Zillow is remaking its business model in real time — and the market is pricing it like a reset

Underneath an 18% revenue beat sits a deliberate pivot: 75% of connections into Zillow Preferred by year-end, flat residential guidance, a 7% headcount cut — and a macro downgrade.

ZG · Earnings Call · 2026-08-05

The pivot, in three parts

On the surface the quarter was routine-strong: total revenue +18% to $772M, EBITDA $176M at a 23% margin, adjusted net income of $118M. All three came in above the high end of guidance. But the substance of this call was a deliberate, disclosed re-basing of the monetization model — the "operating system for modern real estate" walking investors through exactly how it is shifting from a legacy advertising model (pay-per-lead, recognized upfront) to the integrated transaction model, where Zillow earns revenue across a longer, deeper relationship with each connection. Jeremy Hofmann laid out "3 important nuances": the shift of revenue out of residential and into the mortgages category, the 6-to-12-month lag in revenue recognition for Zillow Home Loans, and a different seasonal pattern in preferred revenue. The shift is large and accelerating — 500 basis points in H1 2026, climbing to 700–800 points in Q4. And it is deliberate: “we are accelerating to more than 75% of our connections in preferred by the end of 2026, up from 44% at the end of 2025 and 21% at the end of 2024.” — Jeremy Hofmann, COO and CFO · 2026-08-05 The economics are the reason: revenue per connection was already 23% higher than the legacy ad model in 2025 and is expected to be 35% higher in 2026 — “In 2025, we generated 23% higher revenue per connection compared to our legacy advertising model. By the end of 2026, we expect to accelerate to 35% more revenue per connection” — Jeremy Hofmann, COO and CFO · 2026-08-05 The optics, though, are unflattering: residential revenue, the category investors watch, is guided flat year-over-year in Q3 as a 600–700bp shift runs through it, and for-sale growth lands at 5–7% against a 200–300bp timing headwind. This is the trade — near-term reported growth gets muddied so the Zillow Home Loans flywheel can compound.

Execution confirmed, guidance re-based

The ZHL engine is the heart of the pivot. Purchase loan origination volume grew 95% year-over-year in Q2, mortgages revenue grew 75%, Zillow is now a top-25 purchase lender, its loan officers originate roughly 2x the industry average per month, and per-unit economics — fixed and variable combined — are now positive. Hofmann sees "a path to dollars per loan at the same level as preferred agent referral fees," which is why the company is pressing the gas rather than coasting. The escalation is visible against the prior quarter, when “mortgages grew 39% in Q4, home loans purchase originations grew 67%.” — Jeremy Hofmann, Chief Financial Officer (CFO) · 2026-02-10 The other big change is macro. In May the framework was mid-single-digit residential growth against a flat market — “the mid-teens guide is we expect mid-single-digit growth in residential. We expect For Sale to grow faster than residential” — Jeremy Hofmann, CFO · 2026-05-06 — and now the company has cut its market view outright:

The 2 changes are 1, macro has slowed. So we thought the purchase mortgage market was going to be... We actually now think it is gonna be down mid to sing low to mid single digits, for the second half of the year.
Jeremy Hofmann, COO and CFO · 2026-08-05

Rising rates have hit mortgage buyers harder than cash buyers — a 600bp headwind on for-sale growth relative to real estate transaction value. Against that, AI mode is now live for ~20% of signed-in users and driving disproportionate engagement (3x time spent, ~3x agent contact rate), and rentals remain the clean growth story: +31% revenue, +42% multifamily, 79,000 properties. The operating income rose +633% yoy to $48M (operating margin +8.3pp to 6.8%), with net income up +475%.

Restructuring and the leadership reshuffle

The second piece of news is cost and people. Zillow eliminated ~7% of employees, expecting $75M of annualized EBITDA savings ($140M including previously planned headcount growth), with a $36M charge in Q2 and another $23–28M in Q3. As Wacksman framed it: “We made this decision to ensure we can move faster, operate more efficiently including a more sustainable cost structure.” — Jeremy Wacksman, CEO · 2026-08-05 Management insists the restructuring will not touch growth bets, but the signal to the street is cost management at scale. The leadership deck was also reshuffled — Jeremy Hofmann expands to COO+CFO, Jun Choo steps down for health, and Sandy Knight (ex-Google, Morgan Stanley) joins as chief legal & policy officer ahead of an ongoing FTC case.

A company out of step with the tape

The most striking contrast is global vs idiosyncratic. The market's editor-curated keyword set for the quarter is almost entirely tariff-driven — "Batch Zero," "IEEPA refund," "tariff refund benefit" occupy the top of the global board at 20263. Zillow's own keyword trajectory is dominated by company-specific strategy: preferred agent economics, integrated transaction, revenue recognition — nothing tariff-related. None of the other recent reporters share these themes. This is not a sector story or a macro reflection; it is a single company deliberately re-architecting how it earns revenue in the middle of an already-difficult housing market. The market is not paying up for it yet. ZG is down ~19% over the last 90 days and ~22.5% off its April peak, still ~82% below the February 2021 high; the price-to-revenue multiple sits at 3.5x, down 47% yoy. Buybacks are buying the dip — $826M year-to-date. Whether the preferred reset is a value-creating pivot or an accounting shell game will be decided in 2027, when Hofmann says the shift moderates and comps clean — but the deliberate disclosure of the three-part framework, the restructuring, and the macro cut make this quarter the clearest articulation yet of where Zillow is taking the business.