Zillow Group Inc (ZG) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Zillow's first-quarter 2014 earnings conference call.

(Operator Instructions)

As reminder, this conference call is being recorded. I would now like to do introduce your host Mr. RJ Jones, Zillow's Investor Relations officer. You may begin.

Thank you. Good afternoon, and welcome to Zillow's first-quarter 2014 earnings conference call. Joining me today to talk about our results are Spencer Rascoff, Chief Executive Officer; and Chad Cohen, Chief Financial Officer.

Before we get started, as a reminder, during the course of this call we will make forward-looking statements regarding future events and the future financial performance of the Company. We caution you to consider the important risk factors that could cause the Company's actual results to differ materially from those in the forward-looking statements made in the press release and on this conference call. These risk factors are described in our press release, and are more fully detailed under the caption Risk Factors in Zillow's annual report on Form 10-K for the year ended December 31, 2013, and in our other filings with the SEC.

In addition, please note that the date of this conference call is May 7, 2014, and any forward-looking statements that we make today are based on the 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 present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. In our remarks, the non-GAAP financial measure Adjusted EBITDA will be referred to simply as EBITDA, which excludes share-based compensation.

This call is being broadcast on the Internet, and is available on the Investor Relations section of the Zillow website at Investors.Zillow.com. A recording of this call 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, along with exhibits of our business metrics, will also be available on our website.

Today we will deliver 20 minutes of prepared remarks to start, and then we will host a live question-and-answer session for 40 minutes. During the Q&A, we will entertain questions asked via Twitter and Facebook, in addition to questions from those dialed in to the call. Individuals may submit questions by tweeting @Zillow using the #ZEarnings hashtag, or to the official Zillow Facebook page.

After the call, Ron Josey from JMP Securities and Mike Graham from Canaccord Genuity will moderate a 15-minute follow-up Q&A session with Spencer via Twitter, with the same #ZEarnings hashtag. We are very pleased to welcome Ron and JMP Securities to the Twitter sphere. I will now turn the call over to Spencer.

Thank you for joining us today to discuss our first-quarter 2014 results. We had a terrific quarter, ahead of expectations, which flows through to our raised full-year outlook that we will discuss later in the call.

Traffic on mobile and web continues to grow quickly, with over 50% year-over-year growth in average monthly unique users during the quarter. We reached a new traffic record of nearly 77 million users in March, which we just topped with a new record of almost 79 million unique users in April. Both months represented an absolute gain of over 26 million unique users year over year.

And mobile continues to represent the majority of our visits, with two-thirds of Zillow business now coming from a mobile device. Mobile usage nearly doubled from first-quarter 2013. And in April, a record of more than 460 million homes were viewed on Zillow Mobile, which equates to 178 homes every second. When we went public three years ago, this was about 21 homes per second.

In addition to audience growth, we see positive momentum across our entire business. In the first quarter, we exceeded a record $66 million in revenue, up 70% year over year. And representing the 14th consecutive quarter of above 67% year-over-year growth.

For comparison, we generated $66 million in revenue for all of 2011, just three years ago when we went public. A key contributor to this growth was our Premier Agent business, which closed the quarter with over $180 million annualized revenue run rate, up for more than $150 million annualized revenue run rate last quarter.

Moving from the top to the bottom line, our Adjusted EBITDA approached $9 million for the quarter, higher than expectations, due to strong sales. While we increased our strategic investment this year in advertising, the incremental EBITDA indicates the potential for margin expansion in our model longer-term.

Overall, we're off to a great start for 2014 as we execute on our three strategic priorities of growing our audience, growing our Premier Agent business and growing our advancing marketplaces. I will now touch briefly on progress in all three of these areas.

Our first priority is audience. We believe that by attracting the largest audience in our category over the long-term, we will win the leading share of revenue and profits. Advertisers follow audience. Audience starts with product, and we are continuously expanding and improving our [linen] database of all homes to provide other data and better experiences on mobile and web.

Today we are approaching 50 million homes in our database that have been improved and edited by homeowners and real estate agents. That's nearly half of all homes on Zillow. These user contributions, coupled with continuous additions and improvements of data, are creating the largest and most complete repository of information on homes in the US, anywhere.

Additionally, we recently crossed two significant milestones for our flagship Zestimate product, which helps homeowners, buyers and sellers understand the value of homes. First, we made significant improvements nationwide on Zestimate accuracy. Our median margin of error on Zestimates -- which we measure by comparing Zestimates to actual sale prices on individual homes -- is now less than 7%.

Without stepping into a house, we are able to out-rhythmically estimate a home's value within 7%, which is the best median margin of error we have ever had in our eight-year history. And the best published accuracy rate of any automated valuation model that exists today. This is a significant analytical feat, a core competency of Zillow's and a strategic competitive mode.

Secondly, we recently launched Zestimate Forecast on more than 50 million individual homes. This latest data layer predicts a home's value change for the coming 12 months, and is shown on individual home detail pages on mobile and web. For consumers who are looking to buy a home and for homeowners who might consider selling their home, the Zestimate Forecast, which is only viewable on Zillow, provides yet another reason to use Zillow during their real estate search process.

Complementing the advances in our product, we continue to execute extremely well in marketing, both in our organic and PR efforts, as well as advertising. During the first quarter, we went back on-air with TV advertising after being off-air for most of the fourth quarter of 2013. We also added a new layer of product integration into various television shows, including NBC's primetime home renovation show American Dream Builders, as well as an integration with cult-favorite Portlandia on cable channel IFC, and continue to work with HDTV.

