Zillow Group Inc  (NASDAQ:ZG)

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Q4 2018 Earnings Conference Call
Feb. 21, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Zillow Group Fourth Quarter 2018 Earnings Conference Call. And at this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr RJ Jones, Vice President of Investor Relations. Sir, you may begin.

Raymond Jones -- Vice President of Investor Relations

Thank you. Good afternoon and welcome to Zillow Group's fourth quarter and full year 2018 financial results conference call. Joining me today to discuss our results are Zillow Group's Co-Founder and CEO, Rich Barton; Co-Founder, Spencer Rascoff; CFO, Allen Parker; Zillow Brand, President and Co-Head of Zillow Offers, Jeremy Wacksman; and President of Media & Marketplaces, Greg Schwartz.

During the call, we will make financial, forward-looking statements regarding future financial performance, operations and events. Although we believe the expectations 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 February 21, 2019 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, except as required by law.

This call is being broadcast on the Internet and is accessible through the Investor Relations section of Zillow Group's website. A recording of the call will be available later today. 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 GAAP and non-GAAP results, including reconciliation of historical 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, impairment costs, acquisition related costs, interest expense and income taxes.

We will open the call with brief remarks, followed by live Q&A. We have posted our news release and financial tables on our Investor Relations website. There will not be a shareholder letter this quarter.

I will now turn the call over to Rich.

Rich Barton -- Co-Founder and Chief Executive Officer

Thanks RJ and thanks everyone for joining us today. I see many familiar faces on the line. And I see a number of new people who I hope to meet soon. We'll turn to your questions shortly, but I wanted to take some time here at the top, to share how I view the rapid evolution of Zillow Group down the funnel toward the transaction and why we will win the race for online real estate 2.0.

Fundamentally, we are following consumers who have been uberized and are growing to expect magic to happen with the simple push of a button. We've seen this in travel, ride hailing, car buying, shopping, streaming video and more, and the time for real estate is now. We know from the massive scale of our own monthly audience that almost everyone is in the market for a new place to live.

Since we first turned on the lights with this Zestimates back in 2006, we have been innovating to help movers turn their dreams into reality by empowering them with information and connecting them with the right real estate professionals. Yet, many of these would be buyers, sellers and rentals -- renters stay put, because the process of moving is daunting and scary.

We are taking aggressive steps to remove the inherent friction that still exists in this complex, optimacy, process heavy industry and unstick (ph) who's ready to move dreamers. This requires us to build on our strengths as the clear leader of online real estate 1.0 and move down the consumer funnel for the transaction, leveraging the power of our brands, audience, data, content technology, partnerships, service and culture of innovation.

As a result, the Zillow Group, they closed 2018 as a very different Company from where we started the year. The launch of Zillow Offers in the second quarter and the acquisition of Mortgage Lenders of America in the fourth quarter gave us the foundation to enter home buying and selling and home loan originations. Well, for Zillow -- and ultimately -- both for Zillow and ultimately to streamline the transaction for many buyers, sellers and real estate professionals.

Adding real estate transactions and eventually seamless mortgages to the Zillow Group portfolio begins to position us well for the new frontier and dramatically increases our TAM. Trying to selling homes is not a new idea for Zillow Group. Lloyd, Spencer the founding team and I founded Zillow with the gene of making buying and selling a home radically easier than it was in 2005 when we got going.

Many of us were shopping for new homes, triggered by rapid family expansion and we marveled the 10 years after the launch of the graphical web, nothing had really changed in real estate. It was right for disruption. We already had hoped read while we traveled back in the late 1990s, when we founded and led Expedia, so we could recognize a pattern.

Our earliest thesis and experiments that Zillow involved attacking the obvious problems at the point of the transaction and answering the question for buyers and sellers alike. What is that home really work?

At first, we were enamored of the purity of the auction model as the perfect price discovery mechanism. A trial and mostly error, we found that people didn't understand home auction and they certainly weren't ready to buy and sell homes on demand. However, in this process, we discovered this Zestimate, which became the backbone of our zillow.com marketplace and launched us down the road of an advertising-based business model where we added content, amassed a huge audience and made money by connecting a small subset of our audience with professionals that wanted help.

Aside from helping us build audience, quite conveniently, the Zestimates has become a key competitive advantage for Zillow Offers because almost every home seller comes to see Zestimate. Now, it's fluent and see how it ideally and eventually becomes a robotically generated live offer for your house.

