Zillow Group Inc (Z) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Zillow Group fourth-quarter 2015 earnings call.

(Operator instructions)

As a reminder, this conference is being recorded. Now I would like to turn the call to Raymond Jones, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Zillow Group's fourth-quarter and full-year 2015 earnings conference call. Joining me today to talk about our results are Spencer Rascoff, Chief Executive Officer; and Kathleen Philips, Chief Financial Officer.

During the call, we will make forward-looking statements regarding future financial performance and events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can't guarantee these results. We caution you to consider the risk factors in our SEC filings, which could cause actual results to differ materially from those in the forward-looking statements made in the press release and on this call. The day of this call is February 11, 2016, and forward-looking statements made today are based on assumptions as of this date. We undertake no obligation to update these statements as a result of new information or future events.

During this call, we will discuss GAAP and non-GAAP measures. We will also discuss results on both a reported and pro-forma basis. Reported results were prepared in accordance with GAAP, unless otherwise noted. For comparative purposes, pro-forma results assume the February 2015 acquisition of Trulia occurred on January 1, 2014, and reflect certain adjustments and exclusions described in our SEC filings. All year over year comparisons are pro forma unless otherwise noted or the context otherwise requires.

We encourage you to read our press release, as it contains important information about our reported and pro-forma results, including reconciliation of non-GAAP financial measures. In our remarks, the non-GAAP financial measure adjusted EBITDA is referred to as EBITDA, which excludes other income, depreciation and amortization expense, share-based compensation expense, acquisition-related costs, restructuring costs, loss on divesture of business, interest expense, and income taxes.

This call is being broadcast on the Internet and is available on the Investor Relations section of the Zillow Group website. A recording will be available after 8 PM Eastern time today. Please note that the earnings press release is available on our website, and after the call, a copy of today's prepared remarks will also be available on our website. Today, we will open the call with prepared remarks. We will follow the prepared remarks with our standard live question-and-answer session. During the Q&A, we will answer questions asked via Twitter and take questions from those dialed into the call. Individuals may submit questions by tweeting @ZillowGroup using the Zearnings hashtag.

I will now turn the call over to Spencer.

Thanks, RJ, and welcome, everyone, to our fourth-quarter and full-year earnings 2015 earnings call.

I will discuss 2015 business highlights and our strategic priorities, and then Kathleen will go into the details of our financial results. We'll then open the call to questions. But before I get started on the Zillow Group's specific results, I do want to take a moment and give our general view on housing and the economy. Zillow Group's economists generally like what we see in the data. American household budgets and balance sheets are stronger now than in 2008, and the American consumer so far hasn't been impacted by declining stock prices. Despite global issues stemming from China and commodities, we just aren't seeing them negatively affect most American households. It's possible that these global issues will affect American consumers at some point, especially if companies slow hiring. But for now, the globe economic issues seem confined more to Wall Street, which is seeing incredibly volatile markets, than to Main Street, which is benefiting from low gas prices and seeing solid employment, decent wage growth, and relatively affordable for-sale housing.

On a historical note, we had the pleasure of celebrating the 10-year anniversary of the Zillow brand yesterday. As I looked around the packed room, I was proud of the longevity of our leadership team, almost all of whom have been here since launch 10 years ago. It was also an opportunity to reflect on the decade it took to build this incredible Company and the reasons for our success now and into the future. At its core, it's all about our incredibly talented employees, old and new. Across Zillow Group, our talent is best in class, from performance marketing, to product development, to sales, to mobile leadership, and they bring together diverse viewpoints to create the best experiences for consumers and professionals. This has resulted in the best-known, most used real-estate media brands and the widest competitive moat in our category.

Now turning to the Zillow Group results, 2015 was a transformational year for Zillow Group. We formed the largest real-estate media Company in the world through the combination of Zillow and Trulia. We established the foundation for our long-term growth and category leadership, which is comprised of our leading audience market share on mobile and web; our multi-brand portfolio of leading consumer websites and mobile apps; our integrated advertising platform for our real estate, mortgage, and rentals offerings; the expansion of our software tools for real estate professionals; our strong industry partnerships with nearly every major real estate franchise or brokerage, apartment management company, mortgage lender, and multiple listing service; and our extraordinary employees, who are the most innovative, mission-oriented, and technologically sophisticated group in our industry. 2015 was very exciting strategically. We acquired two large companies that expanded our capabilities and our reach. We accomplished major feats of integration quickly and we launched new products across several of our market marketplaces that were very well received. We are now in position to do more than we could before as separate companies by benefiting from our scale of audience and listings, our unified customer focus, and combined talents that create competitive advantage.

Looking briefly at 2015 results on a pro-forma basis, we finished the year strongly and in line with our outlook. Revenue for the year was approximately $680 million, up 18% year over year, or 24% year over year without Market Leader, which we divested in Q3. In the four years since our IPO, we have grown revenue more than 10 X, from $66 million to $680 million. EBITDA in 2015 was more than $95 million, or 14% of revenue, up 34% year over year. With the Trulia acquisition and integration successfully behind us, we are excited to turn the page to 2016. For 2016 we are focused on four strategic priorities: first, grow our audience; second, grow our agent advertising business; third, grow our emerging marketplaces; and fourth, continue to maintain our extraordinary Company culture, which attracts, retains, and motivates incredible people to do their best work.

