Integrated Transaction And Rentals Expansion Will Shape A Balanced Long Term Outlook

Catalysts

About Zillow Group

Zillow Group operates digital real estate marketplaces and related software and services that connect home buyers, sellers, renters, agents and lenders across the housing journey.

What are the underlying business or industry changes driving this perspective?

• While the integrated transaction model in For Sale is gaining traction through enhanced markets and Zillow Preferred, extending this more complex playbook to a wider set of agents and geographies could prove slower or more resource intensive than expected. This may limit future residential revenue growth and temper earnings expansion.
• Although rental listings and multifamily partnerships are broadening reach, the effort to grow property count from 69,000 multifamily buildings toward the larger market and to convert that inventory into durable wallet share depends on sustained advertising value for property managers. Any moderation in advertiser spend could constrain Rentals revenue scale and pressure EBITDA margins.
• While early use of AI in products such as Zillow Showcase, virtual staging and the ChatGPT app opens new digital doorways, the real payoff relies on turning that engagement into higher transaction conversion and better monetization. If that lift is modest, the impact on long run revenue and net income could be more muted than recent product momentum suggests.
• Even though Zillow Home Loans purchase originations of US$1.3b and tools like BuyAbility and digital pre approvals deepen cross sell, the ability to keep expanding attachment rates without materially raising customer acquisition and compliance costs is uncertain. This could cap mortgages revenue contribution and weigh on consolidated net margins.
• Despite strong brand traffic of 250 million monthly unique users in For Sale and 35 million in Rentals, keeping that audience highly engaged through longer and more complex housing cycles may require continued marketing and product investment. This could limit the pace of EBITDA margin expansion and the contribution of free cash flow to earnings over time.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Zillow Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Zillow Group's revenue will grow by 9.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.0% today to 6.9% in 3 years time.
• The bearish analysts expect earnings to reach $258.4 million (and earnings per share of $1.18) by about August 2029, up from $55.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $804.2 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 28.7x on those 2029 earnings, down from 140.3x today. This future PE is greater than the current PE for the US Real Estate industry at 17.5x.
• The bearish analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.55%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Zillow is aiming for mid cycle targets of US$5b in revenue and 45% EBITDA margins in a normalized housing market, and management describes a clear path to US$1b of incremental For Sale revenue and US$1b plus in annual Rentals revenue. If the company continues to grow towards these ambitions, sustained compounding in revenue, EBITDA and free cash flow could support a higher share price over time.
• Rentals revenue grew 41% year over year in Q3 2025 and management expects more than 45% growth in Q4, helped by multifamily revenue growth of 62% and a rising multifamily property count that has almost doubled over two years. If this segment keeps scaling and remains accretive to margins, the expanding contribution from Rentals could lift consolidated revenue and EBITDA beyond what a flat share price would imply.
• The integrated transaction model in enhanced markets is gaining traction, with 34% of connections now through this experience, double digit adoption of Zillow Home Loans in those markets and continued rollout of Zillow Preferred. If attachment of mortgages and software deepens across a larger share of U.S. transactions, higher take rates and better conversion could push residential revenue, net income and free cash flow higher.
• Management is holding fixed costs tight while growing revenue, with Q3 2025 EBITDA margin at 24%, more than 200 basis points above a year earlier, trailing 12 month EBITDA up 29% and stock based compensation down 8%. If this cost discipline persists while revenue scales, earnings growth and margin expansion could justify a higher market valuation and a rising share price over time.
• Zillow continues to invest in products such as Zillow Showcase, AI powered virtual staging, Zillow Pro and the Zillow app in ChatGPT, all plugged into a large audience of 250 million For Sale monthly unique users and 35 million Rentals users. If these tools increase engagement, help agents win more listings and drive more transactions through Zillow, that could support faster growth in revenue, higher EBITDA margins and stronger net income than a flat share price would suggest.

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Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Zillow Group is $32.0, which represents up to two standard deviations below the consensus price target of $47.23. This valuation is based on what can be assumed as the expectations of Zillow Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $32.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $3.7 billion, earnings will come to $258.4 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 8.5%.
• Given the current share price of $34.32, the analyst price target of $32.0 is 7.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.