Online real estate marketplace Zillow (NASDAQ: ZG) beat Wall Street’s revenue expectations in Q2 CY2026, with sales up 17.9% year on year to $772 million. Its non-GAAP profit of $0.52 per share was 14.9% above analysts’ consensus estimates.

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StockStory’s Take

Zillow’s second quarter results for 2026 showed solid revenue growth, but the market reacted negatively, reflecting investor concerns over near-term profitability and business model transitions. Management pointed to continued audience expansion and strong adoption of new AI-driven features as drivers of the quarter’s performance. CEO Jeremy Wacksman noted, “Buyers spend months on this decision… the average buyer who ends up transacting with a preferred agent partner visits Zillow nearly 100 times.” Management also highlighted success in scaling Zillow Home Loans and multifamily rentals, with both segments contributing to revenue growth.

Looking ahead, Zillow’s guidance centers on accelerating its preferred agent partner model and deepening integration of mortgage and rental services. Management believes these moves will drive higher revenue per transaction and long-term profitability, but acknowledged that the transition creates short-term headwinds in revenue recognition and margin seasonality. COO and CFO Jeremy Hofmann stated, “We are accelerating to more than 75% of our connections in preferred by the end of 2026… we expect to accelerate to 35% more revenue per connection.” The company is also focused on cost discipline, including recent restructuring actions, as it navigates macroeconomic headwinds and invests in product innovation.

Key Insights from Management’s Remarks

Management attributed the quarter’s revenue growth to momentum in both the for-sale and rentals businesses, as well as increased adoption of integrated products and AI-driven features.

• AI Mode engagement: Zillow’s AI Mode, now live for about 20% of signed-in users, has driven deeper engagement and more data-rich interactions. Management noted that users of AI Mode spend three times as long on the platform and contact agents at nearly three times the rate compared to non-users, supporting improved transaction conversion rates.

• Preferred partner transition: The accelerated move to the preferred agent partner model has shifted revenue from traditional advertising to higher-value integrated transactions. Management cited a 23% increase in revenue per connection in 2025, with expectations for further gains as more agent connections convert to the preferred model, although this transition introduces timing and seasonality effects in reported revenue.

• Rentals and multifamily strength: Rentals revenue grew 31% year-over-year, driven by a 42% increase in multifamily revenue. Zillow’s position as the leading platform for multifamily property managers was reinforced by record inventory levels and continued upgrades to premium subscription packages.

• Zillow Home Loans profitability: The mortgage business achieved profitability on a per-loan basis, with management highlighting that the average Zillow Home Loans officer now originates twice the industry average in purchased loans. This segment’s integration with home search and agent tools has improved conversion and customer acquisition efficiency.

• Organizational restructuring: Zillow eliminated approximately 7% of its workforce and combined its COO and CFO roles to streamline decision-making and cost management. Management emphasized that these changes aim to increase operating efficiency without affecting growth initiatives.

Drivers of Future Performance

Zillow’s near-term outlook is shaped by the accelerated rollout of its integrated transaction model, cost discipline, and macroeconomic factors impacting home affordability.

• Accelerated preferred model: Management expects shifting more agent connections to the preferred model will drive higher revenue per transaction and long-term profitability, but noted that the transition will create temporary headwinds in both revenue recognition and seasonal patterns, especially as connections move from upfront advertising to back-end transaction fees.

• Rental market momentum: The rentals segment is forecast to continue expanding, supported by growing multifamily inventory, integration with third-party platforms, and Zillow’s investment in rental transaction infrastructure. Management believes this area has a clear path to surpassing $1 billion in annual revenue.

• Macroeconomic and affordability risks: Management acknowledged ongoing challenges from higher mortgage rates and declining purchase mortgage originations, which are expected to impact residential revenue and conversion rates in the second half of the year. Cost management initiatives are intended to offset some of these pressures and enable margin expansion as the business model shift matures.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely monitor (1) the pace and impact of the preferred agent partner transition on revenue and margins, (2) continued growth and monetization in the rentals and mortgage segments, and (3) the effectiveness of recent cost restructuring in driving margin expansion. We will also watch for adoption rates of new AI-driven consumer and agent products as a signpost for sustained engagement and platform differentiation.

Zillow currently trades at $34.12, down from $36.89 just before the earnings. Is there an opportunity in the stock? Find out in our full research report (it’s free).

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