator

Thank you. And our next question comes from the line of Lloyd Walmsley of Deutsche Bank. Your line is now open,

Lloyd Walmsley – Deutsche Bank

Thanks. Just wanted to dig in a little bit more on the agent add number. Wondering if maybe some of the slowdown in year-over-year growth in net adds could have been higher churn rates from the slower real estate market, are you seeing any change in all in churn rates?

Spencer Rascoff

Our turn rates have been improving over time. So, I'd just point you back to some of the metrics that we talked about before which are that our bookings are going mostly into existing agents who want to buy more exposure in the zip codes that they're advertising now or new zip codes.

So, it's ticked up from the 50-ish level percentile to 60%. Same-store sales for agents that have been on a platform for year are spending 50% more than they did before. And I think you're growing into sort of lot of large numbers where the denominator continues to increase. But we're seeing certainly healthy contributions from new agents, 4,700 almost which is greater than we delivered in Q4 last quarter and greater time last year.

Lloyd Walmsley – Deutsche Bank

Thanks guys.

Spencer Rascoff

Sure.

Operator

Thank you. Our next question comes from the line of James Cakmak of Telsey Group. Your line is now open.

James Cakmak – Telsey Advisory

Hi thanks. I just wanted to drill down on engagement levels. In the past I think you provided lead growth versus visitor growth. Can you just talk a little bit about that, so we can get a sense of the engagement levels and the trends there?

And then secondly on StreetEasy, it's great to see developments there. Can you just provide some more color on what we can expect from that asset in the coming quarters? Thanks.

Spencer Rascoff

Hey Jim, let's see on lead growth, we're not sharing numbers right now on lead growth, because we get mobile visits of -- the mobile the visit per second, 178 -- 178 per second. So, some people are backing into a number of homes viewed -- mobile homes viewed per second growth rate tight metric off of that number. But we're not sharing these numbers right now for competitive reasons.

On StreetEasy, yeah so -- I mean what the team is working on I've been pretty open with folks on mobile, mobile, mobile. When we acquired StreetEasy in August only about a third of StreetEasy usage was mobile, and as you know about two-thirds of Zillow usage is mobile.

And so -- and StreetEasy only has a native iPhone app. They don't have native iPad or android or android tablet apps. And so StreetEasy is following the Zillow playbook, which is multi-mobile first, focused on great email, great PR, differentiated contact. All the things that we've done on the Zillow side is past competitors and audience, that is StreetEasy is working on with a heavy emphasis on mobile. So, that's where 2014 is all about for StreetEasy. Next question operator?

Operator

Thank you. And our last question comes from the line of Dan Kurnos of Benchmark. Your line is now open.

Daniel L. Kurnos – The Benchmark Company

Yeah, great. Thanks for squeezing me in there. Just, Spencer, drilling down a bit more on the new hires, Arrow was once one of your biggest attractors and now is on your team, just curious how industry is receiving the switch?

And then on marketing understanding that you won't break out the buckets, are you seeing any pressure on cost elevated industry spend, is it impacting ROI at all or causing you to shift those buckets? Thanks.

Spencer Rascoff

So, I've known them for a long time and there's always had a ton of respect for them. He is a very high integrity person and he and I have always had a cordial relationship based on mutual respect even now we've been competitors.

He is very highly regarded in the industry and I'm excited to work with him and to learn from him how best to communicate value proposition for the industry and he is been great to work with so far.

So, he is been -- his move to Zillow has been well received. And also not -- I think -- people -- really does not that's surprising frankly, because there is sort of this Halo, there's sort of scent in the industry that this is where the consumer is flocking, this is where agents are flocking. And if you just look our growth metric relative to the competition, it only stands to reason that we're attracting great talent in addition to a huge audience and a lot of advertisers.

And so the other question was about -- can you elaborate on it? Advertising question, I don't really remember?

Daniel L. Kurnos – The Benchmark Company

Basically, obviously elevated spend within the industry and also playing catchup here, just curious if there's any pressure on cost impacting ROI et cetera. Thanks.

Spencer Rascoff

Yeah. Okay. We haven't seen any impact on our competitors' move, competitors advertising is on our efficacy of the advertising.

Daniel L. Kurnos – The Benchmark Company

All right, great. Thanks. And excellent quarter.

Spencer Rascoff

Thank you. So, we will take this party over to Twitter. So, anyone wants to come join the after-party over there, we'll see you there on the hashtag #ZEarnings, if not, we will speak to you next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may now disconnect. Have a great day everyone.

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