RJ Jones – Vice President-Investor Relations Spencer Rascoff – Chief Executive Officer Kathleen Philips – Chief Financial Officer

Michael Graham – Canaccord Heath Terry – Goldman Sachs Mark Mahaney – RBC Kerry Rice – Needham Ron Josey – JMP Securities Jason Helfstein – Oppenheimer Mark May – Citi Lloyd Walmsley – Deutsche Bank Brian Novak – Morgan Stanley Nat Schindler – Bank of America Merrill Lynch Aaron Kessler – Raymond James Mark Mahaney – RBC George Askew – Stifel Shyam Patil – SIG

Thank you. Good afternoon, and welcome to Zillow Group's First Quarter 2017 Financial Results 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 cannot guarantee these results. We caution you to consider the risk factors described in our SEC filings, which could cause actual results to differ materially from those in the forward-looking statements made on this call.

The date of this call is May 4, 2017, 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 the call, we will discuss GAAP and non-GAAP measures. We encourage you to read our financial results press release, which can be found on our Investor Relations website, as it contains important information about our reported and non-GAAP 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, interest expense and income tax benefit. This call is being broadcast on the Internet and is available on the Investor Relations section of the Zillow Group website.

A copy of management's prepared remarks has been posted to the Quarterly Results section of our Investor Relations website. A recording of the call will be available later today.

We will open the call with prepared remarks followed by live Q&A. In addition to taking questions from those dialed into the call, we will answer questions asked via Sli.do.

We encourage you to visit www.slido.com where you may submit questions by entering the event code #ZEarnings. You may also vote on which submitted questions you want us to answer.

I will now turn the call over to Spencer.

Thank you for joining us on the call today. The first quarter of 2017 was a tremendous start to the year for Zillow Group.

Consumers and real estate agents alike continue to love our suite of innovative products designed to make the home shopping process easier for all parties. In the midst of executing our long-term growth plan, we are seeing broad-based strength in the fundamentals of our business, which resulted in better-than-expected revenue and EBITDA this quarter.

Looking at our performance highlights. Total revenue for the first quarter was approximately $246 million, up 32% year-over-year and exceeded the high end of our outlook range by approximately $9 million.

We saw a particular strength this quarter from our Premier Agent and Rentals marketplaces. First quarter GAAP net loss was approximately $4.6 million or 2% of revenue.

EBITDA for the first quarter was nearly $55 million or 22% of revenue and exceeded the high end of our outlook range by approximately $14 million due to a combination of revenue outperformance in all marketplaces and company-wide cost savings. Following on the strong first quarter results, we are raising our full year revenue outlook to a new range of $1.05 billion to $1.065 billion or 25% year-over-year growth at the midpoint of the guidance range.

We're also raising our full year EBITDA outlook to a range of $215 million to $230 million, increasing the full year margin guidance to 21% at the midpoint of the range. Moving now to an update on our strategic priorities.

Our first priority is to grow our audience size and to increase consumer engagement with our products. Traffic to Zillow Group brands' mobile apps and websites reached more than 166 million average monthly unique users in the first quarter, an increase of 7% year-over-year.

During March, an all-time high of nearly 180 million unique users came to Zillow Group's mobile apps and websites, up from our annual seasonal peak of 171 million last May. After unique users, the next level down on our funnel is visits, which we define as a session of interactions by a user with one of our apps or websites.

During Q1, visits increased 18% year-over-year to 1.5 billion compared with approximately 1.3 billion during the first quarter of 2016. Quarterly visits will replace agent advertiser count as a key metric going forward, and we believe it will help investors model our business.

The visits metric helps us evaluate our progress of increasing engagement with our audience. While the total number of unique users will always be important, internally, we are increasingly focused on engagement.

We know that users who visit frequently have a greater intent to buy, sell or rent a home, and transaction-ready visitors means more high-quality leads to our agent advertisers. At the bottom of the funnel, contacts sent to Premier Agents grew 30% year-over-year in Q1.

We continue to expect that growth in contacts sent to Premier Agent advertisers will outpace unique user growth as we stay focused on consumer engagement. Our audience growth derives from our continued product innovation and effectiveness in free marketing channels, which are amplified by our advertising.

Last month, we launched our latest TV campaign for the Zillow brand called Finding Home, which features stories that illustrate the diversity of homebuyers today and their unique and varied challenges. You can watch those ads at zillow.com/tv.

We've also launched a new national TV ad campaign for the Trulia brand, which can be viewed at Trulia.com/tv called The House is Only Half of It, which features Trulia's differentiated user experience and deep neighborhood insights. And if you live in or visit New York, you're probably going to notice the latest StreetEasy outdoor advertising campaign called Find Your Place.

Together, these campaigns are driving home shoppers and renters to our outstanding mobile and web products, which help them find and connect with Premier Agents. We continue to benefit tremendously from our advertising's effectiveness and the scale of our brand portfolio.

