Zillow Group, Inc. (Z) CEO Rich Barton on Q2 2022 Results - Earnings Call Transcript

Aug. 04, 2022 11:40 PM ETZillow Group, Inc. (Z), ZG
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Zillow Group, Inc. (NASDAQ:Z) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET

Company Participants

Brad Berning - Vice President of Investor Relations

Rich Barton - Co-Founder & Chief Executive Officer

Allen Parker - Chief Financial Officer

Conference Call Participants

Ryan McKeveny - Zelman

John Colantuoni - Jefferies

Jay McCanless - Wedbush

Operator

Good afternoon. My name is Sam and I will be your conference operator today. At this time, I would like to welcome everyone to the Zillow Group Second Quarter 2022 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Brad Berning, Vice President, Investor Relations and Strategy. Please go ahead.

Brad Berning

Thank you, Sam. Good afternoon and welcome to Zillow Group's second quarter 2022 conference call. Joining me today to discuss our results are Zillow Group's Co-Founder and CEO, Rich Barton; and CFO, Allen Parker.

During today's call, we'll make forward-looking statements about our future performance and operating plans based on current expectations and assumptions. These statements are subject to risks and uncertainties and we encourage you to consider the risk factors described in our SEC filings for additional information. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. This call is being broadcast on the Internet and is accessible on our Investor Relations website. Recording the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA which we will refer to as EBITDA. We encourage you to read our shareholder letter and our earnings release which can be found on our Investor Relations website, as they contain important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. In addition, please note, we will refer to our Internet, Media & Technology segment as our IMT segment.

We will now open the call with remarks followed by live Q&A. And with that, I turn the call over to you, Rich.

Rich Barton

Thank you, Brad. Good afternoon, everyone. I hope you and your families are enjoying some summer, along with your work. The Blue Angels are tearing holes in the sky here around Seattle today in preparation for the Indy 500 of Jet hydrofoil races on Lake Washington. I know you all know it, seafair. That's this weekend, so they're practicing. If it gets loud in the background, it's not because I'm watching Top Gun. Anyway, thanks for joining us on this busy, busy earnings day. I'm happy to have the opportunity to share Zillow's progress with you. But first, I'd like to zoom out and examine the state of the housing market.

As we previewed last quarter, the housing market is rebalancing after a pandemic-fueled couple of years that were characterized by low interest rates, strong customer demand and historically low inventory levels. We are in a very different market today. Affordability has become very challenging for buyers. The compounding of unprecedented home price appreciation over the past few years and a rapid increase in mortgage rates has resulted in new mortgage payments relative to income spiking back to near 2006 peak levels. This rapidly changing affordability picture has impacted home shoppers' ability to find an affordable and an acceptable option, driving buyer sentiment to a 20-year low. Reduced buyer demand has cooled the previously red hot sellers’ market.

Across the industry, we are seeing price growth meaningfully soften on pending sales and new mortgage applications with for-sale inventory levels rising as homes spend more time on the market. Ultimately, when combining all of these factors, the housing industry total transaction dollar volume was flat year-over-year in Q2, while various leading indicators deteriorated. Despite demand indicators stabilizing in July compared to June, we expect second half 2022 total industry transaction volume to meaningfully contract year-over-year.

Despite a challenging housing environment that we cannot control, we are as confident as ever in what we can control, executing on a strategy and a product road map that we believe will drive outsized transaction share gains, outsized revenue per transaction and profitable growth over time. Earlier this year, we introduced a product road map in a set of 2025 financial targets that are oriented around increasing engagement, increasing transactions and increasing revenue per transaction. The path to achieving those targets and beginning to build out our vision involves product initiatives within 5 growth pillars: financing, touring, seller solutions, integrating our services and enhancing our partner network.

Today, we are reporting in line consolidated results that demonstrate Zillow is on firm ground and well positioned for long-term growth. Our core IMT segment met the low end of our revenue expectations while exceeding the midpoint of our EBITDA guidance as we effectively invested in our growth pillars while actively managing costs. Our solid footing is underpinned by a cash balance of $3.5 billion as of the end of Q2, an increase from $3.1 billion at the end of 2021, even after nearly $600 million in stock repurchases over the first half of this year.

Our balance sheet is healthy and we produce operating cash. We are well equipped for the challenges an uncertain macro environment can throw at us and have the ability to invest in our long-term vision and strategy. On top of that, we are a leader in a huge industry. We have a big, strong, trusted brand and we have a large, passionate and engaged audience.

Apartment and house hunting is aspirational and entertaining as well as practical. Just last week, Google Play named Zillow one of the "10 apps that defined a generation" alongside such iconic app brands as Uber, Venmo, Instagram and Zoom. This recognition complements what we observe in the traffic numbers, that our brand is a part of people's everyday lives. Dreaming and shopping on Zillow, Trulia and StreetEasy doesn't stop because of a poor housing macro outlook. Our business model is ultimately driven by transactions, yes. But it is our relationship with our customers between transactions that is and always has been our advantage.