Our first priority is to grow audience size and client contacts to real estate professionals. As you have heard me say many times, advertisers follow audience. In the fourth quarter, our traffic reached nearly 124 million average monthly unique users, with an annual seasonal peak of 150 million in July last year. Our strength in mobile usage and mobile monetization continues, comprising approximately two-thirds of our usage. As we exited 2015, our audience market share was nearly 60% of the category according to comScore, which is more than twice the nearest competitor. On our Trulia brand, we are now seeing positive traction in terms of traffic growth, as December figures from comScore showed Trulia returned to its spot as the second most visited real estate site, a position it had slipped from for much of 2015. According to our internal traffic data for January, Trulia hit all-time highs in organic new views, total visits, and most importantly, in leads to real estate agents. We are encouraged by internal and external measures that indicate our efforts to improve fundamentals are paying off.

Looking down the funnel, our growth in home shoppers and contacts to professionals continue to accelerate quarter over quarter and outpaced our audience growth. Growing our audience starts with creating products across our brands that consumers love to use at various stages in the home lifecycle. We then leverage free and pay channels to amplify awareness and to reach more consumers. In 2015, we invested over $100 million in advertising our consumer brands, which was highly effective for us, according to the data from services such as Google Trends or comScore. Our advertising aims to grow our awareness levels to new category highs and establish household brand name status. The increased investment we are choosing to make a one half us realize long-term advantages of scale.

Our second priority is to grow our Premier Agent business. 2016 will be a pivotal year here as we build upon the foundation we established in 2015. Consistent with our iterative development process, we will be testing many new initiatives throughout the year. I'm excited about this, as these initiatives are designed to open up untapped opportunities and transform our business. Many of these initiatives would not have been possible if Zillow and Trulia had remained as separate sub-scale companies, and are only made possible by our combined category leadership. Last year, we were integrating; this year, we are innovating.

An example is the launch of the Premiere Agent app. The product here is a representation of deep collaboration between the Trulia and Zillow product teams. On the heels of the completion of the integration of our ad platforms, the engineering teams in San Francisco, along the Seattle and Irvine teams, then created the free Premier Agent app in just a few months. This innovation was only possible by combining forces and bringing together disparate technologies and talent. Key mobile productivity and communication features in the app free up agents from their desk and help them convert leads into commissions at a higher rate. Through our Premier Agent app, we're offering our advertisers the most holistic and modern business management platform in the industry. In addition, through our Tech Connect program, the Premiere Agent app connects to over 60 other CRMs that agents utilize.

Bringing this all together, our Premier Agent program helps the best agents earn more commissions. This is especially true for the highest producing agents that work with us, who are capturing an increasing share in their respective markets. We are making valuable progress with these advertisers, but there is still a massive opportunity ahead. In 2015 we estimate, based on our traffic and lead volumes, that Zillow Group helped our agent advertisers close around 3.9% of the residential real estate transaction size in the US, which drove roughly $3.2 billion in commissions to these Premier Agent advertisers. This compares to an estimated 3.1% of transaction size and $2.3 billion in commissions in 2014. This is an important metric that we seek to grow by increasing lead volumes to agents and brokers who convert leads effectively, and by providing them with tools and training to improve that lead conversion.

Our next priority is to grow our emerging marketplaces, which are growing even faster than our Premier Agent revenue. Starting with mortgages, we continued to experience significant growth in loan request, contact volume, and revenue. During the quarter, we launched our partnership with Google Compare for mortgages, and we now power mortgage rate search results for Google. It is obviously validating that Google chose Zillow Group to power their mortgage rate search business and it's thanks to our strategic acquisition of Mortech in 2012 which allowed us to become the innovation leader in the online mortgages advertising sector. Also in 2015, we exceeded 223,000 lender reviews, which makes us the site with the most mortgage reviews by far. Looking ahead, we continue to be well-positioned to grow mortgages revenue, even in a rising rate environment, as our usage is predominantly weighted toward purchase loans.

Next in our New York City marketplace, StreetEasy continues to be on a tear. Revenue grew 73% year over year in 2015, and mobile traffic was up 45%. The launch of our Neighborhood Experts product that allows agents to advertise by neighborhood has been well received. We recently announced our acquisition of Naked Apartments, the second-largest rental site in New York. This will help accelerate our growth in the New York rental market, which represents about two-thirds of the residential living units in the city. We estimate the New York City rentals commission market size to be about $500 million, as compared with the New York City for-sale commissions market size of $1.2 billion. We continue to be very excited about the growth and potential in our New York City marketplace, as our presence there continues to scale. Since we acquired StreetEasy for approximately $50 million in August, 2013 their revenue has more than doubled, and their mobile traffic, as measured by Google Analytics, has tripled.

Moving on to our nationwide rentals marketplace, we experienced significant growth in usage, contacts, and revenue. We continue to have the leading share of traffic in the category, with over $21 million average monthly unique users in rentals, twice as large as our nearest competitor according to comScore. Our innovative ad products in the rental space continue to gain widespread adoption in the industry.