Earlier this week, we launched our newest consumer brand, RealEstate.com. Designed for the millennial home shopper, RealEstate.com will provide a different way for this segment to find a home and connect with an agent.

We know from our 2016 report on consumer housing trends, which can be downloaded at ZillowGroupReport.com, that millennials represent the largest home buying segment and make up about half of all first-time homebuyers. They often shop for homes using technology and are more likely to find their agent online.

Our next priority after audience is to grow our Premier Agent business, which exceeded revenue growth expectations in the first quarter, the first full quarter of auction-based pricing. Our Premier Agent advertising program attracts elite professional agents who can build their businesses on our platform, which uniquely combines advertising to consumers with business management tools and software.

These top performing agents know how to grow their business faster, convert leads at a higher rate and earn more commissions than others. The rollout of our new auction-based pricing platform went extremely well.

It was an incredibly complex process to transition all of our agents onto a new model, which included a vastly different user interface, account management system and payment infrastructure. All in, this was a massive effort which was accomplished magnificently by our products, engineering, sales and operations teams.

Through almost a year of testing, we learned a lot which resulted in several product iterations. With many of the initial hurdles behind us, we are already starting to see agents and teams accelerate their growth with us as they embrace the new platform.

Early indications show that healthy marketplace dynamics are beginning to take hold as our advertisers become more familiar with how impressions are priced in realtime across their markets. In our 20 most important markets, we saw significant increase in participation, which led to a 10% increase in revenue independent of traffic growth.

Many agents are also realizing the benefit of shifting some of their advertising spend to less competitive neighborhoods, where they have the opportunity to realize a higher ROI at a lower cost per impression. One way to think about this is that top performing agents are increasing their spend in high-demand markets to maintain their competitive advantage, while other entrepreneurial agents are jumping on the opportunity to grow their business and brand by budgeting ad spend to neighboring ZIP Codes where the cost per impression may be lower.

Ultimately, this results in more agents increasing their advertising spend with us over time. Meanwhile, usage of our Premier Agent app exceeded record levels for daily and monthly usage.

As more agents use our software to increase conversion, we believe they will buy more advertising. Now looking at our emerging marketplaces.

Revenue in our Mortgages marketplace exceeded our plans this quarter due in part to continued strength in purchase loan inquiries from increased awareness of our products. More home shoppers continue to discover and use our mortgage information products as our audience grows across our brand portfolio.

While interest rates were on the rise earlier this year, the increase has not been as sharp as anticipated, which has supported better-than-expected results. We continue to expect our Mortgages marketplace to grow faster than the industry and competitors due to our minimal reliance on refinancing activity.

Our Rentals marketplace continues to be strong with year-over-year revenue growth of more than 100%. During the quarter, we achieved all-time highs in usage, contacts, paying relationships and revenue.

Landlords and property managers continue to benefit from our highly effective suite of advertising products that connect them with the largest audience in the category. In our New York City marketplace, StreetEasy and Naked Apartments further expanded their presence and offerings to brokers in the country's most valuable real estate market.

This quarter marked the arrival of Premier Agent on StreetEasy, and already, we are seeing excellent traction with brokers seeking to build their businesses with homebuyers. This new experience that benefits consumers in New York is a dramatic shift from what was previously available.

Now consumers can find properties they're interested in touring as well as easily find an agent to represent them as a buyer. Many agents and brokers in New York have jumped at the opportunity to grow their business through StreetEasy's huge consumer platform.

The early sales have been very strong. Revenue from Premier Agent on StreetEasy is included in Premier Agent revenue.

Our New Construction marketplace, while still new, is in rapid growth mode for both revenue and advertisers. Leading homebuilders and developers across the country are quickly adopting our advertising products to promote their homes.

Moving on to our final priority, to maintain our strong company culture, which enables us to attract and retain incredible people and motivate them to do their best work. In addition to our audience scale and widely recognized brands, Zillow Group's culture of innovation enables the creation of consumer and business-facing products and services, which drives growth and unlocks long-term opportunities.

Our culture and our people continue to represent a significant competitive advantage. We are in the midst of reviewing the results of our annual employment engagement survey.

The results were great as they have been in previous years. 95% of our employees indicated that they would recommend working at Zillow Group to a friend.

This is significantly better than many other companies of our size. With a focus on engaging consumers at all stages of the home life cycle, our product teams launched several innovative features over the past few months that have had early success.

Our new personalized home recommendations are one example. These e-mail alerts make suggestions to home shoppers of listings that you may like based on past activity, similar to recommendations you might get from Amazon or Netflix.

In our Rentals marketplace, we launched a new feature where apartment seekers can request a tour or ask the landlord a question right from our app. Finally, we added a feature that encourages homeowners to provide missing information on their home to improve the accuracy of their Zestimate.

