Raymond Jones - Vice President Investor Relations Spencer Rascoff - Chief Executive Officer Kathleen Philips - Chief Financial Officer.

Rodney Hull - SunTrust Ron Josey - JMP Securities Dylan Hyber - RBC Capital Markets Dean Prissman - Morgan Stanley Heath Terry - Goldman Sachs Aaron Kessler - Raymond James Hayden Blair - Stephens, Inc. Mark May - CITI.

Good day, ladies and gentlemen, and welcome to the Zillow Group Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session, and the instructions will follow at that time. [Operator Instructions] And as a reminder, today's conference maybe recorded.

Now, I would like to turn the call to Raymond Jones, Vice President of Investor Relations. Please go ahead..

Thank you. Good afternoon, and welcome to Zillow Group's fourth quarter and full year 2015 earnings conference call. Joining me today to talk about our results are Spencer Rascoff, Chief Executive Officer; and Kathleen Philips, Chief Financial Officer.

During the call, we will make forward-looking statements regarding future financial performance and events. Although, we believe the expectations reflected in the forward-looking statements are reasonable, we can't guarantee these results.

We caution you to consider the risk factors in our SEC filings, which could cause actual results to differ materially from those in the forward-looking statements made in the press release and on this call. The date of this call is February 11, 2016, and forward-looking statements made today are based on assumptions as of this date.

We undertake no obligation to update these statements as a result of new information or future events. During this call, we will discuss GAAP and non-GAAP measures. We will also discuss results on both a reported and pro forma basis. Reported results were prepared in accordance with GAAP, unless otherwise noted.

For comparative purposes, pro forma results assume the February 2015 acquisition of Trulia occurred on January 1, 2014, and reflect certain adjustments and exclusions described in our SEC filings. All year-over-year comparisons are pro forma, unless otherwise noted or the context otherwise requires.

We encourage you to read our press release, as it contains important information about our reported and pro forma results, including reconciliation of non-GAAP financial measures.

In our remarks, the non-GAAP financial measure adjusted EBITDA is referred to as EBITDA, which excludes other income, depreciation and amortization expense, share-based compensation expense, acquisition-related costs, restructuring costs, loss on divestiture of business, interest expense, and income taxes.

This call is being broadcast on the Internet and is available on the Investor Relations section of the Zillow Group website. A recording will be available after 8:00 p.m. Eastern time today.

Please note that the earnings press release is available on our website and, after the call, a copy of today's prepared remarks will also be available on our website. Today, we will open the call with prepared remarks. We will follow the prepared remarks with our standard live question-and-answer session.

During the Q&A, we will answer questions asked via Twitter and take questions from those dialed into the call. Individuals may submit questions by tweeting @ZillowGroup using the #ZEarnings. I will now turn the call over to Spencer..

Thanks, RJ and welcome everyone to our fourth quarter and full year 2015 earnings call. I’ll discuss 2015 business highlights and our strategic priority and then Kathleen will go into the details of our financial results. We’ll then open the call to questions.

But before I get started on Zillow Group’s specific results, I do want to take a moment and give our general view on housing and the economy. Zillow Group’s economist generally like what we see in the data.

American household budgets and balance sheets are stronger now than in 2008 and the American consumers, so far hasn’t been impacted by declining prices. Despite global issues stemming from China and commodities, we just aren’t seeing them negatively affect most American households.

It’s possible that these global issues will affect American consumers at some point, especially if companies slow hiring, but for now the global economic issues seem confined more to Wall Street, which is seeing incredibly volatile capital markets than to Main Street, which is benefiting from low gas prices and seeing a solid employment, decent wage growth and relatively affordable for-sale housing.

On a historical note, we had the pleasure of celebrating the 10 year anniversary of the Zillow brand yesterday. As I looked around the packed room, I was proud of the longevity of our leadership team, almost all of whom have been here since launch 10 years ago.

It was also an opportunity to reflect on the decade it took to build this incredible company and the reasons for our success now and into the future. At its core, it’s all about our incredibly talented employees, old and new.

Across the Zillow Group, our talent is best in class, from performance market to product development to sales to mobile leadership and they bring together diverse viewpoints to create the best experiences for consumers and professionals.

This has resulted in the best known, most used real estate media brands in the widest competitive mode in our category. Okay, now turning to Zillow Group results. 2015 was a transformational year for Zillow Group. We formed the largest real estate media company in the world through the combination of Zillow and Trulia.

We established the foundation for our long-term growth and category leadership, which is comprised of our leading audience market share on mobile and web; our multi-brand portfolio of leading consumer websites and mobile apps; our integrated advertising platform for our real estate, mortgage and Rentals offerings; the extension of our software tools for real estate professionals; our strong industry partnerships with nearly every major real estate franchise or brokerage, property management company, mortgage lender and multiple listing service; and our extraordinary employees, who had the most innovative, mission oriented and technologically sophisticated group in our industry.

2015, was very exciting strategically. We acquired two large companies that expanded our capabilities and our reach. We accomplished major feet of integration quickly and we launched new products across several of our marketplaces that were very well received.

We are now in position to do more than we could before as separate companies by benefiting from our scale of audience and listings, our unified customer focus, combined talents that create competitive advantage. Looking briefly at 2015 results on a pro forma basis, we finished the year strongly and in line with our outlook.