Given the macro outlook, I am relieved we are no longer carrying the capital and asset risk of iBuying on our balance sheet. The wind down of this business exceeded our expectations in terms of both the speed of home sales on our small remaining inventory and the profit outcomes for these sales. We paid down all outstanding iBuying debt in Q2 and substantially completed the associated workforce reduction and are now at the tail end of the wind down. Allen will provide more details later in the call but I'd like to briefly speak about how we are shoring up our employee base, given what's happening in the macro and labor market for tech talent.

The drop in stock price which we've all felt has resulted in actual compensation being much lower than planned and on-hire compensation for the many Zillow employees who receive a meaningful portion of their compensation in equity. And despite what you may hear, it is a highly competitive job market for tech and product talent which means it's unsettlingly easy for a skilled employee to get a significant compensation bump and an equity reset simply by switching jobs. Our people create the great products and services that have grown a huge successful brand and will fuel our future growth. Practically speaking, it would be more expensive to recruit and replace valuable employees tomorrow than it will be to retain folks today.

Attrition and churn is an insidious barrier to growth and by minimizing avoidable barriers, we are in a better position to achieve our goals. With that considered, we have made the decision to issue an off-cycle RSU grant to partially top up total compensation, particularly for those in the most competitive job categories. We will also reprice a small portion of the total outstanding stock options, those that are far out of the money. Allen will get into how we expect this off-cycle comp action to impact our financials but it will likely result in about 2% dilution spread over a couple of years.

Most of us on this call have felt the pain of a rapid and large stock drop in our stock price. Obviously, I am a large shareholder personally and have felt this first-hand. And we'll note that neither I nor our Executive Chairman and Co-Founder, Lloyd Frink, nor our Board of Directors is included in this special comp action. The Board and I have approved these equity initiatives because it is smart business and it recognizes the importance of retaining talent and aligning their compensation with the long-term interest of shareholders and I hope you'll agree with and understand our decision. Allen will talk more about capital management but I'll note here that we will repurchase shares under our existing share buyback program in the near term to cover the potential future dilution from this comp action, all while continuing to be opportunistic about additional potential share repurchases.

Now on to future growth and what we're doing to fuel our go-forward business and our vision for the Housing Super App. We have turned the page strategically and operationally to focus our efforts on building a single platform of integrated digital solutions that will serve more customers in our funnel. And we are making investments in these future growth initiatives. Why? Because we see big opportunity.

While almost everyone starts their real estate journey using Zillow products and services, we monetize only about 3% of real estate transactions. That gap represents huge potential energy, potential growth opportunity for us to expand share. And our strategy to get there is sound. Each pillar in our product road map, financing, touring, seller solutions, enhancing our partner network and integrating our services is important to building the ecosystem we envision and sets us up to reach our goals of increasing engagement, increasing transactions and increasing revenue per transaction.

Implicit in execution of this strategy is a healthy top of funnel which we are growing even in this unpredictable housing market. In Q2, Zillow Group apps and sites had 234 million average monthly unique users, up 2% year-over-year, with visits up 5% year-over-year. The number of monthly active users on our Zillow mobile app remains 3x the size of our closest competitor. And this quarter, our rentals traffic has once again grown, up 31% year-over-year with 27 million average monthly unique users per com score. The health at the top of the funnel is a powerful differentiator that comes from years of building great products for our customers and it gives us confidence in our long-term growth thesis, regardless of the short-term challenges that arise from the uncertain housing market.

We're also making strides towards providing a suite of seller services in our ecosystem. Today, we are announcing we struck an exclusive multiyear partnership with Opendoor. This partnership gives Zillow customers the ability to get a cash offer on their home, connecting the Premier real estate brand and audience with the Premier iBuyer brand and operation.

In addition to the direct economic opportunities associated with this partnership, there are numerous strategic benefits for us. First, when fully rolled out, we will be able to service sellers across more than 50 markets in the U.S. This expands our addressable market and allows us to create a suite of seller services over time to complement Opendoor's cash offer program.

Second, as we build out complementary seller offerings, we will be able to connect Premier Agents with interested sellers that are looking to sell their home in the traditional way. Third, we will be able to offer a bundle for sellers who are also buyers which opens up meaningful opportunities for us across agent transactions and adjacent services like mortgage and title and escrow.

Now I'll get more specific on how we expect the customer experience to work as we roll out the partnership. We'll offer customers the ability to get a cash offer on their home details page on Zillow which we know is a compelling call to action and provides us a high-intent seller signal. Once a customer shows interest in getting a cash offer, a licensed Zillow adviser will be available to talk each customer through a variety of selling options, including the cash offer from Opendoor.