As I've said many times before, advertisers follow audience. This quarter's results showed once again that this is true.

Looking ahead at the market opportunities in front of us, advertising in residential real estate, including New York City, Rentals, New Construction and Mortgages, remains massive in the billions of dollars. We will continue to invest in our long-term growth, create definitive home-related online experiences for consumers, attract the largest audience in the category and provide real estate professionals with the most effective way to connect with consumers.

With that, I'll turn the call over to Kathleen.

Thank you, Spencer, and hello to everyone joining us on today's call. Let's dive into our financial results.

Total revenue for the first quarter increased 32% year-over-year to a record of $245.8 million from $186 million in the same period last year. Marketplace revenue, which accounts for 94% of total revenue, was $230.3 million for the first quarter, an increase of 36% year-over-year.

As a reminder, our Marketplace category includes Premier Agent, Other Real Estate and Mortgages revenue. Premier Agent revenue increased 30% year-over-year to $175.3 million in the first quarter.

Premier Agent revenue per visit increased approximately 10% year-over-year, which we attribute in part to our new auction-based pricing platform. As Spencer mentioned, we are introducing quarterly visits as our new key metric.

To help with your modeling, we have disclosed 2 years of historical visits data, along with an explanation of how we define the new metric in a filing today with the SEC. Top performing agents and teams continue to increase their spending with us as they realize the benefits of advertising on our platform.

For example, revenue from same-agent advertisers or those who have been on our platform for more than 1 year grew by more than 54% compared to the prior year. New sales to existing advertisers made up 63% of total bookings in the first quarter.

The number of Premier Agent accounts spending more than $5,000 per month grew by 98% year-over-year and increased 86% on a total dollar basis. One of the features of our platform that some Premier agents use is our co-marketing program.

Co-marketing between agents and lenders is a long-standing practice throughout the real estate and mortgage industry. For example, lenders and agents have jointly advertised through direct mail and outdoor advertising for decades.

Regulators historically have provided guidance to ensure that this type of advertising works to the benefit of consumers. Our digital co-marketing program enables Premier Agents and mortgage lenders with whom they have working relationships to advertise together on Zillow Group's apps and websites and is designed for consumers to have another way – easy way to connect with agents and lenders.

Over the past 2 years, the Consumer Financial Protection Bureau or CFPB has been reviewing our program for compliance with the Real Estate Settlement Procedures Act or RESPA, which is a regulation designed to protect the consumers. We believe wholeheartedly in the consumer protection mission of the CFPB.

In fact, we recently partnered with them to help the bureau survey consumers about their experiences while buying or selling homes. Zillow Group was founded and operates on a philosophy that the consumer comes first in all of our decisions.

We also believe that RESPA is an important law designed to protect consumers and among other things, promote transparency in the home buying process. Consistent with this, our mortgage product empowers consumers to easily comparison shop, and through our PR, media interviews and our own blog, we've repeatedly encouraged consumers to shop around when looking for a mortgage.

Recently, the CFPB requested additional information and documents from us as part of their evaluation, which we're working with them on. We believe our co-marketing program has and continues to allow agents and lenders to comply with the law while using our product.

Getting back to our financial results for the quarter. In our Other Real Estate marketplace, first quarter revenue grew 93% year-over-year to $34.8 million.

Other Real Estate revenue primarily includes Zillow Group Rentals, agent services, dotloop, Naked Apartments and other offerings to our endemic advertisers that are not traditional display advertising, including New Construction. In our Mortgages marketplace, revenue reached $20.3 million in the first quarter, which represents a 23% increase year-over-year.

Average revenue per loan information request increased 98% year-over-year. In our Display category, revenue was $15.4 million, a decrease of approximately 9% over the same period last year and within our expectations.

Shifting now from revenue to our expenses. Total operating expenses were $244.6 million in the first quarter.

Our cost of revenue during the quarter was $20.2 million or 8% of revenue. Sales and marketing expense was $105.9 million or 43% of revenue.

As we noted on the last call, for 2017, we are choosing to increase advertising investments at a rate that is lower than revenue growth. In line with the typical seasonality of the real estate industry, our advertising spend will be greatest in the second quarter, accounting for more than 1/3 of our annual advertising budget with the fourth quarter being the lightest.

Accordingly, we expect these seasonal investments to impact quarterly EBITDA proportionally throughout the year. Technology and development costs in the first quarter were $72.9 million or 30% of revenue.

General and administrative costs in the first quarter were $45.5 million or 18% of revenue and lower than we had planned. Moving on to our bottom line.

GAAP net loss for the first quarter was $4.6 million or 2% of revenue. Zillow ended the quarter with nearly 3,000 employees and approximately $560 million in cash and investments.

For detailed second quarter and full year 2017 guidance, I encourage you to review our press release that was issued this afternoon and is available on our Investor Relations website. To conclude, we are off to a strong start for the year.

