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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-Q
_____________________________________________________

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36853
_____________________________________________________
ZILLOW GROUP, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________

Washington |  | 47-1645716
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)

1301 Second Avenue, Floor 36,
Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
(206) 470-7000
(Registrant’s telephone number, including area code)
_____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share | ZG | The Nasdaq Global Select Market
Class C Capital Stock, par value $0.0001 per share | Z | The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☒ |  |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ |  |  | Smaller reporting company |  | ☐
|  |  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 25, 2023, 55,719,542 shares of Class A common stock, 6,217,447 shares of Class B common stock and 171,666,169 shares of Class C capital stock were outstanding.

Table of Contents
ZILLOW GROUP, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended September 30, 2023
TABLE OF CONTENTS

|  | Page
PART I – FINANCIAL INFORMATION
Item 1. | Financial Statements (unaudited) | 4
| Condensed Consolidated Balance Sheets | 4
| Condensed Consolidated Statements of Operations | 5
| Condensed Consolidated Statements of Comprehensive Loss | 6
| Condensed Consolidated Statements of Shareholders’ Equity | 7
| Condensed Consolidated Statements of Cash Flows | 10
| Notes to Condensed Consolidated Financial Statements | 11
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 49
Item 4. | Controls and Procedures | 51
PART II – OTHER INFORMATION
Item 1. | Legal Proceedings | 52
Item 1A. | Risk Factors | 53
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 54
Item 5. | O ther Information | 55
Item 6. | Exhibits | 56
| Signatures | 57

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As used in this Quarterly Report on Form 10-Q, the terms “Zillow Group,” “the Company,” “we,” “us” and “our” refer to Zillow Group, Inc., unless the context indicates otherwise.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements that are not historical facts and generally may be identified by terms such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those risks, uncertainties and assumptions described in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, including, but not limited to risks related to:
•the current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues;
•our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners;
•our ability to establish or maintain relationships with listing and data providers, which affects traffic to our mobile applications and websites;
•our ability to comply with current and future multiple listing service (“MLS”) rules and requirements;
•our ability to continue to innovate and compete successfully to attract customers and real estate partners;
•our ability to operate and grow Zillow Home Loans, our mortgage origination business, including the ability to obtain or maintain sufficient financing to fund its origination of mortgages, meet customers’ financing needs with its product offerings, continue to grow the origination business and resell originated mortgages on the secondary market;
•the duration and impact of natural disasters and other catastrophic events (including public health crises) on our ability to operate, demand for our products or services, or general economic conditions;
•our ability to maintain adequate security measures or technology systems, or those of third parties on which we rely, to protect data integrity and the information and privacy of our customers and other third parties;
•the impact of pending or future litigation and other disputes or enforcement actions;
•our ability to attract and retain a highly skilled workforce;
•acquisitions, investments, strategic partnerships, capital-raising activities, or other corporate transactions or commitments by us or our competitors;
•our ability to continue relying on third-party services to support critical functions of our business;
•our ability to protect and continue using our intellectual property and prevent others from copying, infringing upon, or developing similar intellectual property;
•our ability to comply with domestic and international laws, regulations, rules, contractual obligations, policies and other obligations, or to obtain or maintain required licenses to support our business and operations;
•our ability to pay debt, settle conversions of our convertible senior notes, or repurchase our convertible senior notes upon a fundamental change;
•our ability to raise additional capital or refinance on acceptable terms, or at all;
•actual or anticipated fluctuations in quarterly and annual results of operations and financial position;
•the assumptions, estimates and internal or third-party data that we use to calculate business, performance and operating metrics; and
•volatility of our Class A common stock and Class C capital stock prices.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
1

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You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
2

Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
Our filings with the Securities and Exchange Commission (“SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, are available on the “Investors” section of our website at www.zillowgroup.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with the SEC. The information contained on our website is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC.
Investors and others should note that Zillow Group announces material financial information to its investors using its press releases, SEC filings and public conference calls and webcasts. Zillow Group intends to also use the following channels as a means of disclosing information about Zillow Group, its services and other matters, and for complying with its disclosure obligations under Regulation FD:
•Zillow Group Investor Relations Webpage (https://investors.zillowgroup.com)
•Zillow Group Blog (https://www.zillowgroup.com/news/)
•Zillow Group’s X Account, formerly known as Twitter (https://twitter.com/zillowgroup)
The information Zillow Group posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following Zillow Group’s press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time and reflects current updated channels as of the date of this Quarterly Report on Form 10-Q. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q or any other document we file with the SEC, and the inclusion of our website addresses and X Account are as inactive textual references only.
3

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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data, unaudited)

| September 30, 2023 |  | December 31, 2022
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 1,846 |  |  | $ | 1,466 |
Short-term investments | 1,421 |  |  | 1,896 |
Accounts receivable, net | 97 |  |  | 72 |
Mortgage loans held for sale | 96 |  |  | 41 |
Prepaid expenses and other current assets | 149 |  |  | 126 |
Restricted cash | 3 |  |  | 2 |
Total current assets | 3,612 |  |  | 3,603 |
Contract cost assets | 23 |  |  | 23 |
Property and equipment, net | 324 |  |  | 271 |
Right of use assets | 103 |  |  | 126 |
Goodwill | 2,416 |  |  | 2,374 |
Intangible assets, net | 162 |  |  | 154 |
Other assets | 16 |  |  | 12 |
Total assets | $ | 6,656 |  |  | $ | 6,563 |
Liabilities and shareholders’ equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 28 |  |  | $ | 20 |
Accrued expenses and other current liabilities | 87 |  |  | 90 |
Accrued compensation and benefits | 52 |  |  | 48 |
Borrowings under credit facilities | 91 |  |  | 37 |
Deferred revenue | 48 |  |  | 44 |
Lease liabilities, current portion | 28 |  |  | 31 |
Convertible senior notes, current portion | 607 |  |  | — |
Total current liabilities | 941 |  |  | 270 |
Lease liabilities, net of current portion | 119 |  |  | 139 |
Convertible senior notes, net of current portion | 1,057 |  |  | 1,660 |
Other long-term liabilities | 10 |  |  | 12 |
Total liabilities | 2,127 |  |  | 2,081 |
Commitments and contingencies (Note 14) |  |  |
Shareholders’ equity: |  |  |
Preferred stock, $0.0001 par value; authorized — 30,000,000 shares; no shares issued and outstanding | — |  |  | — |
Class A common stock, $0.0001 par value; authorized — 1,245,000,000 shares; issued and outstanding — 55,719,542 and 57,494,698 shares as of September 30, 2023 and December 31, 2022, respectively | — |  |  | — |
Class B common stock, $0.0001 par value; authorized — 15,000,000 shares; issued and outstanding — 6,217,447 shares | — |  |  | — |
Class C capital stock, $0.0001 par value; authorized — 600,000,000 shares; issued and outstanding — 171,654,263 and 170,555,565 shares as of September 30, 2023 and December 31, 2022, respectively | — |  |  | — |
Additional paid-in capital | 6,247 |  |  | 6,109 |
Accumulated other comprehensive loss | (21) |  |  | (15) |
Accumulated deficit | (1,697) |  |  | (1,612) |
Total shareholders’ equity | 4,529 |  |  | 4,482 |
Total liabilities and shareholders’ equity | $ | 6,656 |  |  | $ | 6,563 |

See accompanying notes to the condensed consolidated financial statements.
4

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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share data, which are presented in thousands, and per share data, unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenue | $ | 496 |  |  | $ | 483 |  |  | $ | 1,471 |  |  | $ | 1,523 |
Cost of revenue | 110 |  |  | 89 |  |  | 306 |  |  | 278 |
Gross profit | 386 |  |  | 394 |  |  | 1,165 |  |  | 1,245 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing | 164 |  |  | 165 |  |  | 493 |  |  | 502 |
Technology and development | 142 |  |  | 142 |  |  | 419 |  |  | 369 |
General and administrative | 131 |  |  | 138 |  |  | 407 |  |  | 370 |
Impairment and restructuring costs | 1 |  |  | — |  |  | 9 |  |  | 14 |
Acquisition-related costs | 1 |  |  | — |  |  | 2 |  |  | — |
Total operating expenses | 439 |  |  | 445 |  |  | 1,330 |  |  | 1,255 |
Loss from continuing operations | (53) |  |  | (51) |  |  | (165) |  |  | (10) |
Other income, net | 34 |  |  | 12 |  |  | 108 |  |  | 19 |
Interest expense | (9) |  |  | (9) |  |  | (27) |  |  | (26) |
Loss from continuing operations before income taxes | (28) |  |  | (48) |  |  | (84) |  |  | (17) |
Income tax benefit (expense) | — |  |  | (3) |  |  | (1) |  |  | 1 |
Net loss from continuing operations | (28) |  |  | (51) |  |  | (85) |  |  | (16) |
Net loss from discontinued operations, net of income taxes | — |  |  | (2) |  |  | — |  |  | (13) |
Net loss | $ | (28) |  |  | $ | (53) |  |  | $ | (85) |  |  | $ | (29) |
Net loss from continuing operations per share - basic and diluted | $ | (0.12) |  |  | $ | (0.21) |  |  | $ | (0.36) |  |  | $ | (0.07) |
Net loss per share - basic and diluted | $ | (0.12) |  |  | $ | (0.22) |  |  | $ | (0.36) |  |  | $ | (0.12) |
Weighted-average shares outstanding - basic and diluted | 233,295 |  |  | 240,080 |  |  | 235,560 |  |  | 244,157 |

See accompanying notes to the condensed consolidated financial statements.
5

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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in millions, unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net loss | $ | (28) |  |  | $ | (53) |  |  | $ | (85) |  |  | $ | (29) |
Other comprehensive loss: |  |  |  |  |  |  |
Net unrealized losses on investments | (2) |  |  | (6) |  |  | (6) |  |  | (26) |
Total other comprehensive loss | (2) |  |  | (6) |  |  | (6) |  |  | (26) |
Comprehensive loss | $ | (30) |  |  | $ | (59) |  |  | $ | (91) |  |  | $ | (55) |

See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data, which are presented in thousands, unaudited)

| Class A Common Stock, Class B Common Stock and Class C Capital Stock |  | Additional Paid-In Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
Shares |  | Amount |
Balance at July 1, 2023 | 232,723 |  |  | $ | — |  |  | $ | 6,174 |  |  | $ | (1,669) |  |  | $ | (19) |  |  | $ | 4,486 |
Issuance of capital stock upon exercise of stock options | 631 |  |  | — |  |  | 26 |  |  | — |  |  | — |  |  | 26 |
Vesting of restricted stock units | 1,754 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Share-based compensation expense | — |  |  | — |  |  | 127 |  |  | — |  |  | — |  |  | 127 |
Repurchases of Class A common stock and Class C capital stock | (1,897) |  |  | — |  |  | (100) |  |  | — |  |  | — |  |  | (100) |
Issuance of capital stock in connection with an acquisition | 380 |  |  | — |  |  | 20 |  |  | — |  |  | — |  |  | 20 |
Net loss |  |  | — |  |  | — |  |  | (28) |  |  | — |  |  | (28) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (2) |  |  | (2) |
Balance at September 30, 2023 | 233,591 |  |  | $ | — |  |  | $ | 6,247 |  |  | $ | (1,697) |  |  | $ | (21) |  |  | $ | 4,529 |

| Class A Common Stock, Class B Common Stock and Class C Capital Stock |  | Additional Paid-In Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
Shares |  | Amount |
Balance at July 1, 2022 | 241,141 |  |  | $ | — |  |  | $ | 6,167 |  |  | $ | (1,487) |  |  | $ | (13) |  |  | $ | 4,667 |
Issuance of common and capital stock upon exercise of stock options | 83 |  |  | — |  |  | 2 |  |  | — |  |  | — |  |  | 2 |
Vesting of restricted stock units | 1,467 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Share-based compensation expense | — |  |  | — |  |  | 161 |  |  | — |  |  | — |  |  | 161 |
Repurchases of Class A common stock and Class C capital stock | (4,997) |  |  | — |  |  | (176) |  |  | — |  |  | — |  |  | (176) |
Net loss | — |  |  | — |  |  | — |  |  | (53) |  |  | — |  |  | (53) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (6) |  |  | (6) |
Balance at September 30, 2022 | 237,694 |  |  | $ | — |  |  | $ | 6,154 |  |  | $ | (1,540) |  |  | $ | (19) |  |  | $ | 4,595 |

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| Class A Common Stock, Class B Common Stock and Class C Capital Stock |  | Additional Paid-In Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
Shares |  | Amount |
Balance at January 1, 2023 | 234,268 |  |  | $ | — |  |  | $ | 6,109 |  |  | $ | (1,612) |  |  | $ | (15) |  |  | $ | 4,482 |
Issuance of capital stock upon exercise of stock options | 1,454 |  |  | — |  |  | 56 |  |  | — |  |  | — |  |  | 56 |
Vesting of restricted stock units | 4,675 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Share-based compensation expense | — |  |  | — |  |  | 398 |  |  | — |  |  | — |  |  | 398 |
Repurchases of Class A common stock and Class C capital stock | (7,186) |  |  | — |  |  | (336) |  |  | — |  |  | — |  |  | (336) |
Issuance of capital stock in connection with an acquisition | 380 |  |  | — |  |  | 20 |  |  | — |  |  | — |  |  | 20 |
Net loss | — |  |  | — |  |  | — |  |  | (85) |  |  | — |  |  | (85) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (6) |  |  | (6) |
Balance at September 30, 2023 | 233,591 |  |  | $ | — |  |  | $ | 6,247 |  |  | $ | (1,697) |  |  | $ | (21) |  |  | $ | 4,529 |

| Class A Common Stock, Class B Common Stock and Class C Capital Stock |  | Additional Paid-In Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | Total Shareholders’ Equity
Shares |  | Amount |
Balance at January 1, 2022 | 250,630 |  |  | $ | — |  |  | $ | 7,001 |  |  | $ | (1,667) |  |  | $ | 7 |  |  | $ | 5,341 |
Cumulative-effect adjustment from adoption of guidance on accounting for convertible instruments and contracts in an entity’s own equity | — |  |  | — |  |  | (492) |  |  | 156 |  |  | — |  |  | (336) |
Issuance of common and capital stock upon exercise of stock options | 1,078 |  |  | — |  |  | 44 |  |  | — |  |  | — |  |  | 44 |
Vesting of restricted stock units | 3,278 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Share-based compensation expense | — |  |  | — |  |  | 374 |  |  | — |  |  | — |  |  | 374 |
Repurchases of Class A common stock and Class C capital stock | (17,292) |  |  | — |  |  | (773) |  |  | — |  |  | — |  |  | (773) |
Net loss | — |  |  | — |  |  | — |  |  | (29) |  |  | — |  |  | (29) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (26) |  |  | (26) |
Balance at September 30, 2022 | 237,694 |  |  | $ | — |  |  | $ | 6,154 |  |  | $ | (1,540) |  |  | $ | (19) |  |  | $ | 4,595 |