Taking a moment now to look at our full-year 2016 outlook, we are targeting revenue between $805 million and $815 million, and EBITDA between $115 million and $125 million, which represents 15% of revenue at the midpoint. This includes significant one-time legal fees, which Kathleen will expand upon in a moment. These are still early days and we're choosing to forgo near-term profitability to invest in our long-term growth. The opportunity in our category remains massive, $1.6 trillion in transaction volume leading to $80 billion in commissions, and approximately $11 billion in advertising spent by agents and homebuilders, which continues to shift online and to come from the highest producing agents. This doesn't even include the additional billions of dollars of additional opportunity for mortgages, rentals, and other home-related markets. We're at the forefront of innovation in our category. We are well-positioned to lead change and take advantage of this opportunity and of our scale for the benefit of consumers and professionals. We are choosing to invest in our business now and control our long-term destiny.

Now I will turn the call over to Kathleen.

Thank you, Spencer.

Before I begin, I want to outline the format of our financial results discussion. First, I will formally launch into our financial results, starting with our Q4 2015 results, which are similar on both a GAAP and pro-forma basis, with the exception of net loss, which includes acquisition-related costs and restructuring costs on a GAAP basis and excludes them on a pro-forma basis. Next I will discuss full-year 2015 financial results on both a pro forma and GAAP basis yea. For competitive purposes, I will discuss year-over-year comparisons of our Q4 and full-year 2015 financial results on a pro forma basis unless otherwise noted or the context otherwise requires.

Finally, I will provide our outlook for full-year and Q1 2016, and then open the call to questions from the investment community. As a reminder, our pro-forma results assume the close of the Trulia acquisition occurred on January 1, 2014, and do not include the impact of acquisition-related costs and restructuring costs in addition to certain other adjustments. Note that our GAAP and certain pro forma financial results, along with our pro forma comparisons, have been included in our fourth-quarter and full-year 2015 financial results press release, which contains important information about how the pro formas were prepared.

Now let's dive into our financial results starting with our fourth quarter. Traffic growth was healthy, as we finished the integration of Trulia and entered the fourth quarter, historically our seasonally slowest quarter of the year. We attracted nearly 124 million average monthly unique users to Zillow Group's mobile applications and websites during the quarter. Turning to our operating results, total revenue for the fourth quarter increased 7% to $169.4 million. This result was at the high end of our guidance of $165 million to $170 million. Looking at our core revenue category, marketplace revenue grew 14% to $148.3 million, maintaining strong growth across our real estate and mortgage marketplaces. We continue to see the desired shift in our revenue mix, as we ended the fourth quarter with 88% of our revenue coming from our marketplace category, as compared to 82% last year.

Taking a deeper look at our real estate sub-category, which accounts for our Premier Agent, Diverse Solutions, StreetEasy and rental marketplaces, our revenue grew 27% to reach $136.6 million. Maintaining our trend throughout this year, in Q4 we continued to encourage low performing agent advertisers to leave our program, ending the period with 92,366 agent advertisers. The agent advertisers who remain on our platform continued to buy at robust levels, as 69% of the new sales bookings in the fourth quarter went to existing agents buying more impressions across mobile and web. Average monthly revenue per advertiser, or ARPA, among Premier Agent advertisers grew 29% to $438 in the fourth quarter, or 9% higher sequentially quarter over quarter. Additionally, same agent advertiser sales were over 50% higher than last year. Our Premier Agent revenue run rate is currently $485.5 million versus $415.3 million for the same period last year.

The formation of high-performing, high ARPA agent advertiser teams continues to increase at a steady pace. Agent advertisers who spend more than $5,000 per month grew 62% on a total dollar basis and 48% in advertiser count. Sequentially, this is an improvement of 5% on a total dollar basis and 3% in advertiser count quarter over quarter. As we position ourselves for opportunities in the coming years, we believe that the emergence of high-performing agent advertisers should occur even faster as the real estate market evolves. We believe that high-performing agent advertisers or teams will continue to earn the majority of real estate commissions. Throughout 2016, we will continue to support these advertisers by developing products that help them better serve their clients and close transactions. Enabling agent advertisers to increase their conversion catalyzes ARPA growth, as they will buy more advertising and grow their businesses through our program. We expect that this will happen at the expense of low ARPA, low performing agents who will either leave the program or choose to join more successful agent advertiser teams, further driving down total agent advertiser counts throughout this year. We view this as a positive trend that creates a better experience for consumers and is expected to lower our selling costs.

Transitioning to mortgages, revenue reached $11.7 million and grew 48%. During the quarter, 8.8 million loan information requests were submitted by our users, growing 19% year over year on an as-reported basis. In our display category, revenue in the fourth quarter was $21.1 million, down 25%. We view this as a continuing positive trend, and it is consistent with our strategy of deemphasizing display in the user experience and focusing on growth in marketplace revenue, as we shift our advertisers' display budget toward marketplace. Display now represents 12% of total revenue, down from 18% in the same period last year.