Revenue for the year was approximately 680 million, up 18% year-over-year or 24% year-over-year without market leader, which we divested in Q3. In the full year since our IPO, we had grown revenue of more than 10X from 66 million to 680 million. EBITDA in 2015, was more than 95 million or 14% of revenue, up 34% year-over-year.

With the Trulia acquisition and integration successfully behind us, we’re excited to turn the page to 2016. For 2016, we’re focused on four strategic priorities.

First, grow our audience; second, grow our agent advertising business; third, grow our emerging marketplaces; and fourth, continue to maintain our extraordinary company culture, which attracts, retains and motivates incredible people to do their best work. Our first priority is to grow audience size and client contacts to real estate professionals.

As you have heard me say many times, advertisers follow audience. In the fourth quarter our traffic reached nearly 124 million average monthly unique users, with an annual seasonal peak of 150 million in July last year. Our strength in mobile usage and mobile inertization [ph] continues, comprising approximately two thirds of our usage.

As we exited 2015, our audience market share was nearly 60% of the category according to comScore, which is more than twice the nearest competitor. On our Trulia brand, we’re now seeing positive traction in terms of traffic growth.

As December figures from comScore, should Trulia return to its spot as the second most visited real estate site, a position it had slipped from for much of 2015. According to our internal traffic data for January, Trulia had all-time highs in organic use, total visits and most importantly in leads to real estate agents.

We are encouraged by internal and external measures that indicate our efforts to improve fundamentals are paying off. Looking down the funnel, our growth in home shoppers and contacts to professionals continue to accelerate quarter-over-quarter and outpaced our audience growth.

Growing our audience starts with creating products across our brands that consumers love to use at various stages in the home lifecycle. We then leverage free and paid channels to amplify awareness and to reach more consumers.

In 2015, we invested over $100 million in advertising are consumer brands, which was highly effective for us, according to the data from services such as Google Trends or comScore. Our advertising aims to grow our awareness levels to new category highs and establish household brand name status.

The increased investments we’re choosing to make this year will help us realize long-term advantages of scale. Our second priority is to grow our premier agency business. 2016 will be a pivotal year here, as we build upon the foundation we established in 2015.

Consistent with our iterative development process, we’ll be testing many new initiatives throughout the year. I’m excited about this, as these initiatives are designed to open up untapped opportunities and transform our business.

Many of these initiatives would not have been possible if Zillow and Trulia had remained as separate subscale companies and are only made possible by our combined category leadership. Last year we were integrating, this year we are innovating. An example is the launch of the Premier Agent app.

The product here is a representation of deep collaboration between the Trulia and Zillow product teams. On the heels of the completion of the integration of our add platforms, the engineering teams in San Francisco along the Seattle and Irvine teams then created the free Premier Agent app in just a few months.

This innovation was only possible by combining forces and bringing together desperate technologies and talent. Key mobile productivity and communication features in the app free up agents from their desk and help them convert leads into commissions at a higher rate.

Through our Premier Agent app, we’re offering our advertisers the most holistic and modern business management platform in the industry. In addition, through our Tech Connect program, the Premier Agent app connects to over 60 other CRMs that agents utilize.

Bringing this all together, our Premier Agent program helps the best agents earn more commissions. This is especially true for the highest producing agents that work with us, who are capturing an increasing share in their respective markets. We’re making valuable progress with these advertisers, but there is still a massive opportunity ahead.

In 2015, we estimate based on our traffic and lead volumes that Zillow Group helped our agent advertisers close around 3.9% of the residential real estate transaction sites in the US, which drove roughly 3.2 billion in commissions to these Premier Agent advertisers.

This compares to an estimated 3.1% of transaction sites and 2.3 billion in commissions in 2014. This is an important metric that we seek to grow by increasing lead volumes to agents and brokers, who convert leads effectively. And by providing them with tools and training to improve that lead conversion.

Our next priority is to grow our emerging marketplaces, which are growing even faster than our Premier Agent revenue. Starting with mortgages, we continue to experience significant growth in loan request, contact volume and revenue.

During the quarter, we launched our partnership with Google Compare for mortgages and we now power mortgage rate search results for Google.

It’s obviously validating that Google chose Zillow group to power their mortgage rate search business and it’s thanks to our strategic acquisition of Mortech in 2012, which allowed us to become the innovation leader in the online mortgages advertising sector.

Also in 2015, we exceeded 223,000 lender reviews, which makes us the site with the most mortgage reviews by far. Looking ahead, we continue to be well positioned to grow our mortgages revenue even in a rising rate environment as our usage is predominantly weighted towards purchase volumes [ph].

Next, in our New York City marketplace, StreetEasy continues to be on a tear. Revenue grew 73% year-over-year in 2015 and mobile traffic was up 45%. The launch of our Neighborhood Experts product that allows the agents to advertise by neighborhood has been well received.

We recently announced our acquisition of Naked Apartments, the second largest rental site in New York. This will help accelerate our growth in the New York rental market, which represents about two thirds of the residential living units in the city.

We estimate the New York City Rentals commission market size to be about $500 million as compare with the New York City for-sale commission market size of 1.2 billion. We continue to be very excited about the growth and potential in our New York City marketplace, as our presence there continues to scale.

Since we acquired StreetEasy for approximately 50 million in August 2013, their revenue has more than doubled and their mobile traffic as measured by Google Analytics has tripled. Moving on to our nationwide Rentals marketplace, we experienced significant growth in usage, contacts and revenue.