Well, the market wasn't ready to embrace a live bid and ask in every home in 2005 when we used to evangelize this notion. A growing population of people certainly are today and just as we've seen in other categories, we expect this to become normalized in the not too distant future. So we've returned to the excitement of our founding mission and are now innovating rapidly on the transaction.

Zillow Offers is not just an experiment. We are already well on our way. Q4 results exceeded our expectations and we have line of sight to accelerating growth in Q1. Today we are live in seven markets and we already received one Zillow Offer request every five minutes. That's $100 million in demand value per day. Our current Zestimate is we convert 3% to 4% of the offer request we received today, which we believe could add $20 billion in annual revenue in three to five years. And ultimately deliver 200 to 300 basis points of EBITDA margin once we are at scale.

Even strong consumer response and promising metrics, we are investing in Zillow Offers for larger scale and expect to be in at least 14 markets by the end of the year. We know the mechanics and fundamentals of real estate transactions are vastly different from the media model, but these two businesses complement each other like peanut butter and chocolate.

Additionally, we are transitioning our media business models to get much closer to the transaction turning advertisers into partners, who we work closely with to satisfy the high expectations of the uberized consumer, we share.

Given that, let me now talk about Premier Agent, which is included in our Internet, Media and Technology segment. With the consumer as our Northstar, the investment in Zillow Offers complements with E (ph) not an I, for our commitment to our Premier Agents. Our PA partners are critical to Zillow Group for two key reasons.

First, we know most sellers will likely not choose to sell their house directly to us by Zillow Offers. Yet, it's our mission to get everyone seamlessly into a place they love and can afford. Our partner PA's are not only necessary for fulfillment of this mission, they're fundamental. The same heightened consumer expectations of the on-demand economy are at play in PA as well. Our challenge is to rapidly innovate on software, business model and partner selection to ensure that our consumers have a delightful experience. There are miles to go before we sleep in this arena and it's motivating.

Second, PA's are most established revenue stream and generates the cash flow that enables us to take a big swing on Zillow Offers, as well as mortgages, which by the way we view as payments just like payments are integrated into uber.

To explain what's going on in PA right now, I'll note that we made some significant changes to the PA model mid-2018, designed to improve the quality and agent response rates, and the rollout did not go as well as we intended. We allowed price to get pushed too hard with the auction-based model, and we miscalculated how important lead volume even the less transaction already nurture leads where to many of our PA's when we started more streaming and filtering.

These since some negative macro conditions caused elevated churn. We have made modifications to remedy the situation and the churn rate is normalizing. Our PA response rate to a lead is up, which is great for consumers. Our nurture leads are up, which is great for agents, and PA conversion is trending up, which is great for everyone. That said, our PA growth rate was disrupted in Q4 and it will take some time to recover from the reduced Q4 MRR, as you will see in our outlook.

At the same time, we are testing a success-based business model for PA in a few areas, in a few geographies called Flex. With Flex, we work with top-performing agents, teams and brokers who use Zillow Group software and tools to build a partnership relationship versus an advertising one where incentives are more aligned and we share the risks and rewards.

In Flex, there are no upfront fees for agents. Zillow Group has simply paid a success fee only when a Premier Agent closes the deal. Early indication are that PAs like this mutually beneficial model and we're seeing encouraging conversion rates, but it's early.

As we continue to evolve PA, we will be working closely with our agent and broker partners to do so. The PA program is currently under way, brings Zillow Group closer to the transaction and deliver a more seamless real time experience and service levels that today's on-demand consumers want and expect from the leader.

2019 will be an important transitional year as we educate current, lapsed and new PAs about the mutual benefits of the new programs. Ultimately, the shift from advertising to a partnership models increases our agent driven TAM considerably. Today, there is roughly $87 billion in commissions processed annually. But our PA revenue is just 1% of that.

We believe the value we add is much larger and expect to realize a three to five year doubling of the IMT business, which includes PA. From the beginning of Zillow Group, we've had the benefit of operating a unique triangle like executive framework that includes myself, Spencer and our co-founder Lloyd Frink.

For the first five-plus years, I was CEO and then passed the baton to Spencer. Lloyd and I have shared offices -- have shared offices in ZG HQ, Seattle and have always been active partners deeply involved in the strategy and operations of the Company.

