Zillow Group (ZG) Financials

Zillow Group's recent financial results for Q1 2025 show some promising improvements compared to the previous quarters and years, although challenges remain when looking at the broader historical context.

Key positive trends and metrics:

• Zillow reported a net income from continuing operations of $8 million in Q1 2025, marking an improvement from losses in recent quarters (e.g., -$52 million in Q4 2024 and -$20 million in Q3 2024), suggesting a move towards profitability.
• Total revenue increased slightly to $615 million in Q1 2025 from $572 million in Q4 2024, driven by strong non-interest income of $620 million, indicating resiliency in core business activities.
• Operating cash flow remains strong at $104 million in Q1 2025, supporting operational stability and liquidity needs.
• Significant depreciation and amortization expenses ($65 million and $8 million respectively) indicate ongoing investments in long-term assets and intellectual property.
• Total assets remain substantial at around $5.75 billion (Q1 2025), providing a strong asset base for leveraging growth opportunities.
• The company's common equity increased to approximately $4.75 billion, reflecting improved shareholder value compared to prior periods.

Neutral observations:

• Interest expenses remain a consistent cost (~$5 million in Q1 2025), with no interest income reported, reflecting ongoing debt servicing costs.
• Marketing expenses remain a large part of operating expenses at $347 million, consistent with past quarters; while necessary for customer acquisition, they are a significant cash outflow.
• The company continues to engage in repurchase of common equity ($250 million in Q1 2025), which could return value to shareholders but also impacts cash reserves.
• Non-cash adjustments to reconcile net income are high (around $84 million in Q1 2025), typical for tech and platform companies with stock-based compensation and other accounting items.

Areas of concern and negative trends:

• Despite Q1 2025’s net income, Zillow has historically posted losses over several quarters and years, with significant negative net incomes of tens of millions in many recent quarters (e.g., as high as -$73 million in Q4 2023 and -$72 million in Q4 2022), pointing to ongoing profitability challenges.
• Total non-interest expenses remain very elevated, around $607 million in Q1 2025, nearly matching total revenue, which pressures profit margins.
• The company’s balance sheet shows a negative retained earnings position (-$1.87 billion in Q1 2025), indicating cumulative losses over time that have eroded equity.
• Net cash outflows from financing activities remain substantial, with $219 million used in Q1 2025 mainly due to equity repurchases and limited debt issuance, potentially straining liquidity.
• The ongoing interest expense related to long-term debt (~$5-$10 million quarterly) highlights the cost of leverage which impacts net income.

Summary:

Zillow Group has shown signs of financial stabilization with a return to positive net income in Q1 2025 and consistent revenue growth. Strong operating cash flow and a large asset base support ongoing operations and potential investments. However, the company faces challenges with high operating costs, historical accumulated losses, and cash outflows from equity repurchases.

Investors should weigh the recent improvement in profitability against Zillow's longer-term pattern of losses and the risk that high expenses could limit sustainable profit growth. Monitoring future quarters for sustained earnings and expense control will be key to assessing Zillow's financial health trajectory.