We continue to have leading share of traffic in the category with over 21 million average monthly unique users in Rentals, twice as large as our nearest competitor according to comScore. Our innovative add products in the rental space continue to gain widespread adoption in the industry.

Taking a moment now, to look at our full year 2016 outlook, we’re targeting revenue between 805 million and 815 million and EBITDA between 115 million and 125 million, which represents 15% of revenue at the midpoint. This includes significant onetime legal fees, which Kathleen will expand upon in a moment.

These are still early days and we’re choosing to forego near-term profitability to invest in our long-term growth.

The opportunity in our category remains massive, 1.6 trillion in transaction volume, leading to 80 billion in commissions and approximately 11 billion in advertising spent by agents and home builders, which continues to shift online and to come from the highest producing agents.

This doesn’t even include the addition of billions of dollars of additional opportunity mortgages, Rentals and other home related markets. We are at the forefront in innovation in our category. We’re well positioned to lead change and take advantage of this opportunity and of our scale for the benefit of consumers and professionals.

We’re choosing to invest in our business now and control our long-term destiny. Now, I’ll turn the call over to Kathleen..

Thank you, Spencer. Before I begin, I want to outline the format of our financial results discussion.

First, I’ll formerly launch into our financial results starting with our Q4, 2015 results, which are similar on both a GAAP and pro forma basis, with the exception of net loss, which includes acquisition related costs and restructuring cost on a GAAP basis and excludes them on a pro forma basis.

Next, I’ll discuss full year 2015 financial results on both a pro forma and GAAP basis. For comparative purposes, I’ll discuss year-over-year comparisons of our Q4 and full year 2015 financial results on a pro forma basis unless otherwise noted or the context otherwise requires.

Finally, I’ll provide our outlook full year and Q1 2016 and then open the call to questions from the investment community.

As a reminder our pro forma results assume the close of the Trulia acquisition occurred on January 1, 2014 and do not include the impact of acquisition related costs and restructuring costs in addition to certain other adjustments.

Note that our GAAP and certain pro forma financial results, along with our pro forma comparisons have been included in our fourth quarter and full year 2015 financial results press release, which contains important information about how the pro forma’s were prepared. Now, let’s dive into financial results starting with our fourth quarter.

Traffic growth was healthy as we finished the integration of Trulia and entered the fourth quarter, historically our seasonally solid quarter of the year. We attracted nearly 124 million average monthly unique users to Zillow Group's mobile applications and websites during the quarter.

Turning to our operating results, total revenue for the fourth quarter increased 7% to 169.4 million. This was at the high end of our guidance of 165 million to 170 million. Looking at our core revenue category, marketplace revenue grew 14% to 148.3 million, maintaining strong growth across our real estate and mortgage marketplaces.

We continue to see the desired shift in our revenue mix, as we ended the fourth quarter with 88% of our revenue coming from our marketplace category, as compared to 82% last year.

Taking a deeper look at our real estate subcategory which accounts for our Premier Agent, Diverse Solutions, StreetEasy and Rentals marketplaces, our revenue grew 27% to reach 136.6 million.

Maintaining our trend throughout this year, in Q4 we continued to encourage low performing agent advertisers to leave our program, ending the period with 92,366 agent advertisers.

The agent advertisers who remain on our platform continue to buy at robust levels, 69% of new sales bookings in the fourth quarter went to existing agents buying more impressions across mobile and web.

Average monthly revenue per advertiser for ARPA among Premier Agent advertisers grew 29% to $438 in the fourth quarter or 9% higher sequentially quarter-over-quarter. Additionally, same agent advertiser sales were over 50% higher than last year.

Our Premier Agent revenue run rate is currently 485.5 million versus 415.3 million for the same period last year. The formation of high performing high ARPA agent advertiser teams continued to increase at a steady pace. Agent advertisers who spend more than $5,000 per month grew 62% on a total dollar basis and 48% in advertiser counts.

Sequentially, this is an improvement of 5% on a total dollar basis and 3% in advertiser counts quarter-over-quarter. As we position ourselves for opportunities in the coming years, we believe that the emergence of high performing agent advertiser should occur even faster as the real estate market evolves.

We believe that high-performing agent advertisers or teams will continue to earn the majority of real estate commissions.

Throughout 2016 we will continue to support these advertisers by developing products that help them better serve their clients and close transactions, enabling agent advertisers to increase their conversion, catalyzes upper growth as they will buy more advertising and grow their business through our program.

We expect that this will happen at the expense of low ARPA, lower performing agents who either leave the program or choose to join more successful agent advertiser teams for their driving down total agent advertiser counts throughout this year.

We view this as a positive trend that creates a better experience for consumers and is expected to lower our selling costs. Transitioning to mortgages, revenue reached 11.7 million and grew 48%. During the quarter 8.8 million loan information request were submitted by our agents from 19% year-over-year on an as reported basis.

In our display category, revenue in the fourth quarter was 21.1 million down 25%. We view this as a continuing positive trend and it is consistent with our strategy of deemphasizing display in the user experience and focusing on growth in marketplace revenue as we shift our advertiser display budget towards marketplace.

Display now represents 12% of our total revenue down from 18% in the same period last year. Shifting now from revenue and turning our attention to our operating expenses line by line. Our cost of revenue during the quarter was 15.1 million or 9% of revenue. Sales and marketing expense were 77.8 million or 46% of revenue.