For customers who choose to sell directly to Opendoor, Zillow will receive a referral fee. For customers who decide they want to sell, traditionally, we will connect to them with the Zillow Premier Agent partner. For customers looking to sell their existing home and buy a new home, we will offer a package where they can buy their next home with the Zillow Premier Agent, finance with Zillow Home Loans and close with Zillow Closing Services while selling their existing home to Opendoor.

Throughout this future customer experience, Zillow will be the primary -- be in the primary advisory role, helping our customers choose the best option for them while growing our business in the capital-light manner we described when we exited being an iBuyer primary. Offering more products and services to more of our customers is a core tenet of our long-term strategy and this partnership is a significant step in that direction.

Finally, as we have said before, solutions within the Zillow ecosystem will be a combination of ones we build, partner on or buy, focusing on solutions that meet our high standards and serve our customers with products and services they need. This partnership with Opendoor is a great example of the many opportunities available to us in building out an ecosystem of end-to-end customer solutions and our commitment to making it easier for customers to transact in real estate. We see this partnership as a significant win for customers, for Zillow and for Opendoor. And we are excited to roll out the experience in the coming months.

Next up on our road map is touring which is a key moment in the real estate process that is historically logistically challenging for buyers, sellers and their agents. It also indicates high customer intent and is the point of sale for buyers' agents. We discussed last quarter that we are beginning to enable real-time availability of tours through ShowingTime for our agent-facing interfaces and the early adoption signals were positive.

Today, we are happy to say that we rolled out this capability across the country with more than 250 markets now enabled with real-time availability of tours on ShowingTime, including a new integration on StreetEasy that allows agents to access ShowingTime directly on New York City sales listings. Now, 4 months after introducing real-time availability, 74% of listings in markets where it's enabled are participating. This means that for all participating homes, the true calendar for buyer tours will soon be available on ShowingTime partner websites. The ease that real-time availability has brought to tour scheduling to date is a win for all involved and it enables agents to quickly help high-intent customers find and win their next home.

Separately, many incremental improvements we've made to Zillow's apps and sites have contributed to driving growth in the share of connections that come from tour requests to nearly 50%, up from less than 33% this time last year. Our future goal is to create a frictionless touring experience for buyers and sellers themselves, not only for their agents by integrating the ShowingTime functionality on our customer-facing apps and sites, making it as easy for a shopper to book a home tour as it is to book a restaurant reservation online.

Last on our product road map for this quarter is financing. We believe we have an opportunity to be a substantial purchase mortgage originator, given the many millions of customers who inquire about financing on Zillow on an annual basis. We have major work to do up and down the stack and out towards partners. But at the top of the funnel, we have begun to make the changes to our apps and sites, designed to capture and convert a portion of the huge mortgage shopping signal we have into Zillow Home Loans. As a result, pre-approvals for purchase mortgages doubled from January to June and our purchase origination volume grew 58% sequentially in Q2. The absolute numbers are still small but these are good signals for the opportunity in front of us as we build out our digital mortgage offering.

Importantly, when we lead with mortgage as our initial customer offering, we have found that a vast majority of customers do not yet have an agent. This gives us confidence that we can offer our customers both a great mortgage experience on Zillow and introduce them to a trusted Premier Agent partner who is happy to meet a buyer who already has financing lined up and understands what she can afford.

Of course, we are early in our journey from a small call center-focused mortgage business originally built to support the financing needs for iBuying customers, to a large digital purchase originator serving millions of customers. As we transition, we need to build digital tools for customers that are native in our asset sites, technology to support customers across our platform as well as efficient tools for loan officers and agents to serve these customers with a high level of transparency and integration between all parties.

The early indicators are promising but we won't scale without having the key foundational components in place to enable us to scale profitably on the margin. We are making a significant investment in our financing growth pillar by Zillow Home Loans. As it is a critical enabler for the integrated transaction experience, we believe future movers will demand and get. Customers are already coming to Zillow for mortgage advice. They inherently trust our brand and are looking to understand what they can afford before they take a tour and meet their Premier Agent.

As you can tell, I am excited about our current initiatives but I'm also excited about the new products, features and services yet to be announced during the remainder of 2022. We will continue to update you all as we progress.

Before I hand it over to Allen, I recognize the past few years in housing has been unpredictable, uncertain and unlike anything we've seen before. But we are making progress on our growth investments. And when I look at the strength of our brand, our audience, our proven profitable business model and cash flow, I am confident we can alter the way people transact in real estate across the U.S. for the better which we expect will deliver outstanding long-term results for our company, our employees and our shareholders.

With that, I'll turn it over to Allen.

