Zillow Group Inc. (ZG) Q3 2017 Earnings Conference Call Transcript

Markets Motley Fool

Zillow Group Inc. (NASDAQ: ZG)
Q3 2017 Earnings Conference Call
Nov. 7, 2017, 5:00 p.m. ET

Continue Reading Below

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen, and welcome to the Zillow Group, Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star, then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to R.J. Jones, Vice President of Investor Relations. You may begin.

Continue Reading Below

Raymond Jones -- Vice President of Investor Relations

Thank you. Good afternoon, and welcome to Zillow Groups Third Quarter 2017 Financial Results Conference Call. Joining me today to talk about our results are Zillow Groups Chief Executive Officer, Spencer Rascoff, and Chief Financial Officer, Kathleen Philips.

During the call, we will make forward-looking statements regarding future financial performance and events. Although we believe the expectations for reflected in the forward-looking statements are reasonable, we cannot guarantee these results. We caution you to consider the risk factors described in our SEC filings which could cause actual results to differ materially from those in the forward-looking statements made on this call. The date of this call is November 7, 2017, and forward-looking statements made today are based on assumptions as of this date. We are under no obligation to update these statements as a result of new information or future events except as required by law.

During the call, we will discuss GAAP and non-GAAP measures. We encourage you to read our financial results press release which can be found on our Investor Relations website as it contains important information about our reported and non-GAAP results, including reconciliation of non-GAAP financial measures. In our remarks, non-GAAP financial measure adjusted EBITDA is referred to as EBIDTA, which excludes other income, depreciation, and amortization expense, share-based compensation expense, acquisition-related costs, interest expense, and income tax benefits. This call is being broadcast on the Internet and is available on the Investor Relations section of Zillow Groups website.

A copy of management's prepared remarks has been posted to the quarterly results section of our Investor Relations website. A recording of the call will be available later today. We will open the call with prepared remarks, followed by live Q&A. In addition to taking questions from those dialed into the call, we will answer questions asked via Slido. We encourage you to visit www.slido.com, where you may submit questions by entering the event code #zearnings, you may also vote on which submitted questions you want us to answer. I will now turn the call over to Spencer.

Spencer M. Rascoff -- Chief Executive Officer

Thank you R.J. and to all of you for joining us. We're hosting this call today from our office in Irvine, home to around 300 employees, including our premier agent sales and support team, our data acquisition team; listing feeds the team, B2B software tools, internal software tools team, and realestate.com.

Zillow Group delivered terrific third quarter results. Total revenue for the third quarter of 2017 grew 25% year-over-year, to approximately 282 million, which exceeded the high end of our guidance range by nearly 4 million. Q3 GAAP net income was more than 9 million, or more than 3% of revenue. EBITDA for the third quarter exceeded 70 million, or more than 25% of revenue, ahead of expectations due to strong revenue growth across all marketplaces and cost savings.

In addition to strong financial results in Q3, we also made progress on our key corporate priorities. The priority is to grow our audience size and increase consumer engagement. Traffic to Zillow Group brands, mobile apps, and websites reached more than 175 million average monthly, unique users in the third quarter of 2017, an increase of 6% year-over-year. In July, we reached an all-time record of more than 187 million unique users, which was up by more than 17 million unique users from the same period last year.

Our advertising and other marketing initiatives continue to be effective in driving more consumers to Zillow Groups mobile apps and websites, even at such a large audience scale. Further down the funnel, visits reached nearly 1.7 billion during the third quarter, up 19% year-over-year. Visits growth was driven by a variety of product improvements that increased consumers propensity to return to our mobile apps and websites, including initiatives to encourage mobile web visitors from search engines to download our apps. As a reminder, the visits metric helps us evaluate progress toward our goal of increasing audience engagement. Users who visit frequently have a greater intent to buy, sell, or rent a home, which ultimately means more high-quality leads for our agent advertisers.

Our next priority is to continue growing our premier agent business which makes up about 70% of our total revenue. In the third quarter of 2017, premier agent revenue grew 24% year-over-year. We continue to focus on helping top performing agent advertisers grow their businesses by advertising with us and by using our software tools. Last year, we introduced two exciting new advertising options to better align our premier agent advertising products with the way real estate professionals run their businesses, including the Premier Broker Program, and Team Accounts. These programs all agents and brokerages to purchase advertising with us in a new way that results in a better consumer experience since they can more efficiently service the leads received from our platform. This accrues strategic shift in the way agents and brokers advertise with us, made the total advertiser account metric less meaningful because it did not represent the total number of agents advertising on our platform.

However, we still get many questions about how many agents are using the Premier Agent Program; I want to clarify that today, more individual real estate agents receive leads from Zillow Group than ever before. Thanks to the growth of Premier Broker and Team Accounts. Since the third quarter of 2016, the number of Premier Broker accounts has grown by 260%, and the number of Team Accounts has grown by 87%. Premier Broker and Teams, range from two to more than 130 agents under one account.

Just a few weeks ago, we hosted nearly 2,000 agents at our annual Premier Agent Forum in Las Vegas. At the Forum we announced several exciting new features designed to help agents and brokers convert more leads into transactions. I want to share a few of the products and features that we announced at the forum.

