Zillow Group Inc (Z) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Zillow second-quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions).

As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to Miss Denise Garcia.

Thank you, operator. Good afternoon and welcome to Zillow's second-quarter 2011 financial results call for the quarter ended June 30, 2011. The primary purpose of today's call is to discuss Zillow's Q2 2011 performance. Some of our discussion will contain forward-looking statements which may include projected financial results of operating metrics, business strategies, anticipated future products or services, anticipated market demand or opportunities, and other forward-looking topics.

As a reminder, we report certain non-GAAP financial metrics including adjusted EBITDA, which we refer to as EBITDA throughout this presentation which does not include stock-based compensation.

These statements are subject to risks and uncertainties and assumptions. Accordingly actual results could differ materially. For a listing of these risks please see our final prospectus, filed with the SEC, as well as the factors identified in today's press release. With that let me turn the call over to Spencer Rascoff, Zillow's Chief Executive Officer.

Thank you, Denise. And welcome everyone to the Zillow's first earnings call as a publicly traded company. I'll start by reviewing key operating metrics and financial highlights from the second quarter. I'll then update you on a few strategic initiatives from the quarter. Then I'll turn the call over to our CFO Chad Cohen who will discuss our financial results and business metrics in more detail.

The second quarter was an outstanding one for Zillow. We had record performance across a number of key operating and financial metrics and made substantial progress toward our mission to be the most trusted and vibrant home-related marketplace. We had record traffic averaging 20.8 million unique users during the quarter, up 93% year over year. We delivered record revenues of $15.8 million a 116% increase over the same quarter last year. This was an acceleration of our first-quarter revenue growth of 111%.

As a reminder, we break our revenues into two categories, Marketplace and Display revenues. Marketplace is our fastest growing revenue category increasing to $9.7 million from $2.6 million a year ago representing growth of 269% year-over-year. Meanwhile, Display revenue grew 30% year-over-year to $6.2 million, which was an acceleration of the 26% growth we saw in the first quarter.

We also achieved record EBITDA of $3.9 million representing 24% of revenues. Including Q2, Zillow has now posted four consecutive quarters of EBITDA and cash flow profitability. And I am pleased to report that in the second quarter for the first time, we posted net income profit of $1.6 million.

We are very pleased with the momentum of our business as we seek to empower consumers with tools and information to make intelligent decisions around homes.

First and foremost, Zillow is a technology company. We build great products to help consumers in every home-related stage of life. The ultimate driver of our business is the product we deliver to consumers and professionals, starting with our living database of homes which delights our tens of millions of users every month. And it is our commitment to innovation and building fantastic products that will continue to drive growth in our user base into the future.

During the second quarter, among other product innovations we made critical product improvements to our database of homes. Our database of over 100 million homes or nearly every home in the country is a foundation of Zillow's unique and dynamic marketplaces. We are constantly enhancing and increasing the breadth of information in our proprietary database and this quarter was no different.

In June, we launched a major upgrade to Zestimate home coverage and accuracy, rolling out an entirely new algorithmic that more accurately reflects the volatile housing market. In addition to adding Zestimate on 25 million more homes this quarter, we improved Zestimate accuracy nationwide. Our Zestimate accuracy which we measure by comparing Zestimates to actual sale prices now sits at 8.5% nationwide.

In some cities such as Washington, DC, Denver, and San Diego, our Zestimate margin of error is now within 6% of sale prices. One key factor in our new Zestimate algorithm is that we better incorporate user-generated content on millions of homes. More than 29 million homes have had information updated by individuals and real estate professionals who use Zillow's platform. For example, an owner adding information about a recent remodel or correcting the square footage from public records.

Our new algorithm does a better job of incorporating this content which significantly improves our accuracy nationwide.

Also critical to home buyers is information on unique home listings, particularly those not found in the multiple listing service or on a traditional real estate website. In June, we launched the next generation of new construction home search allowing buyers to browse homes and floor plans in new and unbuilt planned communities. We teamed with leading homebuilders, including Beazer Homes and Pulte Homes to add entire outlines of planned new construction communities to our online and mobile maps. We identified new construction homes for sale, both built and unbuilt and give buyers homestyle choices and interactive floor plans to browse.