After just 1 quarter with our new auction-based pricing model fully rolled out to all Premier Agents and all of our marketplaces performing well, we are optimistic about Zillow Group's prospects for growth in 2017 and beyond. With that, we will now open up the call for questions.

Hi, thanks a lot and congrats on the performance. I just wanted to ask a little more detail about the auction platform.

You said it's rolled out to everyone so far. Do you – can you just talk a little bit about the sort of length of the typical campaign that's purchased?

Is it measured in days or weeks? Or I know it's based on impressions.

And then just can you give us a little more color about how you think the impact might roll out as we get into the more seasonally strong sort of Q2 to Q3 time frames when agents are a little more active? Do you expect that to have a big impact?

Or did you bake any of that into your guidance? Just a little more color there.

Sure. Thanks, Michael.

I mean, we only have a couple – 12, a little more than that, I guess, maybe 16 or so weeks of data so far, but everything that we know about how this pricing model works is, of course, baked into our full year guidance. In terms of the length of time of the campaigns, they're really ongoing.

So what happens is an agent puts in a particular dollar amount into the ZIP. Let's say they want to spend $300 in the ZIP, and that buys them a particular number of impressions.

Then, if other budget comes into the ZIP, then effectively that agent gets diluted somewhat in terms of their market share in the ZIP. So it's not for a fixed period of time.

Typically, it's just on an ongoing basis.

Great. Just to follow up on the variable pricing model that you're – that you've been rolling out.

The – can you give us any sense as to your view on sort of how this is going to affect seasonality in the business? How much of the pricing, of the 10% pricing increase that you talked about in the comments would you say was due to this variable model or auction model that are recognizing the higher demand during the summer season versus just sort of better pricing overall in the model?

We have a little bit of data on seasonality from the test markets that we had rolled out earlier in 2016, and so we saw how they performed in Q3 – Q4 rather with respect to seasonality. There was less seasonality than we expected, but there were still some.

I think Q4 2017 seasonality will really depend, in large part, on how good a job our sales team does in communicating to Premier Agents that if others – if other Premier Agents lower their budget in a given ZIP Code, then a Premier Agent would benefit by increasing their spend to pick up more leads at a lower cost per lead and refill their backlog going into Q1. So it's a pretty easy conversation to have now that the pricing is totally transparent and the tool is out there for advertisers to see.

But in terms of Q4 2017, it's hard to know how much seasonality we'll see because we haven't had the full cycle of that type of advertiser education.

Okay, thanks. Maybe 2 questions, please.

On the StreetEasy, the applying the Premier Agent model to StreetEasy. Could you just talk about to what extent you've already seen the impact?

Is that something that builds up through the course of the year? Any way you could help us think through the build cycle on that.

And then, I guess, on your comments on the CFPB process, do you have a sense of when you'll get visibility into whether this is a nonissue or where it becomes an issue? Do you have a belief that you'll get some determination on this within the next 3 months?

Or could this take a year or longer?

Sure. Thanks, Mark.

Yes, Kathleen will take the CFPB question, and then I'll take the New York Premier Agent question.

Great. Thank you, Mark.

We really don't have a sense of how long this will take to resolve. As we indicated in the script, we've recently gotten some additional requests for information that we're working with CFPB on.

So I don't have a sense of how long it will take them to digest that information and then what the next steps would be in terms of discussions with them or guidance.

On Premier Agent New York, it'll build. So what happened when we launched Premier Agent on StreetEasy was Zillow Group advertisers that were buying impressions through Zillow Group, i.e.

on Zillow and Trulia, all of a sudden started getting many, many, many more leads. This flood of leads for the same spend was the overnight impact.

And so if you were a Premier Agent advertiser in New York, your cost per lead dropped precipitously to the advertiser's benefit when StreetEasy was added to the program. And now we call Premier Agents and other agents and brokers in New York City, and we try to get them to buy impressions.

And that has the effect over time of increasing the cost per impression or cost per lead, and so that will build. The early sales have been excellent, but let's just say the cost per impression and cost per lead in New York is still artificially low.

It's a great time to be a Premier Agent advertiser in New York on Zillow Group because StreetEasy has added significant lead volume. And so it will build over time as more advertising budget moves into those ZIP Codes.

Operator, next question please.

Thanks a lot. Going back to the auction-based pricing model, I wonder if you could give maybe a little bit more granular detail in maybe the behavior of the agents as that was rolled out.

Was it that they came back more frequently? Maybe they didn't sign up or purchase as many impressions in – at one time but maybe came back more frequently, or maybe they said, hey, we really want to dominate a certain ZIP Code, so they offered a much higher price per impression than what they had paid in the past.

Any more granularity there?