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See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)

| Nine Months Ended September 30,
| 2023 |  | 2022
Operating activities |  |  |
Net loss | $ | (85) |  |  | $ | (29) |
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |
Depreciation and amortization | 134 |  |  | 121 |
Share-based compensation | 342 |  |  | 341 |
Amortization of right of use assets | 18 |  |  | 17 |
Amortization of contract cost assets | 16 |  |  | 23 |
Amortization of debt discount and debt issuance costs | 4 |  |  | 24 |
Loss on extinguishment of debt | — |  |  | 21 |
Accretion of bond discount | (29) |  |  | (11) |
Other adjustments to reconcile net loss to net cash provided by operating activities | 3 |  |  | 11 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | (26) |  |  | 76 |
Mortgage loans held for sale | (55) |  |  | 58 |
Inventory | — |  |  | 3,904 |
Prepaid expenses and other assets | (22) |  |  | (13) |
Contract cost assets | (16) |  |  | (13) |
Lease liabilities | (24) |  |  | (15) |
Accounts payable | 7 |  |  | 1 |
Accrued expenses and other current liabilities | (3) |  |  | (49) |
Accrued compensation and benefits | 4 |  |  | (52) |
Deferred revenue | 4 |  |  | (1) |
Other long-term liabilities | (4) |  |  | 6 |
Net cash provided by operating activities | 268 |  |  | 4,420 |
Investing activities |  |  |
Proceeds from maturities of investments | 1,136 |  |  | 455 |
Purchases of investments | (638) |  |  | (1,474) |
Purchases of property and equipment | (101) |  |  | (87) |
Purchases of intangible assets | (24) |  |  | (17) |
Cash paid for acquisitions, net | (34) |  |  | — |
Net cash provided by (used in) investing activities | 339 |  |  | (1,123) |
Financing activities |  |  |
Repayments of borrowings on credit facilities | — |  |  | (2,205) |
Net borrowings (repayments) on warehouse line of credit and repurchase agreements | 54 |  |  | (68) |
Repurchases of Class A common stock and Class C capital stock | (336) |  |  | (773) |
Settlement of long-term debt | — |  |  | (1,158) |
Proceeds from exercise of stock options | 56 |  |  | 44 |
Net cash used in financing activities | (226) |  |  | (4,160) |
Net increase (decrease) in cash, cash equivalents and restricted cash during period | 381 |  |  | (863) |
Cash, cash equivalents and restricted cash at beginning of period | 1,468 |  |  | 2,838 |
Cash, cash equivalents and restricted cash at end of period | $ | 1,849 |  |  | $ | 1,975 |
Supplemental disclosures of cash flow information |  |  |
Noncash transactions: |  |  |
Capitalized share-based compensation | $ | 56 |  |  | $ | 33 |
Write-off of fully depreciated property and equipment | 29 |  |  | 48 |
Value of Class C capital stock issued in connection with an acquisition | 20 |  |  | — |
Write-off of fully amortized intangible assets | 4 |  |  | 200 |
Recognition of operating right of use assets and lease liabilities | 1 |  |  | 14 |
Settlement of beneficial interests in securitizations | — |  |  | (79) |

See accompanying notes to the condensed consolidated financial statements.
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ZILLOW GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Index to Notes to Condensed Consolidated Financial Statements

|  | Page
Note 1. | Organization and Description of Business | 11
Note 2. | Summary of Significant Accounting Policies | 12
Note 3. | Discontinued Operations | 15
Note 4. | Fair Value Measurements | 16
Note 5. | Cash and Cash Equivalents, Investments and Restricted Cash | 18
Note 6. | Property and Equipment, net | 19
Note 7. | A cqu isit i ons | 19
Note 8. | Intangible Assets, net | 20
Note 9. | Debt | 21
Note 10. | Income Taxes | 23
Note 11. | Share Repurchase Authorizations | 23
Note 12. | Share-Based Awards | 25
Note 13. | Net Loss Per Share | 26
Note 14. | Commitments and Contingencies | 27
Note 15. | Revenue and Contract Balances | 30
Note 16. | Subsequent Events | 31

Note 1. Organization and Description of Business
Zillow Group is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, great partners, and easier buying, selling, financing and renting experiences.
Our portfolio of affiliates, subsidiaries and brands includes Zillow Premier Agent, Zillow Home Loans, our mortgage originations business and affiliate lender, Zillow Rentals, Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions for the real estate industry, including Spruce, Mortech, New Home Feed and ShowingTime+.
In the fourth quarter of 2021, we began to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in markets across the country. The wind down was completed in the third quarter of 2022, and we have presented the financial results of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. No assets or liabilities were classified as discontinued operations as of December 31, 2022. See Note 3 for additional information.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, we believe that changes in any of the following areas could have a significant negative effect on us in terms of our future financial position, results of operations or cash flows: current and future health and stability of the economy and United States residential real estate industry, including changes in inflationary conditions, interest rates, housing availability and affordability, labor shortages and supply chain issues; our ability to manage advertising inventory and pricing and maintain relationships with our real estate partners; our compliance with multiple listing service rules and requirements to access and use listing data, and to maintain or establish relationships with listings and data providers; our investment of resources to pursue strategies and develop new products and services that may not prove effective or that are not attractive for customers and real estate partners or that do not allow us to compete successfully; our ability to operate and grow Zillow Home Loans, our mortgage origination business and affiliate lender, including the ability to obtain or maintain sufficient financing and resell originated mortgages on the secondary market; the duration and impact of natural disasters and other catastrophic events (including public health crises) on
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our ability to operate, demand for our products or services or general economic conditions; outcomes of legal proceedings; our ability to attract and retain a highly skilled workforce; protection of Zillow’s information and systems against security breaches or disruptions in operations; reliance on third-party services to support critical functions of our business; protection of our brand and intellectual property; and changes in laws or government regulation affecting our business, among other things.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include Zillow Group, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes included in Zillow Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 15, 2023. The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements of Zillow Group, Inc. as of that date.
The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2023 and our results of operations, comprehensive loss, and shareholders’ equity for the three and nine month periods ended September 30, 2023 and 2022, and cash flows for the nine month periods ended September 30, 2023 and 2022. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, for any interim period, or for any other future year. Certain reclassifications of prior period amounts have been made to conform to the current period presentation. Unless indicated otherwise, the information in the Notes to Condensed Consolidated Financial Statements relates to our continuing operations and does not include the results of discontinued operations.
There were no significant changes to the significant accounting policies disclosed in Note 2 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except for the updates noted below. Such updates were made due to our determination that we have a single operating and reportable segment, as well as certain changes to how we disaggregate our revenue into categories, beginning in the first quarter of 2023.
Recoverability of Goodwill
Goodwill is measured as the excess of consideration transferred for an acquired business over the net of the acquisition date fair values of the assets acquired and the liabilities assumed, and is not amortized. We assess the impairment of goodwill at the reporting unit level on an annual basis, in our fourth quarter, or whenever events or changes in circumstances indicate that goodwill may be impaired. In our evaluation of goodwill, we initially perform a qualitative assessment to determine whether the existence of events or circumstances indicates that it is more likely than not that the carrying value of each reporting unit is greater than its fair value. If it is more likely than not that the carrying value of a reporting unit is greater than its fair value, we perform a quantitative assessment and an impairment charge is recorded in our statements of operations if the carrying value of the reporting unit exceeds its fair value.
Beginning in 2023, our chief operating decision maker, who is our chief executive officer, manages our business, makes operating decisions and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. This aligns to our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. This resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. Accordingly, we have realigned our operating structure, resulting in a single operating and reportable segment. In line with this, the nature and substance of the information regularly provided to our segment manager similarly changed, and we determined that we have only one reporting unit. Because the segment change impacted the structure of our reporting units, we performed a qualitative goodwill impairment assessment immediately before and immediately after the change in reporting units. Based on those assessments, we determined it was more likely than not that the fair value of our current and legacy reporting units exceeded their respective carrying values. Therefore, we concluded that it was not necessary to perform a quantitative impairment test.
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Revenue Recognition
We recognize revenue when or as we satisfy our performance obligations by transferring control of the promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.
As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component as the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service is generally one year or less.
We do not disclose the transaction price related to remaining performance obligations for (i) contracts with an original expected duration of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for performance completed to date. The remaining duration over which we satisfy our performance obligations is generally less than one year.
We disaggregate our revenue into the following categories: Residential, Rentals, Mortgages and Other, described below.
Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising and business technology solutions for real estate professionals through StreetEasy for-sale product offerings and ShowingTime+.
Our Premier Agent program offers a suite of marketing and technology products and services to help real estate agents and brokers achieve their advertising goals while growing and managing their businesses and brands. All Premier Agent partners receive access to a dashboard portal on our mobile application and website that provides individualized program performance analytics, our customer relationship management tool that captures detailed information about each contact made with a Premier Agent partner through our mobile and web platforms and our account management tools. The marketing and business technology products and services promised to Premier Agent partners are delivered over time, as the customer simultaneously receives and consumes the benefit of the performance obligations.
Premier Agent advertising products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Payment is received prior to the delivery of connections. Connections are delivered when consumer contact information is provided to Premier Agent partners. We do not promise any minimum or maximum number of connections to customers, but instead control when and how many connections to deliver based on a customer’s share of voice. We determine the number of connections to deliver to Premier Agent partners in each zip code using a market-based pricing method in consideration of the total amount spent by Premier Agent partners to purchase connections in the zip code during the month. This results in the delivery of connections over time in proportion to each Premier Agent partners’ share of voice. A Premier Agent partners’ share of voice in a zip code is determined by their proportional monthly prepaid spend in that zip code as a percentage of the total monthly prepaid spend of all Premier Agent partners in that zip code, and determines the proportion of consumer connections a Premier Agent partner receives. The number of connections delivered for a given spend level is dynamic; as demand for advertising in a zip code increases or decreases, the number of connections delivered to a Premier Agent partner in that zip code decreases or increases accordingly.
We primarily recognize revenue related to the Premier Agent products and services based on the monthly prepaid spend recognized on a straight-line basis during the monthly billing period over which the products and services are provided. This methodology best depicts how we satisfy our performance obligations to customers, as we continuously transfer control of the performance obligations to the customer over time. Given a Premier Agent partner typically prepays their monthly spend and the monthly spend is refunded on a pro-rata basis upon cancellation of the contract by a customer, we have determined that Premier Agent partner contracts are effectively daily contracts, and each performance obligation is satisfied over time as each day lapses. We have not allocated the transaction price to each performance obligation within our Premier Agent partner arrangements, as the amounts recognized would be the same irrespective of any allocation.
We also offer a pay for performance pricing model called “Flex” for Premier Agent advertising services in certain markets. Flex is available to select partners alongside our legacy market-based pricing model. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads, generally within two years. With this pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of validated leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration and record revenue as performance obligations, or validated leads, are transferred. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a contract asset for our estimate of the consideration to which we will be entitled when the right to the consideration is conditional. When the right to consideration becomes unconditional, upon the close of a real estate transaction, we reclassify amounts to accounts receivable.
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Our new construction marketing solutions allow home builders to showcase their available inventory to home shoppers. New construction revenue primarily includes revenue generated by advertising sold to builders on a cost per residential community basis whereby we recognize revenue on a straight-line basis during the contractual period over which the communities are advertised on our mobile applications and websites. New construction revenue also includes revenue generated on a cost per impression basis whereby we recognize revenue as impressions are delivered to users interacting with our mobile applications and websites, which is the amount for which we have the right to invoice. Consideration for new construction products is billed in arrears.
StreetEasy for-sale revenue primarily consists of our pay for performance pricing model available in the New York City market for which agents and brokers are provided with leads at no initial cost and pay a performance referral fee only when a real estate purchase transaction is closed with one of the leads. Under the StreetEasy pricing model, the transaction price represents variable consideration, as the amount to which we expect to be entitled varies based on the number of leads that convert into real estate transactions and the value of those transactions. We estimate variable consideration based on the expected number of closed transactions during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of transactions closed is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for StreetEasy Experts when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the close of a real estate transaction, we reclassify amounts to accounts receivable.
Our dotloop real estate transaction management software-as-a-service solution is primarily billed in advance on a monthly basis and revenue is recognized ratably over the contract period which aligns to our satisfaction of performance obligations.
ShowingTime revenue is primarily generated by Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center revenue is primarily billed in advance on a monthly basis and recognized ratably over the contract period which aligns to our satisfaction of performance obligations.
Rentals. Rentals revenue includes the sale of advertising and a suite of tools to rental professionals, landlords and other market participants under the Zillow and StreetEasy brands. Rentals revenue includes revenue generated by advertising sold to property managers, landlords and other rental professionals on a cost per lead, lease, listing or impression basis or for a fixed fee for certain advertising packages. We recognize revenue as leads, clicks and impressions are provided to rental professionals, or as rental listings are published on our mobile applications and websites, which is the amount for which we have the right to invoice. We recognize revenue related to our fixed fee rentals product on a straight-line basis over the contract term as the performance obligations, rental listings on our mobile applications and websites, are satisfied over time based on time elapsed. The number of leases generated through our rentals pay per lease product, Zillow Lease Connect, during the period is accounted for as variable consideration, and we estimate the amount of variable consideration based on the expected number of qualified leases secured during the period. We do not believe that a significant reversal in the amount of cumulative revenue recognized will occur once the uncertainty related to the number of leases secured is subsequently resolved. We record a corresponding contract asset for the estimate of variable consideration for Zillow Lease Connect when the right to the consideration is conditional. When the right to consideration becomes unconditional upon the execution of a lease, we reclassify amounts to accounts receivable. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee. We recognize revenue for the rental applications product on a straight-line basis during the contractual period over which the customer has the right to access and submit the rental application.
Mortgages. Mortgages revenue primarily includes revenue generated by Zillow Home Loans, our affiliated mortgage lender, and marketing products sold to mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.
Mortgage origination revenue reflects origination fees on purchase or refinance mortgages and the corresponding sale, or expected future sale, of a loan. When an interest rate lock commitment (“IRLC”) is made to a customer, we record the expected gain on sale of the mortgage, plus the estimated earnings from the expected sale of the associated servicing rights, adjusted for a pull-through percentage (which is defined as the likelihood that an interest rate lock commitment will be originated), as revenue. Revenue from loan origination fees is recognized at the time the related purchase or refinance transactions are completed, usually upon the close of escrow and when we fund the purchase or refinance mortgage loans. Once funded, mortgage loans held for sale are recorded at fair value based on either sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loan is sold. Origination costs associated with originating mortgage loans are recognized as incurred. We sell substantially all of the mortgages we originate and the related servicing rights to third-party purchasers.
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Mortgage loans are sold with limited recourse provisions, which can result in repurchases of loans previously sold to investors or payments to reimburse investors for loan losses. Based on historical experience, discussions with our mortgage purchasers, analysis of the volume of mortgages we originated and current housing and credit market conditions, we estimate and record a loss reserve for mortgage loans held in our portfolio and mortgage loans held for sale, as well as known and projected mortgage loan repurchase requests. These have historically not been significant to our financial statements.
Zillow Group operates Custom Quote and Connect through its wholly owned subsidiary, Zillow Group Marketplace, Inc., a licensed mortgage broker. For our Connect and Custom Quote cost per lead marketing products, participating qualified mortgage professionals typically make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Mortgage professionals who exhaust their initial prepayment prepay additional funds to continue to participate in the marketplace. In Zillow Group’s Connect platform, consumers answer a series of questions to find a local lender, and mortgage professionals receive consumer contact information, or leads, when the consumer chooses to share their information with a lender. Consumers who request rates for mortgage loans in Custom Quotes are presented with customized quotes from participating mortgage professionals. For our cost per lead mortgages products, we recognize revenue when a user contacts a mortgage professional through our mortgages platform, which is the amount for which we have the right to invoice.
Other. Other revenue primarily includes revenue generated from display products, which consist of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites. We recognize display revenue as clicks occur or as impressions are delivered to users interacting with our mobile applications or websites, which is the amount for which we have the right to invoice.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to the accounting for certain revenue offerings, restructuring costs, amortization period and recoverability of contract cost assets, website and software development costs, recoverability of long-lived assets and intangible assets, share-based compensation, income taxes, the presentation of discontinued and continuing operations, business combinations and the recoverability of goodwill, among others. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The health of the residential housing market and interest rate environment have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the estimates previously listed, among others.
Recently Issued Accounting Standards Not Yet Adopted
In June 2022, the Financial Accounting Standards Board issued guidance to improve existing measurement and disclosure requirements for equity securities that are subject to a contractual sale restriction. This guidance is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. We expect to adopt this guidance prospectively on January 1, 2024, and we do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.
Note 3. Discontinued Operations
Zillow Offers Wind Down
In November 2021, the Board of Directors of Zillow Group (the “Board”) made the determination to wind down Zillow Offers operations. This decision was made in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment, all of which led us to conclude that, despite its initial promise in earlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals going forward.
The wind down of Zillow Offers was completed in the third quarter of 2022, at which time Zillow Offers met the criteria for discontinued operations. Accordingly, we have presented the results of operations, excluding allocation of any general corporate expenses, of Zillow Offers as discontinued operations in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022. No assets or liabilities were classified as discontinued operations as of December 31, 2022.
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The following table presents the major classes of line items of the discontinued operations included in the condensed consolidated statements of operations for the periods presented (in millions):

| Three Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2022
Revenue | $ | 23 |  |  | $ | 4,249 |
Cost of revenue | 24 |  |  | 4,023 |
Gross profit (loss) | (1) |  |  | 226 |
Operating expenses: |  |  |
Sales and marketing | 1 |  |  | 153 |
Technology and development | — |  |  | 6 |
General and administrative | — |  |  | 10 |
Restructuring costs | — |  |  | 25 |
Total operating expenses | 1 |  |  | 194 |
Income (loss) from discontinued operations | (2) |  |  | 32 |
Loss on extinguishment of debt | — |  |  | (21) |
Other income | — |  |  | 13 |
Interest expense | — |  |  | (36) |
Loss from discontinued operations before income taxes | (2) |  |  | (12) |
Income tax expense | — |  |  | (1) |
Net loss from discontinued operations | $ | (2) |  |  | $ | (13) |
Net loss from discontinued operations per share: |  |  |
Basic | $ | (0.01) |  |  | $ | (0.05) |
Diluted | $ | (0.01) |  |  | $ | (0.05) |