For homebuilders, this is a tremendous opportunity to get their communities and homes in front of millions of Zillow users each month both on the web and on mobile devices. This addition represents a paradigm shift in how new construction inventory is marketed to home shoppers on the Internet and is only the most recent example of how our product innovations at Zillow produce advertising products which benefit our advertisers, benefit our users, and benefit Zillow.

Another key example of our ability to innovate is in mobile. Zillow operates the most poplar platform of mobile real estate apps across iPhone, iPad, Android, Library and Windows phone 7. In July of 2011, Zillow was used on a mobile device nearly 12 million times with 2.5 million homes viewed on mobile devices every day or 28 homes per second.

Our mobile usage has nearly doubled since the beginning of 2011. To expand our market leadership in mobile, we recently launched a number of new mobile apps. Digital BlackBerry App launched in late March and then in July we launched Zillow on Windows Phone 7. With these Zillow real estate apps, consumers and real estate professionals can use GPS to view mapped Zestimates, homes for sale, homes for rent, rent Zestimates, make me move listings and recently sold data as they walk or drive through neighborhoods.

And importantly, to both our users and our advertisers, potential buyers can connect with local real estate agents directly from their mobile phone while curbside looking at homes.

In addition to our release date, in June, we unveiled our first mobile application for Zillow Mortgage Marketplace, our innovative loan shopping business that allows consumers to shop anonymously for the right loan and lender. The Zillow Mortgage Marketplace iPhone App combines personalized loan quotes with advanced calculators to help borrowers understand how much home they can afford, what their monthly payments would be and whether refinancing their current home makes financial sense.

Similar to Zillow Mortgage Marketplace on the web, the mobile app allows borrowers to easily fill out a loan request by providing information about the home they want to buy or refinance and a few details of their own financial situation. Borrowers do not enter any personally identifiable information, but just enough data for lenders to return custom quotes instantly.

In 2011, consumers received an average of 21 customized loan quotes per loan request and could compare rates and lenders side-by-side. Including scanning more than 8,000 consumer-submitted later reviews.

Now direct from their iPhone, a borrowers can immediately contact with lenders of their choice and begin the process of originating home loans.

At Zillow our number one goal is to empower consumers with information an an important consumers need is finding the right real estate professional. I'll now discuss some milestones on the professional side of our marketplace during the quarter.

We first launched our Zillow Premier Agent program which connects consumers with will stay professionals in their local area in October of 2008. The program has become our primary marketplace revenue driver and a number of premier agents in the program continues to increase rapidly. During Q2, the number of premier agent subscribers increased 180% year over year to nearly 13,400 agents.

Notably, our marketplace revenues with a growth rate of 269% year over year is growing even faster than our number of premier agents which is indicative of the fact that our existing premier agents continue to buy more inventory. This prevents -- this presents a trade-off with signing up new premier agents and may therefore slow the growth of net new premier agents in future periods.

Therefore, the new premier agent is and will continue to be a key business matter we see total marketplace revenues and growth in this financial metric as a better barometer of the health of our marketplace category.

To further help real estate agents connect with more clients and potential prospects on Facebook, in May we launched Zillow Facebook Tabs for real estate agents. Expanding on our free package of web tools for agents, Facebook Tabs can easily be added to an agent's Facebook business page to provide valuable real estate information to an agent's social graph.

Tabs include a listings tab for agents to show their current listings from Zillow, a ratings and review tab that showcases their consumer reviews from Zillow, a local information tab which is a local value index market data and a contact form tab to capture contact permission for future follow-up and client conversion.

To better help agents, property managers, and landlords promote their listings and manage their online presence, in April we announced the acquisition of Postlets, an online listings creation and distribution platform. Postlets enables real estate professionals to promote their listings via 13 real estate and social media websites. Postlets has more than 500,000 registered users who use Postlets to distribute more than 350,000 for sale and for rent listings across the country.

In July, we made the Postlets service entirely free to real estate agents, apartment managers, and landlords, consistent with our strategy of offering tools to real estate professionals in order to become a more vital part of their online marketing initiatives.