Yes, Kerry, I can try. One of the impacts of market-based pricing is that it's harder for a hobbyist, a part-time agent or a hobby agent to succeed with the Zillow Group, which is good because we want to continue to up level the amount of professionalism among Premier Agents to provide better service to consumers.

So initially, you see lower-spending agents kind of reducing spend or even leaving the program, which, again, is good for us because that frees up impressions for others. When – then you see higher-spending agents start to experiment on buying different ZIP Codes around a city, and we start to see ROIs kind of – sort of water finding its own level from ZIP Code to ZIP Code, and that's what we tried to describe in the script where you have high-ROI ZIPs attracting budget; lower-ROI ZIPs losing budget and clusters of ZIP Codes finding equilibrium.

And then we start to see the more professional agents that do more online marketing, either team leads or other just high-spending agents, increase spend to grow their business more fully. And it becomes a situation where the agents with the best lead conversion can buy the most impressions and still have the most success because they do a better job of converting leads.

And that, of course, is much better for the consumer. And this – the important thing to understand strategically is how this market-based pricing model ties to our software tool strategy.

We want great agents that convert leads into transactions, we want them to succeed. And so our software tool strategy complements our pricing model change, and the 2 are working really well in concert with each other.

I think I'll go to Sli.do now for the next couple questions. This is a bit of an experiment, so we'll get feedback from you afterwards on it if this was a good way to take Q&A during the call.

So one question was when will Zillow be the Tinder of real estate. I'm not quite sure how to address that one.

I guess, if the question remains innovative and a verb and a category leader in an important vertical, I guess, we already are the Tinder of real estate. Second question.

Can you give us a bit – the second question is about co-marketing and CFPB. I think Kathleen answered that in Q&A and in the script.

Third question, can you talk about how auction density trended through Q1 into April? Should pricing steadily grind higher or move up more sharply?

How is agent ROI impacted? I tried to give color to that.

Let me try to elaborate just a little bit more fully. Agent ROI is a very agent advertiser-specific thing.

It depends on their own lead conversion. So you can have 2 agents paying the same CPM with very different ROI.

And furthermore, you have to evaluate not just the lead conversion, but you have to evaluate the economic model of that advertiser. You have some agents, for example, that are buying leads for themselves, and they keep the whole commission.

You have other agents that are buying leads on behalf of team members, and they keep a portion of the commission. And then every agent has a different split with their broker.

So the actual ROI economics are very opaque and agent specific. But the beautiful thing about the market-based pricing model is all of that equalizes in – comes out in the wash in terms of the CPM.

So the CPM is free floating and real-time and up to each individual agent advertiser. I think there's a Sli.do question about our multi-brand strategy and TV advertising for Trulia, the launch of RealEstate.com and why we have multiple brands rather than just focusing on the Zillow brand.

The answer is that we believe in this category, which is such a considered purchase, consumers will always go to multiple sites. This is a category where the decision is just too important for any serious home shopper or renter to simply seek information from one website or mobile app.

And so we want to have multiple brands that give the consumer a choice, and the different brands all draw from the same ingredients that Zillow Group provides. These are listings, data, advertising units, and yet they each present a different interface and brand positioning and feature set to consumers.

In the case of RealEstate.com, that feature set is focused mostly on millennials and first-time homebuyers, which we think is a very underserved category of homebuyers. I'm also excited about it being in Spanish and Mandarin.

It's the first time that Zillow Group has had a non-English-language product, and it's exciting to see. And the ad campaigns across Trulia, Zillow and StreetEasy just help grow brand awareness for each of these brands, and the early results are positive.

And it's exciting to have those 3 different campaigns in the market. I think we'll go back to the call, RJ?

Okay. So next question, operator, please from the call.

Great, thanks for taking the question. One quick follow-up on just the Marketplace question, Spencer.

Just wondering if adoption of self-service across ZIP Codes differs for agents spending $5,000 or more versus those that are just ramping spend and getting out there. And then on Kathleen – for Kathleen in terms of EBITDA guidance.

I was looking at all the costs this quarter. I saw – I was surprised to see so much leverage across almost every line item but particularly R&D and sales and marketing.

So while guidance goes up for 2017 for EBITDA, I'm assuming it assumes investments ramps throughout the year. But did you delay any hiring in 1Q?

Or anything in 1Q that led to the better overall sort of leverage that you showed in the year? And then I'll stop there.

Thanks, Ron. On market-based pricing, I think the focus of your question is sort of are you seeing high-spending agents benefit more from the new pricing model and increase their budgets more than low-spending agents.

Is that – am I getting the gist of your question right?

Yes, and – exactly right, yes.

Okay. The answer is yes.

It is – like much – consistent with our strategy for the last couple of years of trying to focus on higher-spending agents who do a better job of lead conversion, the pricing model of market-based pricing does benefit those serious agents that spend more on online marketing. And so yes, we definitely see that in the data.

Kathleen?

Great. Ron, there isn't anything specific to point to in terms of Q1.