The following table presents significant non-cash items and capital expenditures of the discontinued operations for the nine months ended September 30, 2022 (in millions):

Amortization of debt discount and debt issuance costs | $ | 21 |
Loss on debt extinguishment | 21 |
Share-based compensation | 16 |
Inventory valuation adjustment | 9 |
Depreciation and amortization | 7 |
Settlement of beneficial interests in securitizations | (79) |

Restructuring
Restructuring costs totaled $14 million for the nine months ended September 30, 2022, and were related to the Zillow Offers wind down. Cumulative restructuring charges attributable to continuing operations related to the Zillow Offers wind down as of September 30, 2022 totaled $23 million.
Note 4. Fair Value Measurements
We apply the following methods and assumptions in estimating our fair value measurements:
Cash equivalents — The fair value measurement of money market funds is based on quoted market prices in active markets (Level 1). The fair value measurement of other cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).
Short-term investments — The fair value measurement of our short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means (Level 2).
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Mortgage loans held for sale — The fair value of mortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).
Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments is calculated by reference to quoted prices for similar assets (Level 2).
Interest rate lock commitments — The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an IRLC will ultimately result in a closed loan. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (Level 3).
The pull-through rate is based on estimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are directly related to the fair value of IRLCs as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within revenue in our condensed consolidated statements of operations. The following table presents the range and weighted-average pull-through rates used in determining the fair value of IRLCs as of the dates presented:

| September 30, 2023 |  | December 31, 2022
Range | 45% - 100% |  | 47% - 100%
Weighted-average | 88% |  | 87%

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in millions):

| September 30, 2023
| Total |  | Level 1 |  | Level 2 |  | Level 3
Cash equivalents: |  |  |  |  |  |  |
Money market funds | $ | 1,736 |  |  | $ | 1,736 |  |  | $ | — |  |  | $ | — |
Short-term investments: |  |  |  |  |  |  |
U.S. government treasury securities | 1,258 |  |  | — |  |  | 1,258 |  |  | — |
Corporate bonds | 135 |  |  | — |  |  | 135 |  |  | — |
Commercial paper | 14 |  |  | — |  |  | 14 |  |  | — |
U.S. government agency securities | 14 |  |  | — |  |  | 14 |  |  | — |
Mortgage origination-related: |  |  |  |  |  |  |
Mortgage loans held for sale | 96 |  |  | — |  |  | 96 |  |  | — |
Forward contracts - other current assets | 2 |  |  | — |  |  | 2 |  |  | — |
IRLCs - other current assets | 1 |  |  | — |  |  | — |  |  | 1 |
Total | $ | 3,256 |  |  | $ | 1,736 |  |  | $ | 1,519 |  |  | $ | 1 |

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| December 31, 2022
| Total |  | Level 1 |  | Level 2 |  | Level 3
Cash equivalents: |  |  |  |  |  |  |
Money market funds | $ | 1,338 |  |  | $ | 1,338 |  |  | $ | — |  |  | $ | — |
Short-term investments: |  |  |  |  |  |  |
U.S. government treasury securities | 1,716 |  |  | — |  |  | 1,716 |  |  | — |
Corporate bonds | 161 |  |  | — |  |  | 161 |  |  | — |
Commercial paper | 10 |  |  | — |  |  | 10 |  |  | — |
U.S. government agency securities | 9 |  |  | — |  |  | 9 |  |  | — |
Mortgage origination-related: |  |  |  |  |  |  |
Mortgage loans held for sale | 41 |  |  | — |  |  | 41 |  |  | — |
Forward contracts - other current assets | 1 |  |  | — |  |  | 1 |  |  | — |
Total | $ | 3,276 |  |  | $ | 1,338 |  |  | $ | 1,938 |  |  | $ | — |

At September 30, 2023, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $189 million and $232 million for our IRLCs and forward contracts, respectively. At December 31, 2022, the notional amounts of the economic hedging instruments related to our mortgage loans held for sale were $62 million and $90 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our forward contract derivative positions.
See Note 9 for the carrying amounts and estimated fair values of our convertible senior notes.
Note 5. Cash and Cash Equivalents, Investments and Restricted Cash
The following table presents the amortized cost and estimated fair market value of our cash and cash equivalents, investments, and restricted cash as of the dates presented (in millions):

| September 30, 2023 |  | December 31, 2022
| Amortized Cost |  | Estimated Fair Market Value |  | Amortized Cost |  | Estimated Fair Market Value
Cash | $ | 110 |  |  | $ | 110 |  |  | $ | 128 |  |  | $ | 128 |
Cash equivalents: |  |  |  |  |  |  |
Money market funds | 1,736 |  |  | 1,736 |  |  | 1,338 |  |  | 1,338 |
Short-term investments: |  |  |  |  |  |  |
U.S. government treasury securities(1) | 1,278 |  |  | 1,258 |  |  | 1,731 |  |  | 1,716 |
Corporate bonds | 136 |  |  | 135 |  |  | 162 |  |  | 161 |
Commercial paper | 14 |  |  | 14 |  |  | 10 |  |  | 10 |
U.S. government agency securities | 14 |  |  | 14 |  |  | 9 |  |  | 9 |
Restricted cash | 3 |  |  | 3 |  |  | 2 |  |  | 2 |
Total | $ | 3,291 |  |  | $ | 3,270 |  |  | $ | 3,380 |  |  | $ | 3,364 |
(1)The estimated fair market value includes $20 million and $15 million of gross unrealized losses as of September 30, 2023 and December 31, 2022, respectively.

The following table presents available-for-sale investments by contractual maturity date as of September 30, 2023 (in millions):

| Amortized Cost |  | Estimated Fair Market Value
Due in one year or less | $ | 513 |  |  | $ | 509 |
Due after one year | 929 |  |  | 912 |
Total | $ | 1,442 |  |  | $ | 1,421 |

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Note 6. Property and Equipment, net
The following table presents the detail of property and equipment as of the dates presented (in millions):

| September 30, 2023 |  | December 31, 2022
Website development costs | $ | 415 |  |  | $ | 291 |
Leasehold improvements | 89 |  |  | 90 |
Office equipment, furniture and fixtures | 22 |  |  | 24 |
Computer equipment | 19 |  |  | 18 |
Construction-in-progress | — |  |  | 7 |
Property and equipment | 545 |  |  | 430 |
Less: accumulated amortization and depreciation | (221) |  |  | (159) |
Property and equipment, net | $ | 324 |  |  | $ | 271 |

We recorded depreciation expense related to property and equipment (other than website development costs) of $6 million for each of the three months ended September 30, 2023 and 2022, and $18 million and $19 million for the nine months ended September 30, 2023 and 2022, respectively.
We capitalized website development costs of $49 million and $37 million for the three months ended September 30, 2023 and 2022, respectively, and $144 million and $104 million for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense for website development costs included in cost of revenue was $30 million and $17 million for the three months ended September 30, 2023 and 2022, respectively, and $79 million and $48 million for the nine months ended September 30, 2023 and 2022, respectively.
Note 7. Acquisitions
On July 31, 2023, Zillow Group acquired Aryeo, Inc. (“Aryeo”), a software company that serves real estate photographers, in exchange for approximately $15 million in cash, net of cash acquired, and 380,259 shares of our Class C capital stock with a value of $20 million, for total consideration of $35 million, net of cash acquired. On September 11, 2023, Zillow Group acquired substantially all of the assets and liabilities of Spruce Holdings, Inc. and certain affiliated entities (collectively referred to as “Spruce”), a tech-enabled title and escrow platform, in exchange for approximately $19 million in cash, net of cash acquired. The acquisitions of Aryeo and Spruce have been accounted for as business combinations, and assets acquired and liabilities assumed were recorded at their preliminary estimated fair values. Goodwill represents the expected synergies from combining the acquired assets and the operations of the acquirer as well as intangible assets that do not qualify for separate recognition. Goodwill is measured as the excess of consideration transferred over the net of the fair values of the assets acquired and the liabilities assumed. Goodwill recorded in connection with the acquisition of Aryeo is not deductible for tax purposes, and goodwill recorded in connection with the acquisition of Spruce is deductible for tax purposes.
The total preliminary purchase prices have been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date, as follows (in millions):

| Aryeo |  | Spruce
Cash and cash equivalents | $ | 3 |  |  | $ | 5 |
Goodwill | 26 |  |  | 16 |
Intangible assets | 11 |  |  | 2 |
Other assets | — |  |  | 2 |
Liabilities | (2) |  |  | (1) |
Total preliminary purchase price | $ | 38 |  |  | $ | 24 |

The preliminary estimated fair values of the identifiable intangible assets acquired and associated useful lives consisted of the following (in millions):
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| Aryeo |  | Spruce
| Preliminary Estimated Fair Value |  | Estimated Useful Life (in years) |  | Preliminary Estimated Fair Value |  | Estimated Useful Life (in years)
Customer relationships | $ | 5 |  |  | 5 |  | $ | — |  |  | —
Purchased content | 4 |  |  | 3 |  | — |  |  | —
Developed technology | 2 |  |  | 3 |  | 2 |  |  | 3
Total | $ | 11 |  |  |  |  | $ | 2 |  |  |

We used an income approach to measure the fair value of the customer relationships intangible asset acquired from Aryeo based on the excess earnings method, whereby the fair value is estimated based upon the present value of cash flows that the applicable asset is expected to generate. We used a cost approach to measure the fair value of purchased content acquired from Aryeo. We used an income approach to measure the fair value of the developed technology acquired from Aryeo and Spruce based on the relief-from-royalty method. These fair value measurements were based on Level 3 inputs under the fair value hierarchy.
Acquisition-related costs incurred, which primarily included legal, accounting and other external costs directly related to the acquisition, are included within acquisition-related costs in our condensed consolidated statements of operations and were expensed as incurred.
Unaudited pro forma earnings information has not been presented as the effects were not material to our condensed consolidated financial statements.
Note 8. Intangible Assets, net
The following tables present the detail of intangible assets as of the dates presented (in millions):

| September 30, 2023
| Cost |  | Accumulated Amortization |  | Net
Software | $ | 78 |  |  | $ | (25) |  |  | $ | 53 |
Customer relationships | 63 |  |  | (16) |  |  | 47 |
Developed technology | 53 |  |  | (25) |  |  | 28 |
Trade names and trademarks | 45 |  |  | (18) |  |  | 27 |
Purchased content | 16 |  |  | (9) |  |  | 7 |
Total | $ | 255 |  |  | $ | (93) |  |  | $ | 162 |

| December 31, 2022
| Cost |  | Accumulated Amortization |  | Net
Customer relationships | $ | 59 |  |  | $ | (10) |  |  | $ | 49 |
Software | 54 |  |  | (15) |  |  | 39 |
Developed technology | 49 |  |  | (15) |  |  | 34 |
Trade names and trademarks | 45 |  |  | (15) |  |  | 30 |
Purchased content | 8 |  |  | (6) |  |  | 2 |
Total | $ | 215 |  |  | $ | (61) |  |  | $ | 154 |

Amortization expense recorded for intangible assets was $13 million and $11 million for the three months ended September 30, 2023 and 2022, respectively, and $37 million and $47 million for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense for trade names and trademarks and customer relationships intangible assets is included in sales and marketing expenses. Amortization expense for all other intangible assets is included in cost of revenue.
We did not record any impairment costs related to our intangible assets for the three or nine months ended September 30, 2023 or 2022.
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Note 9. Debt
The following table presents the carrying values of Zillow Group’s debt as of the dates presented (in millions):

| September 30, 2023 |  | December 31, 2022
Credit facilities |  |  |
Master repurchase agreements: |  |  |
JPMorgan Chase Bank, N.A.(1) | $ | 68 |  |  | $ | — |
Atlas Securitized Products, L.P.(2) | 22 |  |  | 23 |
Citibank, N.A.(3) | — |  |  | 3 |
Warehouse line of credit: |  |  |
Comerica Bank | 1 |  |  | 11 |
Total credit facilities | 91 |  |  | 37 |
Convertible senior notes |  |  |
1.375% convertible senior notes due 2026 | 496 |  |  | 495 |
2.75% convertible senior notes due 2025 | 561 |  |  | 560 |
0.75% convertible senior notes due 2024 | 607 |  |  | 605 |
Total convertible senior notes | 1,664 |  |  | 1,660 |
Total debt | $ | 1,755 |  |  | $ | 1,697 |
(1)Agreement commenced on June 1, 2023 and provides for a total maximum borrowing capacity of $100 million, $25 million of which is committed, until May 30, 2024.
(2)Agreement was reassigned from Credit Suisse AG, Cayman Islands (“Credit Suisse”) on May 25, 2023.
(3)Agreement expired on June 9, 2023 and was not renewed.

Credit Facilities
To provide capital for Zillow Home Loans, we utilize master repurchase agreements and a warehouse line of credit. The following table summarizes certain details related to our outstanding master repurchase agreements and warehouse line of credit as of September 30, 2023 (in millions, except interest rates):

Lender |  | Maturity Date |  | Maximum Borrowing Capacity |  | Weighted-Average Interest Rate
JPMorgan Chase Bank, N.A. |  | May 30, 2024 |  | $ | 100 |  |  | 7.03 | %
Atlas Securitized Products, L.P. |  | March 11, 2024 |  | 50 |  |  | 7.32 | %
Comerica Bank |  | December 29, 2023 |  | 50 |  |  | 7.45 | %
|  | Total |  | $ | 200 |  |  |

On August 17, 2023, Zillow Home Loans amended its warehouse line of credit with Comerica Bank to extend the date after which Zillow Home Loans is no longer permitted to draw additional amounts on the warehouse line of credit from September 30, 2023 to November 1, 2023.
In accordance with the master repurchase agreements, Atlas Securitized Products, L.P., JPMorgan Chase Bank, N.A and prior to its expiration in June 2023, Citibank, N.A., (together, the “Lenders”) agreed to pay Zillow Home Loans a negotiated purchase price for eligible loans, and Zillow Home Loans simultaneously agreed to repurchase such loans from the Lenders under a specified timeframe at an agreed upon price that includes interest. The master repurchase agreements contain margin call provisions that provide the Lenders with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreements. As of September 30, 2023 and December 31, 2022, $93 million and $28 million, respectively, in mortgage loans held for sale were pledged as collateral under the master repurchase agreements.
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Borrowings on the repurchase agreements and warehouse line of credit bear interest either at a floating rate based on Secured Overnight Financing Rate plus an applicable margin, as defined by the governing agreements, or Bloomberg Short-Term Bank Yield Index Rate plus an applicable margin, as defined by the governing agreements. The repurchase agreements and warehouse line of credit include customary representations and warranties, covenants and provisions regarding events of default. As of September 30, 2023, Zillow Home Loans was in compliance with all financial covenants and no event of default had occurred. The repurchase agreements and warehouse line of credit are recourse to Zillow Home Loans, and have no recourse to Zillow Group or any of its other subsidiaries.
For additional details related to our repurchase agreements and warehouse line of credit, see Note 13 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Convertible Senior Notes
Effective January 1, 2022, we adopted guidance which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Refer to Note 2 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for additional information regarding the adoption of this guidance.
The following tables summarize certain details related to our outstanding convertible senior notes as of the dates presented or for the periods ended (in millions, except interest rates):

|  |  |  |  |  |  |  |  |  | September 30, 2023 |  | December 31, 2022
Maturity Date |  | Aggregate Principal Amount |  | Stated Interest Rate |  | Effective Interest Rate |  | Semi-Annual Interest Payment Dates |  | Unamortized Debt Issuance Costs |  | Fair Value |  | Unamortized Debt Issuance Costs |  | Fair Value
September 1, 2026 |  | $ | 499 |  |  | 1.375 | % |  | 1.57 | % |  | March 1; September 1 |  | $ | 3 |  |  | $ | 598 |  |  | $ | 4 |  |  | $ | 504 |
May 15, 2025 |  | 565 |  |  | 2.75 | % |  | 3.20 | % |  | May 15; November 15 |  | 4 |  |  | 571 |  |  | 5 |  |  | 531 |
September 1, 2024 |  | 608 |  |  | 0.75 | % |  | 1.02 | % |  | March 1; September 1 |  | 1 |  |  | 706 |  |  | 3 |  |  | 629 |
Total |  | $ | 1,672 |  |  |  |  |  |  |  |  | $ | 8 |  |  | $ | 1,875 |  |  | $ | 12 |  |  | $ | 1,664 |

|  | Three Months Ended September 30, 2023 |  | Three Months Ended September 30, 2022
Maturity Date |  | Contractual Coupon Interest |  | Amortization of Debt Issuance Costs |  | Interest Expense |  | Contractual Coupon Interest |  |  |  | Amortization of Debt Issuance Costs |  | Interest Expense
September 1, 2026 |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | 2 |  |  |  |  | $ | — |  |  | $ | 2 |
May 15, 2025 |  | 4 |  |  | — |  |  | 4 |  |  | 4 |  |  |  |  | 1 |  |  | 5 |
September 1, 2024 |  | 1 |  |  | 1 |  |  | 2 |  |  | 1 |  |  |  |  | 1 |  |  | 2 |
Total |  | $ | 7 |  |  | $ | 1 |  |  | $ | 8 |  |  | $ | 7 |  |  |  |  | $ | 2 |  |  | $ | 9 |

|  | Nine Months Ended September 30, 2023 |  | Nine Months Ended September 30, 2022
Maturity Date |  | Contractual Coupon Interest |  | Amortization of Debt Issuance Costs |  | Interest Expense |  | Contractual Coupon Interest |  | Amortization of Debt Issuance Costs |  | Interest Expense
September 1, 2026 |  | $ | 6 |  |  | $ | 1 |  |  | $ | 7 |  |  | $ | 5 |  |  | $ | — |  |  | $ | 5 |
May 15, 2025 |  | 12 |  |  | 1 |  |  | 13 |  |  | 12 |  |  | 2 |  |  | 14 |
September 1, 2024 |  | 3 |  |  | 2 |  |  | 5 |  |  | 4 |  |  | 1 |  |  | 5 |
Total |  | $ | 21 |  |  | $ | 4 |  |  | $ | 25 |  |  | $ | 21 |  |  | $ | 3 |  |  | $ | 24 |