Allen Parker

Thank you, Rich and hello, everyone. We are making progress against our 5 growth pillars and believe we are well positioned to continue building innovative products and integrated services to help our broader set of customers navigate finding and winning their next home. We believe our continued focus on executing on what we can control, delivering better customer experiences as well as driving improved partner efficiency and productivity will drive increased transaction share, increase revenue per transaction and shareholder value.

Moving on to our financial results. The housing market performed at the lower end of the range we expected during Q2, with flat year-over-year estimated total industry transaction dollar volumes. Despite this macro pressure, we delivered IMT segment and consolidated results in line with our outlook for both revenue and EBITDA.

IMT segment revenue was $475 million, flat year-over-year. Premier Agent revenue decreased 5% year-over-year, impacted by macro housing market factors, including interest rates and home price increases as well as tight inventory levels. Rentals revenue was down 3% year-over-year and up 16% sequentially from Q1, better than our expectations. We continue to see pressure from high occupancy rates which dampened overall demand for rentals advertising. However, we did see signs of improvement in the rentals market with occupancy rates easing and customer demand remaining healthy.

IMT segment EBITDA was $186 million for Q2 or 39% of revenue, exceeding the midpoint of our outlook range of $182 million and 38% of revenue. The outperformance was driven by a combination of active cost management to drive operating efficiencies as well as lower advertising and marketing costs. Mortgages segment revenue of $29 million was slightly below the low end of our outlook range of $31 million as rapid increases in interest rates negatively impacted refinancing loan originations and demand in our mortgages marketplace more than expected.

As Rich mentioned, purchase financing is a key pillar of our 5 growth initiatives. We are moving from a captive audience with the former iBuying funnel to building a consumer-facing experience across the Zillow platform which requires additional tools and integration across our offerings. Our purchased loan origination volume grew 58% sequentially in Q2 as we make this transition. Mortgages segment EBITDA was a loss of $21 million, below the low end of our outlook for a loss of $18 million as we continue to invest in building the consumer-facing origination experience, internal tools and integration in the face of a really tough mortgage macro environment.

We ended the quarter with $3.5 billion of cash and investments on the balance sheet, down slightly from $3.6 billion at the end of Q1 which includes the benefit from core operating cash flow and the continued wind down of iBuyer inventory and the impact of $249 million in share repurchases during Q2. Debt decreased to $1.7 billion from $2.5 billion at the end of Q1 after paying down all remaining iBuying debt for the quarter. Our cash position, core operating cash flow and now less capital-intensive operations give us the flexibility to continue to invest against our growth strategy as we look to efficiently navigate through the current macro environment.

Before I turn to our outlook for Q3, I would like to note that the resale of inventory from our iBuying business is nearly complete. We ended Q2 with 71 homes remaining in inventory. And currently, only 25 are not yet under contract to sell. We expect to substantially complete the wind down during Q3 and to report Zillow Offers as a discontinued operation beginning in Q3. As a result, the residual Zillow Offers revenue and noncontinuing costs are not reflected in our guidance ranges.

Turning to our outlook. In our IMT segment, we expect a 12% year -- expect a 12% year-over-year revenue decline in Q3 at the midpoint of our outlook range. Within the IMT segment, we expect Premier Agent revenue to be between $275 million to $295 million, down 21% year-over-year at the midpoint of our outlook range. While we continue to focus on connecting high-intent customers to all our partners, our Q3 Premier Agent revenue outlook is largely informed by the following macro housing trends that we believe are making it harder for customers to transact and also affect our partner network. Lower purchase demand driven by recent increases in interest rates which has made home purchases less affordable and is impacting our overall Premier Agent connection lead volume as well as lower home price appreciation driven by softening demand and inventory levels that are growing but still lower than before the pandemic.

Given tougher Q3 comparisons and demand trends stabilizing in July compared to June, we now expect industry growth to be down mid- to high teens year-over-year in Q3. Besides our own internal leading indicators, there are a few publicly available data sources we can point to that also suggest this.

The Mortgage Bankers Association's purchase mortgage application index is running down high teens year-over-year in the last several weeks, a deceleration from high single-digit percentage annual decline fell through most of Q1 and early Q2. The year-over-year growth in the average loan size of purchase mortgage originations, as published by the Mortgage Bankers Association, has also decelerated meaningfully in recent weeks to low single digits from double digits earlier in the quarter. This has historically been a directionally good leading indicator for existing average home price sales growth and the deceleration suggests we could see home price appreciation decelerate meaningfully in the second half of the year.

Also, the National Association of Realtors measure of June pending home sales, a leading indicator for July and August, was down 20% year-over-year. In Q3, we expect Premier Agent to be in line to slightly worse than the industry as we saw in Q2. Our monetization of leads and agent behavior tend to pace ahead of industry trends for closed transactions during periods of disruption. When the macro moves this quickly, agents buying advertising through our market-based pricing program tend to slow down spend as they see demand wane which shows up ahead of closed transactions and the resulting industry growth metrics. Flex revenue is recognized at the time of delivery of customer connections to Premier Agent Partners which also leads the timing of closed transactions and industry growth metrics.

