Zillow Group (Z) Q3 2026 earnings review
Zillow rentals keep growing, but mortgage rates force outlook cut
Zillow Group, the operator of the most visited US real estate website, missed its quarterly sales plan as higher mortgage rates stalled home buying. Total sales rose 7%, kept afloat by apartment rentals while agent commissions shrank and mortgage lending slowed. Chief executive Jeremy Wacksman pointed to market share gains, yet a legal settlement over its closed home-flipping business swung the company to a $158 million net loss.
| Revenue | $724M +7% from a year ago (missed $745–760M plan) |
|---|---|
| Rentals revenue | $220M +26% from a year ago (30% of total sales) |
| Net loss (GAAP) | -$158M after $165M Zillow Offers legal settlement |
| Full-year profit outlook (Adjusted EBITDA) | Cut $72.5M to $655–690M (24% margin, flat vs 2025) |
⚖️ Verdict: 🔴 Bearish
The story got worse because rising interest rates broke Zillow's second-half profit expansion plan and forced a $73 million cut to its full-year operating profit outlook. By our math, the fourth-quarter plan leaves revenue down 1% from a year ago and operating profit excluding one-offs down 21%. One bright spot: two-thirds of buyer leads now go to Zillow Preferred agents, and August job cuts kept Q3 operating costs below plan.
The question now is whether the fourth-quarter home-buying drop is a temporary rate shock plus accounting lag from the Preferred rollout, or proof that Zillow's mortgage push only works when interest rates fall. If it is mainly accounting lag, home-buying revenue will rebound in the first half of 2027 as delayed commissions close; if it is rate sensitivity, lending volume will keep shrinking. First-quarter 2027 home-buying sales will settle it.
🐂 Bull Case
Preferred Agent Rollout Reaches Two-Thirds of Buyers
Zillow is shifting how it charges real estate agents, moving from upfront advertising fees to Zillow Preferred, where the company takes a share of the commission when a home sale closes. Critics note this transition delays revenue by six to twelve months and cut 2 percentage points from home-buying sales growth in Q3.
Even with that delay, chief executive Jeremy Wacksman and finance chief Jeremy Hofmann lifted the program's share to two-thirds of buyer connections in Q3, up from 61% last quarter. Management now expects Preferred to reach 75% by year-end and 100% in the first half of 2027, earning 35% more revenue per buyer connection than legacy ads.
What to watch: Preferred's share of buyer connections in the Q4 shareholder letter. Hitting 75% will set up the 6-to-12-month revenue lag to fade in the second half of 2027.
Apartment Listings Keep Rentals Growing Over 25%
Rentals is Zillow's main growth engine while home buying stalls, though skeptics expected a sharp slowdown as the company lapped last year's listing partnership with Redfin. In Q3, Rentals revenue grew 26% from a year ago to $220 million, making up 30% of company sales.
Revenue from multifamily properties — apartment buildings with 25 or more units — rose 35% as paying buildings reached 81,000, up 17% from a year ago. Quarterly net additions slowed to 2,000 buildings from 3,000 in Q2, but property managers upgraded to larger ad packages, so management forecast Q4 Rentals growth to hold near 26%.
What to watch: net new multifamily properties in Q4. A rebound above 2,000 buildings will show whether growth still comes from new landlords or mainly from higher prices.
Job Cuts and Lower Stock Pay Protected Q3 Profit
Zillow cut about 7% of its staff in August to keep operating costs in check and expand its seller marketing tools. That discipline rescued Q3 operating profit despite the revenue miss: operating expenses excluding one-offs came in at $542 million, $20.5 million below the middle of management's plan.
The company also reduced employee stock-based compensation by 25% from a year ago to $74 million, attributing lower personnel costs to a "decrease in headcount-related expenses, driven primarily by a decrease in share-based compensation expense". Meanwhile, Zillow Showcase, its 3D tour and floor-plan product, reached 5.4% of new US listings.
What to watch: Q4 operating expenses excluding one-offs against the $530 million to $535 million plan. Staying inside that range will prove the August job cuts permanently lowered the cost base.
🐻 Bear Case
Higher Mortgage Rates Broke the Home-Buying Plan
"Q3 highlighted Zillow’s durability. We grew revenue and outperformed the real estate category during one of the toughest housing markets in a generation," chief executive Jeremy Wacksman said. Yet the company missed its own quarterly revenue outlook for the first time in two years, and cut its full-year profit target by $72.5 million at the middle of the range.
The miss came from home buying and Zillow Home Loans, its mortgage lending arm. The company stated that "Mortgages revenue was below our outlook because the rapid rise in mortgage rates during the quarter caused lower conversion".
- Q3 total revenue: $724 million, missing the $745 million to $760 million plan
- Q3 Mortgages revenue: up 32% to $70 million, below the 50%-plus target as loan volume growth slowed from 95% in Q2 to 55%
- Q4 For Sale and Residential outlook: both planned to fall 9% to 15% from a year ago
- Q4 Mortgages outlook: planned to fall low single digits from a year ago
Because mortgage borrowers are backing out before closing, Zillow's doubling of its loan pipeline earlier this year did not turn into the revenue management planned. That rate pressure now carries into Q4, where total sales are set to shrink slightly from a year ago.
What to watch: Q4 purchase loan origination volume. A drop from Q3's $2.0 billion level will confirm that high interest rates are stalling Zillow's integrated lending model.