The convertible notes maturing in 2026 (“2026 Notes”), 2025 (“2025 Notes”) and 2024 (“2024 Notes”) (together, the “Notes”) are senior unsecured obligations. The 2026 Notes and 2025 Notes are classified as long-term debt and the 2024 Notes are classified as current liabilities in our condensed consolidated balance sheets based on their contractual maturity dates. Interest on the convertible notes is paid semi-annually in arrears. The estimated fair value of the convertible senior notes is classified as Level 2 and was determined through consideration of quoted market prices in markets that are not active.
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The Notes are convertible into cash, shares of Class C capital stock or a combination thereof, at our election, and may be settled as described below. They will mature on their respective maturity dates, unless earlier repurchased, redeemed or converted in accordance with their terms.
The following table summarizes the conversion and redemption options with respect to the Notes:

Maturity Date |  | Early Conversion Date |  | Conversion Rate |  | Conversion Price |  | Optional Redemption Date
September 1, 2026 |  | March 1, 2026 |  | 22.9830 |  | $ | 43.51 |  |  | September 5, 2023
May 15, 2025 |  | November 15, 2024 |  | 14.8810 |  | 67.20 |  |  | May 22, 2023
September 1, 2024 |  | March 1, 2024 |  | 22.9830 |  | 43.51 |  |  | September 5, 2022

The following table summarizes certain details related to the capped call confirmations with respect to the convertible senior notes:

Maturity Date |  | Initial Cap Price |  | Cap Price Premium
September 1, 2026 |  | $ | 80.5750 |  |  | 150 | %
September 1, 2024 |  | 72.5175 |  |  | 125 | %

There were no conversions of the Notes during the three and nine months ended September 30, 2023 or 2022.
The last reported sale price of our Class C capital stock did not exceed 130% of the conversion price of each series of the Notes for more than 20 trading days during the 30 consecutive trading days ended September 30, 2023. Accordingly, each series of the Notes is not redeemable or convertible at the option of the holders during the three months ending December 31, 2023.
For additional details related to our convertible senior notes, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Note 10. Income Taxes
We are primarily subject to income taxes in the United States (federal and state), as well as certain foreign jurisdictions. As of September 30, 2023 and December 31, 2022, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. We have accumulated federal tax losses of approximately $1.8 billion as of December 31, 2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $63 million (tax effected) as of December 31, 2022.
Our income tax expense or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account for the relevant period. We update our estimate of the annual effective tax rate on a quarterly basis and make year-to-date adjustments to the tax provision or benefit, as applicable. Income tax expense (benefit) for the three and nine months ended September 30, 2023 and the nine months ended September 30, 2022 was not material. We recorded income tax expense of $3 million for the three months ended September 30, 2022, primarily related to state income taxes.
Note 11. Share Repurchase Authorizations
Prior to July 31, 2023, the Board authorized the repurchase of up to $1.8 billion of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. For additional information on these authorizations, see Note 13 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. This additional authorization (together with the previous authorizations, the “Repurchase Authorizations”) increased our total cumulative Repurchase Authorizations to $2.5 billion.
Repurchases of stock under the Repurchase Authorizations may be made in open-market transactions or privately negotiated transactions, or in such other manner as deemed appropriate by management, and may be made from time to time as determined by management depending on market conditions, share price, trading volume, cash needs and other business factors,
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in each case as permitted by securities laws and other legal requirements. As of September 30, 2023, $914 million remained available for future repurchases pursuant to the Repurchase Authorizations.
The following table summarizes our Class A common stock and Class C capital stock repurchase activity under the Repurchase Authorizations for the periods presented (in millions, except share data, which are presented in thousands, and per share amounts):

| Three Months Ended September 30, 2023 |  | Three Months Ended September 30, 2022
| Class A common stock |  | Class C capital stock |  | Class A common stock |  | Class C capital stock
Shares repurchased | 965 |  |  | 932 |  |  | 772 |  |  | 4,225 |
Weighted-average price per share | $ | 52.57 |  |  | $ | 52.80 |  |  | $ | 35.52 |  |  | $ | 35.18 |
Total purchase price | $ | 50 |  |  | $ | 50 |  |  | $ | 27 |  |  | $ | 149 |

| Nine Months Ended September 30, 2023 |  | Nine Months Ended September 30, 2022
| Class A common stock |  | Class C capital stock |  | Class A common stock |  | Class C capital stock
Shares repurchased | 1,775 |  |  | 5,411 |  |  | 3,349 |  |  | 13,943 |
Weighted-average price per share | $ | 48.71 |  |  | $ | 46.15 |  |  | $ | 46.13 |  |  | $ | 44.40 |
Total purchase price | $ | 86 |  |  | $ | 250 |  |  | $ | 154 |  |  | $ | 619 |

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Note 12. Share-Based Awards
In addition to the option awards and restricted stock units typically granted under the Zillow Group, Inc. 2020 Incentive Plan (the “2020 Plan”) which vest quarterly over four years, during the first quarter of 2023, the Compensation Committee of the Board approved option and restricted stock unit awards granted under the 2020 Plan in connection with the 2022 annual review cycle that vest quarterly over three years. The exercisability terms of these equity awards are otherwise consistent with the terms of the option awards and restricted stock units typically granted under the 2020 Plan. For additional information regarding our share-based awards, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
On August 3, 2022, upon the recommendation of the Compensation Committee, the Board approved adjustments to the exercise price of certain outstanding vested and unvested option awards for eligible employees. The exercise price of eligible option awards was reduced to $38.78, which was the closing market price of our Class C capital stock on August 8, 2022. No other changes were made to the terms and conditions of the eligible option awards. We have accounted for the reprice of the eligible option awards as an equity modification whereby the incremental fair value attributable to the repriced option awards, as measured on the date of reprice, will be recognized as additional share-based compensation expense. The reprice impacted 7 million stock option awards, affected 3,348 employees and was expected to result in incremental share-based compensation expense of $66 million in total over the remaining requisite service period of the original awards. The weighted-average total fair value of options repriced in August 2022 was $67.58.
Option Awards
The following table summarizes option award activity for the nine months ended September 30, 2023:

| Number of Shares Subject to Existing Options (in thousands) |  | Weighted- Average Exercise Price Per Share |  | Weighted- Average Remaining Contractual Life (Years) |  | Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023 | 28,598 |  |  | $ | 44.90 |  |  | 7.1 |  | $ | 15 |
Granted | 6,890 |  |  | 42.63 |  |  |  |  |
Exercised | (1,454) |  |  | 38.84 |  |  |  |  |
Forfeited or cancelled | (892) |  |  | 48.28 |  |  |  |  |
Outstanding at September 30, 2023 | 33,142 |  |  | 44.60 |  |  | 7.0 |  | 173 |
Vested and exercisable at September 30, 2023 | 19,802 |  |  | 44.96 |  |  | 5.8 |  | 113 |

The following assumptions were used to determine the fair value of option awards granted for the periods presented:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Expected volatility | 62% |  | 61% |  | 55% - 62% |  | 55% - 61%
Risk-free interest rate | 4.34% |  | 3.38% |  | 3.75% - 4.34% |  | 1.94% - 3.38%
Weighted-average expected life | 5.3 years |  | 5.0 years |  | 5.3 - 6.5 years |  | 4.5 - 6.0 years
Weighted-average fair value of options granted | $27.26 |  | $18.06 |  | $24.06 |  | $23.75

As of September 30, 2023, there was a total of $384 million in unrecognized compensation cost related to unvested option awards.
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Restricted Stock Units
The following table summarizes activity for restricted stock units for the nine months ended September 30, 2023:

| Restricted Stock Units (in thousands) |  | Weighted-Average Grant Date Fair Value
Unvested outstanding at January 1, 2023 | 10,930 |  |  | $ | 46.85 |
Granted | 8,191 |  |  | 43.27 |
Vested | (4,675) |  |  | 45.96 |
Forfeited | (841) |  |  | 46.58 |
Unvested outstanding at September 30, 2023 | 13,605 |  |  | 45.01 |

As of September 30, 2023, there was a total of $557 million in unrecognized compensation cost related to unvested restricted stock units.
Share-Based Compensation Expense
The following table presents the effects of share-based compensation expense in our condensed consolidated statements of operations during the periods presented (in millions):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Cost of revenue | $ | 4 |  |  | $ | 5 |  |  | $ | 12 |  |  | $ | 12 |
Sales and marketing | 18 |  |  | 21 |  |  | 53 |  |  | 46 |
Technology and development | 42 |  |  | 57 |  |  | 123 |  |  | 123 |
General and administrative | 45 |  |  | 64 |  |  | 154 |  |  | 142 |
Impairment and restructuring costs | — |  |  | — |  |  | — |  |  | 2 |
Share-based compensation - continuing operations | 109 |  |  | 147 |  |  | 342 |  |  | 325 |
Share-based compensation - discontinued operations | — |  |  | 1 |  |  | — |  |  | 16 |
Total share-based compensation | $ | 109 |  |  | $ | 148 |  |  | $ | 342 |  |  | $ | 341 |

Note 13. Net Loss Per Share
For the periods presented, the following Class A common stock and Class C capital stock equivalents were excluded from the calculations of diluted net loss and net loss from continuing operations per share because their effect would have been antidilutive (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Weighted-average Class A common stock and Class C capital stock option awards outstanding | 30,063 |  |  | 2,417 |  |  | 20,924 |  |  | 15,942 |
Weighted-average Class A common stock and Class C capital stock restricted stock units outstanding | 14,172 |  |  | 9,670 |  |  | 13,890 |  |  | 8,326 |
Class C capital stock issuable upon conversion of the Notes | 33,855 |  |  | 33,855 |  |  | 33,855 |  |  | 33,855 |
Total Class A common stock and Class C capital stock equivalents | 78,090 |  |  | 45,942 |  |  | 68,669 |  |  | 58,123 |