We measure the impact of our advertising carefully, and all metrics are showing extremely positive results, which contributed to the record traffic and revenue for the quarter. For competitive reasons, we are not sharing the make-up of our acquisition funnel or specific advertising results, instead letting our business results speak for themselves.

We are firing on all cylinders in marketing, and it's having a significant and meaningful impact on our business. We continue to have high confidence in our planned advertising investment in 2014 across channels. And have plans to build on our momentum throughout the spring and summer home shopping season.

Moving now to an update on our second priority of growing our Premier Agent business. We continue to reach new heights on the strength of our product depth and audience growth. At the end of the first quarter, we had nearly 53,000 Premier Agents. In addition, average monthly revenue per agent, or ARPU, was $286, an increase of $27 or 10% from a year ago, and a new high for this measure.

Another way to look at our ARPU growth among Premier Agents is by comparing same-store sales. Agents who are subscribers with us for a year or more are spending nearly 50% more on average now than they were one year ago. In fact, an increasing number of existing Premier Agents wants to spend more with us to accelerate their business. This quarter, 60% of our new bookings came from existing Premier Agents buying more advertising.

One of the ways we help agents succeed is through our Tech Connect program, where we provide our subscribers the ability to easily connect to the CRM tools of their choice, whether it's Zillow's free CRM, a CRM provided by their brokerage or MLS, or one that they paid for from a technology provider. We have now connected to 15 different CRM platforms, up from 2 launch partners when we first announced this program in November of 2013, with a lengthy pipeline of more to come.

The beauty of Tech Connect is that we are technology-agnostic here, preferring to provide an open platform and let agents use whatever software they want. We focus on selling them more media impressions rather than trying to shoehorn and cross-sell them into any specific expensive or legacy CRM.

Turning now to our third strategic priority of growing our advancing marketplaces, we continue to gain traction on each growth path we are taking. In mortgages, we are experiencing steady growth and deepening our relationships with our lenders, even in the rising rent environment.

In Zillow Mortgage Marketplace, consumers have now created nearly 75,000 lender reviews, a strong testament to this marketplace's vibrancy, best-in-class shopping experience and growing network [effect]. Our new consumer pre-approval product has been positively received, providing our lenders with more opportunities to serve the millions of home buyers on our site.

In our New York City marketplace, the largest and most important local real estate market in the US, our StreetEasy acquisition is performing extremely well. We have added more than a dozen new employees to the talented team of 30 at the time of acquisition last August. And have already redesigned the StreetEasy website and re-launched it without a payroll. We are now head-down building out the mobile offering and multi-screen experience for StreetEasy.

We are building fantastic new products and features that combine Zillow's deep understanding of the consumer and our industry-leading mobile expertise with StreetEasy's deep data connection to New York City. We have much to look forward to in New York in the coming months.

In our rentals marketplace, we are very pleased with our progress in monetization. Based on our own goals and historically how we have ramped in other marketplaces, we are ahead of schedule.

To conclude, our terrific results this quarter indicate our strong potential for sustainable long-term growth and leadership in the category. As the leader, we continuously attract the most talented personnel to our cause of empowering consumers. In the quarter, we hired over 45 new members in our technology and development teams across our offices. And we welcomed aboard two of the real estate industry's distinguished thought leaders in Errol Samuelson and Curt Beardsley, as well.

Our team gets excited about data, and looking at the 2013 US housing market staff, the estimated transaction value of sales of new and existing homes was over $1.4 trillion, leading to approximately $75 billion in commissions paid. Agents and brokers typically spend 10% to 20% of total commissions on advertising annually, in addition to the billions of dollars of advertising spent by professionals in the mortgages, rentals and home improvements spaces.

Our market opportunity remains massive and in the early stages of online migration, especially on mobile. The further we pull away now, the better things get. And yet, we are still just getting started. With that, I'll turn the call over to Chad.

Thanks, Spencer. I'll start off with our terrific usage growth in the first quarter, and then move into operating results. We attracted a record 70.7 million average monthly unique users to Zillow's mobile applications and websites in the first quarter, growing 51% year over year, a 4 percentage point acceleration over last year's 47% growth rate, on a much larger user base.

Turning to our operating results, total revenue for the first quarter increased 70% year over year to a record $66.2 million, from $39 million in the same quarter last year. Total revenue in the first quarter exceeded the midpoint of our guidance of $62.5 million by $3.7 million or 6%.

We saw a continued shift in our revenue mix, as we ended the first quarter with 81% of our revenue coming from our marketplace category, while 19% came from display. Taking a deeper dive into our primary revenue category, marketplace revenue grew 72% year over year to $53.4 million, as we continued to see strong growth across our real estate and mortgage sub-categories.

Drilling further into our real estate sub-category, which includes Premier Agent, Diverse Solutions StreetEasy and rentals, our revenue accelerated sequentially for the second quarter in a row. And grew 77% year over year to reach $46.2 million, compared to $26.1 million last year.

Our Premier Agent business continues to execute. And during the quarter, we added 4,654 net new Premier Agents, ending the period with 52,968 subscribers. The vast majority of additions were at the platinum level, continuing the trend we have seen throughout the last few years.