We recognized efficiency pretty much across all of our cost centers. There weren't any hiring delays or unexpected single items like that or purposeful single items like that.

It really was just efficiency across everything. For Q2 and the rest of the year, I'll just reinforce what I said in the script, which is the advertising spend will be heaviest in Q2 as it has been in past years with Q3 then looking a lot more like Q1 and then Q4 being the lightest, if that's helpful.

I'll take one from Sli.do about the strategy for RealEstate.com and do we expect it to have different revenue streams beyond PA? For the time being, RealEstate.com's only monetization model – or primary monetization model is Premier Agent, so you'll see the buyer agent list that appears on RealEstate.com same as it does on Zillow and Trulia.

And a Premier Agent that buys impressions in a given ZIP Code from Zillow Group will automatically have those impressions shown on RealEstate.com. So there are no display ads on RealEstate.com.

It will monetize like Zillow and Trulia through Premier Agent. Let's see.

Next question also from Sli.do says, can you disclose more on the magnitude of rental revenue and other revenue sources inside Other Real Estate revenue? And what's driving growth, acquisition impact?

Sure. So rental continues to grow quickly.

We have a product team that is really focused on consumer innovation, and that is paying dividends. We are realizing the fruits of a few years of building up a great portfolio of our paid inclusion customers.

So that is scaling and growing, and we're seeing some really nice results there. The other contributors there, New Construction continues to grow.

We're continuing to iterate on that product, and we're finding that consumers really, really love being able to shop for new construction in a way that had never been available to them before. The – those are significant contributors in the Other Real Estate revenue line.

In terms of acquisition, of course, we have contributions from our other acquired companies there, but Rentals and New Construction are really where you should be looking.

There's another question from Sli.do about RealEstate.com being in Mandarin. Is that a sign of bigger things to come with China?

We've done some Mandarin initiatives, Chinese initiatives on the Zillow brand where we've done partnerships with a variety of sites in China and have driven Chinese homebuyers to Mandarin-speaking Premier Agents. We continue to do those.

Those are in the marketplace right now. But for the time being, RealEstate.com is the only Mandarin language site.

It's obviously a significant portion of homebuyers that – especially on the West Coast, and I'm excited to have something to direct them to in the RealEstate.com brand for the time being. Operator, next question, please.

Thanks. Just wanted to dig in.

When you think about the same agent growth of 54%, so this revenue from same agent, relative to platform growth of 30%, I mean, what does that imply for, I guess, the rest, the churn? And obviously, you're selling more to those high profile.

But how should we think about that?

It's by design. We are – and this has been consistent for a couple of years now.

You have – you see it in the advertiser count numbers over the last number of years, where we reached a point where we felt we had too many Premier Agents and we very deliberately started reducing the number of Premier Agents and reallocating those low-spending agents' impressions to higher-spending agents'. If you, in December, at the time of the switch to market-based pricing, if you were a Premier Agent spending $100, $200 a month, you probably were not the right type of advertiser for that program because if you had been on it for a while and you had been having success, you probably would have bought more impressions by that point.

And so it's very strategic. It's very deliberate.

And we think that the $10 billion of advertising spend and the $80 billion of commissions is increasingly going to be collected and spent by top-performing agents, not hobbyists. So that's who we're focused on.

And then just to follow-up with that cohort or that bucket, what do you think your updated share of spend is with that group?

I wish I knew something like that. I mean, I guess, what we see with higher-spending agents – what we think we see with all spending agents, but if you want to focus for a moment on the agent spending more than a couple thousand dollars a month, is we are not stealing share from some other place that they're advertising.

I mean, if you surveyed Premier Agent spending $5,000 a month, I would be shocked if you found that they used to be spending $5,000 month on something else and now they're spending it with us. Instead, they're building up their business on Premier Agent, on Zillow Group's lead generation.

So they're achieving a positive ROI, so they keep spending more and more and more. It's not that we're selling share from anything.

So it's probably a pretty significant share of their total lead generation spend, but it is also continuing to grow because they have a positive ROI.

Okay, thank you.

Operator, next question please.

Thanks for taking my questions. I appreciate it.

One, a little bit of a housekeeping. I – can you help define what the contacts metric that you give, kind of how – what's in there?

And what has been driving contact growth that is greater than traffic growth? Kind of what is happening to result in that?

And how, I guess, sustainable is that kind of contacts growing faster than traffic? And then follow-up on an earlier question about the CFPB commentary.

Can you give us a sense of roughly the amount of business today that is done through these co-marketing type arrangements? And have you seen any changes in behavior by agents or lenders kind of proactively now kind of pulling back or changing their behavior just given the lack of clarity by the CFPB around their guidelines?

Thanks, Mark. I'll take the contact growth question, and then Kathleen will take the second one.