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Note 14. Commitments and Contingencies
Commitments
During the three and nine months ended September 30, 2023, there were no material changes to the commitments disclosed in Note 18 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Legal Proceedings
We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities, some of which are at preliminary stages and some of which seek an indeterminate amount of damages. We regularly evaluate the status of legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred to determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made if accruals are not appropriate. For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons: (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damages sought are, in our view, unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories presented. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial position, results of operations or cash flow. For the matters discussed below, we have not recorded any material accruals as of September 30, 2023 or December 31, 2022.
In August and September 2017, two purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our common stock between February 12, 2016 and August 8, 2017. One of those purported class actions, captioned Vargosko v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Central District of California. The other purported class action lawsuit, captioned Shotwell v. Zillow Group, Inc. et al, was brought in the U.S. District Court for the Western District of Washington. The complaints allege, among other things, that during the period between February 12, 2016 and August 8, 2017, we issued materially false and misleading statements regarding our business practices. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. In November 2017, an amended complaint was filed against us and certain of our executive officers in the Shotwell v. Zillow Group purported class action lawsuit, extending the beginning of the class period to November 17, 2014. In January 2018, the Vargosko v. Zillow Group purported class action lawsuit was transferred to the U.S. District Court for the Western District of Washington and consolidated with the Shotwell v. Zillow Group purported class action lawsuit. In February 2018, the plaintiffs filed a consolidated amended complaint, and in April 2018, we filed our motion to dismiss the consolidated amended complaint. In October 2018, our motion to dismiss was granted without prejudice, and in November 2018, the plaintiffs filed a second consolidated amended complaint, which we moved to dismiss in December 2018. On April 19, 2019, our motion to dismiss the second consolidated amended complaint was denied. On October 11, 2019, plaintiffs filed a motion for class certification which was granted by the court on October 28, 2020. On February 17, 2021, the Ninth Circuit Court of Appeals denied our petition for review of that decision. On October 21, 2022, the parties jointly filed a notice of settlement with the U.S. District Court for the Western District of Washington to inform the court that the parties have reached an agreement to settle this action. On March 31, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 3, 2023. The terms of the parties’ proposed settlement agreement are contained in the settlement documents filed with the court on March 31, 2023. The court approved the settlement terms on August 8, 2023 and the full amount was paid by our insurance carriers under the applicable insurance policy and pursuant to the terms of the settlement.
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In October and November 2017 and January and February 2018, four shareholder derivative lawsuits were filed in the U.S. District Court for the Western District of Washington and the Superior Court of the State of Washington, King County, against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties in connection with oversight of the Company’s public statements and legal compliance, and as a result of the breach of such fiduciary duties, the Company was damaged, and defendants were unjustly enriched. Certain of the plaintiffs also allege, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934 and waste of corporate assets. On February 5, 2018, the U.S. District Court for the Western District of Washington consolidated the two federal shareholder derivative lawsuits pending in that court (the “Federal Suit”). On February 16, 2018, the Superior Court of the State of Washington, King County, consolidated the two shareholder derivative lawsuits pending in that court (the “State Suit”). The Federal Suit and State Suit were stayed until our motion to dismiss the second consolidated amended complaint in the securities class action lawsuit discussed above was denied in April 2019. On July 8, 2019, the plaintiffs in the Federal Suit filed a consolidated shareholder derivative complaint, which we moved to dismiss on August 22, 2019. On February 28, 2020, our motion to dismiss the Federal Suit was denied. On February 16, 2021, the court in the State Suit matter stayed the action. On March 5, 2021, a new shareholder derivative lawsuit was filed in the U.S. District Court for the Western District of Washington against certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices, alleging, among other things, violations of federal securities laws. The U.S. District Court for the Western District of Washington formally consolidated the new lawsuit with the other consolidated Federal Suit pending in that court on June 15, 2021. On November 14, 2022, the parties jointly filed a stipulation with the U.S. District Court for the Western District of Washington informing the court that, among other things, they have agreed in principle to all material terms of a settlement. On April 20, 2023, the plaintiffs filed a motion seeking preliminary approval of the parties’ proposed settlement, which motion was granted by the court on April 25, 2023. The terms of the parties’ settlement agreement are contained in the settlement documents filed with the court on April 20, 2023 and found on Zillow’s Investor Relations page at https://investors.zillowgroup.com/investors/resources/investor-faqs/default.aspx. The court issued final approval of the settlement on August 29, 2023. The full amount of plaintiffs’ attorneys’ fees and costs associated with the settlement has been paid by our insurance carriers under the applicable insurance policy and pursuant to the terms of the settlement.
On September 17, 2019, International Business Machines Corporation (“IBM”) filed a complaint against us in the U.S. District Court for the Central District of California, alleging, among other things, that the Company has infringed and continues to willfully infringe seven patents held by IBM and seeks unspecified damages, including a request that the amount of compensatory damages be trebled, injunctive relief and costs and reasonable attorneys’ fees. On November 8, 2019, we filed a motion to transfer venue and/or to dismiss the complaint. On December 2, 2019, IBM filed an amended complaint, and on December 16, 2019 we filed a renewed motion to transfer venue and/or to dismiss the complaint. Our motion to transfer venue to the U.S. District Court for the Western District of Washington was granted on May 28, 2020. On August 12, 2020, IBM filed its answer to our counterclaims. On September 18, 2020, we filed four Inter Partes Review (“IPR”) petitions before the U.S. Patent and Trial Appeal Board (“PTAB”) seeking the Board’s review of the patentability with respect to three of the patents asserted by IBM in the lawsuit. On March 15, 2021, the PTAB instituted IPR proceedings with respect to two of the three patents for which we filed petitions. On March 22, 2021, the PTAB denied institution with respect to the last of the three patents. On January 22, 2021, the court partially stayed the action with respect to all patents for which we filed an IPR and set forth a motion schedule. On March 8, 2021, IBM filed its second amended complaint. On March 25, 2021, we filed an amended motion for judgment on the pleadings. On July 15, 2021, the court rendered an order in connection with the motion for judgment on the pleadings finding in our favor on two of the four patents on which we filed our motion. On August 31, 2021, the Court ruled that the parties will proceed with respect to the two patents for which it previously denied judgment, and vacated the stay with respect to one of the three patents for which Zillow filed an IPR, which stay was later reinstated by stipulation of the parties on May 18, 2022. On September 23, 2021, IBM filed a notice of appeal with the United States Court of Appeals for the Federal Circuit with respect to the August 31, 2021 judgment entered, which judgment was affirmed by the Federal Circuit on October 17, 2022. On March 3, 2022, the PTAB ruled on Zillow’s two remaining IPRs finding that Zillow was able to prove certain claims unpatentable, and others it was not. On October 28, 2022, the court found one of the two patents upon which the parties were proceeding in this action as invalid, and dismissed IBM’s claim relating to that patent. Following the court’s ruling, on October 28, 2022, the parties filed a joint stipulation with the court seeking a stay of this action, which was granted by the court on November 1, 2022. On November 25, 2022, Zillow filed a motion to join an IPR petition within Ebates Performance Mktg., Inc. d/b/a Rakuten Rewards v. Int’l Bus. Machs. Corp. (“Rakuten IPR”), IPR2022-00646 concerning the final remaining patent in this action, which the court granted on April 20, 2023. On October 13, 2023, the PTAB ruled on the Rakuten IPR finding the claims of the patent asserted against Zillow unpatentable. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.
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On July 21, 2020, IBM filed a second action against us in the U.S. District Court for the Western District of Washington, alleging, among other things, that the Company has infringed and continues to willfully infringe five patents held by IBM and seeks unspecified damages. On September 14, 2020, we filed a motion to dismiss the complaint filed in the action, to which IBM responded by the filing of an amended complaint on November 5, 2020. On December 18, 2020, we filed a motion to dismiss IBM’s first amended complaint. On December 23, 2020, the Court issued a written order staying this case in full. On July 23, 2021, we filed an IPR with the PTAB with respect to one patent included in the second lawsuit. On October 6, 2021, the stay of this action was lifted, except for proceedings relating to the one patent for which we filed an IPR. On December 1, 2021, the Court dismissed the fourth claim asserted by IBM in its amended complaint. On December 16, 2021 Zillow filed a motion to dismiss the remaining claims alleged in IBM’s amended complaint. On March 9, 2022, the Court granted Zillow’s motion to dismiss in full, dismissing IBM’s claims related to all the patents asserted by IBM in this action, except for the one patent for which an IPR was still pending. On March 10, 2022, the PTAB rendered its decision denying Zillow’s IPR on the one remaining patent, for which this case continues to remain stayed. On August 1, 2022, IBM filed an appeal of the Court’s ruling with respect to two of the dismissed patents. Zillow’s responsive brief was filed on September 30, 2022, and IBM’s reply brief was filed on November 4, 2022. We deny the allegations of any wrongdoing and intend to vigorously defend the claims in the lawsuit. There is a reasonable possibility that a loss may be incurred related to this matter; however, the possible loss or range of loss is not estimable.
On November 16, 2021, November 19, 2021 and January 6, 2022, three purported class action lawsuits were filed against us and certain of our executive officers, alleging, among other things, violations of federal securities laws on behalf of a class of those who purchased our stock between August 7, 2020 and November 2, 2021. The three purported class action lawsuits, captioned Barua v. Zillow Group, Inc. et al., Silverberg v. Zillow Group, et al. and Hillier v. Zillow Group, Inc. et al. were brought in the U.S. District Court for the Western District of Washington and were consolidated on February 16, 2022. On May 12, 2022, the plaintiffs filed their amended consolidated complaint which alleges, among other things, that we issued materially false and misleading statements regarding our Zillow Offers business. The complaints seek to recover, among other things, alleged damages sustained by the purported class members as a result of the alleged misconduct. We moved to dismiss the amended consolidated complaint on July 11, 2022, plaintiffs filed their opposition to the motion to dismiss on September 2, 2022, and we filed a reply in support of the motion to dismiss on October 11, 2022. On December 7, 2022, the court rendered its decision granting defendants’ motion to dismiss, in part, and denying the motion, in part. On January 23, 2023, the defendants filed their answer to the consolidated complaint. We intend to deny the allegations of wrongdoing and intend to vigorously defend the claims in this consolidated lawsuit. We do not believe that a loss related to this consolidated lawsuit is probable.
On March 10, 2022, May 5, 2022 and July 20, 2022, shareholder derivative suits were filed in the U.S. District Court for the Western District of Washington (“Federal Court”) and on July 25, 2022, a shareholder derivative suit was filed in the Superior Court of the State of Washington, King County (the “2022 State Suit”), against us and certain of our executive officers and directors seeking unspecified damages on behalf of the Company and certain other relief, such as reform to corporate governance practices. The plaintiffs (including the Company as a nominal defendant) allege, among other things, that the defendants breached their fiduciary duties by failing to maintain an effective system of internal controls, which purportedly caused the losses the Company incurred when it decided to wind down Zillow Offers operations. Plaintiffs also allege, among other things, violations of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, insider trading and waste of corporate assets. On June 1, 2022 and September 14, 2022, the U.S. District Court for the Western District of Washington issued orders consolidating the three federal derivative suits and staying the consolidated action until further order of the court, which stay was further continued by the Federal Court on September 6, 2023. On September 15, 2022, the Superior Court of the State of Washington entered a temporary stay in the 2022 State Suit. Upon the filing of the defendants’ answer in the related securities class action lawsuit on January 23, 2023, the stay in the 2022 State Suit was lifted. A partial stay was then reentered in the 2022 State Suit on June 26, 2023. On August 23, 2023 a second shareholder derivative suit was filed in the Superior Court of the State of Washington, King County. The defendants intend to deny the allegations of wrongdoing and vigorously defend the claims in these lawsuits. We do not believe that a loss related to these lawsuits is probable.
In addition to the matters discussed above, from time to time, we are involved in litigation and claims that arise in the ordinary course of business. Although we cannot be certain of the outcome of any such litigation or claims, nor the amount of damages and exposure that we could incur, we currently believe that the final disposition of such matters will not have a material effect on our business, financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters. For additional information regarding our indemnifications, see Note 18 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Note 15. Revenue and Contract Balances
We recognize revenue when or as we satisfy our performance obligations by transferring control of the promised products or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.
Beginning in 2023, our chief executive officer, who acts as the chief operating decision maker, manages our business, makes operating decisions and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. This serves to align our reported results with our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, we have determined that we have a single reportable segment. Our revenue is classified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.
The Residential revenue category primarily includes revenue for our Premier Agent and new construction marketplaces, as well as revenue from the sale of other advertising and business technology solutions for real estate professionals, including StreetEasy for-sale product offerings and ShowingTime+. Our Rentals and Mortgages revenue categories remain consistent with our historical presentation, and our Other revenue category primarily includes revenue generated from display advertising.
Disaggregation of Revenue
The following table presents our revenue disaggregated by category for the periods presented (in millions):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Residential | $ | 362 |  |  | $ | 372 |  |  | $ | 1,103 |  |  | $ | 1,182 |
Rentals | 99 |  |  | 74 |  |  | 264 |  |  | 206 |
Mortgages | 24 |  |  | 26 |  |  | 74 |  |  | 101 |
Other | 11 |  |  | 11 |  | 30 |  |  | 34
Total revenue | $ | 496 |  |  | $ | 483 |  |  | $ | 1,471 |  |  | $ | 1,523 |

Contract Balances
Contract assets represent our right to consideration in exchange for goods and services that we have transferred to the customer when that right is conditional on something other than the passage of time. Contract assets are primarily related to our Premier Agent Flex, Zillow Lease Connect and StreetEasy Experts offerings, whereby we estimate variable consideration based on the expected number of real estate transactions to be closed for Premier Agent Flex and StreetEasy Experts, and qualified leases to be secured for Zillow Lease Connect. The current portion of contract assets is recorded within prepaid expenses and other current assets and the long-term portion of contract assets is recorded within other assets in our condensed consolidated balance sheets and totaled $89 million and $71 million as of September 30, 2023 and December 31, 2022, respectively.
Contract liabilities consist of deferred revenue, which relates to payments received in advance of performance under a revenue contract. Deferred revenue is primarily related to prepaid advertising fees received or billed in advance of satisfying our performance obligations and prepaid but unrecognized subscription revenue. Deferred revenue is recognized when or as we satisfy our obligations under contracts with customers.
For the three months ended September 30, 2023, the opening balance of deferred revenue was $49 million, of which $46 million was recognized as revenue during the period. For the three months ended September 30, 2022, the opening balance of deferred revenue was $52 million, of which $50 million was recognized as revenue during the period.
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For the nine months ended September 30, 2023, the opening balance of deferred revenue was $44 million, of which $43 million was recognized as revenue during the period. For the nine months ended September 30, 2022, the opening balance of deferred revenue was $51 million, of which $51 million was recognized as revenue during the period. As of September 30, 2023 and 2022, deferred revenue was $48 million and $50 million, respectively.
Note 16. Subsequent Events
UBS AG Repurchase Agreement
On October 11, 2023, Zillow Home Loans entered into a master repurchase agreement with UBS AG. The master repurchase agreement provides a total maximum borrowing capacity of $100 million through October 9, 2024. Borrowings on the master repurchase agreement will be classified within current liabilities in our condensed consolidated balance sheets.
Acquisition of Follow Up Boss
On October 28, 2023, Zillow, Inc. and Enchant, LLC, d/b/a Follow Up Boss (“Follow Up Boss”), entered into a Membership Interest Purchase Agreement (the “Agreement”), pursuant to which Zillow, Inc. agreed to acquire Follow Up Boss for $400 million in cash, subject to certain adjustments, payable upon closing of the transaction, and up to $100 million in cash payable over a three-year period upon achievement of certain performance metrics contemplated by the Agreement. Follow Up Boss is a customer relationship management system for real estate professionals. The Agreement contains customary representations, warranties and covenants of the parties as well as conditions to closing, including, among other things, regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Partial Repurchase of 2025 Notes
On October 31, 2023 and November 1, 2023, we repurchased a total of approximately $28 million aggregate principal amount of our 2025 Notes, plus accrued interest, using a 10b5-1 plan, in accordance with the Repurchase Authorizations. These repurchases will reduce our outstanding convertible senior notes, net of current portion in our condensed consolidated balance sheet.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those described in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, including in the section titled “Note Regarding Forward-Looking Statements,” and those factors discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview of our Business
Zillow Group is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, great partners, and easier buying, selling, financing and renting experiences.
Our portfolio of affiliates, subsidiaries and brands includes Zillow Premier Agent, Zillow Home Loans, our mortgage originations business and affiliate lender, Zillow Rentals, Trulia, StreetEasy, HotPads and Out East. In addition, Zillow Group provides a comprehensive suite of marketing software and technology solutions for the real estate industry, including Spruce, Mortech, New Home Feed and ShowingTime+.
As of September 30, 2023, we had 6,148 employees compared to 5,724 employees as of December 31, 2022.
Health of Housing Market
Our financial performance is impacted by changes in the health of the housing market, which is impacted, in turn, by general economic conditions. Current market factors have been driven by low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates, as well as home price fluctuations and inflationary conditions. These factors may have a negative impact on the number of transactions consumers complete using our products and services and on demand for our advertising services. According to industry data from the National Association of REALTORS®, total residential real estate transaction dollars declined 14% during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 and more than 20% during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Despite the industry headwinds and total residential real estate transaction value declines, we continue to invest in the execution of our strategy to increase customer transactions and revenue per transaction. We believe this continued investment in our strategic priorities has resulted in year over year Residential revenue results, described below, for the three and nine months ended September 30, 2023 as compared to the same periods in the prior year, that exceeded residential real estate industry performance for the same periods. The extent to which market factors impact our results and financial position will depend on future developments, which are uncertain and difficult to predict.
Acquisitions
On July 31, 2023, we acquired Aryeo, Inc. (“Aryeo”), a software company that serves real estate photographers, in exchange for total consideration of $35 million, net of cash acquired. On September 11, 2023, we acquired substantially all of the assets and liabilities of Spruce Holdings, Inc. and certain affiliated entities (collectively referred to as “Spruce”), a tech-enabled title and escrow platform, in exchange for total consideration of $19 million, net of cash acquired. Acquisition-related costs incurred, which primarily included legal, accounting and other external costs directly related to the acquisition, are included within acquisition-related costs in our condensed consolidated statements of operations and were expensed as incurred.
On October 28, 2023, Zillow, Inc. and Enchant, LLC, d/b/a Follow Up Boss (“Follow Up Boss”), entered into a Membership Interest Purchase Agreement (the “Agreement”), pursuant to which Zillow, Inc. agreed to acquire Follow Up Boss for $400 million in cash, subject to certain adjustments, payable upon closing of the transaction, and up to $100 million in cash payable over a three-year period upon achievement of certain performance metrics contemplated by the Agreement. Follow Up Boss is a customer relationship management system for real estate professionals.
Discontinued Operations
In the fourth quarter of 2021, the Board of Directors of Zillow Group (the “Board”) made the determination to wind down the operations of Zillow Offers, our iBuying business which purchased and sold homes directly in certain markets across the United States. The wind down was completed in the third quarter of 2022 and resulted in approximately a 25% reduction of Zillow Group’s workforce. The financial results of Zillow Offers have been presented in the accompanying condensed
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consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations. Given the wind down of Zillow Offers and corresponding shift in our strategic plans, financial performance for prior and current periods may not be indicative of future performance. For additional information, see Note 3 in our Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
August 2022 Equity Award Actions
On August 3, 2022, upon the recommendation of the Compensation Committee of the Board, the Board approved adjustments to the exercise price of certain outstanding vested and unvested option awards for eligible employees. The exercise price of eligible option awards was reduced to $38.78, which was the closing market price of our Class C capital stock on August 8, 2022. No other changes were made to the terms and conditions of the eligible option awards. In addition, the Board approved a supplemental grant of restricted stock units to eligible employees that was granted on August 8, 2022 and vests quarterly over a two-year period beginning in August 2022. The repricing of eligible option awards and the issuance of supplemental restricted stock units (collectively the “August 2022 Equity Award Actions”) has and is expected to continue to result in incremental share-based compensation expense over the remaining requisite service period, which is largely through the third quarter of 2024. For additional information regarding the August 2022 Equity Award Actions, see Note 16 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Change in Reportable Segments
Beginning in 2023, our chief operating decision maker manages our business, makes operating decisions, and evaluates operating performance on the basis of the company as a whole, instead of on a segment basis as he did prior to 2023. Accordingly, this change resulted in revisions to the nature and substance of information regularly provided to and used by the chief operating decision maker. This serves to align our reported results with our ongoing growth strategy and our intent to provide integrated customer solutions for all tasks and services related to facilitating real estate transactions. As a result, we have determined that we have a single operating and reportable segment.
Revenue Overview
Our revenue is classified into four categories: Residential, Rentals, Mortgages and Other. Certain prior period amounts have been revised to reflect these changes.
Residential. Residential revenue includes revenue generated by our Premier Agent and new construction marketplaces, as well as revenue from the sale of advertising and business technology solutions for real estate professionals through StreetEasy for-sale product offerings and ShowingTime+.
Premier Agent revenue is generated by the sale of advertising services, as well as marketing and technology products and services, to help real estate agents and brokers grow and manage their businesses. We offer these products and services through our Premier Agent program. Premier Agent products, which include the delivery of validated customer connections, or leads, are primarily offered on a share of voice basis. Connections are distributed to Premier Agent partners in proportion to their share of voice, or an agent advertiser’s share of total advertising purchased in a particular zip code. Connections are delivered when customer contact information is provided to Premier Agent partners. Connections are provided as part of our suite of advertising services for Premier Agent partners; we do not charge a separate fee for these customer leads.
We also offer a pay for performance pricing model called “Flex” for Premier Agent advertising services in certain markets to select partners. With the Flex model, Premier Agent partners are provided with validated leads at no initial cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads, generally within two years.
New construction revenue primarily includes advertising services sold to home builders on a cost per residential community or cost per impression basis. StreetEasy for-sale revenue includes advertising services sold to real estate professionals serving the New York City for sale market primarily on a cost per listing or performance fee basis. ShowingTime revenue is primarily generated by Appointment Center, a software-as-a-service and call center solution allowing real estate agents, brokerages and multiple listing services to efficiently schedule real estate viewing appointments on behalf of their customers. Appointment Center services also include call center specialists who provide scheduling support to customers. Appointment Center revenue is primarily billed in advance on a monthly basis. Our dotloop real estate transaction management software-as-a-service solution is a monthly subscription service allowing real estate partners to efficiently manage their transactions.
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Rentals. Rentals revenue includes advertising and a suite of tools sold to property managers, landlords and other rental professionals on a cost per lead, lease, listing or impression basis or for a fixed fee for certain advertising packages through both the Zillow and StreetEasy brands. Rentals revenue also includes revenue generated from our rental applications product, through which potential renters can submit applications to multiple properties for a flat service fee.
Mortgages. Mortgages revenue includes revenue generated through mortgage originations and the related sale of mortgages on the secondary market through Zillow Home Loans and from advertising sold to mortgage lenders and other mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.
Other. Other revenue includes revenue generated primarily by display advertising. Display revenue consists of graphical mobile and web advertising sold on a cost per thousand impressions or cost per click basis to advertisers promoting their brands on our mobile applications and websites.
For additional information regarding our revenue recognition policies, see Note 2 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Financial Overview
For the three months ended September 30, 2023 and 2022, we generated total revenue of $496 million and $483 million, respectively, an increase of 3%. The increase in total revenue was primarily attributable to the following:
•Rentals revenue increased by $25 million to $99 million for the three months ended September 30, 2023 compared to $74 million for the three months ended September 30, 2022. The increase in Rentals revenue was primarily due to a 20% increase in quarterly revenue per average monthly rentals unique visitor to $3.30 for the three months ended September 30, 2023 as compared to $2.74 for the three months ended September 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers as well as growth in multifamily property listings. The increase in Rentals revenue was also driven by growth in average monthly rentals unique visitors which increased 11% to 30 million during the three months ended September 30, 2023 from 27 million during the three months ended September 30, 2022.
•Residential revenue decreased by $10 million to $362 million for the three months ended September 30, 2023 compared to $372 million for the three months ended September 30, 2022. The decrease in Residential revenue was primarily driven by a 5% decrease in the number of visits for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, due to macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates, as well as home price fluctuations. The impact of the decrease in visits was partially offset by a 3% increase in Residential revenue per visit, driven by continued improvement in our ability to connect high-intent customers to agents.
•Mortgages revenue decreased by $2 million to $24 million for the three months ended September 30, 2023 compared to $26 million for the three months ended September 30, 2022, driven by an $8 million decrease in revenue from Custom Quote and Connect advertising services due to a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period. This resulted in a 40% decrease in leads generated from marketing products sold to mortgage professionals. The decrease in revenue from Custom Quote and Connect advertising services was offset by an $8 million increase in mortgage originations revenue, as total loan origination volume increased 69%, primarily driven by continued growth in Zillow Home Loans purchase loan originations.
During the three months ended September 30, 2023 and 2022, we generated gross profit of $386 million and $394 million, respectively, a decrease of 2%.
Key Metrics
Management has identified visits, unique users and the volume of loans originated through Zillow Home Loans as relevant to investors’ and others’ assessment of our financial condition and results of operations.
Visits
The number of visits is an important metric because it is an indicator of consumers’ level of engagement with our mobile applications, websites and other services. We believe highly engaged consumers are more likely to use our products and services, including Zillow Homes Loans, or be transaction-ready real estate market participants and therefore are more sought-after by our Premier Agent partners.
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We define a visit as a group of interactions by users with the Zillow, Trulia and StreetEasy mobile applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. Visits can occur on the same day, or over several days, weeks or months.
Zillow and StreetEasy measure visits with Google Analytics, and Trulia measures visits with Adobe Analytics. Visits to Trulia end after thirty minutes of user inactivity. Visits to Zillow and StreetEasy end either: (i) after thirty minutes of user inactivity or at midnight; or (ii) through a campaign change. A visit ends through a campaign change if a visitor arrives via one campaign or source (for example, via a search engine or referring link on a third-party website), leaves the mobile application or website, and then returns via another campaign or source.
The following table presents the number of visits to our mobile applications and websites for the periods presented (in millions, except percentages):