As Spencer noted, 60% of our new sales bookings in the first quarter went to existing agents purchasing more impressions across mobile and web, up from 55% in the fourth quarter. Which signifies strong underlying demand, and positively impacts average monthly revenue per subscriber, or ARPU. Premier Agent ARPU was a record $286 in the first quarter, which was 10% higher than the figure in the same period last year, and 6% higher sequentially.

As reminder, ARPU reflects average contract size and how we price subscriptions in the market. Pricing of our platinum Premier Agent subscriptions is predicated on local home values, contact liquidity and demand for impressions in the zip code.

Moving from real estate to mortgages, which consists of Zillow Mortgage Marketplace and Mortech, revenue reached $7.1 million and grew 45% year over year. Which includes a full period of Mortech revenue in the current and prior years. Mortech's contribution was $1.5 million in the quarter this year. And Zillow Mortgage Marketplace -- 5.8 million loan requests were submitted during the quarter, growing 29% year over year, with purchase loan requests representing the vast majority of the mix.

Looking at our display category, revenue in the first quarter grew 62% year over year to $12.9 million, and we achieved our highest first-quarter growth rate in display since going public. This represents the third consecutive quarter of robust 50% or greater growth, and is a positive reflection of sustained audience growth, the efforts of our display sales team and the value we provide to both endemic and non-endemic advertisers.

Shifting now from revenue to our operating costs, total operating expenses were $72.7 million, compared to $42.8 million during the first-quarter 2013, in line with last year as a percentage of revenue. I'll now talk through the expense line items, comparing the first-quarter results this year to last year.

First, our cost of revenue during the quarter was $6.2 million or 9% of revenue, compared to $4.1 million or 11% of revenue last year. Favorable leverage resulted from higher growth of our owned and operated mobile apps and websites versus those of our partners, with whom we have revenue-sharing arrangements.

Next, sales and marketing expense was $34.9 million or 53% of revenue versus $19.8 million last year, which was 2 percentage points of revenue higher, and slightly below our guidance range of $36 million to $37 million. Total advertising spend in the first quarter was unplanned.

Technology and developing costs in the quarter were $17 million or 26% of revenue, compared to $10.6 million or 27% of revenue in the first-quarter 2013. The increase in costs reflect higher depreciation and amortization, and increased headcount related expenses year over year.

G&A costs in the first quarter were $14.7 million or 22% of revenue, as compared to the first-quarter 2013 of $8.2 million at 21% of revenue. The increase in absolute dollars year over year is primarily attributed to higher headcount and service costs, as well as higher facilities cost to support our growth.

GAAP net loss was $6.3 million in the first quarter, compared to $3.7 million in the first-quarter 2013. First-quarter 2014 basic and diluted loss per share were $0.16, based on 39.3 million weighted average shares outstanding. And on a non-GAAP basis, which excludes share-based compensation, basic and diluted earnings per share were $0.02.

EBITDA for the quarter was $8.7 million, exceeding the midpoint of our EBITDA outlook by $4.5 million, and representing 13% of revenue. This was up from prior-year's quarterly EBITDA of $5.1 million, and represented the same percentage of revenue. Along with our revenue upside flowing through to earnings, we had positive variances versus our plans, related to favorable headcount costs and some timing shifts on expenses.

Turning briefly to our balance sheet, we ended the quarter with approximately $447 million in cash, cash equivalents and investments, and had no debt. Zillow ended the first quarter of 2014 with nearly 900 full-time employees, up from nearly 650 a year ago. And we continued to grow in support of our strategic priorities, which are growing our audience, increasing the size of our Premier Agent marketplace and developing our advancing marketplaces.

Now, turning to our outlook for the second-quarter 2014 and the full fiscal year. Our revenue for the second quarter of 2014 is expected to be in the range of $75.5 million to $76.5 million. This outlook represents 62% year-over-year growth at the midpoint of the range.

For our second-quarter outlook on EBITDA, we expect a range of $6 million to $6.5 million; at the midpoint of our range, this represents an approximate 8% margin. Also for the quarter, we expect depreciation and amortization in the range of $8 million to $9 million, and share-based compensation in the range of $7 million to $8 million. Although we are not providing a GAAP EPS outlook for the second quarter, we expect a basic and diluted weighted average share count of approximately 40 million and 43 million shares, respectively.

As Spencer mentioned, we are raising our full-year 2014 revenue EBITDA outlook. Based on performance to-date, we now expect revenue to be in the range of approximately $304 million to $308 million, representing an increase of $15 million at the midpoint of the range. And we expect EBITDA to be in the range of approximately $48 million to $50 million, representing a $10 million increase at the midpoint.

We remain committed to investing in advertising across multiple channels. And we also plan on ramping our investments in product development as we pursue our strategic priorities. As you know, we run Zillow with a focus on long-term value creation. And as such, we might modify our spending strategies as we identify opportunities to better serve our consumers.

Moving quickly to reconciling items to EBITDA for the year, we expect depreciation and amortization to be in the range of $36 million to $39 million, share-based compensation to be in the range of $28 million to $30 million, and CapEx and capitalized purchased data content to be in the range of $19 million to $21 million. We expect full-year 2014 basic and diluted share counts to be approximately $40.5 million and $43.5 million weighted average shares outstanding, respectively.

In summary, Zillow had a terrific first quarter. We remain focused on accelerating our growth and advancing our home-related marketplaces. And we are extremely excited about our potential in 2014 and beyond. With that, I will open it up for questions from those dialed into the call, and the questions [hooted] via Twitter and Facebook with the hashtag #ZEarnings.