In Rentals, we are expecting to return to positive year-over-year growth as we continue to see signs that low rental vacancies may be subsided. We expect Q3 IMT segment EBITDA margin to be 28% at the midpoint of our outlook. We believe our Q3 investment level is appropriate despite the headwinds in the market, given the significant growth opportunities ahead. The positive signals we are seeing in testing and the now accelerated seller solutions opportunity with the announcement of our partnership with Openbook.

We expect our Mortgage segment revenue to be between $22 million and $27 million in Q3 which is down sequentially from Q2. Our Q3 outlook reflects the higher mortgage rate environment that impacts refinance mortgage volumes as well as demand in our marketplace business. Our Q3 outlook also reflects sequential growth in purchase mortgages and flat to lower gain on sale spreads due to the competitive industry environment. We expect Mortgages segment EBITDA to be between a loss of $31 million and a loss of $26 million based on expected market conditions and additional investments to build tools and technology for both customers and agents as we integrate mortgages with our other products and services.

We are focused on being a growth company, driving outsized transaction share gains and increasing revenue per transaction. Our early learnings reinforce our confidence in our strategy. That said, we are fully aware of the macro-driven headwinds impacting our near-term revenue outlook and are carefully evaluating every dollar that we choose to invest. As we've done under previous times of dislocation, such as the start of the pandemic and as we wound down our iBuying operations, we will be vigilant and decisive as we control the levers of our operating costs and pace of investments. Our strong growth margin profile and the nature of our business enables us to manage cost dynamically through periods like this and we will continue to assess as we see fit with an eye towards profitable growth.

For Q3, the sequential increase in costs reflect an increase in spend across our key pillars, offset by cost savings of an estimated $15 million of operational costs from our prior Q3 plan. Again, I want to be really clear here. We are continuing to lean in on product development for our key growth pillars because we are seeing strong early signs of success on customers needing and desiring to work with Zillow and our partners on transactions. Our confidence is reflected in our willingness to run hard at these opportunities. We want to note that we do not expect a further acceleration of our investment levels in Q4 as we expect the costs assumed in our Q3 consolidated outlook to be reflective of our investment levels throughout the second half of 2022. We continue to control the levers and we will react accordingly.

And of course, we are always looking for cost efficiencies while running the business. For example, while our vision for a flexible workforce still involves holding office space across the country, we believe there are continued opportunities to reduce our facility square footage as we gain experience on what a more normalized Cloud HQ environment requires. We have reduced our square footage by nearly 30% compared to pre-pandemic levels and have another nearly 30% that we are currently not using, with a portion of that already on the market for potential sublease.

Lastly, I want to take a moment to briefly discuss some additional details regarding the employee retention plan that was also announced today and that will take effect on August 8. We expect this action will be dilutive on a net basis by about 2%, resulting in the issuance of an estimated 4.5 million to 6.5 million RSUs. We will also reprice approximately 7.5 million stock options. We estimate that this retention action will result in the recognition of an incremental $180 million to $190 million in share-based compensation expense in total. We estimate that this will contribute an additional $45 million to $50 million of share-based compensation in Q3. The remaining expense for the retention action will normalize in Q4 and be recognized largely over the next 2-year period with a small portion in year 3.

We believe a strong balance sheet and operating cash flow are what drive a sustainable growth business across cycles and give us the ability to invest and capture opportunities during periods of market weakness. Looking forward, we are more focused on cash flow generation.

With respect to capital structure, we have $850 million in our share buyback authorization. As Rich discussed, we will be active in the near term to cover the dilution from the additional RSUs related to the employee retention plan that we expect will vest over the next couple of years. We will also continue to be opportunistic with capital investment opportunities, including share repurchases.

As we look forward, our priorities remain focused on innovating and executing on behalf of our customers and partners and we plan to grow our customer engagement through a compelling dream and shop experience; deliver a more integrated customer transactional experience to drive customers who choose to transact with us and our partners; invest in sustainable top line growth opportunities across the company including new integrated services that are more scalable, less subject to earnings volatility and more capital efficient; and manage our cost structure and improve productivity to drive a profitable, scalable and positive operating cash flow company.

And with that, operator, I'll turn it over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] [Technical Difficulty]

Unidentified Analyst

Share gains from the 3% to 6% you guys have in your 2025 plan. Can you guys share any evidence to date of incremental gains there either on the Flex side or on the MVP side? And then second, just as it relates to Opendoor, any sort of learnings you can bring from iBuying to that new partnership? And any sort of commentary there on the partnership?

Rich Barton

Do you want to start, Allen, with the market share stuff? And maybe I'll finish with the Open.