Last year, we launched Premier Agent Direct, a program that allows agents to advertise their listings and their brand on Zillow, Trulia, and Facebook. This year we expanded Premier Agent Direct to include Postal Mail, which is still the advertising medium used by most real estate agents. With this program, printed postcards are automatically generated and mailed on behalf of premier agents, providing another marketing touchpoint with consumers. We also announced some exciting updates to the Premier Agent App. For the first time, we're adding features to the app that expand its use beyond lead management, and into business and transaction workflow. For example, our newest feature called Tasks, allows agents to create a checklist to stay on top of their commitments to clients and prospects.

We're also making the PIA app a single-source communications platform. Premier agents can now text and email clients right from the app, allowing agents to manage their client communications all in one place. The Premier Agent App is now a powerful productivity platform, and we believe it is the most widely used B2B app in the real estate industry.

Another feature we're excited about is called My Agent. We know that after initial contact via Zillow Group mobile app or website, premier agents typically move clients to another internal system to share listings, and communicate. Yet, the consumer will come back to Zillow, or Trulia almost 30 times in the next month. Now, when we observe through the app that a premier agent is actively working with a buyer, we will replace our traditional buyer's agent list that the consumer sees on Zillow and Trulia listing, with a contact box that features only that consumers chosen agent. Since no other agents will be visible, it will solidify the agent, consumer relationship making it much easier for them to work together. This two-way contact module, where agents and their clients can communicate about homes, would help agents convert more leads into transactions by keeping that agent in front of the consumer throughout their search. For the consumer, they're able to search on a platform they already are familiar with and love. In addition, this will make Zillow Group experience even better for premier agents by improving the quality of leads.

Prior to the Forum, we announced an exciting new product that allows agents to create 3-D home tours on their iPhone and post them, for free, to their Zillow Group listings. The Zillow Group Home Capture App will bring an incredible 3-D home tour experience to buyers letting them narrow their home searches before visiting in person. I'm especially excited about this app because up until now capturing 3-D images was really expensive and time-consuming for agents. We've been working for the past two years on a way to democratize this technology and make it freely available. It's hard for me to overstate the level of creativity, and sophisticated technical knowledge that has made this product a reality. Stitching together still photos taken from an iPhone to create an immersive 3-D panorama tour requires teams intently focused on machine learning, and image recognition. We're currently testing the app in one market, and anticipate its nationwide rollout in 2018.

Moving on. As you may recall, we're currently experimenting with a product called Zillow Instant Offers. The pilot is testing in two markets, Orlando and Las Vegas, and soon Phoenix. Instant Offers provides motivated sellers with an opportunity to submit information about their home through Zillow easily. Those potential sellers then receive a comparative market analysis and a listing presentation from a premier agent, alongside actual offers from investors. If they chose an investor offer, the consumer gets control and certainty on the sale of their home in a predictable time-frame. The purpose of the test is to determine where sellers see the balance between convenience and price. It is still early in the experiment, so we're not sharing specific results, but we are seeing a positive response from agents, direct home buyers, and sellers. We identified an opportunity to innovate on this emerging trend and to provide more transparency for consumers while delivering high-quality seller listing leads to premier agents. We are the only player in this growing market category that keeps agents at the center of the process. We believe that an agent's role as trusted advisor is incredibly valuable to consumers, and will be a permanent part of most real estate transactions.

Our third strategic priority is to grow our emerging marketplaces of mortgages, rentals, New York City, and new construction. Our mortgages revenue is growing at a healthy pace ahead of the industry, largely because of two key advantages. First, most of the activity in mortgages is driven by home buyers looking for purchase loans, that is increasing thanks in part, to sustained low-interest rates and strong housing demands. While overall industry mortgage lending volumes are down due to historically low refinancing lending, we continue to expect our revenue growth to outpace the growth rate of the industry, as the bulk of our mortgage activity comes from consumers seeking purchase loans.

Our second key advantage in mortgages is its connection with our real estate sites, where potential borrowers are already shopping for homes. These two marketplaces support one another and just like with real estate we're continuing to test and experiment in the mortgages space. The mortgage and home shopping experiences are inextricably linked. We feel that we can bring significant innovation to the space for the benefit of home shoppers and borrowers.

In our rentals marketplace, revenue grew 56% year-over-year for the third quarter of 2017. Our long-term rental strategy is to drive engagement through personalization, and machine learning to get the right properties in front of the right renters, fast. Last month, we launched Rental Inforum, a cloud-based data dashboard with the exclusive real-time robust rental market and aggregated consumer insights. Rental Inforum is powered by an automated, aggregated search data from the approximately 33 million monthly unique rental users that visit Zillow Groups brands, mobile apps, and websites. Property managers can now access that data to help them better understand consumer preferences. The data provide insight into what type of floor plan, amenities, or price points are most desirable in an area, as well as details on the current rental market, and pricing trends. This is similar to our builder and forum data toolset that we rolled out earlier in the year. We are also making the Zillow Group home capture app available for property managers and landlords to shoot 3-D tours for their rental units.