As we've been working, toward transforming Zillow Group to be the winner in online real estate 2.0 and after careful consideration and many discussions we collectively decided it's time to turn our leadership triangle on its side and shuffle our seats.

As I return as CEO, Co-Founder Lloyd Frink has assumed my previous title of Executive Chairman and Spencer Rascoff will step out of the day-to-day, but continue to be an active and influential leader in our future success as a member of the Zillow Group Board of Directors. This is a smooth leadership transition. I just want to pause a minute to acknowledge Spencer and his tremendous work and leadership today. I personally had spent more than 15 years ago when Expedia acquired Hotwire in 2003, which Spencer also co-founded.

I knew from the moment I'm hearing, he'd be a great CEO. He has worn many hats at Zillow Group including CMO, CFO those were at the same time, by the way we say that a boatload and marketing expense in our early years and then COO, before taking over as CEO from me in 2010. He is an indefatigable and committed leader and a huge culture carrier, under his CEO leadership we went from private to public, we grew revenue from $30 million to $1.3 billion, we acquired 15 companies, we grew from 200 people to 4,000 employees, we repeatedly won Best Places to Work awards and our brands have become household names.

It's hard for me to express the depth of my gratitude for his innumerable contributions and what is still yet to come. Thank you, Spencer. I know Spencer wants to say a few words.

Spencer Rascoff -- Board of Director

Thank you, Rich. You're right I played a lot of roles here at Zillow Group and I'm excited now, for my next one. We are at a transformative time at ZG the world is finally ready for the seamless real estate transaction and no Company has better positioned to deliver. Rich, Lloyd and I have been partners since the company's founding in 2005 and now feels like the right time to turn this triangle of partnership on its side. When I look at the Company, we've built during my nine years as CEO I am incredibly proud. Our team and culture are world-class and helping Rich to continue to build that culture will be among my top priorities as a Board of Director.

I'm grateful for the relationships I've built with our employees and for their trust in me. I've also built relationships with many of you from the investment community and I'm grateful to our shareholders who help support our Company's growth so far. I will remain a large shareholder of Zillow Group and I look forward to helping support the Company's next stage of growth from the boardroom. Thanks to all of you, back to you, Rich.

Rich Barton -- Co-Founder and Chief Executive Officer

Thank you for everything Spencer and I look forward to both of our new roles as we plot the course ahead. This is an incredible time to put my CEO hat back on, Zillow Group is like a start up again, but are really well positioned one with $1.3 billion in revenue, a huge engaged audience and the leading brands in the industry, including Trulia, StreetEasy, HotPads, Out East, dotloop and our flagship Zillow.

Excitement runs high at Zillow Group right now. We are reconnecting with our original mission and we sense how meaningful this opportunity is for consumers, partners and shareholders alike. I'm excited to talk more with you about all the exciting things under way at Zillow Group and the opportunities we see today and on the horizon.

Before we open up for questions, I want to reintroduce Allen Parker who joined as Zillow Group's CFO in November from Amazon, where he spent 13 years and was most recently Vice President of Finance for Amazon Device in that store. This is the first ZG earnings call for both of us so go easy, but I thought it might be helpful to offer a little perspective on our share repurchase earnings and financial reporting, you'll see in our press release that in addition to Q1 outlook we included our current target Zestimates of our business looking three to five years. We feel that this time, it is important to share our view from where we sit today, given the investments we're making.

Also with me today are Jeremy Wacksman who wears several hats, including Co-President of Zillow Offers and Greg Schwartz, who heads our Internet Media & Technology Segment, which includes PA, rentals and mortgages. I've been working closely with both of them for over 10 years.

With that operator, we'll open up to questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Ron Josey with JMP Securities. Your line is now open.

Ronald Josey -- JMP Securities -- Analyst

Great, thanks for taking the question and Rich, welcome back to the CEO seat although I know you've always been involved and Spencer glad to see you're still be on the Board here. So, I want to ask maybe, question for you, Rich and then for Greg. Just Rich, as you return to CEO role and what is incredibly involved -- evolving company across IMT in offers, in mortgages and I know you said 2019 is another year of transformation investment, but just perhaps can you talk just how you're focused approach might be a little different than in the past and then Greg on the Core Premier Agent business great to hear response rates, nurture leads and conversion rates roll up and improving with 4.1, but obviously growth is slowing here and it's very different in the past so just wanted to hear your take on what keeps you excited in the broader premier agent opportunity going forward here. Thank you.