Technology and development cost in the quarter were 55.8 million or 33% of revenue. G&A cost in the fourth quarter were 45.9 million or 27% of revenue. This is higher by 3% as a percentage of revenue quarter-over-quarter the increased expense was mainly due to more than 8 million in legal expenses related to the News Corp lawsuit.

I will provide more detail about full-year expenses related to this lawsuit in a few moments. Total operating expenses were 195.1 million, an increase of 16% on a pro forma basis. These increases can be attributed to investments in data acquisition, increased website and software development costs and people as well as increased legal fees.

Pro forma net loss was 25.1 million in the fourth quarter compared to a pro forma net loss of 11.3 million in the fourth quarter of 2014. Pro forma fourth quarter 2015 basic and diluted net loss per share was 14% based upon 178 million basic and diluted weighted average shares outstanding. Our fourth quarter GAAP net loss was 25.7 million.

GAAP fourth quarter 2015 basic and diluted net loss per share was $0.14. On a non-GAAP basis, which excludes share-based compensation expense, acquisition related costs, restructuring costs and income taxes, basic and diluted non-GAAP net loss per share was $0.1. Adjusted EBITDA for the quarter was 20.4 million representing 12% of revenue.

Turning to our full-year 2015 pro forma results, total revenue increased 18% to 679.9 million in line with our most recent outlook.

Our growth was based on continued advances in our products throughout the integration, which helped to grow real estate revenue and revenue in our emerging marketplaces, further efficient advertising lead to accelerated audience growth throughout the funnel during the entire year.

In our revenue categories, marketplace revenue increased 26% to 583.9 million and display revenue was 96 million down 15%. For the full-year display represents 14% of total revenue down from 20% a year ago.

As noted above this reflects our continued focus on marketplace revenue and removal of many Trulia display ad units at the end of Q1 2015 and is in line with a strategy to priorities the consumer experience across our Zillow group brands. Real estate revenue grew 35% to 502.2 million for the year, while our mortgages revenue grew 47% to 44.7 million.

Real estate revenue growth was driven by the combined scale of Zillow and Trulia in agent advertising, rentals and mortgages. Pro forma net loss was 91.1 million for the full-year compared to a pro forma net loss of 83.3 million for the full-year 2014.

Pro forma’s full-year 2015 basic and diluted net loss per share was $0.52, based upon 176.4 million basic and diluted weighted average shares outstanding. Adjusted EBITDA for the full-year 2015 was 95.4 million representing 14% of revenue.

Of note, legal costs related to our necessary defense of News Corp legal claims were more than 27 million in 2015 and are projected to be approximately 36 million in 2016. Absent this law suit, these financial resources could otherwise be used to support innovation and growth or margin expansion.

Turning to our GAAP discussion of our full-year 2015 financial results, total revenue was 644.7 million, which includes partial period first quarter contribution from Trulia as the accusation did not close until late February 2015.

Marketplace revenue was 555.9 million for the full-year and our real estate subcategory generated 482.1 million of revenue. Transitioning to our non-real estate revenues, mortgages revenue reached 44.3 million, Market Leader revenue was 29.5 million and our display revenue was 88.8 million.

Moving to our operating cost, total operating expenses were 794.2 million with the most significant increases coming from increased data acquisition cost, legal expenses and brand advertising. Looking at our operating costs by line item, cost of revenue for the full year was 61.6 million or 10% of revenue.

Sales and marketing expense was 307.1 million or 48% of revenue. Technology and development cost for the full-year was 198.6 million or 31 percentage of revenue. G&A cost for the full-year were 170.4 million or 26% of revenue. We incurred to 52.1 million in acquisition related cost and restructuring costs resulting in a GAAP net loss of 148.9 million.

GAAP full-year 2015 basic and diluted net loss per share was $0.88. On a non-GAAP basis which excludes share-based compensation, acquisition related costs, restructuring costs and income taxes basic non-GAAP net earnings per share was $0.5 and diluted non-GAAP net earnings per share was $0.7.

Full-year 2015 adjusted EBITDA was 87.6 million representing 14% of revenue. Trulia Group ended 2015 with more than 2,200 employees, up from more than 1,100 at the end of 2014. Our current headcount takes into account the acquisition of Trulia and DotLoop and the sale of Market Leader.

We continue to execute in support of our strategic priorities, grow audience organically, grow our agent advertising business, grow our emerging marketplaces and continue to maintain our extraordinary company culture.

Turning to our outlook for the full-year 2016 and the first quarter of 2016; starting with our full year 2016 outlook, total revenue is expected to be in the range of 805 million to 815 million, at the midpoint of the range this represents 26% year-over-year growth on a pro forma basis which excludes Market Leader revenue from full-year 2015.

This is a reacceleration of revenue growth related to 2015. We project that Premier Agent revenue will be 590 million to 595 million representing 27% year-over-year growth at the midpoint of that range. This is the first time we provided a separate outlook for Premier Agent revenue.

We believe this level of transparency provides better insight into growth trends in our business versus the combination of agent count and ARPA, which are outputs of Premier Agent revenues. Of note by prodding this outlook we expect to begin phasing out our reporting of advertiser counts and ARPA starting in 2017.

Display revenue is expected to be in the range of 54 million to 56 million. This outlook is consistent with our strategy of deemphasizing display and the user experience and focusing on growth in marketplace revenue as we shift our advertising display budgets toward marketplace.