Shifting now from revenue and turning our attention to our operating expenses line by line, our cost of revenue during this quarter was $15.1 million, or 9% of revenue. Sales and marketing expense was $77.8 million, or 46% of revenue. Technology and development costs in the quarter were $55.8 million, or 33% of revenue. G&A cost in the fourth quarter were $45.9 million, or 27% of revenue. This is higher by 3% as a percentage of revenue quarter over quarter. The increase expense was mainly due to more than $8 million in legal expenses related to the News Corp lawsuit. I will provide more detail about full-year expenses related to this lawsuit in a few moments. Total operating expenses were $195.1 million, an increase of 16% on a pro forma basis. These increases can be attributed to investments in data acquisition, increase website and software development costs, and people, as well as increased legal fees. Pro forma net loss was $25.1 million in the fourth quarter, compared to a pro forma net loss of $11.3 million in the fourth quarter of 2014. Pro forma fourth-quarter 2015 basic and diluted net loss per share was 14%, based upon 178 million basic and diluted weighted shares outstanding. Our fourth-quarter GAAP net loss was $25.7 million. GAAP fourth-quarter 2015 basic and diluted net loss per share was $0.14. On a non-GAAP of basis, which excludes share-based compensation expense, acquisition-related costs, restructuring costs, and income taxes, basic and diluted non-GAAP net loss per share was $0.01. Adjusted EBITDA for the quarter was $20.4 million, representing 12% of revenue.

Turning to our full-year 2015 pro-forma results, total revenue increased 18% to $679.9 million, in line with our most recent outlook. Our growth was based on continued advances in our product throughout the integration, which helped to grow real estate revenue and revenue in our emerging marketplaces. Further, efficient advertising led to accelerated audience growth throughout the funnel during the entire year. In our revenue categories, marketplace revenue increased 26% to $583.9 million, and display revenue was $96 million, down 15%. For the full year, display represents 14% of total revenue, down from 20% a year ago. As noted above, this reflects our continued focus on marketplace revenue and the removal of many Trulia display ad units at the end of Q1 2015, and is in line with our strategy to prioritize the consumer experience across our Zillow Group brands.

Real estate revenue grew 35% to $502.2 million for the year, while our mortgages revenue 47% to $44.7 million. Real estate revenue growth was driven by the combined scale of Zillow and Trulia in agent advertising, rentals, and mortgages. Pro forma net loss was $91.1 million for the full year, compared to a pro forma net loss of $83.3 million for the full-year 2014. Pro-forma full-year 2015 basic and diluted net loss per share was $0.52, based upon 176.4 million basic and diluted weighted average shares outstanding. Adjusted EBITDA for the full-year 2015 was $95.4 million, representing 14% of revenue. Of note, legal costs related to our necessary defense of News Corp legal claims were more than $27 million in 2015 and are projected to be approximately $36 million in 2016. Absent this lawsuit, these financial resources could otherwise be used to support innovation and growth or margin expansion.

Turning to a GAAP discussion of our full-year 2015 financial results, total revenue was $644.7 million, which includes partial period first-quarter contribution from Trulia, as the acquisition did not close until late February 2015. Marketplace revenue was $555.9 million for the full-year and our real estate subcategory generated $482.1 million of revenue. Transitioning to our non-real estate revenue, mortgages revenue reached $44.3 million, Market Leader revenue was $29.5 million, and our display revenue was $88.8 million.

Moving to our operating costs, total operating expenses were $794.2 million, with the most significant increases coming from increased data acquisition costs, legal expenses, and brand advertising. Looking at our operating costs by line item, cost of revenue for the full year was $61.6 million, or 10% of revenue. Sales and marketing expense was $307.1 million, or 48% of revenue. Technology and development costs for the full year were $198.6 million, or 31% of revenue. G&A costs for the full year were $170.4 million, or 26% of revenue. We incurred $52.1 million in acquisition-related costs and restructuring costs resulting in a GAAP net loss of $148.9 million. GAAP full-year 2015 basic and diluted net loss per share was $0.88.

On a non-GAAP basis, which excludes share-based compensation, acquisition -elated costs, restructuring costs, and income taxes, basic non-GAAP net earnings per share was $0.05 and diluted non-GAAP net earnings per share was $0.07. Full-year 2015 adjusted EBITDA was $87.6 million, representing 14% of revenue. Zillow Group ended 2015 with more than 2,200 employees, up from more than 1,100 at the end of 2014. Our current head count takes into account the acquisition of Trulia and dotloop, and the sale of Market Leader. We continue to execute in support of our strategic priorities, grow audience organically, grow our agent advertising business, grow our emerging marketplaces, and continue to maintain our extraordinary Company culture.

Turning to our outlook for the full-year 2016 and the first quarter of 2016. Starting with our full-year 2016 outlook, total revenue is expected to be in the range of $805 million to $815 million. At the midpoint of the range, this represents 26% year-over-year growth on a pro-forma basis, which excludes Market Leader revenue from full-year 2015. This is a reacceleration of revenue growth relative to 2015. We project that Premier Agent revenue will be $590 million to $595 million, representing 27% year-over-year growth at the midpoint of the range. This is the first time we've provided a separate outlook for Premier Agent revenue. We believe this level of transparency provides better insight into growth trends in our business versus the combination of agent and ARPA, which are outputs of Premiere Agent revenue. Of note, by providing this outlook, we expect to begin phasing out our reporting of advertiser count and ARPA starting in 2017.

Display revenue is expected to be the range of $54 million to $56 million. This outlook is consistent with our strategy of deemphasizing display in the user experience, and focusing on growth in marketplace revenue, as we shift our advertisers' display budgets toward marketplace.

Our EBITDA for full- year 2016 is expected to be in the range of $115 million to $125 million, about 1a 5% margin at the midpoint of the range, reflecting increased expenses attributable to our investment in people, data acquisition, and brand acquisition. In addition, roughly $36 million has been allocated to the defense against the News Corp lawsuit for this year. These investments in legal expenses are projected to weigh more heavily in the first half of the year, leading to EBITDA as a percentage of revenue to be in the mid to high single digits for the first half of the year.