In our New York City marketplace, the rollout of Premier Agent on Street Easy, and Rentals paid inclusion for the New York City rentals network, have exceeded our expectations. The addition of these two new advertising products contributed to our strong third quarter 2017 total revenue performance. Our New York City industry relationships remain strong. During the third quarter, we expanded our multi-year agreement with Realogy, the parent company to Corcoran Group, City Habitats, and Sotheby's. To have their for sale and rental listings displayed on Street Easy. This was a big win for consumers and Zillow Group as these were some of the leading brokers in New York. In the unique market like New York, it's very important to have local expertise, and Street Easy's hyper-local focus has always been a major competitive advantage for us.

New Yorkers love the Street Easy brand. For the past decade Street Easy has focused on developing products that are specifically designed to capture the unique needs of New York City buyers, renters, and sellers. They have spent tens of millions of dollars on New York City-specific marketing. Agents will always want their listings displayed where the largest audience goes for their home search needs, in New York, that's Street Easy. For sale listings in New York City across all Zillow, Group brands attracted almost 13 million visits during the third quarter, clearly making us the brand of choice for home shoppers there.

Specific to the rental side in New York, agents realize the value that Street Easy provides to their business, and are choosing to advertise their rental listings with us. More than 10,000 local agents have already opted into the New York City Rental Network since we launched in the second quarter of 2017. Consumers shopping for a rental in New York benefit from Street Easy's high-quality inventory since paid inclusion eliminated many stale, and fraudulent listings. Agents benefit from the large audience on the New York City rental network which received almost 14 million visits during the third quarter of 2017.

In our new construction marketplace, we are encouraged by the addition of many new promoted communities to our platform as we work toward our goal of being a leader in residential and new construction marketing. During the quarter, we continued to invest in this emerging marketplace with the acquisition of New Home Feed, a streamlined listing management technology that allows builders to input, manage and syndicate their listings across the web. This acquisition makes it easier for our builder partners to send their listings to Zillow Group, and ultimately improve the quality and accuracy of new construction listings across our consumer brands. We look forward to partnering with more builders to help them build their brands and increase discoverability of their new construction homes.

Finally, our fourth priority is attracting and retaining the best talent and maintain Zillow Group's unique company culture focused on innovation. We know that our employees are our most important asset. In September Zillow Group was named to Fortune Magazine's list of the best workplaces for women. This was an important recognition of us, as diversity and inclusion at Zillow Group is a major initiative. We have invested significant resources to ensure that all employees feel valued, and know that their achievements are appreciated, and we're pleased to be recognized for these efforts. It has been a really exciting year, so far, for Zillow Group and the real estate category as a whole. We're excited about what's next. Fortune Magazine, again, recognized us just a couple weeks ago as a company poised for breakout growth by placing us on their future 50 lists. We're focused on priming our company for that growth.

Technology is evolving faster than it has before, and we're seeing consumer expectations rise in every category including real estate. We know that delighting the consumer will mean something different in 2018 than it did in 2008. For home buyers, sellers, and renters the desire to simplify and shorten the process is growing. We're already exploring ways to satisfy that desire with 3-D tours and our experiment with instant offers, as a couple of examples. You can expect that kind of innovation from us to continue in the coming years, our position as a category leader, along with our employee's technical prowess and creativity put us in a position to continue growing and strengthening our own business, and to help our valued industry partners do the same.

Before I turn the call over to Kathleen, I wanted to discuss the impact of the catastrophic hurricanes and fires that have devastated regions across our country over the past few months. Our thoughts are with the people of Texas, Florida, Puerto Rico, and California where thousands of homes and business were damaged or destroyed, leaving countless people without a place to live, and where lives were lost. Many Zillow Group employees have volunteered their time and energy to help with the recovery, and to raise money. I want to thank them all for this dedication. With that, I'll turn it over to Kathleen for our financial review and our outlook for the remainder of the year.

Kathleen Philips -- Chief Financial Officer

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

Total revenue for the third quarter increased 25% year-over-year to a record of 281.8 million, from 224.6 million in the same period last year. Premier Agent revenue grew 24% year-over-year to 197.1 million in the third quarter, resulting in a 5% year-over-year increase in Premier Agent revenue per visit. Our option-based pricing platform continues to perform well as traffic and engagement increased across all brands, demand from agents for advertising with us increased in some of the country's hottest real estate markets.

Nationwide adoption is trending as expected based upon our experience with the pilot that we conducted in a small number of markets. We continued to see top performing agents increasing their spend with us to maintain their competitive advantage in their markets, while other growth-oriented agents are expanding their reach and brand by spreading their ad spend to neighboring zip codes where their potential R.O.I. may be higher. In both cases, we have more agents increasing their advertising spend with us over time. Top performing agents, brokers, and other teams continue to increase their spending with us as they realize the benefits of advertising on our platform. For example, revenue from same-agent advertisers or those who have been on our platform for more than one year grew by 45% compared to the prior year. New sales, to existing advertisers, made up 3% of total bookings in the third quarter. The number of premier agent accounts spending more than $5,000 per month grew by 98% year-over-year and increased 88% on a total dollar basis during that period.

In response to the hurricanes and the northern California wildfires that occurred late in the summer, we worked closely with our premier agents, premier brokers, and other advertisers in the affected areas to manage their advertising budgets efficiently during this challenging time. We estimated that these relief initiatives, which included billing credits, and other forms of advertising assistance, as well as lost sales impacted our third quarter 2017 Premier Agent revenue by more than $800,000. Additionally, we expect that our fourth quarter 2017 Premier Agent revenue will be impacted by almost $1 million. We also experienced a temporary decline in traffic to our mobile apps and websites from consumers in affected areas during the month of September.