Now we'll return to our traffic. Our continual product improvements on the web and on mobile have significantly contributed to our tremendous growth in traffic. Our growth strategy has been to create amazing products that empower consumers to make smarter decisions. We spread word of these products via great PR and an active social media presence which allows us to grow brand awareness and traffic without significant ad spend and without substantial dependencies on search engines.

As I already mentioned, Q2 was a record quarter for traffic and July was another record month as we welcomed 23.2 million unique users across our websites and mobile applications.

Our living database of homes provide the foundation on which we build products to empower consumers. The comprehensive unique information in our proprietary database fuels the real estate market data provided by our team of economists, including our chief economist Dr. Stan Humphries, and provides a backdrop for blog articles, discussions, and the many real estate discussion forms that we host on our website.

Each month and quarter, we produce in-depth real estate market reports for approximately 150 metro areas that are widely covered by local and national news media. This quarter was no different as our real estate data was covered in a wide variety of press, including significant stories in national newspapers like the Wall Street Journal, on wire services like Bloomberg and Reuters, and local media outlets like the Miami Herald and the Orange County Register.

This widespread PR around our local market data, in concert with PR around our products and services, drives traffic to our brand organically rather than relying on search engines. This is an important distinction because we are not dependent on search algorithms for our traffic or our users. This strong brand recognition also strengthens our direct relationship with consumers, builds trust among our users, and creates community on our site.

Another important recent milestone was the completion of our initial public offering in July. We raised $79.6 million net of underwriting fees. We believe that the IPO properly capitalizes us for further growth with approximately $96 million in pro forma cash as of June 30 and provides us with an important strategic advantage, particularly in light of recent market volatility as we continue to invest across our platform.

As we kick off a new chapter in Zillow's history, we are excited about our growth, about the reality of achieving our mission and our strong defensible market position. Homes are central to our lives and Zillow goes far beyond other real estate sources that are narrowly focused on what is for sale right now.

Our database of nearly all homes opens up much larger opportunities, making Zillow a critical resource, not just for buyers and sellers but for renters, refinancers, and homeowners making improvements or other home-related decisions.

As one of the founding employees at Zillow, I couldn't be more proud of the marketplace we have built to empower consumers and help connect them with the right home-related professionals at the right time. We launched Zillow just over five years ago and have grown considerably, but we are still in the early stages of growth. We are building Zillow for the long-term and see significant opportunity ahead.

In closing, I'd like to take a moment to recognize and thank the Zillow employees who have worked extremely hard to get us where we are today. It has truly been a team effort which has allowed us to build such a great company and brand in such a short period of time.

I would also like to thank our users and professional partners for their active role in helping Zillow grow. Now I'll turn the call over to Chad to discuss our financials in more detail.

Thanks, Spencer. Let me start by saying that I am very excited about the opportunity ahead for Zillow and pleased with our outstanding Q2 performance which was highlighted by a record $15.8 million in revenues, up 116% year over year which resulted in our first quarter of net income of $1.6 million and $3.9 million of EBITDA.

Before we dig into the financials, let me first walk you through Zillow's key business metrics. Then afterwards, we will open up the call for your questions.

As you have heard from Spencer, we saw substantial growth across our key nonfinancial business metrics for the quarter which are our quarterly average monthly unique users and premier agents at quarter end. Our average monthly unique users for the quarter were 20.8 million, an increase of 93% year over year.

As a reminder, all traffic metrics are solely those from Zillow-owned websites and mobile apps and do not include Yahoo, though we do power the real estate section of their website. Our premier agent subscribers at quarter end were 13,385, an increase of 180% year over year. Unique user growth reflected number of consumers, professionals, and businesses engaged with our platform which impacts the revenues and fees we collect from our marketplace professionals and display advertisers.

Our premier agent metric reflects the number of paid subscribers we have in the premier agent program at quarter end which is a growth driver of marketplace revenues.

Moving now to the income statement, we delivered second-quarter revenues of $15.8 million, a 116% increase from the second quarter of last year. This represents an acceleration of the revenue growth we saw in the first quarter of 2011 which grew 111% year over year.