We define a contact as an e-mail or phone call that a consumer sends to an agent, a Premier Agent, either to contact about a home that's for sale or not for sale. So it's a lead sent to a Premier Agent essentially by e-mail or phone across any of our brands.

What's driving that metric faster than traffic growth? Many, many things.

Let's see, where to start? A higher level of engagement among our existing users through product development, so things that we do on the site to increase their engagement, whether it be showing them more relevant, similar listings or thousands of different A/B tests that we're doing everyday to drive more qualified contacts per visit.

Another thing that's driving increased lead volume is improvements in listings quality, where we have more and more broker/analyst fees, we have more accurate listings, and that's driving more qualified home shoppers contacting agents. Our advertising is driving people to think of us and think of our brands as a place to shop for a home.

That's driving more qualified visits. I mean, I could go on: e-mail, SEO.

Many, many things drive lead volume growth. It's literally a significant portion of the company focused on driving that metric.

And it sounds like that, that's a trend that you expect will continue.

I do, yes. Yes, we ought to – it ought to continue.

Although I will say that you have to remember, the reason that we are using visits, not leads as a key metric is we do things sometimes that have the impact of reducing lead volume but increasing lead quality or inversely have the impact of increasing lead volume and reducing lead quality. So that's why we don't – we're not going to report it as a key metric that investors get overly focused on.

We think visits is a better metric than – as a key SEC metric than leads. So it's obviously something we track really closely, but it's also something that goes – that the rate of growth is variable depending upon what we decide to do on the product.

Kathleen, on the second question.

Sure thing. Mark, on the CFPB, we don't break out the amount of the revenue that comes from co-marketing efforts, but we have said and it continues to be the case that it's a small portion of overall revenue.

In terms of changes in behavior, we haven't observed anything specific. But I can tell you that real estate agents and lenders are pretty keenly aware of the restrictions that are placed upon their co-marketing efforts through RESPA and other regulatory regimes.

So they are intent on complying and pay close attention to their own behavior, monitoring themselves. We think the way that we have put this product together enables agents and lenders to participate in full compliance with the law.

Operator next question please.

Thanks. Can you talk about the uptake of the Seller Boost ad product?

And are there markets completely sold out of your initial go-to-market strategy yet? And how should we think about that product evolving over time on the advertising side?

And if you could maybe touch on how user engagement is going on the homeowner side to ultimately drive more potential seller contacts.

Sure. Thanks, Lloyd.

So generating seller leads is a huge opportunity. Sell-side commissions are half of the $80 billion commission TAM.

Sell-side advertising or sell-side commissions is probably $5 billion to $6 billion a year, probably half of the real estate advertising TAM. So generating seller leads is big business.

There are some markets where we've chosen to not sell any new Seller Boost memberships because we want to make sure that we send enough seller leads to our current advertisers so that they have a good experience with the product. So that – lots of interest in the product.

Lots of feedback from agents, and it sold well and definitely a big opportunity that we just started working on in Q4 when we launched Seller Boost. Next question please, operator.

Thanks for taking my questions. I have 2.

Just going back to the CFPB, Kathleen, I think you just mentioned it's a small percentage of overall revenue. But is that also true that the amount that has the mortgage support is also a small percentage of Premier Agent revenue?

Just so we can kind of better understand the exposure to the 10-Q disclosure. And then, I guess, you guys have worked through issues with the CFPB in the past.

Just talk through how you worked through that in the past. And any potential differences that we should be aware of this time?

Sure. So yes, to answer your first question, it is also a small portion of PA revenue.

And keep in mind that the way that the co-marketing works is it is true co-marketing in that the lender only finances a portion of the spend for each agent. In terms of the CFPB, yes, we have a long, very positive history with the CFPB.

We've partnered with them on a number of initiatives, including, as I noted in my remarks, some data-related initiatives. As far as us working with them on issues like this, this has been the only conversation of this kind that we have had with the CFPB, though we consider them in other aspects of our business, particularly around our data PR and consumer insights to be a positive and fruitful partner.

Next question please, operator.

Actually, I think I'm okay. I think you just went through about every different way on the RESPA issue that I wanted to talk about.

Thank you, Nat.

Well, thank you.

Next question, please.

Yes. I guess, as a follow-up question to Nat – actually not.

On the – was going to ask, you mentioned 10% increase on pricing, thus far, from dynamic pricing. How much of the outcome was recognized in the quarter?

And how do you expect that to flow throughout the year?

So I think – correct me if I'm wrong, Kathleen. I think the way – the best way to think about it is that was a kind of a CPM increase in those cities that we studied, and so to the extent that it is MRR, it – or multiple recurring revenue, it flows through.

But of course, it's a real-time auction, so could increase or decrease over time. RJ, you want to add anything to that?

Yes. It was just measured from the end of Q1 to the end of Q4, so it was gradual lifts over the quarter.

Got it. And it's pretty much fully implemented at this point?