(Operator Instructions)

Mark Mahaney of RBC Capital Markets.

Great, thank you. This is Rohit Kulkarni. I'm filling in for Mark. A quick question on your sales and marketing spend. As you said, it was slightly shy of what you had guided to. Any more color that you can give as to what you are seeing with regards to your ROI on sales and marketing spend? And how should we think about that going forward?

Hi, Rohit. This is Spencer. I'll take the first stab at it. Sales and marketing is obviously comprised of the sales team headcount, but also our marketing team headcount and our ad expense. So I will take the ad side of things, and then Chad, if there is anything to add on the sales side of things.

We are very pleased with our advertising investment to date. You can see it come through in the traffic numbers where, regardless of which third-party measurement service you look at -- whether its comScore or it's Experian Hitwise or Google Analytics. And regardless of the platform you look at -- whether it's desktop or mobile web or mobile apps, Zillow continues to run away with this thing.

We now have, according to comScore Total, which is desktop and mobile combined, we have 47% of the category. And that includes the long tail of hundreds of thousands of real estate websites. With more than twice as the number two company. And just this morning, comScore desktop came out, for example, and we were up 13% year over year on the desktop, and our main competitors were down 8% year over year in April on the desktop, and down 5% year over year in April on the desktop.

So we are by far the largest, and we are also growing much faster. So our share gains continue. Part of that is coming from advertising, part of it's coming from product development. And very happy with how the team is performing, and the ROI on the advertising investment.

Hi, Rohit, this is Chad. In terms of -- the other side of that is probably headcount. And although we grew the sales team, we were able to grow the sales team more efficiently than we planned. We are seeing really nice efficiencies in terms of the inside sales teams, in terms of their ability to generate monthly recurring revenue and more bookings.

And as such, we didn't grow the team, I don't think, quite as fast as we had initially planned. The goal of which is to make sure that we hire the right sales people to bring on the right Premier Agent. And so we are not just going to bring anybody into the sales team who doesn't fit that criteria.

Okay, great quarter and nice raise.

Thank you.

Chris Merwin of Barclays.

Great, thanks. So just drilling into your Q2 revenue guide a bit more, how should we think about the relative contribution of agents and ARPU? Obviously in the 1Q we saw a very healthy step-up in ARPU. I'm just wondering if we should expect that to continue into 2Q and 3Q, which I know historically have been seasonally strong quarters for you in terms of agent net adds. And oftentimes those agents can come on the platform at a lower ARPU initially.

And then just secondly, if you wouldn't mind just giving us an update on Reynolds monetization. Are you bringing some more Reynolds salespeople in the platform? And where do you most focused on, in terms of achieving the long-term revenue target you gave in the last call? Thanks.

Hey, Chris, I will answer the first part of the question and then give you over to Spencer. In terms of ARPU, they're following the trends I believe I communicated on the last call, which is, we expected them to go up. Because we are seeing clear delivery of value in RY to our Premier Agents.

And you're seeing that in a couple of different metrics. One is that existing agents are continuing to buy more of the impressions that we create as a function of the investment that we're making in consumer products, as well as the investments that we're making in the growing audience. This quarter, 60% of our inventory went to -- new inventory went to existing agents who bought more.

In terms of same-store sales, if you look back a year, existing agents who were with us a year ago bought 50% more in this period and over the past year. So we are seeing growth in terms of the bookings; we are seeing growth in terms of same-store sales. And I think those two trends together lead me to believe that you are going to see ARPU continue to grow up and to the right over the next few quarters.

And Chris, on rentals, I would say, as you know, we have the audience on rentals. The audience numbers are now around 14 million,14.5 million monthly unique users shopping on Zillow for rentals. And we started the monetization plan starting basically in Q4 of last year.

We are ahead of our internal goals. But we are not going to give any other insight into it for competitive reasons. I feel like we are going to keep some things a little bit close to the vest. The strategy playbook that we are using at Zillow is clearly working, and you can see that if you look at the scoreboard.

I like the results that the scoreboard is showing between us and competitors. And I'm sort of tired of giving others the ingredients and the playbook. So on some of the things, we're going to be a little less communicative than we have been in the past. But I'm very pleased with our progress.

Thanks a lot.

It's a Twitter call.

Okay, so we'll start taking some questions from Twitter. Mike Graham of [southside alice say] Canaccord Genuity [as on the short Internet] asks: wondering what trends Zillow [pounds the earrings] sees in the housing market, [now in yell] and voice concerns in this video. So Janet -- or, Dr. Yellen obviously testified this morning. I caught some of the testimony, and the [team] was [pouring] through us today.

Let me give you the quick state of US housing markets. Home values nationwide are up about 6% year over year. And as we look out 12 months from now, we think home values will be up about 3% year over year. The media sometimes reports that as, the real estate market is cooling. I don't really view it that way. I view it more as, the rate of the upturn is slowing.

Taking a long-term perspective, 3% year-over-year growth in home values is still very significant. When we look at our Zestimate Forecast that we just announced today, on 50 million homes, 96% of those are up 12 months from now. In other words, basically 96% of Americans looking at what their house will be worth on Zillow 12 months from now, will see an increase in their Zestimate forecast.

Almost all over the country, home values are increasing. The housing market is -- the rate of growth is slowing, but it's still a very healthy housing market.

In terms of how that translates for us, agents are earning more commission revenues. We gave an updated view on the commission dollar pie, which we think is probably around $75 billion. We have sometimes cited $60 billion in past conversations; we think it's probably $75 billion in 2013 commission dollars.