Marketplace revenues continue to be our fastest growing revenue category and delivered $9.7 million in revenues, up 269% year over year from $2.6 million in the second quarter of 2010. Marketplace revenues accounted for 61% of total revenues in the quarter as compared to 36% in the second quarter of last year. As a reminder, marketplace revenues include subscription fees from local real estate professionals in the premier agent program as well as cost per click revenues from the Zillow Mortgage Marketplace.

Despite our remarkable marketplace revenue growth, we still see considerable revenue opportunity in building out our premier agent program including upselling to existing premier agents. To put this in perspective, we estimate we currently have less than 1% share of the total amount of local residential real estate agents currently spend on advertising which is approximately $6 billion annually. Our other revenue category is Display revenues which is generated from brand advertisers such as homebuilders like Beazer Homes and Pulte Homes, real estate brokerages like Century 21 and Caldwell Banker; and financial institutions like Bank of America and IE Direct.

During the second quarter, display revenues grew nicely increasing 30% year-over-year to $6.1 million from $4.7 million in the second quarter of 2010.

Despite revenue growth accelerated from the first quarter revenue growth of 26% year over year as an increasing base of advertisers invested in our advertising platform. Display revenues accounted for 39% of this quarter's revenues as compared to 64% in the second quarter of 2010. This revenue mix shift from display towards marketplace with local subscription model improves the predictability and quality of our revenues.

While our mix of revenues has been shifting towards market place products is launching the premier agent program, our mix of marketplace despite revenues in the current quarter was relatively consistent with the first quarter of 2011 due to healthy and expected seasonal growth in our display category.

Total operating expenses for the quarter were $14.3 million, compared to $9.3 million in the same quarter last year, an increase of 53%. A few items within operating expenses are worth noting. Cost over revenues for the quarter was $2.7 million and represented 17% of revenues which increased by $1.5 million from the prior year. Primarily a result of revenue-sharing costs associated with our strategic relationship with Yahoo Real Estate which launched in territory of this year. This relationship gives Zillow exclusive rights to power all the listings on Yahoo Real estate and sell real estate advertising onto their platform.

Sales and marketing expense was $5.6 million or 36% of revenues down from 51% of revenues or $3.7 million in the second quarter of 2010. In the first quarter of this year, we invested in growing our sales force which ramped quickly and began the payoff in the second quarter.

Technology and development costs were $3.3 million or 21% of revenues as compared to the prior year at 39% of revenues or $2.9 million. These operating expenses are increasing in total dollars but declining as a percentage of revenues, even as we continue to make significant product investments across our website and mobile platforms. General and administrative costs were $2.6 million or 17% of revenues as compared to the prior year at 20% of revenues or $1.5 million. The increase in G&A is largely attributable to increased headcount to support a public company infrastructure as well as costs associated with our new headquarters in Seattle which I'll discuss in more detail in a moment.

Total headcount, including FTEs and interns, was 264 at the end of the second quarter up from 252 at the end of the first quarter 2011. The [acreage] was primarily from adding salespeople and software developers. We are clearly reaping the benefits of our previous investments across these operating categories and seeing leveraging in our model.

The second quarter, we achieved our first quarter of GAAP profitability with net income of $1.6 million versus a net loss of $2 million in the second quarter of last year. EBITDA was a record $3.9 million in the quarter, representing 24% of revenues.

The second quarter was quite strong and profitable, primarily because we achieved significant second-quarter revenue leverage to make expanded sales [seem to be ramped] in the first quarter of this year.

Quickly turning to our balance sheet, we ended the quarter with $16.2 million in cash and cash equivalents and no debt. We are moving our Seattle headquarters this month to a larger location to accommodate our growth. And as we discussed in our prospectus, we expect to record a one-time nonrecurring charge for the fair value of our current lease of approximately $1.4 million to $1.7 million. This one-time charge in Q3 will impact GAAP earnings, but will not impact EBITDA.

As a newly public company, we are looking forward to a long and successful relationship with our analysts and investors, and want to help provide insight into our current and future results accordingly. We would therefore like to share our thoughts regarding the upcoming quarter and the remainder of the year.