Our EBITDA for full-year 2016 is expected to be in the range of 115 million to 125 million, about a 15% margin at the midpoint of the range, reflecting increased expenses attributable to our investments in people, data acquisition and brand acquisition.

In addition roughly 36 million has been allocated to the defense against the News Corp lawsuit for this year. These investments and legal expenses are projected to weight more heavily in the first half of the year leading to EBITDA as a percentage of revenue to be in the mid to high single digits for the first half of the year.

While our revenue growth is expected to reaccelerate, our operating expense growth is expected to decelerate throughout the year. For the full-year we expect depreciation and amortization to be in the range of 95 million to 100 million. Additionally we expect full-year capital expenditures to be in the range of 41 million to 43 million.

Our full-year 2016, basic weighted average shares outstanding is expected to be approximately 180 million to 182 million and our diluted weighted average shares outstanding is expected to be in the range of 196 million to 198 million.

Shifting to our first quarter 2016 outlook, Zillow Group revenue for the first quarter of 2016 is expected to be in the range of 174 million to 179 million. This Outlook represents more than 8% year-over-year growth at the midpoint of the range on a pro forma basis.

Excluding Market Leader, the growth rate would be expected to be over 18% year-over-year. We project that Primary Agent revenue will be 130 million to 1 32 million, representing 22% year-over-year growth at the midpoint of the range on a pro forma basis.

Consistent with the recent trends and our strategic execution, we expect display revenue to be about 13 million to 14million for the first quarter of the year.

We anticipate total operating expenses for the first quarter to be in the range of 218 million to 223 million, which at the midpoint of the range is about 13% higher than total operating expenses in the fourth quarter of 2015. This step up in expenses includes accelerated investments in our people, data acquisition and brand advertising.

As well we expect nearly 12 million in legal costs in related to our defense against the News Corp lawsuit. Our EBITDA for the first quarter is expected to be in the range of 1 million to 6 million.

Our first quarter basic weighted average shares outstanding is expected to be approximately 178 million to 180 million and our diluted weighted average shares outstanding is expected to be in the range of 194 million to 196 million.

To conclude Zillow Group had a transformative year, as we completed Trulia integration, achieved listing independent and acquired DotLoop forming the largest real estate media company in the world. I second what Spencer has said. I’m very excited about our potential in 2016 and beyond as we have built a solid foundation for future growth.

With that we’ll open it up for questions from those dialed into the call and to questions submitted via Twitter and Facebook with the #the earnings..

[Operator Instructions] And our first question is from Robert Peck from SunTrust. Your line is open..

Hey, good afternoon Spencer and Kathleen. This is Rodney for Bob. I was just hoping may be if you can unpack the guidance here a little bit and trying to wrap arms around some of the new disclosures as well as the impact to EBITDA.

First of all just walking through some of the progression of the linearity I guess of the Premier Agent business as we look at 2016 and perhaps understanding that.

And then thinking about the EBITDA can you help us walk down may be the core EBITDA because that short of show as you exit 2015 your core EBITDA which was related to your market places business volumes have turned positive and as well and as a lookout for this year I wondered if you could talk about how you guys see that business progressing, particularly given the much lighter guidance on display business related to the market expectations, thanks..

Hey, Rodney, it is Spencer, we are trying to sort of unpack your question about the question. I guess I’ll try to answer high-level one and then we will see if Kathleen can add more texture.

I mean what we have going into 2016 is increased ad expense, not growing as quickly as revenue so we are going to see some leverage in the sales and marketing line.

And then we also have obviously increased legal cost so we gave guidance and for the full year 2016 legal cost one-time cost should be so obviously those are the thing weighing on Q1 EBITDA and going into the full-year as well..

Yeah, I’ll just add to that, we do expect the second half of the year, the margin will move up and as you noted, we expect to be exiting the year with an increase in our EBITDA margin overall.

In terms of PA as you will note from our outlook for Q1 we are guiding to PA revenue that about 22% in the quarter and then for the year overall up 27%, representing the reacceleration of the growth in the PA business that we have signaled before.

Does that answer your question? There were many questions together, so I want to make sure I answered it..

Yeah, just a follow-up on and I get the reacceleration but on the EBITDA side, is there something you’re targeting internally or for us to think about excess legal expenses that on the core real estate business that we should be thinking about that business being profit generator, what kind of margins did you throw of given that your display business now is half of what it was prior.

So how do we think about long term margin short for now given that trajectory?.

So we thought a lot about whether to sort of give a sort of variable margin kind of how much the incremental revenues drop down to EBITDA.

And we have decided Rodney Hull for not to give a number like that because what we end up doing a process as we get incremental more profitable we have this choice how much profit we want to take versus much we want to invest.

I mean just to rewind the call for a second here when we went public as I mentioned in the call 56 million of revenue our emerging marketplaces today so these are the businesses that we are planting seeds four or five years ago. Those now are bigger than the whole company what was when we went public.

So four or five years ago when investors were saying where is the margin expansion, we said look we are going to start planting seeds, those will take couple of years to pay off, those are paying off.

As we’re rolling out [ph] 2016, half of the seeds that we are planting, where we see this huge tame [ph] inside our category and besides the price seems massive, so that’s - what we signaled on last call was we are prioritizing revenue growth over margin acceleration and that’s still where we are at.