And when agents spend more money -- or rather, when agents earn more money and more commissions, they are more optimistic about the business they choose to invest in, and growing it. And Zillow is clearly the beneficiary of that. So that's the housing market that we are operating in.

One more question from Twitter, and then we will go back to the call. Brian Boland from Sachs -- [@Bbolan1] asks: how far out do you think critical mass is for Zillow in terms of user-generated content? Any thoughts for a [steerim] for users?

In terms of user-generated cause, the most notable form of UGC that we have is, we let homeowners and agents rectify the property records to change their bedroom/bathroom square footage, for example. And there, we have certainly reached the [skate] velocity with around 50 million. And we were getting half of all the homes in the US now have had their property record updated on Zillow over the last nine years.

Other forms of UGC include reviews of real estate agents, where I think the last number -- we're at 750,000 reviews of real estate agents. Sorry, my apologies, around 600,000 reviews of real estate agents. And around 75,000 reviews of mortgage lenders. So there is a huge amount of UGC review content on real estate and mortgage professionals on Zillow. Operator, we will go back to the calls for the next couple questions.

Heath Terry of Goldman Sachs.

Great. You have touched on the fact that you've got multiple agents or a significant number of your agents that are looking for more volume off of the platform. How do see that resolving itself?

Does that mean you need to be more aggressive in terms of price increases? Or is there more that you can do in terms of creating volume? Obviously, the television campaign seems to be having a lot to do with that.

But are there more levers that you can push in that direction? And how should we think about the rate at which you are able to capitalize on the excess demand that exists in the system?

Thank you. It's a good problem to have. Where you have a lot of demand for your product, trying to find how supply meets demand and how much price to take, these are high-class problems we are very fortunate to have. And those problems obviously come from the audience leadership, which is where all goodness -- from where all goodness stems.

To tie it back to the TAM, the way I look at it, agents are spending now around $180 million a year annualized with us, up from $150 million a year annualized a quarter ago. And that $180 million flips to the -- it's the $10 billion in agent ad spend.

So basically, we have about 3% -- 2% to 3% of what agents spend on advertising, they spend on Zillow. Between 40% and 50% of all consumer usage of real estate information online on -- the mobile is ongoing. That's the delta that I look at and get excited about. 2% to 3% of that advertising share versus 40% to 50% of audience share, and growing.

So then of course, the question is, how do you accelerate that migration so that you get the 40% or 50% of the spend(technical difficulty), or as we see in most other categories, quite frankly, the wallet share ends up catapulting -- kind of leapfrogging over the audience share. [Sometimes it's] 20 points higher than the audience share to the market leader. So how does that happen, at what ARPU number, and at what sub counts and under what timeframe, and through which levers, whether it's price increase or a volume increase, or both.

We have said to investors many times that we don't manage the business to ARPU or to sub count, that we manage the business in total revenue. That's still the way that we look at it.

We certainly have some premier agent subscribers that send tens of thousands of dollars a month, and we are thrilled to have them. We also eagerly bring on new subs onto the platform at a very low ARPU, because some of those agents will grow into the being the [whales] that send $10,000 or $50,000 a month later.

Hopefully, that's a helpful perspective. For me, it paints the picture of really how early-stage all this is, relative to what I look at as an endgame a couple years down the road, where eventually advertising dollars have caught up with the audience.

Great. Thanks Spencer.

Ron Josey of JMP.

Great, thanks for taking the question. Very nice quarter, guys. Two quickly please. First just on data, talking about zPro, I think you now have a thousand partners. It comes on the heels of a couple MLS partnerships as well, under Zillow partnerships. So are you getting to the point where you feel you have direct connect and direct access to most of the listings that are out there?

And the second question is just more along the lines of the Leju partnership, and I wonder if you can see others like that from other countries. Thank you.

Thanks, Ron. On data quality and industry relations more broadly, I feel like our industry relations are in a -- the best position they have ever been. Where we have very strong relationships with most every major broker, and most every major franchise or other key industry participants.

I think we've gotten a lot better at communicating our value proposition to MLS's and to brokerages than we had in the past. We have a terrific team with great leadership focused on this. I spend some of my time focused on it as well.

And in terms of how all of that impacts the product and the end-user, data quality is certainly a big part of it. So now, as you mentioned, we have over 1,000 brokerages participating in these zPro program, wherein the brokers send us a direct fee. And we have many MLS's that send us direct fees as well.

The last point in data quality that I would just make is, you have to remember that one of the key points of differentiation on Zillow is the fact that we are not solely focused on the listings and content that is available on every other website. We are also focused on unique proprietary content, which is not available on other websites.

For example, the 1 million foreclosure listings and pre-foreclosure listings that are only available for free on Zillow, and Zestimate Forecast, which are only on Zillow. And Zestimates, which are only on Zillow, and other alternative listing [tax] that's making [loove] listings. So when I think of data quality and how the end-user interacts with it, I focus not just on the commoditized listing information, but also on the propriety content.

The second part of your question was about international partnerships. What Rob was referring to, for those less familiar, was, we now have a partnership with one of the largest Chinese real estate sites, wherein Zillow will power their US listings inventory. Partnerships are an important part of Zillow's strategy. The fact is that there is a big world out there on the Internet, and its fragmented, in terms of different websites that people use.