On our last earnings call, we shared that we were in discussions with the Consumer Financial Protection Bureau related to a possible settlement concerning their investigation. We continue to have ongoing discussions with the CFPB, but have not yet come to a mutually agreeable settlement. As a reminder, the CFPB has indicated that if a settlement is not reached, they may pursue legal action against us. We believe that our practices are lawful and that our co-marketing program allows agents and lenders to comply with their legal obligations. We will continue to engage in discussions with the CFPB and hope to put this matter behind us as soon as possible.

Getting back to our financial results for the quarter, other real estate revenue grew 55% year-over-year to 44.8 million. Other real estate revenue primarily includes Zillow Group Rentals, New Construction, Dot Loop, as well as revenue from the sale of various other advertising and business software solutions and services for real estate professionals. Mortgages revenue reached 20.9 million in the third quarter, which represents a 6% increase, year-over-year. Average revenue per loan information request increased 31% year-over-year. Display revenue was 19.1 million, an increase of approximately 8% over the same period last year, driven by strong brand sales initiatives and increased traffic.

Shifting now from revenue to our expenses. Total operating expenses for the third quarter were 267.1 million. Our cost of revenue was 22.2 million, or 8% of revenue. Sales and marketing expense was 107.1 million, or 38% of revenue. Technology and development costs were 83.4 million, or 30% of revenue. General and administrative costs were 54.2 million, or 19% of revenue. We ended the quarter with more than 3,000 employees across all of our offices.

Now turning to our outlook for the remained of 2017. We are updating our full-year revenue outlook to a new range of 1.068 to 1.073 billion, which represents 26% year-over-year growth at the mid-point of the range. We also are updating our full-year EBITDA outlook to a range of 233 to 238 million, nearly 22% margin at the mid-point of the range. For detailed fourth quarter and full year 2017 guidance, I encourage you to review our press release that was issued this afternoon and is available on our Investor Relations website.

With just one quarter left in 2017, we expect to end the year strong. It has been an exciting year for Zillow Group as we completely changed our Premier Agent pricing model, and experienced significant growth in emerging marketplaces. We look forward to the opportunities ahead for Zillow Group as we further solidify our position as the real estate industries most trusted marketing and technology partner.

With that, I'll turn the call back over to the operator for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then one on your touchtone telephone. If your question has been answered or you wish to be removed from the queue, please press the pound key. To prevent any background noise, we ask that we ask that you, please place your line on mute once your question has been stated.

Our first question comes from Michael Graham of Canaccord. The line is open.

Michael Graham -- Canaccord -- Analyst

Hi. Thanks a lot. Congrats on the quarter.

I just wanted to get an update on the self-serve platform. Specifically, you just came through a really seasonally strong period there; ostensibly there was a lot of activity on the platform, update us, if you could, on what you learned there. And on what level of seasonality, or expecting in Q4, if any, how to possible downward seasonality in Q4 impacts how you thought about guidance?

Spencer M. Rascoff -- Chief Executive Officer

Sure. Hi, Michael.

The goal of switching the Premier Agent model to market-based pricing was to create a pricing model where agents with the highest lead conversion were the ones buying the most impressions. It absolutely had that desired effect. Market-based pricing had the effect of increasing C.P.M. in high R.O.I. areas. Money flowed toward where there was R.O.I. to be had, so it worked. Now, the focus on Premier Agent is on increasing lead conversion because improvements in lead conversion result in improvements in monetization through the beauty of the market-based pricing option. So, the initiatives to improve lead conversion touch on things like better customer selection, selling products like Premier Broker where brokerages are the ones buying the impressions. They turn around and hand those leads to their agents, investing in the Premier Agent app, investing in My Agent, which improves lead quality, a whole host of issues around improving conversion. And then secondly, in terms of where the Premier Agent business goes from here, we're investing more resources in Premier Agent Direct, which is a listings promotion product that helps listing agents, feature their listings on Zillow, Trulia, Facebook and Indirect Mail. As you know, most of their international real estate sites monetize their audience in this way by helping listing agents merchandise their listings, and we think there's a lot of opportunities for us to invest here. The third major initiative for Premier Agent is investing in the sales team so that we can widen our focus to sell more to smaller agents with growth potential, smaller teams, smaller brokerages, and smaller agents in setting those new accounts up for success. Taking all that together, I'm very pleased with our Premier Agent results in Q3, and our guidance for Q4, especially given the approximately $1 million headwind that we faced in Q3 and the about $1 million headwind that we predict for Q4 due to natural disasters.

In terms of seasonality, this is the first Q4 that we're entering where the whole Premier Agent business is now on this market-based pricing model. You'll recall, that a year ago in Q4, we had only a small portion, I think around a quarter of the country, if I remember correctly, at about this time last year. Our Q4 guidance for Premier Agent reflects our best guess at this point in time of how Q4 results will come together based on our estimation of seasonality and all the other puts and takes that I just ticked off in reviewing Premier Agent.

Operator, I think we'll go to the next question, please.

Operator

Thank you. Our next question comes from John Campbell, of [inaudible] [00:26:51] Incorporated. Your line is now open.

