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Zillow (ZG -12%) is trading sharply lower despite the online real estate platform delivering significant Q2 upside on both earnings and revenue. Adjusted EBITDA increased 13.5% yr/yr to $176 mln, well above the company's prior guidance of $150-165 mln. However, investors focused on weaker forward guidance, as Zillow forecast Q3 revenue below expectations and lowered its FY26 revenue outlook amid continued housing affordability pressures and a softer mortgage environment.

• For Sale momentum: For Sale segment revenue increased 14% yr/yr to $549 mln, slightly ahead of prior guidance of +12%. Zillow continues to focus on creating a more connected real estate transaction experience across search, touring, financing, and agent collaboration, with the goal of reducing friction for buyers, sellers, and industry participants.
• Residential growth: Residential revenue rose 7% yr/yr to $465 mln, driven primarily by growth in Zillow Preferred as the company expanded connections through its integrated experience. Zillow Showcase, New Construction, and agent software tools also contributed to growth.
• Mortgage strength: Mortgages revenue surged 75% yr/yr to $84 mln, significantly ahead of prior guidance of +56%. Growth was driven by a 95% increase in purchase loan origination volume to $2.2 bln, although Zillow expects mortgage market conditions to remain challenging as affordability pressures weigh on buyers.
• Rentals expansion: Rentals revenue increased 31% yr/yr to $209 mln, driven primarily by 42% growth in multifamily revenue. Results were generally in line with Zillow's prior expectations for approximately 30% segment growth.
• Engagement concerns: Zillow's traffic metrics showed some softness, with average monthly unique users across its mobile apps and websites declining 2% yr/yr to 239 mln and total visits falling 2% to 2.5 bln. While Zillow continued to outperform broader category trends, the engagement slowdown added to concerns around the housing market outlook.
• Guidance pressure: Zillow expects Q3 revenue of $740-765 mln, below analyst expectations. For Sale segment revenue growth is expected at +5-7%, including a 200-300 bps headwind from differences in revenue recognition timing related to Zillow Home Loans and the lifetime value of customer connections. Residential revenue is expected to be flat, while Mortgage revenue is expected to grow more than 50% yr/yr.

Briefing.com Analyst Insight

Zillow delivered a strong Q2 operationally, with better-than-expected revenue, EBITDA, and mortgage performance, but investors quickly shifted their focus to the weaker outlook. The lowered FY26 revenue guidance reflects ongoing challenges in the housing market, particularly affordability pressures that are weighing more heavily on mortgage buyers as interest rates remain elevated. Zillow's long-term strategy of creating a more integrated real estate ecosystem remains compelling, with growth across Zillow Preferred, Rentals, and Mortgage showing progress. However, the near-term setup is becoming more difficult as transaction volumes remain constrained and engagement trends soften. With expectations reset lower, investors will likely need to see improving housing activity and stronger forward momentum before the stock can regain confidence.