For the third quarter, revenues are expected to be in the range of $16 million to $17 million. This represents revenue growth from the third quarter of 2010 of 101% at the midpoint. Moving on to Q3 earnings, EBITDA excluding nonrecurring charges is expected to be north of 15% of revenues at the midpoint. In the third quarter, we plan to increase spending investment across our platform, selected advertising test and build out more of our G&A functions to support revenue and platform growth.

To give you a sense of how we are investing across our platform and managing growth, we currently have over 40 newly opened positions in technology, sales, and G&A that we are actively looking to fill.

For the full year 2011, we are expecting revenues in the range of $59 million to $61 million, the midpoint at which represent 97% growth over 2010. We expect EBITDA excluding the impact of one-time charges to be in the range of $8 million to $10 million. Our EBITDA margin for the full year reflects ongoing investments in the fourth quarter for those areas I just discussed.

As a reminder, for those who we met on the roadshow and for those of you new to our story, we also thought it would be helpful to outline our target model. Our target model assumes a revenue base of approximate $200 million to $250 million. The target model arrived at an EBITDA margin calculated as a percentage of revenues in the range of just 30% to 35%. We achieved a 24% in top margin in the second quarter up from 9% in the first quarter and relative to a 30% to 35% target in the margin several years out. You'll notice that our full year EBITDA into margin output is more in the range of 15%. We are committed to granting EBITDA margin towards the 30% to 35% target model of $200 million to $250 million in revenue and as the second quarter demonstrated we can execute against that target model, we plan to meaningfully invest in the near term and product development, sales, brand awareness, and infrastructure to drive growth long term beyond the horizon of the target model.

In summary, we are rapidly growing important nonfinancial metrics at Zillow, including the number of premier agents in our program and traffic. As a result, we are seeing accelerated revenue growth and improvement across a number of financial metrics which is reflected in our outstanding second-quarter earnings.

We are happy to have crossed the important milestone of becoming of publicly traded company and to have you on our first earnings conference call. We will now open up the call to questions.

(Operator Instructions). Mark Mahaney from Citi.

Great, thanks. If I could get off three quick questions please. First can you just comment on materiality of the Yahoo relationship to date? Second, the materiality of Zillow Mortgage Marketplace and then, third, kind of a broader longer-term question has to do with premier agents and inventory and I think, Spencer, you weren't not necessarily cautioning, but talked about how you could see a slowdown in the premier agents growth and you alluded to maybe some inventory constraints and I think that is around how you think about the share of voice and the number of slots. Could you just talk about how you weight that going forward? There's probably opportunities to increase those slots and to increase the share of voice, but there's also opposites to doing that.

So I think just a refresher on how you think about those inventory challenges. Thank you.

Sure. So first on Yahoo, just very briefly to remind folks who you know some of the specifics of the partnership, so, Zillow is the exquisite provider of listings inventory on Yahoo Real Estate on for-sale homes and we are the exclusive seller of real estate advertising on Yahoo Real Estate. When a premier agent becomes a premier agent with Zillow they end up being a premier agent on Zillow.com on Zillow suite of mobile apps and on Yahoo Real Estate.

Our revenue share payments to Yahoo shows up in COGs on our income statement. It is not significant overall, not material overall and the partnership is quite important to us strategically because it helps us when working with advertisers it helps emphasize the fact that when one advertises with us they are advertising on the largest real estate platform on the web. So I'd describe the partnership as important, but not material.

Zillow Mortgage Marketplace so, again, as a refresher and for those of you new to the story, Zillow Mortgage Marketplace is a lending marketplace where borrowers remain anonymous until they are ready to contact the lender. So borrowers fill out a loan request, but in certain information but no personal identifiable information; they get custom loan quotes back from the lenders in the marketplace on average they get around 21 custom quotes back. And then the borrowers can click on a particular loan quote to get more information about that loan quote and that is used to contact the lender on their own schedule when they are ready. That click to get more information about a particular loan quote is a cost per click action and we charge lenders in the single-digit dollar range on a cost per click basis for that click.

The revenue for Zillow Mortgage Marketplace shows up in our marketplace category with the premier agent revenue. We don't split out the specifics from premier agent relative to Zillow mortgage marketplace within the marketplace category, but I can tell you the preponderance of the revenue in the marketplace category is from premier agent.