| Three Months Ended September 30, |  | 2022 to 2023 % Change |  | Nine Months Ended September 30, |  | 2022 to 2023 % Change
| 2023 |  | 2022 |  |  | 2023 |  | 2022 |
Visits | 2,626 |  | 2,767 |  | (5) | % |  | 7,766 |  | 8,291 |  | (6) | %

During the three and nine month periods ended September 30, 2023, visits to our mobile applications and websites decreased by 5% and 6%, respectively, compared to the three and nine month periods ended September 30, 2022. These decreases were primarily driven by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations.
Unique Users
Measuring unique users is important to us because much of our revenue depends in part on our ability to connect home buyers and sellers, renters and individuals with or looking for a mortgage to real estate, rental and mortgage professionals, products and services. Growth in consumer traffic to our mobile applications and websites increases the number of impressions, clicks, connections, leads and other events we can monetize to generate revenue. For example, our revenue depends in part on users accessing our mobile applications and websites to engage in the sale, purchase and financing of homes, including with Zillow Home Loans, and a significant portion of our Residential revenue, Rentals revenue and Other revenue depend on advertisements being served to users of our mobile applications and websites.
We count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses more than one of our mobile applications within a given month, the first access to each mobile application is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Zillow, StreetEasy and HotPads measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics.
Due to third-party technological limitations, user software settings or user behavior, Google Analytics may assign a unique cookie to different instances of access by the same individual to our mobile applications and websites. In such instances, Google Analytics would count different instances of access by the same individual as separate unique users. Accordingly, reliance on the number of unique users counted by Google Analytics may overstate the actual number of unique users who access our mobile applications and websites during the period.
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The following table presents our average monthly unique users for the periods presented (in millions, except percentages):

| Three Months Ended September 30, |  | 2022 to 2023 % Change |  | Nine Months Ended September 30, |  | 2022 to 2023 % Change
| 2023 |  | 2022 |  |  | 2023 |  | 2022 |
Average monthly unique users | 224 |  |  | 236 |  |  | (5) | % |  | 221 |  |  | 227 |  |  | (3) | %

During the three and nine month periods ended September 30, 2023, average monthly unique users decreased by 5% and 3%, respectively, compared to each of the three and nine month periods ended September 30, 2022. These decreases were primarily driven by macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations.
Loan Origination Volume
Loan origination volume is an important metric as it is a measure of how successful we are at the origination of mortgage loan products through our mortgage origination business, Zillow Home Loans, which directly impacts our Mortgages revenue. Loan origination volume represents the total value of mortgage loan originations closed through Zillow Home Loans during the period.
The following table presents loan origination volume by purpose and in total for Zillow Home Loans for the periods presented (in millions, except percentages):

| Three Months Ended September 30, |  | 2022 to 2023 % Change |  | Nine Months Ended September 30, |  | 2022 to 2023 % Change
| 2023 |  | 2022 |  |  | 2023 |  | 2022 |
Purchase loan origination volume | $ | 452 |  |  | $ | 240 |  |  | 88 | % |  | $ | 1,047 |  |  | $ | 557 |  |  | 88 | %
Refinance loan origination volume | 5 |  |  | 31 |  |  | (84) | % |  | 12 |  |  | 745 |  |  | (98) | %
Total loan origination volume | $ | 457 |  |  | $ | 271 |  |  | 69 | % |  | $ | 1,059 |  |  | $ | 1,302 |  |  | (19) | %

During the three months ended September 30, 2023, total loan origination volume increased 69% compared to the three months ended September 30, 2022. This increase was primarily driven by the continued growth in Zillow Home Loans purchase loan originations, partially offset by a decrease in refinance loan origination volume, which was impacted by interest rate increases. During the nine months ended September 30, 2023, total loan origination volume decreased 19% compared to the nine months ended September 30, 2022. This decrease was primarily driven by a decrease in refinance loan origination volume which was impacted by interest rate increases, partially offset by the continued growth in Zillow Home Loans purchase loan originations.
Results of Operations
Given continued uncertainty surrounding the health of the housing market, interest rate environment and inflationary conditions, financial performance for current and prior periods may not be indicative of future performance.
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Revenue

|  |  |  |  |  |  |  |  | % of Total Revenue
| Three Months Ended September 30, |  | 2022 to 2023 |  | Three Months Ended September 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022
| (in millions, except percentages, unaudited)
Residential | $ | 362 |  |  | $ | 372 |  |  | $ | (10) |  |  | (3) | % |  | 73 | % |  | 77 | %
Rentals | 99 |  |  | 74 |  |  | 25 |  |  | 34 |  |  | 20 |  |  | 15 |
Mortgages | 24 |  |  | 26 |  |  | (2) |  |  | (8) |  |  | 5 |  |  | 5 |
Other | 11 |  |  | 11 |  | — |  |  | — |  |  | 2 |  |  | 2 |
Total revenue | $ | 496 |  |  | $ | 483 |  |  | $ | 13 |  |  | 3 | % |  | 100 | % |  | 100 | %

|  |  |  |  |  |  |  |  | % of Total Revenue
| Nine Months Ended September 30, |  | 2022 to 2023 |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022
| (in millions, except percentages, unaudited)
Residential | $ | 1,103 |  |  | $ | 1,182 |  |  | $ | (79) |  |  | (7) | % |  | 75 | % |  | 78 | %
Rentals | 264 |  |  | 206 |  |  | 58 |  |  | 28 |  |  | 18 |  |  | 14 |
Mortgages | 74 |  |  | 101 |  |  | (27) |  |  | (27) |  |  | 5 |  |  | 7 |
Other | 30 |  |  | 34 |  | (4) |  |  | (12) |  |  | 2 |  |  | 2 |
Total revenue | $ | 1,471 |  |  | $ | 1,523 |  |  | $ | (52) |  |  | (3) | % |  | 100 | % |  | 100 | %

Three months ended September 30, 2023 compared to three months ended September 30, 2022
Total revenue increased $13 million, or 3%, to $496 million:
•Rentals revenue increased $25 million, or 34%. The increase in Rentals revenue was primarily due to a 20% increase in quarterly revenue per average monthly rentals unique visitor to $3.30 for the three months ended September 30, 2023 as compared to $2.74 for the three months ended September 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers as well as growth in multifamily property listings, which drove a 42% increase in multifamily rentals revenue. We calculate quarterly revenue per average monthly rentals unique visitor by dividing total Rentals revenue for the period by the average monthly rentals unique visitors for the period and then dividing by the number of quarters in the period. The increase in Rentals revenue was also driven by growth in average monthly rentals unique visitors which increased 11% to 30 million during the three months ended September 30, 2023 from 27 million during the three months ended September 30, 2022. Average monthly rentals unique visitors are measured with Comscore data, which includes average monthly unique visitors on rental listings on Zillow, Trulia and HotPads mobile apps and websites. We expect Rentals revenue to decrease in absolute dollars during the three months ending December 31, 2023, primarily due to the impact of seasonality on rental property listings and landlord advertising spend.
•Residential revenue decreased $10 million, or 3%. The decrease in Residential revenue was primarily driven by a 5% decrease in the number of visits for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 due to macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations. The impact of the decrease in visits was partially offset by a 3% increase in Residential revenue per visit to $0.138 for the three months ended September 30, 2023 from $0.134 for the three months ended September 30, 2022, primarily driven by continued improvement in our ability to connect high-intent customers to agents. We calculate Residential revenue per visit by dividing the revenue generated by our Residential offerings by the number of visits in the period. As a result of the housing market factors described above, Premier Agent revenue decreased 3% during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. We expect Residential revenue to decrease in absolute dollars during the three months ending December 31, 2023, primarily due to continued pressure from the macro housing market factors described above and the impact of seasonality on real estate transaction volumes.
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•Mortgages revenue decreased $2 million, or 8%, driven by an $8 million decrease in our Custom Quote and Connect advertising services revenue, offset by an $8 million increase in mortgage originations revenue. The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 40% decrease in leads generated from marketing products sold to mortgage professionals. This decrease in leads was driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period. The decrease in Custom Quote and Connect advertising services revenue was offset by an $8 million increase in mortgage originations revenue, as total loan origination volume increased 69% from $271 million for the three months ended September 30, 2022 to $457 million for the three months ended September 30, 2023, primarily driven by continued growth in Zillow Home Loans purchase loan origination volume, partially offset by a decrease in refinance loan origination volume due to the impact of interest rate increases. The increase in mortgage originations revenue was also attributable to a 40% increase in gain on sale margin. Gain on sale margin represents the net gain on sale of mortgage loans divided by total loan origination volume for the period. Net gain on sale of mortgage loans includes all components related to the origination and sale of mortgage loans, including the net gain on sale of loans into the secondary market, loan origination fees, unrealized gains and losses associated with changes in fair value of interest rate lock commitments and mortgage loans held for sale, realized and unrealized gains or losses from derivative financial instruments and the provision for losses relating to representations and warranties.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Total revenue decreased $52 million, or 3%, to $1,471 million:
•Residential revenue decreased $79 million, or 7%. This decrease was driven by a 6% decrease in the number of visits for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to macro housing market factors including low housing inventory, fewer new for-sale listings, increases and volatility in mortgage interest rates as well as home price fluctuations. These factors also resulted in an 8% decrease in Premier Agent revenue during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
•Mortgages revenue decreased $27 million, or 27%. This decrease was driven by a decline in our Custom Quote and Connect advertising services revenue. The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 35% decrease in leads generated from marketing products sold to mortgage professionals. This decrease in leads was driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period.
•Rentals revenue increased $58 million, or 28%. The increase in Rentals revenue was primarily due to growth in average monthly rentals unique visitors which increased 15% to 30 million during the nine months ended September 30, 2023 from 26 million during the nine months ended September 30, 2022. The increase in Rentals revenue was also driven by an 11% increase in quarterly revenue per average monthly rentals unique visitor to $2.93 for the nine months ended September 30, 2023 as compared to $2.64 for the nine months ended September 30, 2022, primarily driven by lower occupancy rates and the corresponding increase in advertising spend from multifamily property managers as well as growth in multifamily property listings.
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Adjusted EBITDA
The following table summarizes net loss, which includes the impact of discontinued operations, and Adjusted EBITDA, which excludes the impact of discontinued operations (in millions, except percentages):

|  |  |  |  |  |  |  |  | % of Revenue
| Three Months Ended September 30, |  | 2022 to 2023 |  | Three Months Ended September 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022
Net loss | $ | (28) |  |  | $ | (53) |  |  | $ | 25 |  |  | 47 | % |  | (6) | % |  | (11) | %
Adjusted EBITDA | $ | 107 |  |  | $ | 130 |  |  | $ | (23) |  |  | (18) | % |  | 22 | % |  | 27 | %

|  |  |  |  |  |  |  |  | % of Revenue
| Nine Months Ended September 30, |  | 2022 to 2023 |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022
Net loss | $ | (85) |  |  | $ | (29) |  |  | $ | (56) |  |  | (193) | % |  | (6) | % |  | (2) | %
Adjusted EBITDA | $ | 322 |  |  | $ | 441 |  |  | $ | (119) |  |  | (27) | % |  | 22 | % |  | 29 | %