And to think that a monolithic strategy of trying to get everybody just to use your website and forsaking partnerships, that to me is a very odd strategy. Partnerships like the one we have with AOL, where we power listings on AOL, are important. Or it's just like the Yahoo one, where we are powering listings on Yahoo, are important.

Our HDTV partnership is important. [there's no pilot fiscals on] front door, which is HDTV's website. Our partnership with Google and Android Now is important -- I'm sorry, Google Now and Android [devices] is important. [It's that are still] have these partnerships, including the Leju one in China, are important.

I don't know any other specific ones to announce just yet. But from a strategy standpoint, yes, we are certainly investing in the importance of partnerships.

Thank you.

Next question, operator?

Robert Peck of SunTrust.

Thank you so much for having me. Spencer, could you talk a little bit about the ROI for agents and the impact you're seeing from the co-marketing program with the mortgage lenders? Thanks so much.

Sure. Hi, Bob. There are probably a dozen benefits that premier agents have as part of the program, for our features and benefits. For example, premier agents can for free add their past [skies]. So what homes they have helped clients buy or sell. They can add those to their profile occasions on Zillow, and also get it uploaded onto the home detail pages as well.

They can use our CRM or they can for free connect Zillow to whatever [server] they use. They can have clients write reviews for -- on them, on Zillow. They can get a MLS-powered website for free from Zillow. And they can have, as you mentioned, lender co-marketing, where a mortgage lender pays part of their premier agent subscription fee, and on and on. There are lots of benefits that premier agents get.

We don't give specific take rates or talk to which of these features are more or less beneficial to individual premier agents, for competitive reasons. Taken as a whole, the value proposition to premier agents is quite clear, which is why this revenue line is growing so quickly. Just our premier agent revenue this quarter grew 76% year over year. Last quarter, it grew 68% year over year. And the quarter before that, it grew 65% year over year.

So we are actually accelerating our revenue growth rate for premier agent business, which, given the fact that the base is growing so quickly, is pretty shocking to me, actually, and exciting. So no specific answer on your lender co-marketing question, but clearly there's something -- there's a magic that we've hit upon which stems from our audience leadership, and is now flowing through to agent advertising adoption.

Just to turn to Twitter now. So Ron Josey [sup an arrow]@JMPInternet, he writes: please provide some updated metrics on Zillow rentals, specifically rental leads and number of properties on ZRentals.

Our rental metrics are about -- the rental metrics that we share are about audience size. So 14.5 million unique users shopping for rentals on Zillow. And then HotPads -- that does not include StreetEasy, which also has significant rentals audience, which I think of as slightly separately.

Other than to say we feel that we are ahead of schedule on monetization and ahead of the pace that we monetize other marketplaces like mortgages, for competitive reasons, Ron, we are not sharing the rentals revenue ramp or other rental-specific metrics.

And then, at JMP Internet and also on JoseyAsks: what was the growth rate of consumer leads to Asians? And here, too, you may get a dissatisfying non-answer, Ron. I apologize again.

We have competitors that are path-followers and so, on some of these things, we just -- we would sooner point people to our financial metrics and the points on the scoreboard, and let some of these more specific questions -- not provide insight on some of the more specific questions, like this one. Operator, are there other questions on the call?

Brian Nowak of SIG.

Thanks so much. I have a couple. The first one, very strong ARPU growth. And I think you mentioned 60% of new premier agent sales coming from existing agents. Spencer, just be curious to drill into that a little bit more, between macro drivers and micro drivers. How much of it is pricing growth driven by higher housing values? And are you going to be able to take up prices more, as opposed to micro drivers such as lead conversion improving or more leads?

And how should we think about ARPU into next year when housing pricing growth, to your point, flows from 6 down to 3? And I have one follow-up.

Yes, so Chad. I'm going to just take a first crack at it, and then I'll -- [I'm sure I will send it]. So certainly prices -- one of the drivers in terms of where of our ARPU is today -- and as Spencer mentioned, it is not a metric that we use to evaluate the health of the business. I would point you and orient you to the growth in our total premier agent revenues, which are up to 76%.

But I would say of that $286 with 10% growth -- and certainly, price is a part of it -- I don't think we have yet a very efficient way with keeping up with pricing growth across the platform for existing agents. Certainly new agents are paying new prices that reflect the new local market dynamics. But existing agents don't really -- we don't really have an efficient way to deploy that with existing agents.

But some of that came from price. I'd say a lot more of it certainly came from impressions. And we manage impression growth pretty carefully across the platform. We want to make sure that the impressions that we are delivering to our agents are of high quality. That's super-important to us. High quality meaning, there is good contact liquidity within those impressions over those page views.

To answer your question, some from price; probably more from impressions. And impressions that have a high-quality delivery.

Okay. And then the one follow-up I had was just on the slight deceleration in the net adds on the subs. Any specific drivers you can call out to that? And how should we think about the cadence of the net broker adds for the rest of the year? Thanks.

In terms of agent adds -- nearly 4,700 in the quarter -- that's more than we delivered in the fourth quarter, about 3,600. More than we delivered this time last year. We feel really good about agent adds.

As you know because of the same-store sales metric that we pointed to and the new bookings metric where 60% of our bookings are going to 15 agents, that drives a lot more of that inventory to existing, which doesn't improve your sub number. So I look at those two metrics in conjunction with one another to really think about the health of the business, and then more importantly, overall revenue numbers.

