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Zillow (ZG -10%) is heading a good bit lower after reporting Q4 results last night. Zillow reported a modest EPS beat. However, what really stood out was its 16.9% yr/yr revenue growth to $554 mln, nicely above prior guidance of $$525-540 mln. Adjusted EBITDA grew 62% yr/yr to $112 mln, well above the $90-105 mln prior guidance. Unfortunately, Zillow guided Q1 revs below consensus, which is weighing on shares today.

• Besides earnings, Zillow also announced a partnership with Redfin (RDFN), making Zillow the exclusive provider of multifamily rental listings (properties with 25+ units) on Redfin and its sites. We like this deal for Zillow as it expands the Zillow Rentals Network to include Redfin, Rent.com, and ApartmentGuide.com, alongside existing Zillow brands HotPads and Trulia. Recall that Zillow added Realtor.com as a partner in 2024. The rental market is hot right now and it's an area that Zillow wants to grow. We see this deal as a positive for both companies. Zillow is becoming very large in this space.
• Zillow changed it reporting segments. It is now presenting revenue in two major categories: For Sale and Rentals. The For Sale category includes revenue from residential and mortgages while the Rentals category focuses just on rentals.
• For Sale segment revenue was up 15% yr/yr to $428 mln. Within this, Residential revenue was up 11% to $387 mln, benefiting primarily from continued conversion improvements and Zillow Showcase expansion. Mortgages revenue jumped 86% yr/yr to $41 mln thanks to 90% increase in purchase loan origination volume to $923 mln. Rentals segment revenue rose 25% yr/yr to $116 mln, primarily driven by multifamily revenue growing 41%.
• So, why the weak guidance? Zillow expects a more challenged housing market in Q1, which it sees as being relatively flat. Pending existing home sales trends in December and January were muted, which Zillow expects will result in lower yr/yr growth in closed transactions for the industry in Q1 compared to Q4 2024. Zillow expects For Sale segment revs to grow in the mid-single digits, driven by residential growth of low to mid-single digits and mortgages growth of approximately 30%.
• There was more bad news when Zillow said it pulled forward a number of closed loans in late December that impacted January, resulting in Q4 outperformance relative to internal expectations. So, that takes some of the shine off Q4's upside.

After some impressive recent quarters from Zillow, this Q4 report, and especially the Q1 guidance, were a letdown for investors. The flat housing market outlook was also not a great signal to investors ahead of the key spring selling season. The company is best known for home sales, but this is a good example of why branching into Rentals has been a smart move. Rentals growth remains brisk. Doing sales and rentals makes sense, because when rates are high, more people rent and when rates decline, more people buy. So the two segments complement each other.