Allen Parker

Yes. Logan, thanks for the question. Listen, I think it's impossible for us to make any predictions or estimates on market share gains given the dislocation and volatility in the market and the fact that these cohorts take a while to play out. What I would say is that when you think about the targets that we provided earlier in the year and our 2025 vision to move from 3% market segment share transactions to 6%, we feel really good based on the early signs across our 5 growth pillars that we have an opportunity to continue to drive purchase originations and financing and leveraging our agent partner network and the integration between those 2. And so we feel really good about market share, as we discussed at our targets. It's just impossible to predict market share in this near term.

Rich Barton

And Logan, it is difficult even historically to get a handle our market share right now because the metrics are moving around a lot as well. But as I said, I'll pile on Allen a little bit. And as I said in my remarks, what we're looking at are the kind of inputs and early signs that we can get our growth initiatives working for us and driving up our transaction share. And the results we're seeing from our touring integration right now lighting up real-time tour availability is a precursor to transaction share gains. I was talking about how we've gone from basically 0 to 250 markets on real-time availability with ShowingTime here in the last 4 months. Connections are representing 50% of our -- sorry, tour requests representing 50%, 5-0 percent of our tour request now. That's another good one. On the financing side, pre-approvals double for purchase mortgages. Purchase originations are up 58% sequentially. The pre-approvals was doubling over the last 6 months. Small numbers but these are really good early signals for us that give us confidence.

On the Opendoor and iBuying thing, yes, of course, we invested quite a bit of time and treasure and IQ in figuring out how to integrate the cash offer into our home details page and our user flow to attract sellers to interact with us. And all of those learnings can be brought to bear on this Opendoor partnership that we're really excited about which is interesting because it involves deep integration of the Opendoor offering into our set of services that gives us the opportunity to kind of quarterback the process and introduce our customers who request an Opendoor cash offer, introduce them to Premier Agents, mortgages, Zillow closing service is a myriad of other things that we have our hands on. So we're excited about controlling this, what we call multiple selling option interface, with the customer because this is what sellers sit down and they are faced with multiple different selling options. And our ability to control and influence and advise at that really important point in the move is key.

Allen Parker

And maybe I'll just close, Logan, just finally on the color. First question. I said I'll close, Logan, on your first question, that our revenue guidance is really driven by the current macro volatility and variability and we feel really good about our opportunities long term across our growth strategies.

Operator

I'm going to go back to Ryan McKeveny of Zelman. Ryan?

Ryan McKeveny

Yes. Can you guys hear me now?

Rich Barton

Yes.

Ryan McKeveny

Can you guys hear me now?

Rich Barton

Yes.

Ryan McKeveny

Can you guys hear me now?

Rich Barton

Yes, yes, Ryan. Yes, yes.

Ryan McKeveny

I'm so sorry. So sorry. I did not have a Blue Angel going by. I'm just having phone issues, so I apologize about that. So I cut out and redialled, so I apologize if I missed this but I heard the answer you gave about the confidence in the market share outlook going forward. If I think about the margin side of things and the levers that you control on the cost side and, ultimately, the margin profile. When we think about that longer-term vision and the opportunity for just company-wide margin improvement, obviously, the macro has changed. But if you could just give us a sense, big picture of how much is the margin profile dependent on the macro environment? Or are there enough just levers in the business. And ultimately, you invest today, you get the returns in the future that the longer-term outlook, even under a more challenging macro environment, it would still be one of ultimately getting to solid margin improvement going forward?

Allen Parker

Yes. Yes, I'll take that. Thanks, Ryan. Yes. I mean I think if you think about long term, our outlook of the margin profile, I mean, we're very excited about where we're positioned and having a business model that has high gross margin. And so the share gain and increasing revenue per share, we believe, is a very leveraged model over time as that happens. So -- and we believe, given the traffic and the number of customers who start with our site and the low share we have now, that over time, even as macro contracts and expand, we participate and can grow into that as we build these processes and get financing these 5 pillars going. So we're very bullish on the return these investments can deliver as we grow share in revenue per transaction because our model is built to be a high-margin model.

Ryan McKeveny

That's great. Sorry about the phone issues.

Operator

Thank you, Ryan. The next question comes from John Colantuoni with Jefferies. John, your line is open.

John Colantuoni

Can you just start by giving us a bit more detail on how agents are reacting to the changing housing market so far in terms of making changes to their advertising strategy more broadly and specific to the Premier Agent program. On the one hand, they have less deals happening, so maybe that's making it harder for agents to find new clients. But agents are also closing less transactions, so they have less cash coming in to spend on advertising. So I'm just curious how to get your perspective on how those 2 countervailing factors are impacting the Premier Agent business? And I have a follow-up.

Allen Parker

Do you want me to take that, Rich?

Rich Barton

I think so, Allen. Yes.