While our revenue growth is expected to reaccelerate, our operating expense growth is expected to decelerate throughout the year. For the full year, we expect depreciation and amortization to be in the range of $95 million to $100 million. Additionally, we expect full-year capital expenditures to be in the range of $41 million to $43 million. Our full-year 2016 basic weighted average shares outstanding is expected to be approximately 180 million to 182 million, and our diluted weighted average shares outstanding is expected to be in the range of 196 million to 198 million.

Shifting to our first-quarter 2016 outlook, Zillow Group revenue for the first-quarter 2016 is expected to be in the range of $174 million to $179 million. This outlook represents more than 8% year-over-year growth at the midpoint of the range on a pro-forma basis. Excluding Market Leader, the growth rate would be expected to be over 18% year over year. We project that Premier Agent revenue will be $130 million to $132 million, representing 22% year-over-year growth at the midpoint of the range on a pro-forma basis.

Consistent with recent trends and our strategic execution, we expect the display revenue to be about $13 million $14 million for the first quarter of the year. We anticipate total operating expenses for the first quarter to be in the range of $218 million to $223 million, which at the midpoint of the range is about 13% higher than total operating expenses in the fourth quarter of 2015. This step up in expenses includes accelerated investments in our people, data acquisition, and brand advertising. As well, we expect nearly $12 million in legal costs related to our defense against the News Corp lawsuit. Our EBITDA for the first quarter is expected to be in the range of $1 million to $6 million. Our first-quarter basic weighted average shares outstanding is expected to be approximately 178 million to 180 million, and our diluted weighted average shares outstanding is expect to be in the range of 194 million to 196 million.

To conclude, Zillow Group had a transformative year as we completed the Trulia integration, achieved listings independence, and acquired dotloop, forming the largest real estate media company in the world. I second what Spencer just said. I'm very excited about our potential in 2016 and beyond as we have built a solid foundation for future growth.

With that, we will open it up for questions from those dialed into the call and to questions submitted via Twitter and Facebook with the #Zearnings.

(Operator Instructions)

Robert Peck, SunTrust.

Good afternoon, Spencer, Kathleen, this is Rodney for Bob. I just was hoping maybe if we could unpack the guidance a little bit and trying to wrap our arms around some of the new disclosures as well as the impact of EBITDA. First of all, just walking through some of the progression or the linearity of the Premier Agent business as we look at 2016, and perhaps understanding that. And then thinking about the EBITDA, can you help us walk down to maybe the core EBITDA? Because I show as you exit 2015, your core EBITDA, which is related to your marketplace's business, finally turned positive. And as I look out to this year, I wondered if you could talk about how you see that business progressing, particularly given the much lighter guidance on the display business relative to market expectations.

Hey Rodney, it's Spencer. We're trying to unpack your question about our question. So I'll try to answer at a high level, and then we'll see if Kathleen can add more texture. What we have going into 2016 is increased ad expense, not growing as quickly as revenue, so we are going to see some leverage in the sales and marketing line. And then we also have, obviously, increased legal cost, where we gave guidance on what the full-year 2016 legal cost -- one-time cost should be. So obviously those two things are weighing on Q1 EBITDA and going into the full year as well. Go ahead.

Yes, I will just add to that, we do expect that the second half of the year, the margin will move up. And as you noted, we expect to be exiting the year with an increase in our EBITDA margin overall. In terms of PA, as you'll note from our outlook, for Q1, we're guiding to PA revenues up 22% in the quarter, and then for the year overall up 27%, representing the reacceleration of the growth in the PA business that we have signaled before. Does that answer your question? There were many questions together, so I wanted to make sure I answered it.

Yes. Just a follow-up on, and I get the reacceleration. But on the EBITDA side, is there something you could target internally or for us to think about, ex the legal expenses, that on the core real estate business that we should be thinking about that business being a profit generator and what kind of margins it should throw off, given that your display business now is half of what it was prior. So how do we think about the long-term margin structure now, given that trajectory?

We've thought a lot about whether to give a variable margin, and how much of incremental revenue drops down to EBITDA. And we have decided, Rodney, not to give a number like that, because what we end up doing, of course, is as we get more incrementally more profitable, we have this choice of how much profit we want to take versus how much we want to invest.

Just to rewind the clock for a second here, when we went public, as I mentioned on the call, we had $66 million of revenue. Our emerging marketplaces today, so these are the business that we were planting seeds four or five years ago, those now are bigger than the whole Company was when we went public. So four or five years ago when investors were saying, where is the margin expansion, we said look, we're going to start planting seeds, those will take a couple years to pay off, those are paying off.

And so here we are in 2016, we have other seeds that we're planting where we see this huge TAM inside our category, and the size of the prize seems massive. So that's what we signaled on the last call was we're prioritizing revenue growth over margin acceleration, and that's still where we're at. In terms of trying to give you math to walk through what's incremental margin on incremental revenue and what's core versus growth, we haven't provided that level of detail. Operator, can we take the next question please?

Ron Josey, JMP Securities.