We only started charging for a Zillow Mortgage Marketplace about 18 months ago and the focus of our -- our focus when we manage the Zillow mortgage marketplace business is not on maximizing monetization in the near term, it is around growing marketplace liquidity on both the borrower side of the marketplace and the lender side of the marketplace. So that's how we think about monetization. It is not in the near-term priority, more important is growing the overall liquidity in the mortgage marketplace.

Your third question was about premier agent count. So our premier agent account grew 180% year over year which we're extremely pleased with having grown the number of premier agents so significantly year over year. Interestingly our revenue from marketplace is growing even faster than that, at 269% year over year. So what you're saying there is existing premier agents are buying even more inventory and that is why revenue is growing even faster than premier agent count.

In terms of the total addressable market for this opportunity, there are about 1.8 million licensed real estate agents in the US. We think probably around 1 million of them are active in the -- actively earning commissions. So 13,400 is still just a tiny drop in the bucket in terms of the potential.

I guess the other way we look at the address we'll market is on a wallet share basis. Those millions -- those 1.8 million real estate agents spend about $6 million advertising themselves and their listings in order to collect about $60 billion in commissions. So we have less than 1% share of their advertising budgets right now despite the fact that we are the largest real estate network on the web and on mobile.

So we think we are dramatically underpenetrated relative to our traffic and our importance in the industry.

So that's how we think about the opportunity in front of us on the agent side of the business.

Thank you, Spencer.

Aaron Kessler from ThinkEquity.

Thanks. Couple questions here. First on the Display stream it looks like it's already about 30% growth versus 26% last quarter. On the Display do you think that higher growth rate is sustainable coming for the remainder of this year? And in terms of the guidance for the full year, it looks like guidance implies kind of a flattening out of revenues in the second half, I guess, given the strong adds of the premier agents and looks like your momentum is -- kind of a little more clarity I guess on why you went with the revenues in the second half [would it] be a little higher?

And third if you could just maybe I've missed that the EPS calculation, I know you have a positive net income number, but looks like EPS is zero and I don't know if there is a -- if you could just explain that? Thank you.

Sure. I'll take the first two questions and then Chad can take that EPS question. So Display revenue grew 30% year over year in the second quarter which, as you noted, was an acceleration from the first quarter at 26% year over year.

Couple of things drove that. We had more display advertisers spending more money and a quarter and that's why we had accelerating year-over-year revenue. And we are quite pleased with 30% display growth year over year in Q2. The revenue outlook for the back half of the year which would bring us to a total of $59 million to $61 million in revenue, we don't break out or for our outlook here we are not breaking out marketplace revenue versus Display revenue, but we think our outlook for the back half of the year is quite achievable and it factors in our view of what is happening in the display market and how our business is doing as well as our view of how our organic marketplace revenue is growing.

The -- I guess this second question was about revenue outlook to back half of the year and relative to the outstanding second quarter. Again I would say, we view the outlook that we did for the third quarter at $16 million to $17 million in revenue and for the full year of [$59 million to $61 million] achievable. And you know it still represents in Q3 2001% year-over-year revenue growth rate and 97% year-over-year revenue growth rate for the full year both of which are fantastic and impressive year-over-year growth rates. So we are we are excited about the prospects of that.

On the EPS question, Chad, why don't you --?

Sure. In terms of the EPS question we IPO'd in July; as of the end of the quarter we were still a private company and according to the terms that we have with our preferred shareholders all the distribution dividends and earnings of the Company are fully ascribed to our preferred shareholders before they are ascribed to common shareholders as a matter.

So what you're seeing is that zero EPS refers to those earnings that were ascribed to come in, which are none for that quarter. However that will change in the third quarter as a public company.

Got it. Okay, that makes sense. And finally, can you just make any commentary on the macro? it sounds like you are still pretty cautious view from people in the macro housing market doesn't appear to be impacting any of your business at this early stage level?

Yes, we are definitely still cautious on the overall housing environment. Home values nationwide are down about 30% from the peak. Zillow's data still says that we haven't bottomed yet and we think we are not going to bottom until 2012. There are some markets that have bottomed and they are actually recovered somewhat, Washington DC, Pittsburgh, and a number of other markets. But nationwide, we're certainly closer to the end of the housing recession than the beginning, but we are not through it yet. However, as you know, we managed to grow quite nicely through this recession.