Allen Parker

Okay. I mean I think how I would describe it as we look out into our agent population, our goal is to continue to connect high-intent customers with high-performing agents. And as we called out in our touring metric and the increase, we believe we're continuing to take actions and invest in doing so to get the agent and the customer connected at the right time. And that's why we also are so bullish on financing because having a preapproved customer is actually also very positive for the agent connection. In today's macro, what we're seeing, I think, as we saw the macro deteriorate relatively rapidly is that transactions -- and as affordability issues increased, we saw customer demand go down. So as agents saw demand go down and longer cycles for their customers to close, we saw them start to react by cutting spend. And so we still have a very strong population of agents in our network and we probably saw the tail reduce quicker than some of those agents that are performing really well for us and our customers. But their natural reaction at a time like this is to reduce their advertising spend somewhat as a protection. And then as we continue to show that we can provide high-intent customers that can convert, we expect that to increase again.

John Colantuoni

Okay, great. And I wanted to ask one on the Opendoor partnership. Is there any way you can give us a sense for how quickly you expect to ramp the partnership? And how we should think about the pathway to scaling the product over time, what sort of investments you need to make to get that partnership where you want it in the long run? And if possible, is there any chance you can give us a bit more detail on the economic sharing of the partnership how any referrals work or anything like that? Any details you can provide would be helpful.

Rich Barton

You want me to start, Allen?

Allen Parker

Yes.

Rich Barton

Yes, we're not -- okay. So John, we're not disclosing the economics of -- the specific economics of that. Obviously, it's based in a referral fee at its simplest but this relationship and partnership goes way deeper than that. This isn't just a lead gen distribution deal. This is going to be a deep integration. And given the -- what we envision from an integration perspective, it will take a minute to get fully up and running.

Brad, I don't know if we're saying anything about timing?

Brad Berning

No, not specific, because obviously, it's going to take us a little bit of time for the integration, as you said.

Rich Barton

Yes, it will take some time. But we're really focused on getting the customer experience right. And then, I guess, just stay tuned to this channel.

Operator

The next question comes from the line of Deepak Mathivanan with Wolfe Research.

Unidentified Analyst

This is Jack [ph] on for Deepak. Two quick ones, if I may. Given the traffic and visits to the site are growing even in 2Q, how should we think about the factors that are impacting our Premier Agent revenue growth? And then kind of second lien related on the Opendoor partnership, I think it's super interesting and makes a lot of sense. Are you guys worried at all about this partnership maybe cannibalizing the Premiere Agent sell-side revenue as well. I think this kind of go hand in hand.

Rich Barton

I didn't quite hear the first one, Allen, did you get it?

Allen Parker

The first one was related to with traffic and visits growing, I think it was how do you square that with the Premier Agent revenue forecast of down 21% for the quarter.

Rich Barton

You want to go that?

Allen Parker

I mean -- and again, a thanks for the question. I think, one, we clearly -- people still are very interested and we believe there is demand for people to move but affordability and high interest rate has had a near-term impact on transactions, along with the fact that we had very steep home price appreciation for a period of time. And so affordability was a problem. And so we have a lot of people coming to shop and Dream and we called out that we also have growing rentals traffic even in light of the high occupancy rates which, again, just shows very strong demand. And in fact, a lot of renters are also looking to buy, so that's a helpful effect as well. So we believe that having that engagement and traffic and people coming to our sites on a regular basis is -- puts us in a great position as we think about ways to improve our transaction share and drive higher-intent customers to our agents. But this is really just a dislocation driven by a lot of macro features that we've just seen a very volatile market environment over the last few years and we've got to work through that. But I would say it's a positive on the traffic and engagement but the macro is what's driving the revenue guide that we've provided for Q3.

Rich Barton

And Jack, on your question about worried about cannibalization, absolutely not. We're not worried about cannibalization at all, putting the Opendoor partnership in place and getting a whole lot more hands raised on the seller side from our home details pages to start the process quite the opposite. It will increase. We anticipate it will increase Premier Agent business as well as Mortgage business and others. We have some experience with that already, as you may or may not remember, with our own iBuying operations. So that is our expectation.

Operator

The next question comes from the line of Jay McCanless with Wedbush.

Jay McCanless

The first one I had, when mortgage rates were moving up earlier this year, was there a point when you passed, say, 4%, 4.5% where you really saw a drop-off in activity and interest level from customers. Just wondering if we're on the reverse of this now and rates are coming back down is there a rate or area of rates we should keep in mind where demand might pick up.

Rich Barton

Yes, Allen, go ahead.

