Zillow Group (ZG) Q2 2026 earnings review
Top-Line Outperformance Masks a Bottom-Line Reversal
Zillow beat Q2 revenue expectations with 18% YoY growth, hitting $772 million. However, the profit narrative is reversing. Elevated legal expenses and higher lead acquisition costs dragged GAAP Net Income back into negative territory (-$4 million) after a strong $46 million print last quarter. Zillow's transition to a 'Preferred' agent model is cannibalizing its core Residential revenue to feed explosive growth in Mortgages. Management raised full-year top-line guidance to mid-teens growth but simultaneously announced corporate restructuring, role eliminations, and a leadership shakeup to enforce a 'more sustainable cost structure.'
🐂 Bull Case
Mortgages revenue surged 75% YoY, fueled by a massive 95% increase in purchase loan origination volume ($2.2B). The integrated transaction model is successfully capturing financing.
Rentals revenue grew 31% YoY to $209M, anchored by 42% growth in multifamily. With 79,000 multifamily properties on the platform, Zillow continues to gain wallet share from property managers.
🐻 Bear Case
Core Residential revenue is decelerating sharply. Q3 guidance calls for flat (0%) YoY growth, weighed down by weak agent sentiment and model transition headwinds.
Despite claiming market outperformance, absolute traffic to Zillow's apps and sites fell 2% YoY to 239 million Average Monthly Unique Users (MAUs).
⚖️ Verdict: ⚪
Neutral. The transition to the integrated 'Preferred' model is strategically sound and driving massive growth in Mortgages, but it is creating severe optical headwinds for the core Residential business. Combined with a reversing profit trend and macro deterioration, execution risks are elevated.
Key Themes
Mortgages Segment is Accelerating Violently
Zillow Home Loans is rapidly gaining traction. Mortgages revenue growth accelerated to 75% YoY in Q2, up from 56% in Q1. Purchase loan origination almost doubled YoY to $2.2 billion. As Zillow transitions agents to the Preferred model, a larger share of buyers are utilizing the integrated financing options, transforming Zillow from a lead-gen platform to a true transaction engine.
Core Residential Revenue Hitting a Wall
Zillow's largest segment, Residential, is decelerating and will flatline. Q3 guidance explicitly calls for 0% YoY growth. Management attributes this to a 600-700 basis point 'shift' in revenue from Residential to Mortgages due to the Preferred model transition, alongside a 200-300 basis point headwind from deferred revenue recognition. While mechanically explainable, zero growth in the core business puts immense pressure on adjacent segments to carry the load.
Traffic Contradicts the 'Super App' Narrative
Management repeatedly emphasizes their 'housing super app' strategy and category outperformance, but the raw data shows reversing engagement. Traffic to Zillow's mobile apps and sites was down 2% YoY to 239 million Average Monthly Unique Users in Q2. Total visits also fell 2% to 2.5 billion. If the integrated platform is improving the consumer experience, absolute top-of-funnel traffic should not be shrinking.
Accelerating the Preferred Partner Transition
Zillow is pulling forward its transition to the Preferred agent model (success-based, pay-at-close), aiming for over 75% of connections by the end of 2026 (up from 44% in 2025). This model generates 23% more revenue per connection today, and Zillow expects that to accelerate to 35% more revenue per connection as conversion improves and adoption of Zillow Home Loans scales.
AI Mode and Product Innovation
Zillow is expanding 'AI Mode', currently live for 20% of signed-in users. Consumers using AI mode spend over 3x as long on the platform, view 2x as many homes, and contact agents at nearly 3x the normal rate. Furthermore, Zillow Showcase (using proprietary rich media/3D tours) is now attached to 5% of all new listings, providing listing agents a 35% win-rate edge.
Macro Deterioration
The macro environment is actively worsening. Management previously expected industry purchase mortgage origination volume to be flat for the year. They have now downgraded that assumption, expecting low-to-mid-single digit declines for the rest of 2026. Zillow is relying entirely on market share gains, not market recovery, to hit its mid-teens revenue target.
Legal and Operational Costs Turn Bottom Line Negative
Zillow absorbed a $10 million FTC-related litigation cost this quarter (which it excluded from Adjusted EBITDA), contributing to a $18 million overall YoY increase in legal expenses. Furthermore, cost of revenue spiked $44 million YoY, driven by Redfin rental syndication lead costs and mortgage processing. This combination pushed GAAP net income negative, contradicting the profitability narrative established in prior quarters.
Other KPIs
Up 14% YoY, representing a 23% margin. Management beat the high end of their outlook range, though margins compressed slightly from 24% a year ago due to higher lead acquisition and marketing costs.
Stable. Down slightly from $100 million in Q2 2025. The company maintains excellent liquidity with $682 million in cash and investments, allowing them to aggressively repurchase $200 million in stock (5.6 million shares) during the quarter.
Guidance
Decelerating. At the midpoint ($752.5M), this implies ~14% YoY growth, a step down from the 18% growth delivered in Q2. Driven entirely by the stalling of the Residential segment.
Decelerating sharply from 7% growth in Q2. Management explicitly attributes this to a 600-700 basis point revenue shift into Mortgages due to the Preferred model transition.
Decelerating mildly from the massive 75% print in Q2, but remains the primary engine keeping total company top-line growth in double digits.
Stable. Mid-teens percentage growth YoY, reiterating the prior full-year narrative despite a downgraded macro housing assumption.
Accelerating margin profile. Implies a 26% margin at the midpoint, delivering a 200 basis point margin expansion YoY, aided by a projected >15% drop in share-based compensation.
Key Questions
Visibility into Residential Reacceleration
With Residential revenue guiding flat in Q3 and expected to face seasonal/transition headwinds into early 2027, at what point does the 'Preferred' model transition complete and allow the core Residential line to naturally compound again?
Corporate Restructuring Implications
The shareholder letter mentions role eliminations and restructuring to ensure a 'more sustainable cost structure.' Were these cuts concentrated in legacy market-based pricing teams, and how much annualized cost savings is expected from this action?
Traffic Dynamics
Average Monthly Unique Users and Total Visits were down 2% year-over-year. Is this traffic decline concentrated purely in low-intent browsers, or are you seeing any top-of-funnel friction as you gate features behind AI Mode and pre-approvals?
Mortgage Margin Profile
As Mortgages rapidly becomes a much larger mix of total For Sale revenue (offsetting Residential), how should we model the gross and EBITDA margin mix shift for the consolidated business?