I think actually the housing downturn has accelerated the migration of advertising budgets for real estate advertisers from off-line to online and Zillow has clearly been a beneficiary of that, of that acceleration.

Great. Thank you and good quarter.

Thank you.

(Operator Instructions). Brian Bolan from Brian Bolan Research.

Congratulations on the quarter. Congratulations on the IPO. Just a quick couple questions about the monthly subscribers or the monthly revenue per subscriber. I think that that really shot up probably ahead of expectations.

Are you seeing any price increases in the quarter? Or can you speak to that going forward? And then also kind of talk about the agents' growth versus mortgage lending growth and how you can run the business?

Sure. So firstly on premier agent pricing, it's important to understand that about a third of our premier agent bookings, our existing premier agents buying more inventory from us. And let me just describe how we price the premier agent product and that will help, help provide some context to your question.

We are constantly repricing different areas as inventory becomes available. And the way we determine pricing is algorithmically. We essentially try to approximate auction pricing without actually running auctions. So we look at the size of the wait list in a given area and among agents who want to buy that inventory. We look at home values in that area and we look at how much consumer traffic we have in that particular area, and that is how we determine pricing.

The premier end product is sold on a six-month subscription so when an agent becomes a premier agent in a given area, their price is locked in for that six-month period. But earlier this year, we went from 12-month contracts to six-month contracts which give us, frankly, more pricing latitude because our traffic was growing so quickly it's allowed us to adjust pricing more rapidly. So pricing is done completely dynamically and algorithmically and changes quite frequently.

I think the numbers speak for themselves in terms of premier agent growth in number of premier agents, up 180% year over year and marketplace revenue growing 269% year over year.

In terms of agent growth versus --. Your question kind of was trying to get to Zillow Mortgage Marketplace and premier agent growth perspective to one another. The way I think about Zillow Mortgage Marketplace is it's a very exciting opportunity, given the strength of the consumer product that we've created.

So Zillow Mortgage Marketplace really is a revolutionary borrower product. It's quite different from other on- or off-line mortgage shopping experiences. The borrower stays in control, stays anonymous, is able to see instantly constant loan quotes, whether on our dedicated iPhone app for Zillow Mortgage Marketplace or on the web. And then choose which lender based on ratings and reviews that borrowers have left on these lenders, over 10,000 of which are on the site and then choose which -- who you wanted to contact.

So given the strength of the borrower value proposition we are extremely excited about Zillow Mortgage Marketplace. As I explained, it is a less mature marketplace and the early focus for us is not on maximizing monetization, the focus is on growing marketplace liquidity. So the premier agent business is a more mature marketplace relative to Zillow Mortgage Marketplace; they both [rolled] up to the marketplace revenue cap, where it was up 269% in the quarter.

Great. And one quick follow-up here. Postlets, if you just want to talk to that just a little bit. Right now, that's just pretty much all Display revenue coming in. Is there a plan over the next 12 to 24 months to end up charging for anything like that or moving it into marketplace revenues?

So quite the contrary actually. We are going in the other direction with Postlets. We just recently made the Postlets service free. So when we acquired Postlets they had a [Freemium] model, certain features were free and then certain features were paid. We just recently converted the entire service for free. And this is part of our strategy of offering free tools to real estate professionals, landlords, agents, property managers, and other real estate professionals to become a more vital part of their online marketing initiatives.

So the Postlets acquisition fit very nicely into our strategy of creating and offering these tools in order to be kind of at the beating heart at the center of these real estate professionals online market. So the Postlets revenue, there is no Postlets revenue anymore; it is an entirely free service. There's nothing to show up in the marketplace going forward.

(Operator Instructions). I'm showing no one in queue at this time. I would like to hand the conference back over to Mister Rascoff.

Thank you. Let me wrap up by thanking you for your interest in Zillow and your support of the Company. The IPO process gave us an opportunity to meet with many of you in person and we look forward to meeting again and to continuing this dialogue as we work together to turn Zillow into an even bigger company down the road. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.