John Campbell -- Analyst

Hey guys, congrats on the quarter.

Spencer, on the My Agent feature, I just wanna make sure I understand that correctly. It sounds like you guys are attempting to improve the conversion trend, that's maybe gonna take some repeat leads out of the mix, so maybe a near-term, medium-term impact to rub. But it sounds like the right pivot long-haul. My question is, is the My Agent feature is that gonna be priced differently or are you thinking the self-serve model just naturally normalizes that spin on R.O.I. I guess as a lead quality improves?

Spencer M. Rascoff -- Chief Executive Officer

There are two benefits to My Agent with respect to lead conversion. The first is that consumer that's working with the single agent, will now see the same agent the next 30-odd times they come to the site, and therefore they're more likely to transact from the agent they're connected with. The second benefit is once a consumer is working with a particular agent, she no longer contacts a different agent who is unable to convert that lead. There are fewer bad leads that can't be closed. It's a double benefit to lead conversion. In your question, you said something like it might be a near-term hit to revenue. We don't see it that way; it might be a near-term hit to lead volume, absolutely. We hope it is a hit to lead volume, but it's a dramatic improvement in lead quality. In terms of how it will be monetized, for the time being, we've given it free to attendees of our Las Vegas Premier Agent Forum Event. We haven't yet announced how the feature will be appreciated by the rest of the Premier Agents who didn't attend the Vegas Forum, so stay tuned.

John Campbell -- Analyst

It just sounds like pricing is TBD.

Spencer M. Rascoff -- Chief Executive Officer

Yes.

John Campbell -- Analyst

Okay. Thank you.

Spencer M. Rascoff -- Chief Executive Officer

Next question, please.

Operator

Thank you. Our next question comes from Ron Josie, of J&P Securities. Your line is now open.

Andrew Boone -- J&P Securities -- Analyst

Hi guys, this is Andrew Boone, on for Ron. Thanks for taking the question.

For 2Q and 3Q, new bookings to existing agents was 52%, the lowest since you started to report this metric. That suggests to us that new agents are joining the platform, is this happening because of the auction format which makes pricing more transparent, the expansion to New York, or something different? Then within the context of Premier Broker and the team account stats that you highlighted, can you talk about how that's influencing the self-service auction? Are teams more dynamic in their allocation, which is evening out R.O.I.? Or you see anything else within that manner?

Spencer M. Rascoff -- Chief Executive Officer

Sure. Good questions, Andrew.

The biggest determinate of the metric around what percent of our impressions are bought by existing agents versus new agents is how much sales resources we devote toward bringing on new accounts versus relatively speaking focusing on upselling existing accounts. I think we probably over-focused during parts of 2017 on growing our existing accounts and ensuring that they bought more impressions, and relatively speaking, under-invested in bringing on brand new accounts. As I mentioned, that's something that we're focusing on rebalancing and making sure that we restock the advertiser base with new accounts that are growth-oriented and can become the big spenders down the road.

With regard to how Premier Broker impacts market-based pricing, it is an incredible additive to the market-based pricing model because when a Premier Broker Advertiser buys 20, 30, 50, $100,000 of impressions in a group of zip codes, that, of course, creates a market dynamic where the C.P.M. increases in those zip codes based on the new advertising dollars that are being brought into the marketplace by the premier broker. It also has the benefit of this new, larger advertiser, the Premier Broker, providing the tracking and the lead follow-up to their agents, which as I've already discussed, is so important to the revenue flow-through of the model. If more of our leads become transactions and become commissions, then people will pay more for the leads. And premier brokers have the tools, the training, and the incentive to focus their agents on lead conversion, and we work with them closely to do that. One of the requirements of the premier broker program is using our technology stack including the Premier Agent App, and that allows us to help the brokers focus their agents on lead conversion.

For most of those premier brokers, they're using Dot Loop as well as part of the lead conversion tracking and transaction management, also.

Next question, please, operator.

Operator

Thank you. Our next question comes from Matt Schindler of Bank of America, Merrill Lynch. Your line is open.

Matt Schindler -- Bank of America Merrill Lynch -- Analyst

Yes. Hi. I know that you're still in ongoing discussion with the CFPB, so nothing to report there. But if could you elaborate a little bit if there's been any change in behavior from your premier agents, or mortgage brokers that are using this system because of this controversy?

Kathleen Philips -- Chief Executive Officer

Sure. The nature of our platform is such that advertisers come in and out on a fairly regular basis. We don't speak about particular advertiser behavior, what I think is probably most instructive for all of you is that we still have robust participation in the co-marketing program, and that is a sign that our lender advertisers own compliance departments are looking at the program, and they believe that it's compliant and that their broker participation in it complies with the laws that apply to them. We haven't seen any significant impact, as I said, though that is with the caveat that advertisers do tend to come on and off our platform just in the ordinary course.

Matt Schindler -- Bank of America Merrill Lynch -- Analyst

Great, and thank you.

Just to clarify earlier comments you have made on a call on this, you had said in the past, that this is a small percentage of revenue that comes from this program. Is that how you would clarify it?

Kathleen Philips -- Chief Executive Officer

Yes. We have said it's a small percentage of overall revenue.

Matt Schindler -- Bank of America Merrill Lynch -- Analyst

Great, and thank you.