In terms of trying to give you map to walk through kind of what incremental margin on incremental revenue and sort of what is core versus growth. We haven’t provided that level of detail. I think, operator can we take the next question please..

Our next question is from Ron Josey from JMP Securities. Please go ahead..

Good day, thanks for taking the question. I want ask about Premier Agents knowing that of course I think we are facing out the disclosure but since migrating Trulia or whatever maybe since 2Q they declined about 11,000 agents.

I’m wondering how much of this decline is from you all encouraging lower performing agents to leave the platform which I believe the big reason why the PA declined so much in 2Q and 3Q and importantly you know how many more lower performing agents do you think exist and then quick follow-up on just on that with 69% of new bookings coming from existing agents also flat from 3Q also 69%, that was leading to the leverage in sales and marketing as you sort of look in to the new world how you select[ph] too higher valid agents if you will, thanks guys..

Sure, hey Ron. So you’re right the reduction in advertiser is intentional and by design it is strategic and something that we started focusing on couple of years ago and we have been telling investors for several years, has been part of a strategy.

And the reason for that is of course good agent, better agents provide better service to clients and they can both lead to higher rates. They are also frankly wanting to pay a higher cost per lead because they are more likely to convert those leads into a commission.

So we’ve started giving data on what commission dollars we think were responsible for generating and it was 3.6 billion in 2015, up pretty significantly year-over-year.

And we are going to start giving investor disclosure on Premier Agent revenue guidance which we think is a much more relevant metric than subaccount or ARPA, we have been saying that for a couple of years now.

The trend of top agents earning more commissions in a given geographic is a trend that started long before Zillow Group was created or Zillow came to prominence. It is because of changing consumer expectations about response time.

So the days of part-time agents are over, consumer’s expectations to be available 24x7 and that means the top agents are earning a greater portion of commissions in their given geography. So Zillow Group didn’t invent that trend but we are certainly focused on it and it is driving our strategy focusing on these - on the highest performing agents.

In terms of how that tie to sales and marketing leverage, in the sales and marketing leveraged for 2016 you are seeing that come from both ad expense as well as from selling cost from a small number of agents. We’re not going into isolate it, we bundle the two together in sales and marketing, but they are both related to that.

Next question please, operator..

And next question is from Mark Mahaney from RBC Capital Markets. Please go ahead.

Hey guys this is Dylan Hyber on behalf of Mark just two quick questions can you provide any more detail around rental both in terms of its overall growth and how material revenue contributed is to the business and then lastly can you provide more color on what initiatives you’re focusing on to drive MAU growth and brand awareness in 2016, thank you..

Yeah, sure thanks for the question. On rental we are not picking out rental separately, we’re still early days in rental and the way we think about is as what Spencer mentioned a minute ago which is we think of our emerging businesses as a group and seeds that we are planting for the future.

We can’t tell you that the growth rate in each of those businesses is faster than our real estate growth rate which we think is terrific.

We are looking forward in rentals to closing our acquisition and make it apartment because we think that is going to contribute even more significantly to our success in New York City as we roll out four rental space brands in New York City with Zillow, Trulia, HotPads and Naked Apartments.

And we already do have some rental within StreetEasy as well. So those teams will be working together to create additional values on the rental front, As I said before though it is early days but we are excited about the future of that business.

In terms of initiatives to increase our brand awareness we will be continuing with the advertising trajectory we have been in as we have said before. We are at about a 100 million investment in advertising last year.

We expect it will be increasing that investment but that will be seen for growth in the advertising spend that overall revenue you’ll probably seeing that we are - we were back on television in Q4 and you can look forward to see more of the same..

Next question please..

Our next question is from Dean Prissman with Morgan Stanley. Please go ahead..

Hey guys thanks for taking my question so as we think about 2016 in terms of your initiatives help agents better convert leads such as new Premier Agent and the Premier Agents of this program how much benefit contemplated in your guidance from these programs and then I have a follow-up..

Yes, so I mean it is very hard to measure lead conversion rates, Dean you and I’ve talked about that before of course were we - when we hand over leads to agent we don’t have good visibility into when or if that lead closes.

The best thing we have on whether that agent is closing the lead to high rate is whether they desire to buy more prior impression from us. So we are very focused on growing leads and growing the portion of these leads go to top agents.

In terms of how that models into PA Premier Agent revenue, I’m not going to breakout sort of what conversion improvements we expect to make Premier Agents have to have versus other initiatives.

But I do think that providing investors with guidance on the Premier Agent revenue as a whole which were Q1 is around 130 million to 132 million and for full-year 592 to 595, up 27% the year-over-year. The first time we ever giving guidance on those numbers and go ahead Dean you need a follow-up on..

Yea I was just wondering if you could quantify just provide some qualitative color sort of level of investments or cash burn in ‘16 from - to adjacent marketplaces..

Sure, we think about how best to frame that.

I meant across our emerging marketplaces we have a couple of hundred employees across rentals, mortgages and our New York City marketplace the big question I guess if you’re trying to think through what in terms of emerging market P&L looks like which I think what you’re trying to do is, how do you think about allocating shared services and advertising expense.

And that one is little trickier, Kathleen just answered the question about how we are going to go rental awareness by noting our marketing expense which clearly grows audience and grows rental leads and mortgage leads for example but of the hundred million plus in ad expense how much you want on allocate those emerging market place I don’t know about that, that’s really anyone’s guess.