Allen Parker

I'll start with it. I mean I think with respect to our marketplace business and the refinancing that we were doing, there is obviously a parity level where rates are higher than as such level that refinancing no longer makes sense. And obviously, that demand saw a big tick down. With respect to purchase, I think right now that the customers are trying to understand what may happen. And I think we do have so either hesitation or kind of sidelines waiting to see what will be a sustaining rate. And I think once we get to a point where it's kind of a normalized or sustaining rate, we're going to see volume pick back up because it will become the new normal. And then depending on where it got to, we may see additional refi volume as it kicks back down. So I don't think there's a magic number. Affordability, as Rich called out, the average mortgage monthly payment is -- has grown but it was off of historically low rates. So I do think it will normalize. And when it stabilizes and we get a little more certainty as to what the interest rate environment looks like going forward, we'll start to see more people come in because they'll be more comfortable with the stabilized rates.

Jay McCanless

Okay, that's great. The second question I had -- just you talked about how in some of these markets inventory is starting to grow again. And do you have any kind of color as to whether or not this inventory is at or below median price for a given market? Or is it much more expensive than the local median price. Just wondering if -- we know the rates aren't helping but if the product coming back to market is more first time, first move reasonably priced product, that's something else that might be a tailwind that people aren't thinking about right now.

Brad Berning

Let me start on that one, Rich. Yes. I think -- this is Brad. We're seeing on the higher price points and higher price point markets that there's been more of a deceleration and more of a deterioration in home prices as inventory is moving up. So I think the lower end and medium kind of price points, we're still seeing fairly rapid relative to historical norms -- price as we with price and velocity.

Jay McCanless

In terms of the inventory coming back to market at those lower and medium ones or just the prices on those going on?

Brad Berning

Yes, the lower median price -- yes, exactly. On the lower median price points, you're seeing still pretty rapid from listing to pending sale.

Operator

Our last question comes from the line of John Campbell with Stephens Inc.

Unidentified Analyst

This is A.J. stepping in for John Campbell. First set here, just a couple on ShowingTime. Just wanted to see kind of what the underlying ShowingTime revenues looking like since the acquisition. Are they still in a fast-growth mode there? And secondly, can you talk to how far along you are in the integration journey was ShowingTime and just how tightly that's integrated along Premier Agent at this point?

Rich Barton

Do you want to start with revenue?

Allen Parker

Yes. Yes. So what I would say is that ShowingTime is a critical part of our integration and development of touring for our customers. Rich can talk about the integration. With respect to revenues, what we're really looking at is coverage. And since we've acquired ShowingTime, we have been relatively consistent in the number of listings that we've been able to cover. It's vastly a little bit. There's some competitive elements out there but we've been relatively successful at proving the value of ShowingTime. But ShowingTime, we don't disclose selling times revenue in total but it's not -- the revenue itself is not over the driving factor of our strategic acquisition of ShowingTime. It's the ability to have coverage of all listings or as many listings as possible in any given market.

Rich Barton

Yes. I'll pile on and say I'm really pleased with the way ShowingTime has held its coverage and the way it's rapidly shipped new product and feature sets. Specifically impressive is this real-time availability that I chatted about in the script but it basically enables agents to use ShowingTime to see -- to schedule home tours digitally so they can actually see what touring times are available while avoiding a whole bunch of the kind of phone tag snarl that existed prior to real-time availability. It's only been rolled out a short period of time, just maybe 4 months. And we have 74% of the listings that are eligible for this have signed up to enable it which is a really -- the snowball is rolling down the hill on this one which I'm super excited about. That's the beginning. The big dream really is to now turn it into OpenTable for home tours, right? So to crack open that home tour reservation interface directly to consumers and stay tuned for that. We'll have more to come in the future but it's an important product initiative.

So, I'm really pleased overall with the integration. I'll also lob a little -- shine a little spotlight on a terrific rich media product we have at Zillow as well that's doing quite well which enables 3D tours and robotically -- mostly robotically generated floor plans to create an amazing virtual touring experience which we think will be table stakes in the relatively near future for listing. So we have a fantastic platform product that we offer the industry at large and a lot of ShowingTime partners as well. I hope that answers your question.

Unidentified Analyst

Yes, that's great. Secondly, here, on the rental business, you spoke to improving conditions there. So the clarity is much appreciated. But -- maybe touching on StreetEasy. How do you guys feel your position relative to CoStar's new City Snap offering?

Rich Barton

We feel really good. StreetEasy is really the brand in New York City. It has incredibly high customer engagement. But maybe even more interestingly, it is the platform that most brokers in New York City use to manage their inventory. And so we're in an incredibly strong position there, have a really rich and mature feature set there. So feel terrific competitively in New York.

Operator

This completes the allotted time for questions. I will now turn the call back over to Rich Barton for any closing remarks.

Rich Barton

All right. Thank you guys for joining us. Try to get back to your summers. I'm going to turn and watch the Blue Angels. We'll talk to you again soon.

Operator

That concludes the Zillow Group second quarter 2022 earnings call. Thank you all for your participation. You may now disconnect your lines.

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