Spencer M. Rascoff -- Chief Executive Officer

Operator, next question, please.

Operator

Thank you. Our next question comes from Brad Erickson of KeyBank Capital. Your line is now open.

Brad Erickson -- KeyBank Capital -- Analyst

Hi. Thanks for taking the questions.

When you think about the composition of Premier Agent revenue now coming from the teams, you called out earlier in the prepared remarks versus just the individual agents. Is it roughly even at this point, or is one side a larger contributor than the other there?

Spencer M. Rascoff -- Chief Executive Officer

I don't have the data at my fingertips to answer that. I'd say, certainly among our largest spenders; it's tilted toward teams. A large portion of the premier agent spending between $10 and $100,000 a month are teams. I would venture to guess there are very few individual agents at that spending level. In terms of total dollars, though, there are still many, many, many individual agents spending many thousands of dollars. By that metric, it would be tilted more in favor of the individual agents, not teams.

Brad Erickson -- KeyBank Capital -- Analyst

Got it. That's helpful.

Then, just in terms of the growth rates of premier agent versus some of the existing cohort spending you called out, those are still really far apart, obviously very, very high for that existing cohort versus the 20, the mid-20s you reported in the quarter for overall premier as your revenue. Is that something we should expect to converge at some point? Maybe just help us reconcile that a bit better. Thanks.

Spencer M. Rascoff -- Chief Executive Officer

I'm trying to think about how to best answer that. Clearly, we've been focused on growing high-spenders spend. We've been doing that by focusing our sales energies on those accounts by changing our product strategy, and our software tool strategy to focus on those accounts and by changing the way the pricing model works to market-based pricing to focus on those types of accounts. Those initiatives you're seeing in the numbers we shared around growth of teams and premier broker. In addition, there's a broader industry trend toward teams who are gaining share from individual agents. The reason for that is changing consumer expectations, where consumers now expect agents to be 24/7 and it's very difficult for a single agent to be 24/7, it's a lot easier for a team of three or five people to offer that kind of service. In terms of over time, how might those trends converge? Sure, I suppose over the very long run I would expect those trends to converge. By which I mean the spend growth of teams to converge closer to the overall spend growth, but I still think that's many years away.

Next question, please, Operator.

Operator

Thank you. Our next question comes from Lloyd Walmsley. Your line is now open.

Lloyd Walmsley --  -- Analyst

Hi. Thanks for taking the question, this is Quinel for Lloyd. A couple if I may. One on the New York market, what are you thinking in terms of pricing and overall spending trends in the New York market, how big is it as a percentage of your premier agent revenue?

Spencer M. Rascoff -- Chief Executive Officer

So, when we brought Premier Agent to New York earlier this year, we were dramatically under-monetized in New York relative to the size of our leads, and size of our audience. There was a bit of a gold rush in New York, where agents and teams were buying impressions at a very low price and leads at a very low price. The cost per lead and cost per impression in New York has gone up materially over the last six months, as the auction dynamics have had their effect. Still, if you were looking at zip codes throughout New York, you would find outsized R.O.I. as compared with many other parts of the country because it's still dramatically underpenetrated relative to the size of the market, and the size of our volume, and our lead flow.

The other right answer is we have outsized consumer audience share in New York, as compared with even in other major cities, and yet our revenue in New York is still underpenetrated relative to even the percent of total commissions or total real estate activity in New York as compared with the country. So, we still have a long way to go to earn into our fair share and then some in New York.

Spencer M. Rascoff -- Chief Executive Officer

And I'll take one or two questions from Slido, and then we'll come back to the call, please. Kathleen, another question about CFPB, how are real estate agents and mortgage agents responding to the uncertainty around co-marketing? Specifically, what percent of mortgage agents that buy agent co-marketing also spend in the mortgage marketplace?

I guess I think you answered the first portion of this. I would add that the percent of agents that have a co-marketing partner hasn't changed materially in the last year or two.

Kathleen Philips -- Chief Financial Officer

That's right.

Spencer M. Rascoff -- Chief Executive Officer

And it also hasn't changed since we announced that we were in settlement discussions with the CFPB? Would you agree with that?

Kathleen Philips -- Chief Financial Officer

That's correct. Yes. Spencer.

In terms of overlap of advertisers, there certainly overlap of advertisers. Some lenders simply prefer to be in the mortgage marketplace and not do co-marketing. Many do both; we don't break out what the overlap percentage is there.

Spencer M. Rascoff -- Chief Executive Officer

There's another question from Slido about premier agent revenue deceleration year-over-year, even adjusting for the hurricane impact.

I mean there's obviously a lot of large numbers which makes it difficult to keep growing Premier Agent revenue at the same rate. I think Q3 revenue growth for Premier Agent was very strong. That is, having been said; I do think that we need to grow the size of the sales team a little bit more in Q4 and going into Q1 because there is still so much opportunity and we're still so underpenetrated. Adding more salespeople is highly lucrative, and we intend to do so.

Operator, we'll go back to the call, and then I'll go back to Slido before we wrap up.

Operator

Thank you. Our next question comes from Jason Hillstein of Oppenheimer. Your line is now open.

Jason Hillstein -- Oppenheimer -- Analyst

Hi, this Jason's associate, Ben. I'm asking, the impact of the business of slowing down home sales metrics on Zillow?