Well, if you remember, we kind of – we didn't do anything, right? I mean – well, that understates it I suppose.

It's an auction. So what we're saying is that the CPM in those areas that we referenced was 10% higher at the end of Q1 than it was at the beginning of Q1.

Makes sense?

Yes, yes, that's right. So just to reiterate on that, we can't predict what will happen, although given the experience we've had with the auctions through testing and learning, the auction dynamics really take hold over time.

So we do expect to have continued benefits from the auction dynamics, but it's hard for us to predict how that 10% will compare to what might happen between the beginning of Q2 and the end of Q2.

Got it. Great, that’s helpful.

Thank you.

Thank you. Operator, next question please.

Okay, great. Could you just step back a little bit and remind us again or explain the advertising spend this year?

And are there any material changes in your ad spend plans this year versus last year, either by channel, type of spend, et cetera? I know you talked about the seasonality of it but the mix of it would be – any detail on that would be helpful.

Sure thing. So what we're forecasting for 2017 is that ad spend will grow as compared to 2016, which we reported about $120 million in ad spend for 2016.

In terms of mix, Spencer went through the detail that we are now active with 3 campaigns. We did not have an active Trulia ad campaign last year, so that's new.

We, of course, were advertising Zillow and StreetEasy, but we now have added Trulia into that mix. And I – we went through before the seasonality of it, which I think you were clear on.

Thanks, Mark.

Okay, great.

Thank you, Mark. Next question.

Super, thank you. Congratulations on strong quarter.

Concurrent with the rollout of the new RealEstate.com site this week, you tweaked the name zillow.com website, added check boxes next to the Premier Agents on the property profile pages. The user has the ability to check one or more Premier Agents, it looks like, and it appears that it sends, I guess, the same lead or contact to multiple agents.

Is this the case? And if so, that would increase lead or contact volumes but hurt conversion rates I would think.

Can you just kind of help us understand the strategy and impact of this change, please?

Sure. Thanks, George.

Yes, we're constantly testing different things. The description that you just had of a buyer agent list might differ a bit from moment to moment on your screen versus my screen.

But it is a perfect example of why, a moment ago, I described leads as a metric that we're not keen on being a key metric and why we think visits is a better one because we're always testing differences like that. Next question please, operator.

Hey, good. Thank you.

Some of the data in the industry suggested that about 30% of your agents are getting about 20%, 25% of their spend financed through the co-marketing or from lenders. Kathleen, is that in the ballpark?

Or is that wildly off? And then, Spencer, with the new market-based pricing model, how much room do you see for CPLs to move higher from here?

Great. So on that data, I'm not sure where that data is coming from.

What we've said is it's a small portion of overall revenue and I said earlier, of PA revenue. Beyond that, we're not disclosing anything.

On market-based pricing, it all – this question hinges on ROI, right? So we have a visit.

Some portion – some number of visits generate leads. Some portion of those leads convert, and then, again, you have to think about the economics of who bought that lead, was it – What was the split between that agent and whatever brokers they work at?

Were they the ones that converted a lead or did the lead get passed on to somebody else that's been paying a referral fee to the person that bought the lead, whether it's a team member or some other agent? And so we're – by moving to this new Premier Agent pricing model, we're trying to get out of the business.

We are out of the business now of pricing impressions. We leave it to the marketplace.

And now if we can simply do a great job of improving lead conversion and growing visits, then we think we can influence more transactions and earn more Premier Agent revenue. So just to remind you, we think we influence around 5% of all transactions in the U.S.

There are around $1.4 trillion worth of total residential real estate transactions, about $80 billion of commissions, and we influence about 5% of that today. So we think there's a lot of opportunity ahead, and we think the new pricing model makes for a much more flexible pricing schema that takes it out of our hands and puts it into the marketplace's hands.

I think we have maybe one more question. One more question please operator.

Just one quick. When you think about the investment you guys are making on the software side that shows up effectively in Other Real Estate, do you see – did you see that more – or, in general, all your investments in SaaS, do you see that through subscription over time or most of that will get monetized through effectively the leads as an advertising model?

Yes. Good question, Jason.

Most of it gets monetized through Premier Agent as more impressions. The way that we think about it is our investment in software tools is akin to Google's investment in Google Analytics.

Google mostly gives away Google Analytics for free to advertisers. They also have a little bit of revenue for some of their enterprise customers, but effectively, it's a free analytic package.

And they do that for the purpose of selling more AdWords. They believe that if – once people that run websites can track what's happening on the websites, they'll want to send more traffic to the websites and they'll buy more AdWords.

And that is essentially our software tool strategy as well. So the answer is you'll see it in Premier Agent advertising more so than SaaS enterprise revenue.

I think, with that, we'll wrap. Thank you all for the call today, and we'll speak to you again in August.

Thanks a lot.

Thank you, everyone.