To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA, a non-GAAP financial measure, within this Quarterly Report on Form 10-Q. We have provided a reconciliation below of Adjusted EBITDA to net loss, the most directly comparable U.S. generally accepted accounting principle (“GAAP”) financial measure.
We have included Adjusted EBITDA in this Quarterly Report on Form 10-Q as it is a key metric used by our management and Board to measure operating performance and trends and to prepare and approve our annual budget. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect the results of discontinued operations;
•Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or contractual commitments;
•Adjusted EBITDA does not reflect impairment and restructuring costs;
•Adjusted EBITDA does not reflect acquisition-related costs;
•Adjusted EBITDA does not reflect interest expense or other income, net;
•Adjusted EBITDA does not reflect income taxes; and
•Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently from the way we do, limiting its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash-flow metrics, net loss and our other GAAP results.
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The following table presents a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, which is net loss for each of the periods presented (in millions, unaudited):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Adjusted EBITDA to Net Loss: |  |  |  |  |  |  |
Net loss | $ | (28) |  |  | $ | (53) |  |  | $ | (85) |  |  | $ | (29) |
Loss from discontinued operations, net of income taxes | — |  |  | 2 |  |  | — |  |  | 13 |
Income taxes | — |  |  | 3 |  |  | 1 |  |  | (1) |
Other income, net | (34) |  |  | (12) |  |  | (108) |  |  | (19) |
Depreciation and amortization | 49 |  |  | 34 |  |  | 134 |  |  | 114 |
Share-based compensation | 109 |  |  | 147 |  |  | 342 |  |  | 323 |
Impairment and restructuring costs | 1 |  |  | — |  |  | 9 |  |  | 14 |
Acquisition-related costs | 1 |  |  | — |  |  | 2 |  |  | — |
Interest expense | 9 |  |  | 9 |  |  | 27 |  |  | 26 |
Adjusted EBITDA | $ | 107 |  |  | $ | 130 |  |  | $ | 322 |  |  | $ | 441 |

Costs and Expenses, Gross Profit and Other Items

|  |  |  |  |  |  |  |  | % of Total Revenue
| Three Months Ended September 30, |  | 2022 to 2023 |  | Three Months Ended September 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022
| (in millions, except percentages, unaudited)
Cost of revenue | $ | 110 |  |  | $ | 89 |  |  | $ | 21 |  |  | 24 | % |  | 22 | % |  | 18 | %
Gross profit | 386 |  |  | 394 |  |  | (8) |  |  | (2) |  |  | 78 |  |  | 82 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 164 |  |  | 165 |  |  | (1) |  |  | (1) |  |  | 33 |  |  | 34 |
Technology and development | 142 |  |  | 142 |  |  | — |  |  | — |  |  | 29 |  |  | 29 |
General and administrative | 131 |  |  | 138 |  |  | (7) |  |  | (5) |  |  | 26 |  |  | 29 |
Impairment and restructuring costs | 1 |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |
Acquisition-related costs | 1 |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |
Total operating expenses | 439 |  |  | 445 |  |  | (6) |  |  | (1) |  |  | 89 |  |  | 92 |
Other income, net | 34 |  |  | 12 |  |  | 22 |  |  | 183 |  |  | 7 |  |  | 2 |
Interest expense | (9) |  |  | (9) |  |  | — |  |  | — |  |  | (2) |  |  | (2) |
Income tax expense | — |  |  | (3) |  |  | 3 |  |  | 100 |  |  | — |  |  | (1) |

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|  |  |  |  |  |  |  |  | % of Total Revenue
| Nine Months Ended September 30, |  | 2022 to 2023 |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022
| (in millions, except percentages, unaudited)
Cost of revenue | $ | 306 |  |  | $ | 278 |  |  | $ | 28 |  |  | 10 | % |  | 21 | % |  | 18 | %
Gross profit | 1,165 |  |  | 1,245 |  |  | (80) |  |  | (6) |  |  | 79 |  |  | 82 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 493 |  |  | 502 |  |  | (9) |  |  | (2) |  |  | 34 |  |  | 33 |
Technology and development | 419 |  |  | 369 |  |  | 50 |  |  | 14 |  |  | 28 |  |  | 24 |
General and administrative | 407 |  |  | 370 |  |  | 37 |  |  | 10 |  |  | 28 |  |  | 24 |
Impairment and restructuring costs | 9 |  |  | 14 |  |  | (5) |  |  | (36) |  |  | 1 |  |  | 1 |
Acquisition-related costs | 2 |  |  | — |  |  | 2 |  |  | — |  |  | — |  |  | — |
Total operating expenses | 1,330 |  |  | 1,255 |  |  | 75 |  |  | 6 |  |  | 90 |  |  | 82 |
Other income, net | 108 |  |  | 19 |  |  | 89 |  |  | 468 |  |  | 7 |  |  | 1 |
Interest expense | (27) |  |  | (26) |  |  | (1) |  |  | (4) |  |  | (2) |  |  | (2) |
Income tax benefit (expense) | (1) |  |  | 1 |  |  | (2) |  |  | (200) |  |  | — |  |  | — |

Cost of Revenue
Cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount-related expenses, such as salaries, benefits, bonuses and share-based compensation expense, as well as revenue-sharing costs related to our commercial business relationships, depreciation expense, and costs associated with hosting our mobile applications and websites. Cost of revenue also includes amortization costs related to capitalized website and development activities, amortization of software, amortization of certain intangible assets and other costs to obtain data used to populate our mobile applications and websites, and amortization of certain intangible assets recorded in connection with acquisitions, including developed technology. Cost of revenue also includes credit card fees and ad serving costs paid to third parties, and direct costs to originate mortgage loans, including underwriting and processing costs.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Cost of revenue increased $21 million, or 24%, primarily driven by increases of $15 million in depreciation and amortization expense due to an increase in website development costs, $3 million in ad serving costs and $3 million in software and hardware costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Cost of revenue increased $28 million, or 10%, primarily driven by increases of $22 million in depreciation and amortization expense due to an increase in website development costs, $6 million in ad serving costs, $6 million in software and hardware costs and $4 million in mortgage loan processing costs due to increased purchase loan origination volume. These increases were partially offset by a $7 million decrease in lead acquisition costs as we focus on organic growth of our mortgage origination business and a $2 million decrease in credit card processing fees attributable to the previously mentioned decrease in revenue.
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Gross Profit
Gross profit is calculated as revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross profit has and will continue to be affected by a number of factors, including the mix of revenue from our various product offerings.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Gross profit decreased by $8 million, or 2%, due to increases in cost of revenue, primarily associated with additional depreciation and amortization expenses, which outpaced the growth of revenue. Total gross margin decreased from 82% to 78%.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Gross profit decreased by $80 million, or 6%, primarily due to a decrease in revenue, discussed above. Total gross margin decreased from 82% to 79%.
Sales and Marketing
Sales and marketing expenses consist of advertising costs and other sales expenses related to promotional and marketing activities, headcount-related expenses, including salaries, commissions, benefits, bonuses and share-based compensation expense for sales, sales support, customer support, including the customer connections team and mortgage loan officers and specialists, marketing and public relations employees, depreciation expense and amortization of certain intangible assets recorded in connection with acquisitions, including trade names and trademarks and customer relationships.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Sales and marketing expenses decreased $1 million, or 1%, due to a decrease of $5 million in headcount-related expenses, including share-based compensation expense, primarily driven by the recognition of incremental share-based compensation expense in the three months ended September 30, 2022 in connection with the repricing of eligible option awards in connection with the August 2022 Equity Award Actions, partially offset by a $2 million increase in marketing and advertising costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Sales and marketing expenses decreased $9 million, or 2%, due to decreases of $6 million in marketing and advertising costs and $4 million in third-party professional service fees both driven by active cost management, a $3 million decrease in depreciation and amortization expense, and a $3 million decrease in headcount-related expenses, including share-based compensation expense primarily driven by the recognition of incremental share-based compensation expense in the three months ended September 30, 2022 in connection with the repricing of eligible option awards in connection with the August 2022 Equity Award Actions. The decreases were partially offset by a $6 million increase in travel expenses and a $2 million increase in software and hardware costs.
Technology and Development
Technology and development expenses consist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for individuals engaged in the design, development and testing of our products, mobile applications and websites and the tools and applications that support our products. Technology and development expenses also include equipment and maintenance costs and depreciation expense.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Technology and development expenses remained flat, primarily due to a decrease of $3 million in third-party professional service fees, partially offset by a $2 million increase in travel expenses and a $2 million increase in software and hardware costs.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Technology and development expenses increased $50 million, or 14%, primarily due to increases of $41 million in headcount-related expenses, including share-based compensation expense, primarily driven by the August 2022 Equity Award Actions, $5 million in travel expenses and $4 million in software and hardware costs.
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General and Administrative
General and administrative expenses consist of headcount-related expenses, including salaries, benefits, bonuses and share-based compensation expense for executive, finance, accounting, legal, human resources, recruiting, corporate information technology costs and other administrative support. General and administrative expenses also include legal settlement costs and estimated legal liabilities, legal, accounting and other third-party professional service fees, rent expense, depreciation expense and bad debt expense.
Three months ended September 30, 2023 compared to three months ended September 30, 2022
General and administrative expenses decreased $7 million, or 5%, primarily due to a decrease of $10 million in headcount-related expenses, including share-based compensation expense, primarily driven by the recognition of incremental share-based compensation expense in the three months ended September 30, 2022 in connection with the repricing of eligible option awards in connection with the August 2022 Equity Award Actions, partially offset by an increase of $2 million in third-party professional service fees.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
General and administrative expenses increased $37 million, or 10%, primarily due to increases of $34 million in headcount-related expenses, including share-based compensation expense, primarily driven by an $18 million increase in share-based compensation expense associated with the departures of certain personnel, as well as the impact of the August 2022 Equity Award Actions. The increase in general and administrative expenses was also driven by increases of $3 million in third-party professional service fees and $3 million in software and hardware costs.
Impairment and Restructuring Costs
Impairment and restructuring costs were $1 million and $9 million for the three and nine month periods ended September 30, 2023, respectively. The nine months ended September 30, 2023 include impairment costs of $6 million related to reductions in our right of use assets associated with changes in the use of certain office space in our lease portfolio and employee termination costs of $3 million.
There were no impairment and restructuring costs incurred during the three months ended September 30, 2022. Impairment and restructuring costs totaled $14 million for the nine months ended September 30, 2022. These costs do not qualify as discontinued operations and were primarily attributable to employee termination costs associated with the wind down of Zillow Offers operations. For additional information regarding these costs, see Note 3 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Other Income, net
Other income, net consists primarily of interest income earned on our cash, cash equivalents and investments, and fair value adjustments on an outstanding warrant.
Other income, net increased $22 million and $89 million for the three and nine month periods ended September 30, 2023, respectively. The increase in other income, net was primarily driven by increases in returns on investments due to the higher interest rate environment as compared to the prior year period.
Income Taxes
We are primarily subject to income taxes in the United States (federal and state), as well as certain foreign jurisdictions. As of September 30, 2023 and December 31, 2022, we have provided a valuation allowance against our net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized. There is a reasonable possibility that within the next several years, sufficient positive evidence will become available to demonstrate that a significant portion of the valuation allowance against our U.S. net deferred tax assets will no longer be required. We have accumulated federal tax losses of approximately $1.8 billion as of December 31, 2022, which are available to reduce future taxable income. We have accumulated state tax losses of approximately $63 million (tax effected) as of December 31, 2022.
Income tax expense (benefit) for the three and nine months ended September 30, 2023 and the nine months ended September 30, 2022 was not material. We recorded income tax expense of $3 million for the three months ended September 30, 2022, primarily related to state income taxes.
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Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash flows from operations, debt financing and equity offerings. Our cash requirements consist principally of working capital, general corporate needs and mortgage loan originations. We generally reinvest available cash flows from operations into our business and to service our debt obligations.
Sources of Liquidity
As of September 30, 2023 and December 31, 2022, we had cash and cash equivalents, investments and restricted cash of $3.3 billion and $3.4 billion, respectively. Cash and cash equivalents balances consist of operating cash on deposit with financial institutions and money market funds. Investments consist of fixed income securities, which include U.S. government treasury securities, U.S. government agency securities, investment grade corporate securities, and commercial paper. Restricted cash primarily consists of amounts held in escrow related to funding customer home purchases in our mortgage origination business. Amounts on deposit with third-party financial institutions exceed the Federal Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation insurance limits, as applicable. As of September 30, 2023, Zillow Group and its subsidiaries were in compliance with all debt covenants specified in the facilities described below.
We believe that cash from operations and cash and cash equivalents and investment balances will be sufficient to meet our ongoing operating activities, working capital, capital expenditures, strategic acquisitions and investments and other capital requirements for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operations, debt financing and equity offerings, as applicable.
Summarized Cash Flow Information
The cash flows related to discontinued operations have not been separated. Accordingly, the condensed consolidated statements of cash flows and the following discussions include the results of continuing and discontinued operations for the nine months ended September 30, 2022. There were no cash flows related to discontinued operations for the nine months ended September 30, 2023. See Note 3 in our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information on discontinued operations, including supplemental cash flow information. The following table presents selected cash flow data for the periods presented (in millions, unaudited):

| Nine Months Ended September 30,
| 2023 |  | 2022
Cash Flow Data: |  |  |
Net cash provided by operating activities | $ | 268 |  |  | $ | 4,420 |
Net cash provided by (used in) investing activities | 339 |  |  | (1,123) |
Net cash used in financing activities | (226) |  |  | (4,160) |

Cash Flows Provided By Operating Activities
Our operating cash flows result primarily from cash received from real estate professionals, rental professionals, mortgage professionals, builders and brand advertisers, as well as cash received from sales of mortgages originated by Zillow Home Loans and, prior to September 30, 2022, from customers for sales of homes through Zillow Offers. Our primary uses of cash from operating activities include marketing and advertising activities, mortgages funded through Zillow Home Loans and employee compensation and benefits. Additionally, uses of cash from operating activities include costs associated with operating our mobile applications and websites and other general corporate expenditures. Prior to the wind down of Zillow Offers operations, our primary uses of cash from operating activities also included payments for homes purchased through Zillow Offers.
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For the nine months ended September 30, 2023, net cash provided by operating activities was $268 million. This was driven by a net loss of $85 million, adjusted by share-based compensation of $342 million, depreciation and amortization of $134 million, accretion of bond discount of $29 million, amortization of right of use assets of $18 million, amortization of contract cost assets of $16 million and amortization of debt issuance costs of $4 million. Changes in operating assets and liabilities decreased cash provided by operating activities by $135 million. The changes in operating assets and liabilities are primarily related to a $55 million increase in mortgage loans held for sale due to an increase in purchase loan origination volume, a $26 million increase in accounts receivable primarily due to an increase in revenue from products and services billed in arrears, a $24 million decrease in lease liabilities due to contractual lease payments, a $22 million increase in prepaid expenses and other current assets primarily due to an increase in revenue from products and services billed in arrears, a $16 million increase in contract cost assets primarily due to capitalized sales commissions, a $4 million decrease in other long term liabilities, and a $3 million decrease in accrued expenses and other current liabilities. These changes were partially offset by a $7 million increase in accounts payable and a $4 million increase in accrued compensation and benefits both driven by the timing of payments, and a $4 million increase in deferred revenue.
For the nine months ended September 30, 2022, net cash provided by operating activities was $4.4 billion. This was driven by a net loss of $29 million, adjusted by share-based compensation of $341 million, depreciation and amortization of $121 million, amortization of debt discount and debt issuance costs of $24 million, amortization of contract cost assets of $23 million, a loss on extinguishment of debt of $21 million, amortization of right of use assets of $17 million, accretion of bond discount of $11 million, and other adjustments to reconcile net loss to net cash provided by operating activities of $11 million. Changes in operating assets and liabilities increased cash provided by operating activities by $3.9 billion. The changes in operating assets and liabilities are primarily related to a $3.9 billion decrease in inventory and a $76 million decrease in accounts receivable as we wound down Zillow Offers operations, a $58 million decrease in mortgage loans held for sale driven by increased interest rates which decreased demand for mortgages, and a $6 million increase in other long-term liabilities primarily due to our outstanding warrant agreement. These changes were partially offset by a $52 million
decrease in accrued compensation and benefits and a $49 million decrease in accrued expenses and other current liabilities driven primarily by the wind down of Zillow Offers operations, a $15 million decrease in lease liabilities primarily due to lease payments, a $13 million increase in prepaid expenses and other current assets and a $13 million increase in contract cost assets.
Cash Flows Provided By (Used In) Investing Activities
Our primary investing activities include the purchase and sale or maturity of investments, cash outflows for purchases of property and equipment and intangible assets, including capitalized website development costs and internal-use software, and cash paid in connection with acquisitions.
For the nine months ended September 30, 2023, net cash provided by investing activities was $339 million. This was the result of $498 million of net proceeds from the maturity of investments, $125 million of purchases of property and equipment and intangible assets, and $34 million of cash paid for acquisitions, net of cash acquired.
For the nine months ended September 30, 2022, net cash used in investing activities was $1.1 billion. This was the result of $1.0 billion of net purchases of investments and $104 million of purchases of property and equipment and intangible assets.
Cash Flows Used In Financing Activities
Net cash used in financing activities has primarily resulted from repurchases of Class A common stock and Class C capital stock, the exercise of employee option awards, repayments of borrowings on the warehouse line of credit and master repurchase agreements related to Zillow Home Loans, and, prior to September 30, 2022, settlement of long term debt including our Zillow Offers securitization term loans, proceeds from our Zillow Offers securitization transaction, and proceeds from and repayments of borrowings on our credit facilities related to Zillow Offers.
For the nine months ended September 30, 2023, net cash used in financing activities was $226 million, which primarily related to $336 million of cash paid for share repurchases, partially offset by $56 million of proceeds from the exercise of option awards and $54 million of net borrowings on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans.
For the nine months ended September 30, 2022, net cash used in financing activities was $4.2 billion, which was primarily related to $2.2 billion of repayments on borrowings of our credit facilities and $1.2 billion for the repayment of the term loans associated with the wind down of Zillow Offers operations, $773 million of cash paid for share repurchases and $68 million of net repayments on our warehouse line of credit and master repurchase agreements related to Zillow Home Loans. The cash outflows were partially offset by $44 million of proceeds from the exercise of option awards.
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Capital Resources
We continue to invest in the development and expansion of our operations. Ongoing investments include, but are not limited to, improvements in our technology platforms, infrastructure and continued investments in sales and marketing. To finance these investments and ongoing operations, and in the event that we require additional funding to support strategic business opportunities, we have issued convertible senior notes. As of September 30, 2023, we have $1.7 billion aggregate principal of convertible senior notes outstanding. The convertible notes are senior unsecured obligations, and interest on the convertible notes is paid semi-annually. The following table summarizes our convertible senior notes as of the periods presented (in millions, except interest rates):