Spencer M. Rascoff -- Chief Executive Officer

I take that question to be asking about generally, sort of, how is the housing market, and what impact do macro housing trends have on our business result? I'd say that housing, overall, is very strong, which is to say it's a seller's market, home values are appreciating more than 5% year-over-year. The market is inventory constrained in most major cities. That puts pressure on buyer agents on lead conversion. Meaning that if a buyer lead is less valuable if a buyer's agent has to work with that buyer for two, three, six, ten months and write ten or 20 offers before their offers are being accepted because inventory is so tight. In some ways, the hot housing market is a bit of a headwind on our business because it takes longer to convert a buyer lead. That having been said, on our Listing Lead Generation business, Seller Boost, and Premier Agent Direct benefits from the tight listing environment, and now our new construction business benefits materially from the inventory constraints because home builders are anxious to mark up their listings on our platforms to sell those new homes. Taken as a whole, this is a pretty good housing market for us with a caveat that tight inventory makes it a little bit harder and more time consuming to convert a buyer lead.

Next question, please, operator.

Operator

Thank you, our next question comes from Tom Champion. Your line is now open.

Tom Champion -- Analyst

Hi. Good afternoon.

Engagement in terms of visits per user continues to climb; this looks this is the fifth consecutive quarter this has been the case. Just curious if you could share your thoughts on what might be driving this very favorable trend? And then shifting gears a little bit to expenses, sales and marketing was a little bit lower than we had modeled, it looks like the decline was a little sharper sequentially than maybe it was last year. I'm just curious if there was anything that you'd call out in that. Thank you.

Spencer M. Rascoff -- Chief Executive Officer

On sales and marketing, we've been focused on cost control, companywide, with respect to headcount. Starting about two quarters ago, we've been very careful about adding headcount, and I think you're seeing that in the sales and marketing numbers. When we look at our efficiency, our sales efficiency, it is significant. We were looking at the numbers yesterday, and adding ten to 20 million of sales team salaries and total compensation year-over-year drover over 200 million of incremental revenue. Am I getting those numbers right?

Kathleen Philips -- Chief Financial Officer

Yeah. Definitely.

Spencer M. Rascoff -- Chief Executive Officer

Thanks. Add ten to 20 of headcount expense on sales and get 200 plus million, of incremental revenue, that was a pretty good efficiency improvement in 2017. And I think that's what you're seeing in the marketing and sales numbers. Now, as we go into 2018 planning, we're asking ourselves whether that is the right trade-off and, as you know, we manage this business by constantly evaluating trade-offs between revenue growth, market share gains, product innovation, and margin expansion. We're going through that exercise right now for 2018, and of course, next quarter we'll share with you where we net out on it all.

In terms of visits per user. Across all of our brands, we have countless initiatives focused on driving increased engagement. Everything from better short-order, to better email and push notifications, to more personalized search results, and similar homes, to improvement in listings quality, which has been a dramatic step-change improvement over the last two years. Today listings quality on Zillow and Trulia are dramatically better than they were two years ago and that improves user engagement. It hasn't been one thing; it's been many things. Of course, there's always a bit of a headwind to that engagement metric which is advertising dollars, of which we spent more than 100 million in 2017. Ad dollars typically drive new users, but typically less engaged users, so that's a headwind on engagement metrics but a benefit on overall traffic growth.

Operator, our next question, please.

Operator

Thank you. Our next question comes from Mark May of Citi. Your line is now open. And Mark if your phone is on mute, please unmute.

Spencer M. Rascoff -- Chief Executive Officer

No problem, Mark. Feel free to follow-up with us after. Oh, there you are, hey Mark.

Mark May -- Citi -- Analyst

Sorry about that. Just a quick question, sorry if this has been addressed already, but your sales and marketing expense ratio I think was down year-on-year in the quarter. How much of that was driven by efficiencies in sales forces as opposed to your working market ad budget, and how should we think about the sustainability of that leverage? Thanks.

Kathleen Philips -- Chief Financial Officer

At the risk of repeating a little bit what we said. The savings was due to a mix of things. I think the primary driver there was discipline around headcount that you see reflected in those numbers. There are some other things in there, just efficiency in headcount. But as Spencer just noted, one of the things we're looking at in Q4 and into 2018 is we do think that we can make some additional strategic investment in sales headcount that could yield additional revenue. Primarily widening our focus to emphasize on small spending agents who have the potential to grow into being larger spending agents and setting them up for success. In terms of the mix with advertising, again, as I said, primarily the leverage that we're seeing was on the headcount line and not the advertising number.

Mark May -- Citi -- Analyst

Okay. Thanks for repeating yourself. I appreciate it.

Kathleen Philips -- Chief Financial Officer

No. No worries.

Spencer M. Rascoff -- Chief Executive Officer

I have a question from Slido. Update on Seller Boost.

We don't break out revenue from Seller Boost. As you probably know, agents that buy Premier Agent above a certain price point get seller leads. That's listing leads off not-for-sale homes as an added benefit. But we don't break out revenue from it.

As I mentioned, seller leads are more highly valued than buyer leads especially in an inventory constrained market like this one.

There's another question from Slido. Do you envision deeper integrations at Premier Agent with other leading agent platforms?

