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Zillow (ZG +23%) is heading sharply higher after reporting Q3 results last night. Zillow reported its typical solid EPS beat. However, what really stood out was its 17.1% yr/yr revenue growth to $581 mln, nicely above prior guidance of $545-560 mln. This was Zillow's strongest top line growth since 1Q22. Adjusted EBITDA grew 19% yr/yr to $127 mln, well above the $95-110 mln prior guidance. Zillow also guided Q4 revs in-line. Of note, this was the first full quarter since Jeremy Wacksman became CEO.

• Residential segment revenue grew 12% yr/yr to $405 mln, nicely above $375-385 mln prior guidance. This was notable higher than Q2's +8% yr/yr growth. Its Premier Agent revenue benefited from continued conversion improvements as more buyers and sellers transacted with Zillow agent partners. ZG also had a strong quarter of growth in Zillow Showcase, its premium marketing package, which now represents nearly 1.5% of all new for-sale listings in the country. Also, its New Construction marketplace and software from ShowingTime+ and Follow Up Boss performed well. ZG said the combination of these factors led to better-than-expected results.
• Rentals revenue jumped 24% yr/yr to $123 mln, driven primarily by multifamily revenue, which grew 38%. ZG increased the number of multifamily properties on its apps and sites by 34%, reaching an all-time high of 47,000 properties, up quite a bit from 44,000 at the end of Q2. Zillow rolled out a national ad campaign for Rentals this summer (Q2-Q3) and it appears to have paid off as it noticeably expanded Zillow brand awareness for apartment seekers. With steady growth, ZG believes Zillow Rentals is well on its way toward becoming a $1+ bln revenue opportunity.
• Mortgages was another bright spot as revenue surged 63% yr/yr to $39 mln, with purchase loan origination volume growing 80%.
• Looking ahead to Q4, ZG expects total revenue of $525-540 mln and adjusted EBITDA of $90-105 mln. The company expects that the housing market will continue to bounce around at current levels, implying modest yr/yr growth in Q4. While there continues to be a pent-up desire to move, affordability remains a challenge. ZG says its Q4 outlook takes this into consideration.

Overall, Zillow performed well with a healthy EPS beat, but what really jumped off the page was the huge revenue growth. There was a noticeable yr/yr acceleration in all three operating segments relative to Q2. The company is best known for home sales, but branching into Rentals and Mortgages has been a smart move. Rentals growth was particularly impressive in Q3, and now makes up more than 20% of revs.

Doing sales and rentals makes sense, because when rates are high, more people rent and when rates decline, more people buy. So the two segments complement each other. On a final note, rates have increased in recent weeks, which may impact the spring selling season. That will be something to watch.