So we don’t run separately P&L in that sense, but I mean I guess if you’re trying to come up with some estimate you could use a couple of hundred as a profit I suppose..

Helpful color. Thank you..

Sure Dean, next question please..

Our next question is from Heath Terry from Goldman Sachs. Please go ahead.

Great thanks and Spencer you’re really interested if you can sort of share what traffic dynamics, how you want sort of frame it at the top of the funnel looks like just in terms of the impression that are coming in for your sales force to be able to sell onto agent group particularly if you can also quantify what level of spending to drive the traffic and in the form of marketing like last year versus what you intend to spend truly against driving traffic in 2016 looks like..

Sure, so in January we had about 150 million unique user across our different brands which is growing in the high teens sort of 15 to 25% year-over-year range, are somewhere in that range.

The impression counts that is how many people visit the sites or how many machines visit the site, then they generated certain number of impressions which is growing faster than that and most importantly the generate certain number of leads.

A real estate agent was growing even still faster and that is the most important metric of because that is what an agent feels.

The agent really the buy impression that they feel a lead and then most important question of courses does that lead become a commission shaft and as I say we think we are now in 2015, we helped agents generate about 3.5 billion commission that is out of seven 75 billion of total commissions and we think, the online leader in categories this off to be able to generate tens of billions of dollars of commissions to our Premier Agents overtime.

So that is the price that we have our eyes on in terms of the spend required to generate the 3.5 million in commissions or 150 million unique users, the add expense last year was around a 100 million and of then you of course can see what are R&D, our tech and dev costs are, so it is hundreds of millions of dollars The other thing that is sort of no were the other way we have these for brands and as one we close neck apartments five brands all under one roof we have this other benefit witches a hard for investors to see which is each of these companies is about 10 years old.

Each of these brand have product development and engineering teams they have been working on solving some of the same problem from slightly different tractions for about 10 years.

Questions like how do we help hope shoppers triage hundreds of listings, how do we create email product that could raise awareness of new listings that match search criteria, how do we do recommendations to show listings that might be interesting to consumers and so each of these five different brands I have been working on these problems for 10 years and we are sharing a lot of great information across these brands and each of their metrics are benefiting as a result.

I think next question please, operator..

Next question is from Aaron Kessler from Raymond James. Please go ahead.

Thank you just couple of questions first following up on the traffic question, can you update us on the organic traffic growth in Q4 also [indiscernible] [0:08:31] number of mortgage requests if you are stilling giving that number out and finally stock based [indiscernible] [0:08:36] down a little bit in Q4 give a rough sense for that comes out in 2016, thank you..

Sure, Aaron well said. Organic traffic in Q4 I don’t think we’ve break out organic traffic.

I think in the script I referenced Trulia is organic traffic being at all-time high and Trulia I think this is going lead things at all-time high just as a way that describe that I’m feeling very good about Trulia traffic situation something that was not the case of about a year ago.

But Trulia traffic is now turned around, loan request in the quarter..

For the quarter it was 8.8 million loan request and on the year 46.8 million.

And stock comp for 2016.

We haven’t given [indiscernible] we don’t have that… All right.

Share count yeah, hundred million, 180 million to 182 million outstanding is our -.

At the end of 2016..

Yeah at the end, basic and fully diluted 196 to 198..

I think we will do one more question from the call and then we will probably go to Twitter. Operator next question please..

Next question is from John Campbell from Stephens, Inc. Your line is open..

Hey guys this is Hayden Blair sitting in for John Campbell.

Got a question about the decline in agent advertisers throughout 2016, we are trying to get into sense that these agents, some of these agents at least are actually teaming up and in those cases you know sometimes doubling up their spend acting at the single advertising units sometimes even more than that so can you give a sense of you know of the last agents you know what percentage or kind of how is that trending from people actually getting all the way of the Zillow platform versus teaming up with others and forming kind of advertising group..

Good question we haven’t shared that type of data. It is a good point though and it is one of the many reasons why we have been saying for years that number of advertisers is a bad metric and we have been moving away from it and I’m glad that we’re finally replacing it overlapping now for a while with this Premier Agent revenue guidance number.

What happens when an agent stops being a Premier Agent and switches to join a team of another Premier Agent, is there really just shifting the capital risk from themselves to somebody else with more capital so instead of spending a couple of hundred dollars a month out of pocket and taking the risk that 3 or 6 months later they are going to convert those plates into transaction they are joining a team and they are getting probably even greater lead flow and they are giving up a quarter or third or half of their commission to that agent, that is buying the leads essentially on their behalf.

And that agent that is buying the lead on their behalf is typically in some sort of software to track the lead conversion to hold the referees feet to the fire to make sure that the least they are buying on behalf of the other agent are actually closing go into transaction.

So we really like that situation I mean the consumer gets better service because they’re going to be like there are more likely to get somebody on the phone more quickly, it means the leads are going being sold to somebody that values are on the higher rate.

It is just - it is all goodness all-around, it does also have a lower selling cost which is much important but still not worth the year we like that trend and as we have been saying for really years now and that is why we have been focused on top of listing agents..

Got it and one more quick follow-up..

Go ahead..

Thank you so if you talk about overall lead growth across both Zillow and Trulia platforms in the core real estate business.

I’m wondering how that works kind of in tandem with overall listing count is that you guys driving higher leads due to higher listing coverage overall may be as a product of all the work direct connections with MLSs or is that a product of sort of better monetization of kind of existing listings for?.