Rich Barton -- Co-Founder and Chief Executive Officer

Thank you very much. So from a strategic perspective and from a organizational perspective, we don't expect much change. The reason we kind of turned this triangle is because I have a particular pension for and attracted two big swings and we are really in the process of remaking Zillow Group right now and formulating a new mission. One we're looking at the sky, looking at the moon and saying, we want to land there, we want to walk on that thing. It takes a really big audacious goal be had to get an organization to transform itself. I've been lucky to be part of transformations like that earlier in my career I have been fortunate enough to be on the Board of Netflix since it was private and I see lots of parallels here as we take Zillow Group into the next phase with what we saw at Netflix when we moved from DVDs by mail to streaming and then to originals, it's that kind of change and so given all that and given this great big new challenge Spencer, Lloyd and I in conjunction with the Board of Directors all thought we rotate this triangle and put the guy in this quarter back who really loves, who really loves taking these big swings and leading these big efforts. So that I think that is the primary inspiration, send it over to Greg.

Greg Schwartz -- President, Media and Marketplace

Hi, there. Greg here. So the question from raising program and why we're optimistic which we are. Demand is strong it has ever been for this business we will sell more an MRR this year we have ever. Now by the nature of MRR business, which is why the forecast is later than you'd like and we like the nature of an MRR business as we dig a hole with elevated churn, you got to fill it up before we get to grow on a more normal level. So that's what we are actively doing today sure like Rich mentioned is coming back to normal levels have it declared victory quite yet on that but it get through another month or so we're feeling really good about what we're hearing from our customers, from demand, from the moderating business model and then like you shared the fundamental thing we're trying to achieve in the fourth version of Premier Agent PA 4, was to enable this OnDemand more joyful, more predictable transaction experience for our consumers and we're doing that by achieving these levels of high connection between high real transaction between agent and consumer. This flowing through an improved CSAC, customer satisfaction scores that we track very closely, we're seeing very significant improvement of customer satisfaction in our computed rate of transactions so lead to transaction conversion is up.

So figures are looking pretty good Allen and I are declaring victory quite yet we want to be conservative in the financial projections that we're laying out here. In one of the year ahead.

Operator

Thank you. And our next question comes from Brad Berning with Craig-Hallum. Your line is now open.

Bradley Berning -- Craig-Hallum Capital Group, LLC -- Analyst

Good afternoon everybody. In JV, or why you'd be the right person to target this to given the $20 billion three to five year target for the Homes business, can you talk about what you guys are seeing on Zillow Offers that gives you the confidence to talk about a target like that and how fast can you grow these markets and what kind of investments you want to be making in '19 and '20 given the opportunity for a land grab in this emerging market competitively. The follow-up is maybe to Greg the related seller leads that come out of this maybe you can talk about some of the initial roll-outs that you're seeing out of the Zillow offered leads kind of attach rates economics you know, how you're thinking about, how big this business can be relative to that $20 billion type target?

Rich Barton -- Co-Founder and Chief Executive Officer

Sure. This is Jeremy, I'll take the office question and I think Greg can handle the rest of things.

Greg Schwartz -- President, Media and Marketplace

Yeah, I mean, as Rich talked about, we see just a massive demand from sellers, I think he quoted $100 million in value, every day, that's a request every five minutes. And that's just in the seven markets we're in, let alone the dozen plus we plan to be in later this year.

So, I think we see a very large potential price and what we really see is incredibly strong consumer response to the offering that demand signal comes from every seller starting on Zillow checking out Zestimate and asking for help with how to sell. Zillow Offers is obviously a fabulous way to do that and as we scale the business that's what we see that three to five year target around. That's also what we see the listing opportunity around.

Rich Barton -- Co-Founder and Chief Executive Officer

Yeah, I'll say, that is correct. Yes. Pretty, compelling long-term opportunity as seller leads. It's part of how we get to $2 billion and in Premier Agent revenue and IMT revenue in three to five years we experimenting and in the investment phase right now.

We got, we got some miles to walk to figure out their compelling offer to a consumer, to a seller that will ignite you to get on the phone and engaged with Premier Agent. So it is not material. Its not a material component of our 2019 forecast and we think will develop over time nicely.

Operator

Thank you. And our next question comes from Maria Ripps with Canaccord. Your line is now open.