Great, thanks for taking the question. I wanted to ask about Premier Agents, knowing that, of course I think you'll be phasing out the disclosure. But since migrating Trulia or whatever maybe since 2Q they've declined about 11,000 agents, I'm wondering how much of this decline is from you all encouraging lower performing agents to leave the platform, which I believe is a big reason why the PA declined so much in 2Q and 3Q? And importantly, how many more lower performing agents do you think exist? And then a quick follow up just on that. With 69% of new bookings coming from existing agents, also flat from 3Q off of 69%, is that what's leading to the leverage in sales and marketing as you look in the new world of how you sell to higher valued agents, if you will? Thanks guys.

Sure, hey, Ron. So you are right, the reduction in advertisers is intentional and it's by design, it's strategic. It's something that we started focusing on a couple of years ago, and we've been telling investors for several years has been part of our strategy. The reason for that is, of course, good agents, better agents provide better service to clients, and they convert and lead to the higher rate. They're also, frankly, willing to pay a higher cost per lead, because they're more likely to convert those leads into a commission. We have started giving data on what commission dollars we think we're responsible for generating, and it was $3.6 billion in 2015, up pretty significantly year over year. And we're going to start giving investor disclosure on Premier Agent revenue guidance, which we think is a much more relevant metric than sub count or ARPA, and we've been saying that for a couple -- probably for a couple of years now.

The trend of top agents earning more commissions in a given geography is a trend that started long before Zillow Group was created or Zillow came to prominence. It is because of changing consumer expectations about response time. The days of the part-time agent are over. Consumers expect agents to be available 24/7, and that means that top agents are earning a greater portion of commissions in their given geography. Zillow Group didn't invent that trend, but we're certainly focused on it and it's driving our strategy of focusing on the highest performing agents.

In terms of how that ties to sales and marketing leverage, in the sales and marketing leverage for 2016, you're seeing that come from both ad expense as well as from selling costs from a smaller number of agents. So we're not going to isolate it. We bundle the two together in sales and marketing, but they are both related to that. Next question please, operator.

Mark Mahaney, RBC Capital Markets.

This is Dylan Haber on behalf of Mark. Just two quick questions, can you provide any more detail around rentals, both in terms of its overall growth and how material of a revenue contributor it is to the business? And then lastly, can you provide more color on what initiatives you are focusing on to drive MAU growth and brand awareness in 2016? Thank you.

Sure, thanks for the question. On rentals, we're not breaking out rentals separately. We're still early days in rentals. The way we think about it is what Spencer mentioned a minute ago, which is we think of our emerging businesses as a group, and as seeds that we are planting for the future. We can tell you that the growth rate in each of those businesses is faster than our real estate growth rate, which we think is terrific.

We're looking forward in rentals to closing our acquisition in Naked Apartments, because we think that's going to contribute even more significantly to our success in New York City as we roll out four rental space brands in New York City with Zillow, Trulia, HotPads, and Naked Apartments, and we do have some rentals within StreetEasy as well. Those teams will be working together to create additional value in the rental front. As I said before though, it's early days, but we are excited about the future of that business.

In terms of initiatives to increase our brand awareness, we will be continuing with the advertising trajectory we've been in. As we've said before, we were at about $100 million investment in advertising last year. We expect we'll be increasing that investment, but that we will be seeing slower growth in the advertising spend than overall revenue. You've probably seen that we were back on television in Q4, and you can look forward to seeing more of the same.

Next question please.

Dean Prissman, Morgan Stanley.

Thanks for taking my question. As we think about 2016 in terms of your initiatives to help agents better convert leads such as the new Premier Agent app and the Premier Agent assist program, how much benefit, if any, is contemplated in your guidance from these programs? And then I had a follow-up.

Yes, it's very hard to measure lead conversion rate. Dean, you and I have talked about that before, of course, where when we hand over a lead to an agent, we don't have good visibility into when or if that lead closes. The best signal that we have on whether that agent is closing leads at a high rate is whether they desire to buy more impressions from us. And so, we are very focused on growing leads and growing the portion of those leads that go to top agents.

In terms of how that models into PA, Premier Agent revenue, I'm not going to break out what conversion improvements we expect the Premier Agent app to have versus other initiatives. But I do think that providing investors with guidance on the Premier Agent revenue as a whole, which for Q1 is around $130 million to $132 million, and for full year $590 million to $595 million, up 27% year over year, it's the first time we've ever given guidance on those numbers. And go ahead, Dean, you had a follow-up on that?

Yes, I was wondering if you could quantify, just provide some qualitative color on the level of investments or cash burn in 2016 from your adjacent marketplaces?

Sure. Let me think about how best to frame that. Let's see. Across our emerging marketplaces we have 200 employees across rentals, mortgages, and our New York City marketplace. The big question, if you were trying to think through what emerging marketplaces P&L looks like, which is I think what you're trying to do, is how do you think about allocating shared services and advertising expense. And that one is a little trickier.

Kathleen just answered the question about how you're going to grow rentals awareness, by noting our marketing expense, which clearly grows audience and grows rental leads and mortgage leads, for example. But of the $100 million plus in ad expense, how much do you want to allocate to those emerging marketplaces? I don't know; that's really anyone's guess. So we don't run separate P&Ls in that sense, but if you were trying to come up with some estimate, you could use 200 heads as a proxy, I suppose.

Helpful color. Thank you.

Sure Dean, next question, please.

Heath Terry, Goldman Sachs.