And as I mentioned before, we are continuing to add more impressions as a result of investing in our consumer platform on mobile and on the web. We are investing in audience, which drives more impressions as well. So we feel really good about our ability to not only grow ARPU over the long-term, but grow agent adds as well, through the rest of the year.

Let me take a couple from Twitter now. Jason Hawthorne [at JAHawthorne@] asks #theearnings: what's the best housing environment for Zillow? There's a little slowness creating easier [sell fish] to increase agents in spend.

This is a good question. So overall, a good housing market for Zillow is one where agents are making money. And we have had that environment for the last two to three years, where agents have been doing well, and then they're reinvesting in their business.

What housing downturn did was, it started to jumpstart people's migration from their ad spend from offline to online. You always see this when there's dislocation in a category. It accelerates trends that might otherwise take a lot longer.

That downturn from 2007 to 2009 certainly helped. Agents took their print spend down pretty dramatically, and then when they picked their head up out of the foxhole, as the real estate market started to turn, they started spending online because that's where the audience was.

We've had a lot of internal debate about what the right cadence of seasonality should be on new bookings. Because if you take this macro point that agents -- when they're feeling optimistic, they tend to buy more advertising -- take it down to a micro basis, or through the cadence of a year. You might think, well, in November and December, when they're not really earning commissions for January, they might be less likely to buy, because they don't have commission checks coming through.

We have seen a bit of a countervail to that, which is, a lot of agents do annual planning, where they sit down and write business plans and think about how to approach their marketing for the next year. And they do that annual planning during the slower time, when they have less work to do. And so that actually helps counterbalance a seasonal bookings decline when commissions are drier in that part of the year.

Mike Graham at [CGInternet] asks: Zillow made hires in the area of industry relations recently. Can you talk about goals as well as industry relations efforts?

Sure. We have several goals. The first is to, at a really high level, explain ourselves. And what that means is, teach those in the industry that we come in peace. And that Zillow is a media Company; we are not a brokerage, we are not an MLS. We do not compete with brokerages. We do not compete with MLS's. We sell ads, we don't sell houses.

And that's the number one goal of our industry relations efforts. It's just to explain what Zillow is, and what we are not. Because there's a lot of dis-information that is sewn by people in the industry, and misunderstandings. So that is goal number one.

Goal number two is certainly to try to find mutually beneficial ways for us to work with the industry which benefit our partners. Zillow Inc and Zillow users. And so for example, trying to explain to brokerages and MLS's why they benefit from having their listings on Zillow for free, on the largest real estate site on the Internet, is a key goal of our industry relations effort.

What are some of then other questions from Twitter? [BBoland1] asks: what's the breakdown between rental salespeople and agent salespeople? Is one expected to grow more than the others?

The rental sales thing is quite a bit smaller than the agent sales team. I won't give a breakdown in numbers, but surely on a percentage basis, the rental sales team will grow a lot faster than the agent sales team. Are there other questions, operator, from the conference call?

Neil Doshi of CRT Capital.

Great, thanks for taking my question. Spencer, how should we think about mobile monetization? Clearly right now, it's still early days and you are including mobile for premier agents. But at what point do you think it would make sense to monetize mobile for agents?

And then also on the display side, we have noticed display ads on the mobile app. Are there other better ways to monetize mobile other than putting display banners on mobile? Thanks.

Thanks, Neil. I will take the mobile one, and then you can chime in. So Neil, one of the beautiful things about the premier agent program is that we don't make our agents effectively choose between being a desktop agent or a mobile agent. We effectively have mobile monetization across the entire platform, not only for premier agents. Nearly two-thirds of our business are coming from mobile now.

But also for Zillow Mortgage Marketplace and across many mobile applications that we deliver to our consumers, we have professional presence on them. So we are not -- we don't have a separate SKU. But certainly, mobile monetization is weaved into all our SKUs that we provide to all the professionals that advertise on us.

And from a display perspective, many of our buys now are mobile buys, as well. They come packaged, and we're seeing very strong CPMs that are in line with our desktop CPMs from a mobile perspective.

Or a lot higher.

Or higher. I mean, we probably monetize mobile service better than -- I don't have data to support this, but my gut says that we monetize mobile on a per-visitor, per-[fee] basis better than most every other mobile service in the Internet sphere. Because even though we don't sell it as a separate SKU, because the use case is so clearly tied to the monetization occurrence, which is the lead. Which is when a mobile shopper is driving around looking at a house, he can click to call or click to e-mail the real estate agent.

And to the user, that's not an ad; that's a service that we provide. Their ability to choose which agent to contact based on agent reviews and then contact the agent in app.

The mobile migration has been a huge boon to our model. And as Chad said, we view it is a competitive advantage that we bundle -- that we sell jointly across desktop and mobile, rather than selling it as a separate SKU.

Is there another question operator from the public phone?

Aaron Kessler of Raymond James.

Hi, guys. Good quarter. Couple questions. First, Spenser, I think you mentioned $75 billion in commissions. Can you provide the math behind that? I was just double-checking some of my stats there.

And just on the profitability, can you give us a -- Chad -- profitability from selling to existing, versus new agents? I would imagine selling to existing would be a lot more profitable. Thank you.

Sure. So I will send you our spreadsheet on it -- on the commission TAM. But walking through verbally, the existing home sales in 2013 were about $5 million -- or $5.090 million. With the mean sale price of $245,000, that's $1.25 trillion in value, according to the NAR. And we will send you the spreadsheet so you can see it.