Yes. We're investing very heavily in rewiring the way data flows in the real estate industry through tools like Bridge. We acquired two start-ups, Bridge and Retsley, and have woven them together such that now, Bridge allows a listing agent to enter a single listing and have it go to overlapping MLSs, and it allows brokerages to get output of their listings from overlapping MLSs. This single point of entry and single point of data output solves a huge industry problem that plagues agents, brokers, and MLSs and we're committed to devoting resources to solve it. Meanwhile, our Premier Agent App connects to dozens of other CRMs so that agents have a choice in terms of how to best convert leads to transactions. So, through APIs, on the Bridge side, and on the Premier Agent side, we have many integrations with other technology companies, and it's an important part of the real estate data ecosystem of which we're a leader.

Operator, any other questions from the call?

Operator

We have a question Sean Connell of Susquehanna. Your line is now open.

Sean Connell -- Susquehanna -- Analyst

Okay. Thanks, guys.

Just a few quick ones. Spencer, you guys talked about this a little bit, but, in the past, you've talked about how when you look at revenue growth and margin, that you generally expect that number to be flat to up. Going forward, is there any reason why 2018 would be different? In terms of your mortgage products, one of the things you've talked about is how, if there's an impact from co-marketing that you could shift lenders spend to other products, can you just talk about some of these other products and what kind of tracking you've seen thus far? And then last one, Kathleen, just in terms of co-marketing you talked about it being a small portion of overall revenue. How would you characterize it as a percentage of premier agent revenue? Thank you.

Kathleen Philips -- Chief Financial Officer

Great. Thanks. I'll take the two co-marketing related questions first and then pass it back to Spencer.

In terms of overall revenue, we haven't given any guidance in terms of the portion of co-marketing and how that measures up. We look at it on a percentage of overall revenue, in large part, because of the other question you asked. Which is, to some extent, this advertising spend is pretty fungible between the Zillow mortgage marketplace and co-marketing. We are working with advertisers every day to figure out the optimal mix for each of them based on their goals and whether they wanna spend in a co-marketing arrangement or in the Zillow mortgage marketplace. Beyond that, we don't break it out because we don't think it's instructive.

Spencer M. Rascoff -- Chief Executive Officer

On the revenue growth and margin expansion, the point I was trying to make a couple of years ago when I first brought this up, was that there are trade-offs between those two metrics. A point of revenue growth versus a point in the margin, these are two dials, and we control them both. In the aggregate, we endeavor to raise the sum total of the two. As you get larger and larger revenue numbers, and we're passing a billion in total revenue this year, it becomes difficult to continue to raise the sum of those two numbers, because revenue growth tends to decelerate when you hit larger numbers. I wouldn't draw anything. This isn't a rule that's written in blood; it's an observation that these two numbers trade off against one another. As we're in the midst of our 2018 planning season, we're looking at all potential investments and will come out in three months and tell you where we netted out as we go into 2018.

There's a question from Slido about N.O.L.s and their expiration. I guess the question is what amount of outstanding N.O.L.s do you expect to use? They don't expire for 20 years or so, so we hope to use them sometime in the future. It's uncertain, it depends on how quickly net income grows, but they expire very far from now, so it's not right here.

Kathleen Philips -- Chief Financial Officer

And the balance is very large. We have a lot of time and a lot of N.O.L.s to use up.

Spencer M. Rascoff -- Chief Executive Officer

Are there other questions from Slido? Or no? Okay

Operator, are there any other questions from the queue?

Operator

And again, ladies and gentlemen, if you would like to ask a question, please press star, then one on your touchtone telephone. Our next question comes from Brian Nowak from Morgan Stanley. Your line is now open.

Brian Nowak -- Morgan Stanley -- Analyst

Operator

And Brian if your mute is on, could you please unmute?

Spencer M. Rascoff -- Chief Executive Officer

Hi Brian did you have a question?

Operator

Brian, if you could please press star one, again.

Spencer M. Rascoff -- Chief Executive Officer

Brian, feel free to follow-up with us afterward. I think, operator, we'll wrap up with that.

Thank you for joining the call, we look forward to talking to you again when we report Q4 on full-year results in February.

Thanks very much everybody.

Kathleen Philips -- Chief Financial Officer

Thank you all.

Operator

Ladies and gentlemen thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

Duration: 54 minutes

Call participants:

Raymond Jones -- Vice President of Investor & Corporate Relations

Spencer M. Rascoff -- Chief Executive Officer

Kathleen Philips -- Chief Financial Officer

Michael Graham -- Canaccord -- Analyst

John Campbell -- Analyst

Andrew Boone -- J&P Securities -- Analyst

Matt Schindler -- Bank of America Merrill Lynch -- Analyst

Brad Erickson -- KeyBank Capital -- Analyst

Lloyd Walmsley --  -- Analyst

Jason Hillstein -- Oppenheimer -- Analyst

Tom Champion -- Analyst

Mark May -- Citi -- Analyst

Sean Connell -- Susquehanna -- Analyst

Brian Nowak -- Morgan Stanley -- Analyst

More ZG analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Zillow Group (A shares)
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Zillow Group (A shares) wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017

The Motley Fool owns shares of and recommends Zillow Group (A shares). The Motley Fool has a disclosure policy.