Zillow Group (Z) Q1 2026 earnings review
Monetization Surges Despite Shrinking Traffic
Zillow is proving it does not need a booming housing market—or even user growth—to drive bottom-line results. While average monthly unique users reversed into a 3% YoY decline (down to 220 million), total revenue accelerated 18% to $708 million, beating the top-end of expectations. Net income rocketed to $46 million from just $8 million a year ago, proving massive operating leverage. The growth is highly concentrated: Rentals (+42% YoY) and Mortgages (+56% YoY) are carrying the weight, while the core Residential segment stabilized at 8% growth. Zillow is successfully executing its 'super app' strategy, extracting more transaction value per user, though mounting legal fees and stalling top-of-funnel traffic demand monitoring.
🐂 Bull Case
Zillow delivered 18% revenue growth against an industry that grew just 2%. The integration of touring, financing, and renting is successfully capturing wallet share regardless of total transaction volumes.
Rentals revenue surged 42% to $183M, driven by 57% growth in multifamily. With 76,000 multifamily properties on the platform (up 38% YoY), the path to a $1B+ annualized Rentals run rate is clear.
🐻 Bear Case
Average monthly unique users dropped 3% YoY to 220 million. Zillow relies heavily on its organic top-of-funnel dominance; structural erosion here increases future customer acquisition costs.
Adjusted EBITDA margins stayed flat at 26% despite huge revenue outperformance, dragged down by a $11M YoY increase in legal costs. Management expects another $20M headwind in Q2.
⚖️ Verdict: 🟢
Bullish. Zillow has successfully transformed from a low-margin lead generator into a high-margin integrated transaction platform. Operating leverage is firmly taking hold, making the flat housing cycle irrelevant to their immediate earnings trajectory.
Key Themes
Mortgages Originates Massive Growth
Zillow Home Loans is accelerating rapidly. Purchase loan origination volume skyrocketed 96% YoY to $1.5 billion, pushing Mortgages revenue up 56% to $64M. The strategy of funneling high-intent buyers from Zillow directly into in-house financing is working, breaking the historical lag in mortgage conversion.
Traffic Reversal Signals Saturation
For the first time in recent quarters, native app/site traffic reversed from growth to contraction. Average monthly unique users fell 3% to 220 million, and total visits fell 3% to 2.3 billion. Management attempts to offset this by citing Comscore data (+12%), but shrinking internal native metrics suggest Zillow may be hitting the ceiling of its organic reach.
Enhanced Markets and Showcase Resiliency
Residential revenue grew 8% (stable vs prior quarters) despite a flat macro environment. Growth was entirely driven by deeper monetization products: Zillow Preferred connections, Zillow Showcase, and agent software (Follow Up Boss). Showcase was on 4.3% of new listings in Q1, up from 3.7% in Q4, cementing its status as an emerging industry standard for sellers.
Mounting Legal Defenses
Legal expenses are becoming a persistent structural drag on profitability. Incremental YoY legal costs hit $11M in Q1 (costing 160 bps of EBITDA margin) and are expected to nearly double to a $20M headwind in Q2 ahead of the FTC trial. Without this $11M drag, Q1 EBITDA margin would have been 27%.
Macro Picture: Bouncing Along the Bottom
The company continues to characterize the housing market as 'bouncing along the bottom.' The broader industry grew by roughly 2% in Q1 (per NAR), with purchase mortgage originations actually declining ~1%. Zillow's 18% revenue growth represents pure market share capture and ARPU expansion rather than a rising tide.
Aggressive Share Count Reduction
Zillow deployed its cash hoard aggressively, repurchasing 13.5 million shares for $626 million in a single quarter. This is a massive acceleration compared to the $670M spent across the entire 2025 fiscal year. Cash and investments dropped from $1.3B to $788M as a result, but the company still has $1.3B authorized for future buybacks.
Other KPIs
Accelerating. Up 44% YoY from $88 million in 25Q1. Operating cash flow nearly doubled to $200 million, showcasing the underlying cash generation capacity of the business when stripped of non-cash stock-based compensation ($81M in the quarter).
Total operating expenses and cost of revenue combined were $672 million (up 11% YoY). Cost of revenue specifically increased $50 million YoY due to higher lead acquisition costs from the Redfin rentals syndication agreement and higher loan processing costs. This was entirely expected and offset by revenue gains.
Guidance
Stable. The midpoint of $757.5M implies a 15.6% YoY growth rate compared to $655M in 25Q2. This represents a slight deceleration from Q1's 18% print but maintains the 'mid-teens' full-year trajectory.
Decelerating sequentially. The $157.5M midpoint is roughly flat YoY vs $155M in 25Q2. Management cited an incremental $20 million legal cost headwind and higher Q2 ad spend ($80M vs $64M last year) due to shifted product launch timing. Excluding legal costs, the baseline EBITDA would be $170-$185M.
Decelerating from the current 42% pace. Q2 specifically is guided at ~30% YoY growth. The deceleration reflects tougher comps as the company laps the initial surge of the Redfin syndication partnership signed in early 2025.
Accelerating improvement. The company updated its outlook from 'down more than 10%' to 'down more than 15%' YoY, showing tighter control over equity dilution, which directly benefits GAAP profitability.
Key Questions
Traffic Contraction Strategy
With native unique users and visits declining 3% YoY, how much of this is driven by macro conditions versus platform saturation, and what specific steps are being taken to reverse the top-of-funnel leakage?
Legal Expense Normalization
You noted a $20M incremental legal headwind in Q2 ahead of the FTC trial. Assuming the trial concludes, what is the expected normalized quarterly run-rate for general and administrative legal costs in H2 2026?
Zillow Preview and Realtor.com Economics
With the new Zillow Preview collaboration extending pre-market listings to Realtor.com, how does the economic share work between the two platforms, and does this risk commoditizing Zillow's proprietary inventory advantage?