|  |  |  |  |  | September 30, 2023 |  | December 31, 2022
Maturity Date |  | Aggregate Principal Amount |  | Stated Interest Rate |  | Carrying Value |  | Carrying Value
September 1, 2026 |  | $ | 499 |  |  | 1.375 | % |  | $ | 496 |  |  | $ | 495 |
May 15, 2025 |  | 565 |  |  | 2.75 | % |  | 561 |  |  | 560 |
September 1, 2024 |  | 608 |  |  | 0.75 | % |  | 607 |  |  | 605 |
Total |  | $ | 1,672 |  |  |  |  | $ | 1,664 |  |  | $ | 1,660 |

We may from time to time seek to redeem, retire or purchase outstanding debt through cash purchases and/or exchanges for cash, shares of stock or a combination of cash and stock, pursuant to the redemption terms of such debt securities, in open market purchases, privately negotiated transactions or otherwise. In particular, the 2024 Notes and 2026 Notes may be redeemed if the last reported sale price of our Class C capital stock exceeds $56.56 per share for a specified period of trading days. To the extent our Class C capital stock price rises above those levels, we may redeem the 2024 Notes and/or 2026 Notes, in which case, we would expect to settle any conversions in cash up to the principal amount and shares of Class C capital stock for any conversion obligation in excess of the principal amount. Such redemptions, repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Refer to Note 9 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding our convertible senior notes, including conversion rates, conversion and redemption dates and the related capped call transactions.
On July 31, 2023, we acquired Aryeo, a software company which serves real estate photographers, for approximately $20 million of our Class C capital stock and $15 million in cash, net of cash acquired, subject to certain adjustments. Additionally, on September 11, 2023, we acquired substantially all of the assets and liabilities of Spruce, a tech-enabled title and escrow platform, for approximately $19 million in cash, net of cash acquired, subject to certain adjustments.
On October 28, 2023, Zillow, Inc. and Follow Up Boss entered into an Agreement pursuant to which Zillow, Inc. agreed to acquire Follow Up Boss for $400 million in cash, subject to certain adjustments, payable upon closing of the transaction, and up to $100 million in cash payable over a three-year period upon achievement of certain performance metrics contemplated by the Agreement. Follow Up Boss is a customer relationship management system for real estate professionals. The Agreement contains customary representations, warranties and covenants of the parties as well as conditions to closing, including, among other things, regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Prior to July 31, 2023, the Board authorized the repurchase of up to $1.8 billion of our Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof. For additional information on these authorizations, see Notes 13 and 15 to our Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of Class A common stock, Class C capital stock, convertible senior notes or a combination thereof. This additional authorization (together with the previous authorizations, the “Repurchase Authorizations”) increased our total cumulative Repurchase Authorizations to $2.5 billion. During the nine months ended September 30, 2023, we repurchased 1.8 million shares of Class A common stock and 5.4 million shares of Class C capital stock at an average price of $48.71 and $46.15 per share, respectively, for an aggregate purchase price of $86 million and $250 million, respectively. As of September 30, 2023, $914 million remained available for future repurchases pursuant to the Repurchase Authorizations, which repurchases decrease our liquidity and capital resources when effected.
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Zillow Home Loans operations impact our liquidity and capital resources as a cash intensive business that funds mortgage loans originated for resale in the secondary market. We primarily use debt financing to fund mortgage loan originations. The following table summarizes our warehouse line of credit and master repurchase agreements as of the periods presented (in millions, except interest rates):

Lender |  | Maturity Date |  | Maximum Borrowing Capacity |  | Outstanding Borrowings at September 30, 2023 |  | Outstanding Borrowings at December 31, 2022 |  | Weighted Average Interest Rate
JPMorgan Chase Bank, N.A.(1) |  | May 30, 2024 |  | $ | 100 |  |  | $ | 68 |  |  | $ | — |  |  | 7.03 | %
Atlas Securitized Products, L.P.(2) |  | March 11, 2024 |  | 50 |  |  | 22 |  |  | 23 |  |  | 7.32 | %
Comerica Bank |  | December 29, 2023 |  | 50 |  |  | 1 |  |  | 11 |  |  | 7.45 | %
Citibank, N.A.(3) |  | June 9, 2023 |  | — |  |  | — |  |  | 3 |  |  | — | %
|  | Total |  | $ | 200 |  |  | $ | 91 |  |  | $ | 37 |  |  |

(1)Agreement commenced on June 1, 2023 and provides for a total maximum borrowing capacity of $100 million, $25 million of which is committed, until May 30, 2024.
(2)Agreement was reassigned from Credit Suisse AG, Cayman Islands on May 25, 2023. No other material changes were made to the agreement in connection with the reassignment.
(3)Agreement expired on June 9, 2023 and was not renewed.
On October 11, 2023, Zillow Home Loans entered into a repurchase agreement with UBS AG. The repurchase agreement provides a total maximum borrowing capacity of $100 million until October 9, 2024.
Refer to Note 9 of our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information on Zillow Group’s warehouse line of credit and master repurchase agreements.
Contractual Obligations and Other Commitments
Convertible Senior Notes - Includes the aggregate principal amounts of the 2024 Notes, 2025 Notes and 2026 Notes due on their contractual maturity dates, as well as the associated coupon interest. As of September 30, 2023, we have an outstanding aggregate principal amount of convertible senior notes of $1.7 billion, $608 million of which is payable within 12 months. Future interest payments associated with the convertible senior notes total $55 million, with $27 million payable within 12 months. Refer to Note 9 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for maturity dates, stated interest rates and additional information on our convertible senior notes.
Credit Facilities - Includes principal amounts due for amounts borrowed under the warehouse line of credit and master repurchase agreements to finance mortgages originated through Zillow Home Loans. As of September 30, 2023, we have outstanding principal amounts of $91 million. Amounts exclude an immaterial amount of estimated interest payments.
Operating Lease Obligations - Our lease portfolio primarily comprises operating leases for our office space. During the nine months ended September 30, 2023, there were no material changes to our operating lease obligations disclosed in Note 12 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Additionally, as of September 30, 2023, we had outstanding letters of credit of approximately $12 million, which secure our lease obligations in connection with certain of the operating leases of our office spaces.
Purchase Obligations - We have non-cancellable purchase obligations for content related to our mobile applications and websites and certain cloud computing costs. During the nine months ended September 30, 2023, there were no material changes to the purchase commitments disclosed in Note 18 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. We evaluate our estimates, judgments and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates, and the health of the real estate market and the broader economy have introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact our estimates. For information on our critical accounting policies and estimates, see Part II Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily consist of fluctuations in interest rates.
Interest Rate Risk
Under our current investment policy, we invest our excess cash in money market funds, U.S. government treasury securities, U.S. government agency securities, investment grade corporate securities and commercial paper. Our current investment policy seeks first to preserve capital, second to provide sufficient liquidity for our operating and capital needs and third to maximize yield without putting our principal at risk.
Our short-term investments are exposed to market risk due to the fluctuation of prevailing interest rates that may reduce the yield on our investments or their fair value. For our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio.
As of September 30, 2023, we had approximately $1.7 billion aggregate principal amount of convertible senior notes outstanding with maturities ranging from September 2024 through September 2026. All outstanding convertible senior notes bear fixed rates of interest and, therefore, do not expose us to financial statement risk associated with changes in interest rates. The fair values of the convertible senior notes change primarily when the market price of our stock fluctuates or interest rates change.
We are also subject to market risk which may impact our mortgage loan origination volume and associated revenue and the net interest margin derived from borrowings under our warehouse line of credit and master repurchase agreements that provide capital for Zillow Home Loans. Market risk occurs in periods where changes in short-term interest rates result in mortgage loans being originated with terms that provide a smaller interest rate spread above the financing terms of our warehouse line of credit and master repurchase agreements, which can negatively impact our results of operations. This risk is primarily mitigated through the expedited sale of our loans. As of September 30, 2023 and December 31, 2022, we had $91 million and $37 million, respectively, of outstanding borrowings on our warehouse line of credit and master repurchase agreements which bear interest either at a floating rate based on Secured Overnight Financing Rate (“SOFR”) plus an applicable margin, as defined by the governing agreements, or Bloomberg Short-Term Bank Yield Index Rate (“BSBY”) plus an applicable margin, as defined by the governing agreements. We manage the interest rate risk associated with our mortgage loan origination services through the use of forward sales of mortgage-backed securities. Assuming no change in the outstanding borrowings on the warehouse line of credit and master repurchase agreements, we estimate that a one percentage point increase in SOFR or BSBY, as applicable, would not have a material effect on our annual interest expense associated with the warehouse line of credit and master repurchase agreements as of September 30, 2023 and December 31, 2022.
For additional details related to our credit facilities and convertible senior notes, see Note 9 to our Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Inflation Risk
The macroeconomic environment in the United States has experienced, and continues to experience inflationary pressures. While it is difficult to accurately measure the impact of these inflationary pressures on our business, we believe these effects have been pervasive throughout our business during the past several quarters. In response to ongoing inflationary pressures in the United States, the Federal Reserve has implemented a number of increases to the federal funds rate in recent quarters. These increases have impacted other market rates derived from this benchmark rate, including mortgage interest rates. The increase in mortgage interest rates across the industry has decreased demand for mortgages overall and, in turn, had an adverse impact on our Mortgages revenue.
If inflationary pressures persist, our costs, in particular labor, marketing and hosting costs, may increase and we may not be able to fully offset such higher costs through price increases. In addition, uncertain or changing economic and market conditions, including inflation or deflation, may continue to affect demand for our products and services and the housing markets in which we operate. Our inability or failure to quickly respond to inflation could harm our business, results of operations and financial condition. We cannot predict the duration or magnitude of these inflationary pressures, or how they may change over time, but we expect to see continued impacts on the residential real estate industry, our customers and our company. Despite these near-term effects, we do not expect these inflationary pressures to have a material impact on our ability to execute our long-term business strategy.
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Foreign Currency Exchange Risk
We do not believe that foreign currency exchange risk has had a material effect on our business, results of operations or financial condition. As we do not maintain a significant balance of foreign currency, we do not believe an immediate 10% increase or decrease in foreign currency exchange rates relative to the U.S. dollar would have a material effect on our business, results of operations or financial condition.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of September 30, 2023. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings in which we are involved, see Note 14 under the subsection titled “Legal Proceedings” in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Item 1A. Risk Factors
There have not been any material changes to the risk factors affecting our business, financial condition or future results from those set forth in Part I, Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. However, you should carefully consider the factors discussed in our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
On July 31, 2023, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act and Regulation D thereunder, we issued 380,259 shares of Class C capital stock to the stockholders of Aryeo as partial payment for acquisition of the entity by Zillow Group.
There were no other unregistered sales of equity securities during the three months ended September 30, 2023.
Purchase of Equity Securities by the Issuer
The following table summarizes our stock repurchases during the three months ended September 30, 2023 (in millions, except share data which are presented in thousands, and per share amounts):

|  | Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |  | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
Period |  | Class A common stock |  | Class C capital stock |  | Class A common stock |  | Class C capital stock |  |
July 1 - July 31, 2023 |  | — |  |  | — |  | $ | — |  |  | $ | — |  |  | — |  |  | $ | 1,014 |
August 1 - August 31, 2023 |  | 965 |  |  | 932 |  | 52.57 |  |  | 52.80 |  |  | 1,897 |  |  | 914 |
September 1 - September 30, 2023 |  | — |  |  | — |  | — |  |  | — |  |  | — |  |  | 914 |
Total |  | 965 |  |  | 932 |  |  |  |  |  | 1,897 |  |  |
(1) On December 2, 2021, the Board authorized a stock repurchase program granting the authority to repurchase up to $750 million of Class A common stock, Class C capital stock or a combination of both. On May 4, 2022, the Board authorized the repurchase of up to an additional $1 billion of Class A common stock, Class C capital stock or a combination thereof. On November 1, 2022, the Board further expanded these authorizations to allow for the repurchase of a portion of our outstanding convertible senior notes. On July 31, 2023, the Board authorized the repurchase of up to an additional $750 million of Class A common stock, Class C capital stock, outstanding convertible senior notes or a combination thereof (together with the previous authorizations, “Repurchase Authorizations”). The Repurchase Authorizations do not have an expiration date. There were no repurchases of convertible senior notes during the three months ended September 30, 2023.

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Item 5. Other Information
Trading Plans
On August 21, 2023, Brad Owens, General Counsel, entered into a 10b5-1 sales plan (the “10b5-1 Sales Plan”) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The 10b5-1 Sales Plan provides for the exercise of option awards and sale of up to 127,625 shares of Class C capital stock and the sale of an indeterminate number of shares of Class C capital stock related to future vesting of restricted stock units. The 10b5-1 Sales Plan will become effective on November 20, 2023 and will terminate on August 18, 2025, subject to earlier termination upon the exercise of option awards and sale of all shares of Class C capital stock subject to the 10b5-1 Sales Plan or as otherwise provided in the 10b5-1 Sales Plan.
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Item 6. Exhibits
The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number |  | Description
3.1 |  | Amended and Restated Articles of Incorporation of Zillow Group, Inc. (Filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2015, and incorporated herein by reference).
3.2 |  | Amended and Restated Bylaws of Zillow Group, Inc. (Filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 5, 2020, and incorporated herein by reference).
10.1 |  | Optional Partial Termination to Lease by and between FSP-RIC, LLC and Zillow, Inc. dated as of August 15, 2023.
10.2* |  | Amended Zillow Group, Inc. Executive Severance Plan and Summary Plan Description.
31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1^ |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2^ |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document).
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File (embedded within the inline XBRL document).
* |  | Indicates a management contract or compensatory plan or arrangement.
^ |  | The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 1, 2023 |  | ZILLOW GROUP, INC.
|  | By: | /s/ J ENNIFER R OCK
|  | Name: | Jennifer Rock
|  | Title: | Chief Accounting Officer

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