It is a combination of improved listings quality and improved product development. The listing’s quality on Trulia and Zillow have never been better, we now have direct connections to around 400 multiple listing services that represents a huge portion of total listings in the country.

They have never been as accurate and as timely as they are today and they are significantly improved year-over-year and that generates more leads and more high quality leads and it is absolutely a tailwind to the Premier Agent business but at the same time we also all just continue to get better and better about the whole dozens of features that you may or may not focus on and stuffs come back to being share best practices across these brand like things like personalization, email, site user experience and lots of other things that we don’t tend to talk about.

So a combination of those factors impacting that. Operator will turn to questions from Twitter Brian Smith_Jr. asked the question that I’ll paraphrase as so how is Trulia doing and the answer is Trulia is doing very well now.

As you know and as we have talked about in early 2015 early to mid-2015, Trulia traffic was not growing quickly and that was something that we worked very hard 2015 two region night and of course to sell latter part of 2015 going into 2016 we are seeing the benefit of those hard work.

And Trulia now is growing at the top of the funnel and growing very quickly at the bottom of the funnel and the product team there is doing great job. I’m very proud of the work that is being done by the Trulia team.

So, Trulia traffic growth was solid and user engagement is solid and then from are monetization standpoint everything is fully integrated now.

So the advertisers in rental Premier Agent mortgages and displayed or buying media impressions from Zillow Group and they are getting is Trulia and Zillow at the same time and that allows us to monetize Trulia much better than Trulia ever monetize their standalone because of the economy have scaled the combined traffic between Zillow and Trulia and the single sales force.

Should I go to Twitter or the call RJ? Twitter and then will go back Sorry, are you going to start paying a dividend. No, we don’t have any plans to start paying dividend. We are investing very heavily in the company itself rather than returning money to the shareholders through dividends. Actually go back to the other question.

[Indiscernible] asks sort of snortly is the plan then to milk high-performing agents for as much as possible, that definitely goes against your huge time argument. So I whole heartedly disagree we are not milking high-performing agents. What we’re doing instead is trying to send as many as consumer as possible to these top agents.

So these top agents convert leads really high rate, they earn a lot of commission and they are willing to pay a lot of money to connect with a larger number of consumers.

The term here is of course what is what determines known what is known is the total commission dollars around 75 billion of which we are responsible for the agents generating or collecting around 3.6 billion and so the question of course is at scale of the 75 billion of total commissions what portion of that can Zillow Group influenced and then of course how much will those real estate agents to collect those commissions be willing to pay to earn to generate the commission and so those things are the unknown.

But that is the size of the price; it is very large it is even larger today than it was when we started this company 10 years ago. I think we will go back to the call and we make question and then wrap up. Go ahead operator..

Next question is from Mark May from CITI. Your line is open.

Thank you, thanks.

Question - where are you in the process I’m sorry if I missed this of coined lower performing agents and based on you know where you are event you expect that to shift from being said went to your overall agent growth and second question what portion of the you know MLS based on listings in the country today are on Zillow today and how is that trended over last six or 12 months, thanks..

Sure, I’ll take the MLS question and then I’ll let Kathleen talk to Mark about the Premier Agent question.

We now have around 400 MLS direct connections, which are responsible for about between I think around 75% of listings in the US, coming to us from MLS direct connections most of the other 25% are coming to us from broker feeds from either franchise or the broker franchisee.

Many listings come to us in multiple ways, primarily MLS and the franchiser or the franchisee and then we de-duplicate so that we only display the proper listing once.

How has that trended, a year ago well when News Corp was providing our listings through ListHub I think at max we had around 300 MLS connections provided to us by ListHub, so we’ve far surpassed what we are getting more from ListHub and what we are getting from ListHub was significantly degraded because of course News Corp always sent us a reduced feed because they wanted to be advantaged in terms of listings quality.

So we are - Zillow and Trulia have significantly better listings quality today than it did a year ago. In fact they have the best listings quality in terms of accuracy perhaps and timeliness that we have ever had in our ten-year history as a company. That’s that is the company on the listings front and Kathleen on agents..

Yeah, on agents we come back to this quite a lot and one of the other question asked a very are made, in few comments about some of the agents who are leaving our program are actually leaving to join teams which we view as a super positive trend but just overall I can say we use the decline in agent count as very positive because it is a counterbalanced by an increase in very high spending agent.

So we don’t actually view that as a headband to our business. Quite the contrary as we continue to build products and attractive these higher spending agents and agents consolidate and start teaming up as teams, they will achieve higher ROI and we are continuing to build products to support that.

So view it as a positive development that in end will reduce our seller cost to [ph] expect and create some great opportunities to sell more impressions to these high producing agents who generate most of the commissions in this business..

Sure and a follow up, I wasn’t suggesting it was a headwind of the business, just a headwind to that particular metric, but I hear you.

And maybe just a housekeeping, I missed it, did you provide display guidance on a full year basis, so would you mind repeating it?.

Yes, we did. It was 54 million to 56 million..

Thanks..

Thanks Mark. Thank you everyone for joining the call. There are still a couple of questions that we’ll take on twitter just to close the loop. Thanks everyone and we’ll talk to you next quarter..

Thank you all..

Bye, bye..

Ladies and gentlemen, this concludes the program and you may all disconnect. Have a wonderful day everyone..