Great, thanks. Spencer, I'm really interested if you can share what traffic dynamics, however you want to frame it, at the top of the funnel look like just in terms of the impressions that are coming in for your sales force to be able to sell on to the agent group. Particularly, if you can also quantify what the level of spending to drive that traffic in the form of marketing was last year versus what you intend to spend purely against driving traffic in 2016 looks like.

Sure. So in January, we had about 150 million in new users across our different brands, which is growing in the high teens, 15% to 25% year-over-year range, somewhere in that range. The impression count, okay, that is how many people visit the sites, or how many machines visit the sites, then they generate a certain number of impressions, which is growing faster than that. And then most importantly, they generate a certain number of leads to real estate agents, which is growing even still faster. And that's the most important metric, of course, because that's what an agent feels. The agent really -- they buy impressions, but they feel a lead.

Then the most important question, of course, is does that lead become a commission check? And as I say, we think we're now in 2015, we helped agents generate about $3.5 billion in commissions. That's out of $75 billion of total commissions, and we think the online leader in a category as this ought to be able to generate tens of billions of dollars of commissions to our Premier Agents over time. So that's the prize that we have our eyes on.

In terms of the span required to generate the $3.5 billion in commissions or the 150 million unique users, the ad expense last year was around $100 million, and then, you of course can see what our R&D, our tech and dev costs are, so it's hundreds of millions of dollars. The other thing that is noteworthy is now that we have these four brands,, and as soon as we close Naked Apartments, five brands all under one roof, we have this other benefit, which is hard for investors to see. Which is each of these companies is about 10 years old.

Each of these brands have product development and engineering teams that have been working on solving some of the same problems from slightly different directions for about 10 years. Questions like how do we help home shoppers triage hundreds of listings? How do we create email products that raise awareness of new listings that match search criteria? How do we do recommendations to show listings that might be interesting to consumers? And so each of these five different brands have been working on these problems for 10 years, and we're sharing a lot of great information across these brands. And each of their metrics are benefiting as a result. Next question please, operator.

Aaron Kessler, Raymond James.

Thank you, a couple questions. First, following up on the traffic question, can you update us on the organic traffic growth in Q4? Also, I didn't hear it on the call, the number of mortgage requests, if you're still giving that number out. And finally, stock-based comp, noticed was down a little bit in Q4. Do you have a rough sense for where that comes out in 2016? Thank you.

Sure, hang on one sec. Organic traffic in Q4, I don't think we break out organic traffic. I think in the script, I referenced Trulia's organic traffic being at all-time highs, and Trulia is I think visits in leasing at all-time highs, just as a way to describe that I'm feeling very good about the Trulia traffic situation, something that was not the case about a year ago. The Trulia traffic is now turned around. Loan requests in the quarter, RJ or --

For the quarter it was $8.8 million loan requests and on the year $46.8 million.

And stock comp for 2016 we haven't given guidance on. Yes, we haven't shared that yet. We did share share count though right?

Yes. Share count, yes, 180 million to 182 million outstanding by year end is our --

At the end of 2016.

At the end -- basic, and fully diluted, 196 million to 198 million.

I think we'll do one more question from the call and then we will probably go to Twitter. Operator, next question please.

John Campbell, Stephens Inc.

Hey guys, this is Hayden Blair sitting in for John Campbell. I've a question about the decline in agent advertisers. Throughout 2016, we're getting the sense that these agents -- some of these agents' leads are actually teaming up. And in those cases, sometimes doubling up their spend, acting as a single advertising unit, sometimes even more than that. So can you give us a sense of, of the lost agents, what percentage or how is that trending from people actually getting all the way off of the Zillow platform versus teaming up with others and forming an advertising group?

Good question. We haven't shared that type of data; it's a good point though, and it's one of many reasons why we've been saying for years that number of advertisers is a bad metric and we have been moving away from it. And I'm glad that we finally have -- are replacing it or overlapping now for a while with this Premier Agent revenue guidance number.

What happens when an agent stops being a Premier agent and switches to join a team of another Premier Agent is they're really just shifting the capital risk from themselves to somebody else with more capital. So instead of spending $200 a month out-of-pocket and taking the risk that three or six months later they're going to convert those leads into a transaction, they're joining a team and they're getting probably even greater lead flow. And they are giving up one quarter, one-half, one-third of their commission to that agent that is buying the leads essentially on their behalf.

And that agent that is buying the leads on their behalf is typically using some sort of software to track the lead conversion to hold the referee's feet to the fire to make sure that the leads that they're buying on behalf of that other agent are actually closing into a transaction. So we really like that situation. It means the consumer gets better service, because they are going to be more likely to get somebody on the phone more quickly. It means the leads are going -- being sold to somebody that values them at a higher rate. It's all goodness all around. It does also have lower selling cost, which is less important but still noteworthy. So yes, we like that trend, and as we've been saying for really years now, that's why we've been focused on top-producing agents.

Got it. One quick follow-up if I may.

Go ahead.

Thank you. If you talk about overall leads growth across both Zillow and Trulia platforms in the core real estate business, I'm wondering how that works in tandem with overall listing count. Is that you guys driving higher leads due to higher listing coverage overall, maybe as a product of all the worked for direct connection with the MLSs? Or is that a product of better monetization of an existing listings pool?

It is a combination of improved listings quality and improved product development. The listings quality on Trulia and Zillow have never been better. We now have direct connections to around 400 multiple listing services. That represents a huge portion of the total listings in the country. They have never been as accurate and as timely as they are today, and they are significantly improved year over year. And that generates more leads and more high quality leads. And it's absolutely a tailwind to the Premier Agent business.