Legal Bills Swung Zillow to a Steep Loss
Zillow faces lawsuits on two fronts: a federal antitrust case over its Redfin rentals deal, and shareholder suits over its closed home-flipping unit, Zillow Offers. In Q3, the company recorded a $165 million settlement charge for the Zillow Offers class action and $8 million in Federal Trade Commission (FTC) legal fees.
Those charges pushed general and administrative overhead up by $152 million — or 20 percentage points of revenue by our math — swinging Zillow to a $158 million net loss. For a second straight quarter, management changed its definition of Adjusted EBITDA to exclude the new legal charge, reporting $182 million of profit excluding one-offs.
Meanwhile, the press release did not update the outcome of the August FTC trial or the renewal of mortgage warehouse credit lines, which await the quarterly 10-Q filing. What to watch: the legal contingencies note in the Q3 10-Q filing. Any restriction on the Redfin syndication deal would threaten Rentals growth.
Traffic Shrank Again Even After Filtering Out Bots
Zillow rolled out AI Mode, its conversational search assistant, to 100% of signed-in users in Q3, up from 20% in Q2. Wacksman and Hofmann argued that "It’s not just another mundane to-do list item most people will hand over to a personal AI assistant", saying users on AI Mode spend nearly three times as long on the site.
Yet total traffic kept falling. Management revised historical visitor counts down by about 11% "because the volume and sophistication of automated traffic have increased in recent periods". Even on that cleaned-up basis, monthly unique users fell 3% from a year ago to 215 million, and total visits dropped 5% to 2.3 billion.
What to watch: recast visits and unique users in Q4. Another drop would show that deeper engagement from signed-in AI users is not offsetting fewer people opening Zillow.
👓 Other Themes
Buyback Pace Slowed to Preserve Cash
After spending $826 million on share buybacks in the first half of 2026 and cutting its cash pile nearly in half, Zillow slowed repurchases to $20 million (0.5 million shares) in Q3. That pause allowed cash and investments to rise by $25 million from Q2 to $707 million, ahead of paying the $165 million legal settlement.
💲 Other KPIs
Weighted-average diluted shares fell 12.0% from a year ago and 1.2% from Q2 after heavy buybacks earlier in the year. Because the share count shrank, Q3 profit per share excluding one-offs rose 25% from a year ago to $0.55, even though net profit excluding one-offs grew only 10% to $124 million.
Zillow's cash flow measure — operating cash flow minus capital spending and net repayments on mortgage credit lines — fell 57% from a year ago. Standard operating cash flow rose 54% to $162 million, but the online real estate group repaid $73 million on its mortgage credit lines in Q3, compared with borrowing $42 million a year ago.
🔮 Guidance
Cut. The middle of the Q4 plan is $650 million, down 0.6% from a year ago by our math and $57.5 million below what the prior full-year plan implied. Zillow expects industry purchase mortgage volume to fall 10% to 15% in Q4 after interest rates rose, alongside a 4 to 5 percentage point drag from the Preferred rollout and seasonal slowdowns.
Cut. Both total home-buying revenue and the Residential agent segment are planned to shrink 9% to 15% from a year ago in Q4. That compares with flat For Sale revenue in Q3, as seasonal connection drops and slower mortgage closings hit at the same time.
New. The Seattle-based company plans for Mortgages revenue to shrink slightly from a year ago at the middle of the range, reversing from 32% growth in Q3 and 75% in Q2 as higher mortgage rates reduce borrower conversion.
Raised. Management expects Q4 Rentals growth to match Q3's 26% pace. By our math, that points to about $212 million of Q4 revenue, slightly above the $203 million to $206 million implied by the prior full-year plan.
Cut. At the $117.5 million middle of the range, Q4 operating profit excluding one-offs falls 21% from a year ago by our math and sits 35% below what the prior full-year target implied. The Q4 margin drops to 18% from 25% in Q3 because revenue falls seasonally while operating costs excluding one-offs hold at $530 million to $535 million.
Cut. Full-year revenue growth steps down from mid-teens to 10% to 11%. By our math, that equals about $2.85 billion at the middle of the range, or $86 million below the prior dollar target, while full-year Rentals growth holds at roughly 30%.
Cut. The full-year profit target dropped by $72.5 million at the middle of the range, leaving the full-year margin flat against 2025 at 24% instead of the 26% promised last quarter. Separately, management improved its full-year stock-based compensation forecast to a drop of more than 20%, compared with more than 15% previously.
❓ Key Questions
What happened at the August FTC antitrust trial?
The trial over the Redfin rentals partnership began on August 24, and Zillow spent $8 million on FTC legal fees in Q3 ($34 million this year). The release gives no update on the trial's timeline or whether remedies could alter the Redfin listing deal.
Did Zillow Home Loans lose money as rates rose?
Last quarter management said mortgage unit economics were positive, but Q3 Mortgages revenue missed the 50%-plus target at 32% and Q4 is planned to shrink. Investors need to know if lower borrower conversion pushed the lending unit back into losses.
Why did Zillow revise historical traffic down by 11%?
Management recast past visits and unique users to strip out sophisticated automated bots, cutting reported Q3 2025 unique users from 250 million to 222 million. How much of that bot traffic came from external AI scrapers, and why is human traffic still falling?
When will Zillow pay the $165 million legal settlement?
The company recorded a $165 million charge in Q3 to settle the Zillow Offers securities class action, net of insurance. With cash at $707 million and Q4 free cash flow seasonally lower, the timing of the cash outflow matters for 2027 buybacks.