Zillow Q2 2026 Earnings: Revenue Rises 18% as Margins Narrow

Zillow Group (Nasdaq: Z, ZG) reported Q2 2026 revenue of $772 million, up 18% from $655 million a year earlier, while GAAP diluted EPS moved to a loss of $0.02 from income of $0.01. Mortgages and Rentals led revenue growth, but gross margin and adjusted EBITDA margin narrowed. Operating cash flow also fell sharply despite higher adjusted earnings.

Key Financial Results

For the three months ended June 30, 2026, revenue increased by $117 million year over year. Gross profit rose more slowly than revenue, resulting in a two-percentage-point decline in gross margin.

Profitability diverged depending on the accounting measure used. Zillow recorded a $4 million GAAP net loss but generated $118 million of adjusted net income and $176 million of adjusted EBITDA.

Adjusted net income, adjusted EPS, adjusted EBITDA, and adjusted free cash flow are non-GAAP measures and should be considered alongside Zillow’s GAAP results.

Business and Segment Performance

Growth was broad-based but uneven. Mortgages was the fastest-growing business, followed by Rentals, while Residential expanded at a more moderate rate.

Residential growth benefited from Preferred, Zillow Showcase, New Construction, and Zillow’s agent software tools. Mortgage revenue increased as purchase-loan origination volume rose 95% to $2.2 billion, compared with an industry purchase-mortgage market that Zillow estimated was approximately flat year over year.

Rentals revenue growth was primarily driven by a 42% increase in multifamily revenue. Zillow’s overall revenue growth also exceeded the 6% expansion in the residential real estate industry measure cited by the company.

Audience trends were less favorable. Average monthly unique users declined 2% to 239 million, while quarterly visits fell 2% to 2.5 billion. Revenue growth therefore came alongside stronger product adoption and transaction activity rather than growth in Zillow’s overall audience.

Revenue Growth Did Not Fully Convert Into GAAP Profit or Operating Cash Flow

Although revenue rose 18%, gross profit increased by about 15%, lowering gross margin from 75% to 73%. Adjusted EBITDA grew by about 14%, but its margin also declined from 24% to 23%. The release did not identify a single factor responsible for the margin contraction.

The difference between GAAP and adjusted profitability remained substantial. Zillow’s reconciliation excluded $75 million of share-based compensation, $36 million of restructuring costs, $10 million of litigation costs associated with the FTC matter, and $1 million of income taxes from adjusted net income. These adjustments created a $122 million bridge between the $4 million GAAP net loss and $118 million of adjusted net income.

Beginning in Q2 2026, Zillow also started excluding FTC matter litigation costs from adjusted EBITDA, adjusted net income, and adjusted EPS. It revised Q1 2026 adjusted results to conform to that presentation, increasing previously reported Q1 adjusted EBITDA and adjusted net income by $16 million each. Sequential comparisons should therefore use the revised figures.

Cash conversion was another point of divergence. Operating cash flow dropped from $87 million to $11 million, while adjusted free cash flow was nearly unchanged at $96 million. Zillow’s adjusted free cash flow calculation included $130 million of net borrowings under master repurchase agreements used to fund mortgage originations, partly offset by $36 million of property and equipment purchases and $9 million of intangible asset purchases. As a result, the adjusted measure does not reflect the same cash-flow profile as GAAP operating cash flow.

Zillow ended the quarter with $682 million in cash and investments. It repurchased 5.6 million shares for $200 million during Q2, compared with $96 million of reported adjusted free cash flow. The adjusted diluted share count fell to 228.2 million from 251.7 million, about a 9% decline, helping adjusted EPS grow faster than adjusted net income.

Management Perspective

CEO Jeremy Wacksman said Zillow outperformed the broader housing market and the company’s own outlook while remaining on track toward its full-year goals. Management continues to emphasize an integrated experience spanning renting, buying, selling, financing, and the software used by real estate professionals.

Risks Investors Should Monitor

• A slower housing environment: Zillow reported declining traffic and said other leading indicators were pointing to a slower second half. Weaker housing activity could affect Residential advertising, mortgage originations, and transaction-related demand.
• Continued margin pressure: Revenue grew faster than both gross profit and adjusted EBITDA, reducing gross margin and adjusted EBITDA margin. Investors will need to watch whether the faster-growing Mortgage and Rentals businesses can produce stronger margin conversion.
• Weak GAAP operating cash flow: Operating cash flow fell to $11 million. Adjusted free cash flow was more stable, but its calculation benefited from $130 million of mortgage-related master repurchase agreement borrowings.
• Restructuring and regulatory costs: Zillow recorded $36 million of restructuring costs and $10 million of FTC matter litigation costs. These items widened the difference between GAAP and adjusted results, while the FTC matter creates continuing legal and operational uncertainty.
• Capital allocation relative to cash generation: The $200 million spent on repurchases exceeded quarterly adjusted free cash flow, making future cash generation and liquidity important areas to monitor.

Summary

Zillow’s Q2 2026 results showed that Mortgage, Rentals, and newer Residential products can drive growth faster than the broader housing market, even with declining traffic. However, that growth did not fully translate into GAAP profitability, margin expansion, or operating cash flow. The main issues to watch are housing demand in the second half, the sustainability of Mortgage and Rentals growth, margin conversion, and the gap between adjusted earnings and GAAP cash generation.