But at the same time, we also just continue to get better and better about a whole -- dozens of features that you may or may not focus on, and this does come back to being able to share best practices across these brands, things like personalization, email, site user experience, and lots of other things that we don't tend to talk about. A combination of those factors impacting that.

Operator, we will turn to a question from Twitter. @BrianSmith_jr asks the question that I will paraphrase as how is Trulia doing? And the answer is Trulia is doing very well now. As you know and as we've talked, in early 2015, early to mid 2015, Trulia traffic was not growing quickly. And that was something that we worked very hard through 2015 to rejuvenate. And towards the latter part of 2015 going into 2016, we're seeing the benefit of all that hard work. And Trulia now is growing at the top of the funnel and growing very quickly at the bottom of the funnel. And the product team there is doing a great job. I'm very proud of the work that's been done in San Francisco by the Trulia team. So Trulia traffic growth is solid and user engagement is solid.

And then from a monetization standpoint, everything is fully integrated now. The advertisers in rentals, Premier Agent, mortgages, and display are buying media impressions from Zillow Group, and they're getting served across Trulia and Zillow at the same time. And that allows us to monetize Trulia much better than Trulia ever monetized stand-alone, because of the economies of scale of the combined traffic between Zillow and Trulia and the single sales force. Should I go to Twitter or the call? RJ?

Twitter and then we'll go back.

Let's see. Are you going to pay. So @(inaudible), are you going to start paying a dividend? No, we don't have any plans to start paying a dividend. We're investing very heavily in the Company itself rather than returning money to shareholders through dividend.

Let's see, so actually go back to that other question. BraveChieftain asks snarkily, is the plan then to milk high-performing agents for as much as possible? That definitely goes against your huge TAM argument. So I wholeheartedly disagree. We're not milking high-performing agents. What we are doing instead is trying to send as many consumers as possible to these top agents. So these top agents convert leads at a really high rate. They earn a lot of commission, and they are willing to pay a lot of money to connect with a very large number of consumers.

The TAM here is, of course, what is -- well, the TAM is unknown. What is known is the total commission dollars are around $75 billion, of which we are responsible for agents generating or collecting around $3.6 billion. The question, of course, is at scale of the $85 billion -- or sorry, $75 billion of total commissions, what portion of that can Zillow Group influence? And then, of course, how much will those real estate agents that collect those commissions be willing to pay to generate that commission? And so those things are unknown, but that is the size of the prize. It is very large, it is even larger today than it was when we started this Company 10 years ago. I think we will go back to the call and maybe take a question and then wrap up. Go ahead, operator.

News question is from Mark May, Citi.

Thank you, thanks. Question, where are you in the process -- I'm sorry if I missed this, of culling the lower performing agents? And based on where you are, when do you expect that to shift from being a headwind to your overall agent growth? And second question, what portion of the MLS-based listings in the country today are on Zillow today? And how has that trended over the last 6 or 12 months?

I'll take the MLS question, and then I'll let Kathleen talk, Mark, about the Premier Agent question. We now have around 400 MLS direct connections, which are responsible for about between, I think around 75% of the listings in the US are coming to us from the MLS direct connections. Most of the other 25% are coming to us from broker [feeds] from either from the franchisor or the broker franchisee. Many listings come to us in multiple ways from, say the MLS and the franchisor and the franchise, and then we deduplicate so that we only display the proper listing once.

How has that trended? A year ago, well when News Corp was providing our listings through ListHub, I think at max we had around 300 MLS connections provided to us by ListHub. So we far surpassed what we were getting from ListHub. And what we were getting from ListHub was significantly degraded, because of course, News Corp always sent us a reduced feed because they wanted to be advantaged in terms of listings quality. So we are -- Zillow and Trulia have truly significant better listings quality today than they did a year ago. In fact, they have the best listings quality in terms of accuracy, breadth and timeliness that we've ever had in our 10-year history as a Company. That's what's happening on the listings front, and Kathleen, on agents?

Yes, on agents, we come back to this point a lot and one of the other questioners asked a very -- or made an astute comment about some of the agents who are leaving our program are actually leaving to join teams, which we view as a super positive trend. But just overall, I can say we view the decline in agent count as very positive because it is counterbalanced by an increase in very high spending agents.

So we don't actually view that as a headwind to our business. Quite the contrary, as we continue to build products and attract these higher spending agents, and as agents consolidate and start teaming up as teams, they will achieve higher ROI, we're continuing to build products to support that. So we view it as a positive development that in the end will reduce our selling cost we expect and create some great opportunities to sell more impressions to these high-producing agents who generate most of the commissions in this business.

Sure. And follow up, and I wasn't suggesting it was a headwind to the business, just a headwind to that particular metric, but I hear you. Maybe just a housekeeping, I missed it. Did you provide display guidance on a full-year basis? If so, would you mind repeating it?

Yes we did, it was $54 million to $56 million.

Thanks.

Thanks, Mark. Thank you, everyone, for joining the call. There are still a couple questions that we'll take on Twitter just to close the loop. Thanks, everyone, and we will talk to you next quarter.

Thank you all.

Ladies and gentlemen, this concludes the programming. You may all disconnect. Have a wonderful day, everyone.