And then, new homes were $429,000, with a mean price of $325,000. So that's another $139 billion of census data. That's $1.4 trillion in value. And a 5.4% commission rate, which is from REAL Trends in 2012. That's the rate -- the commission percentage that we can find, that gets you to $75 billion in commissions. That's our flow-through, and we can -- Maria or RJ can send it to you if you'd like.

Chad, on the second part of the question?

Let me try to think through this. So I think both are highly profitable. And we do have nice contribution margins from sales to both new and existing.

I would say that existing agents who understand the value proposition don't -- we don't need to spend an excessive amount of time with them walking them through all the various benefits that they get from being a premier agent -- working with them to upload their path size, teaching them, and walking them through CRM, getting their reviews uploaded. And that hand-holding costs us probably a little more on new agents than existing agents, in terms of the education there.

An existing agent probably is slightly more profitable on the margin than a new agent. And also some of our investments that we're making in terms of sales and marketing are geared to attracting new agents. So I would say you would have to take that into consideration as well.

And just had a quick question on ad spend for the year. I think before you gave $65 million in guidance. Is that still ballpark, right at the right range to think about?

We provided some direction on the February call. It was $65 million, but we are not going to update that today.

Okay, great. Thank you.

Lloyd Walmsley of Deutsche Bank.

Thanks. Just wanted to dig in a little bit more on the agent-add number. Wondering if maybe some of the slowdown in year-over-year growth in net adds could have been just higher churn rates from the slower real estate market. Are you seeing any change at all in churn rates?

Our churn rates, I'd say have been improving over time. So I would just point you back to some of the metrics that we talked about before, which are that our bookings are going mostly to existing agents who want to buy more exposure in those zip codes that their advertising now, or new zip codes. That ticked up from the 50%-ish level percentile to 60%.

Same-store sales for agents that have been on a platform for a year, they are spending 50% more than they did before. And I think you're just growing into law of large numbers, where the denominator continues to increase. We are seeing certainly healthy contributions from new agents -- 4,700 almost, which is greater than we delivered in Q4 last quarter, and greater than this time last year.

Okay. Thanks, guys.

Sure.

James Cakmak of Telsey Group.

Hi, thanks. I just wanted to drill down on engagement levels. In the past, I think you provided lead growth versus visitor growth. Can you just talk a little bit about that so we can get a sense of the engagement levels and the trends there?

And then secondly on StreetEasy, it's great to see developments there. Can you just provide more color on what we can expect from that asset in the coming quarters? Thanks.

On lead growth, we are not sharing numbers right now on lead growth. We gave the uniques, we gave mobile visits of -- let's see, what was the mobile business percent now? One-third of the -- or per second 178, so 178 per second. So we have -- some people are backing them to a number of homes viewed, mobile homes viewed per second growth rate-type metric off of that number. But we are not sharing the lead number right now, for competitive reasons.

On StreetEasy, what the team is working on, I have been pretty open with folks on -- it's mobile, mobile, mobile. When we acquired StreetEasy in August, only about a third of StreetEasy's usage was mobile, and as you know, about two-thirds of Zillow's usage is mobile. And StreetEasy only has a native iPhone app. We don't have native iPad or Android or Android Tablet apps.

So StreetEasy is following the Zillow playbook, which is multi-mobile first. Focus on great e-mail, great PR, differentiated contact, et cetera. All of the things we have done on the Zillow side to zoom past competitors and audience, that is what StreetEasy is working on -- with a heavy emphasis on mobile. That's what 2014 is all about for the StreetEasy (technical difficulty).

Next question operator, please?

Dan Kurnos of Benchmark.

Great. Thanks for squeezing me in there. Just, Spencer, drilling down a bit more on the new hires. [Errol] was once one of your biggest detractors, and now he's on your team. Just curious how industry is receiving the switch.

And then on marketing, understanding that you won't break out the buckets. Are you seeing any pressure on cost due to elevated industry spend? Is it impacting RY at all, or causing you to shift those buckets? Thanks.

I have known Errol for a long time and have always had a ton of respect for him. He's a very high-integrity person, and he and I have always had a cordial relationship, based on mutual respect, even though we have been competitors. He is very highly regarded in the industry, and I'm excited to work with him and to learn from him how best to communicate our value proposition to the industry. And he's been great to work with so far. His move to Zillow has been well-received.

And also not -- I think people have a -- it's really was not that surprising, frankly. Because there is this halo, this sort of sense in the industry that this is where the consumer is flocking, this is where agents are flocking. And if you just look at our growth metrics relative to the competition, it only stands to reason that we are attracting great talent, in addition to a huge audience and a lot of advertisers.

I'm sorry. The other question was about -- can you just elaborate on it? It was an advertising question, but I don't remember the specifics.

Yes, basically, there is obviously elevated spend within the industry, and competitors are also playing some catch-up here. Just curious if there's any pressure on cost impacting ROI, et cetera. Thanks.

Yes, okay. We haven't seen any impact on our competitors' advertising moves on our -- on the efficacy of our advertising. None at all.

All right, great, thanks. And, excellent quarter.

Thank you. Is that it, RJ? All right. So we will take this party over to Twitter. You'll all have to come join the after-party over there. We will see you there on the hashtag [lee earnings]. If not, we will speak to you next quarter. Thank you.

Ladies and gentlemen on the phone lines, thank you for participating in today's conference. This does conclude today's program. You may now disconnect. Have a great day, everyone.