Maria Ripps -- Canaccord Genuity -- Analyst

Great. Thanks for taking my question. Allen, you're the newest person in the room. Welcome to Zillow. As you take on the CFO role, curious if you could share your thoughts about your objectives and goals. And in relation to your long-term targets. Can you share with us what do we focused on in '19 and beyond. It would be great to hear, what you're prioritizing? Thank you.

Allen Parker -- Chief Financial Officer

Great. This is Allen, and this is -- as my first call, I did want to take just a big opportunity to say really excited to be here at Zillow Group. At this moment in time a lot going on, and I feel like that, I have a lot to offer. So very excited. With respect to your question. I'd start out by saying that, I feel like the current position we're in the opportunity ahead of us reminds me a little bit of the early days of Amazon. When I joined and we were just starting to increase our investment levels in two big ideas, we were not sure how big they'd be. It was AWS and it was devices which I eventually went to be the finance person on. And I saw firsthand the importance of rallying the organization around these new high growth opportunities without losing sight of maintaining the core performance of your current business, which helps fund those big swings.

So when I talk about specific priorities, I'll call out three. My first one, it gets a little bit to your long-term question. Is focused on ensuring we are building good processes and plans on scale in our home and mortgages business to achieve these long-term targets. This includes developing input driven models to both size the opportunity and to manage and monitor our progress. It also helps looking farther out to identify the key innovation and processes required to reach the scale and then with respect to our core businesses and focusing on execution and leverage growth. To achieve the long-term targets we need to prioritize our investments, digest where possible and most importantly reaccelerate growth.

And just real quickly, the third point is really around that leverage and costs. We need to increase our muscle mass around controllable spend. This is important for all of our businesses, both to leverage the core, as well as we move into lower margin transactional businesses. We're going to be building processes and initiating actions to go after this discretionary or controllable spend, in fact building that muscle today.

Operator

Thank you. And our next question comes from Mark Mahaney with RBC Capital Markets. Your line is now open.

Mark Mahaney -- RBC Capital Markets -- Analyst

Okay, great. Rich, welcome back. Nice to hear your voice. I'm almost tempted to ask you about online travel, but I won't. I love the use of...

Rich Barton -- Co-Founder and Chief Executive Officer

You know, a lot about it, Mark.

Mark Mahaney -- RBC Capital Markets -- Analyst

Yeah, I love the use of the term uberized in the financial press release, I think that's the first, I'm assuming that was your idea and at the idea of removing friction from real estate from residential real estate and maybe from commercial at some point I think is a very noble idea, it's an extremely difficult idea. I know you referred to be had before just talk big picture about how long do you think it'll take to remove substantial amount of friction. I mean there's obviously an enormous amount in there, there and this is kind of why you're going into the Homes business, but that's the opportunity, but just talk about the timeline for removing friction. And Spencer, I got to asked you one last question before we lose you.

Let's see. The question would be the unit economics of the Homes business. Do you think is it? I don't know if it's too early to tell this, but are they're -- can the unit economics work just as a stand-alone Homes business or does it only really work when you're able to do that and cross-sell other things title and mortgages in other words just homes is that an attractive business on its own. Or is it really work when you bring in synergies with other, with other revenue opportunities and profit opportunities, and thank you both.

Rich Barton -- Co-Founder and Chief Executive Officer

You want to start.

Spencer Rascoff -- Board of Director

Sure. Hey, Mark. I am going to pot that one to Jeremy. Objectively, but as a director and major shareholder I anxiously await Jeremy's answer after. Jeremy?

Rich Barton -- Co-Founder and Chief Executive Officer

The answer is yes. (Technical Difficulty)

Allen Parker -- Chief Financial Officer

-- stand-alone basis and if you look at the three to five year target, we put out there 5,000 a month at a $20 billion annualized run rate then at scale. you look at 200, 300 basis points of EBITDA margin.

That's on the core business, that's before, what you might call adjacencies or listening. So mortgage opportunities.

Spencer Rascoff -- Board of Director

And the bigger. We get the bigger we get there and the more density we have there. The more we can drive expenses down it. Allen, was always talking about. And that actually feeds back in to increasing demand because we can -- with the lower fee. So there is a really interesting virtuous this I guess this is a virtuous cycle of sorts, but it's like traditional scale economies they are very strong tradition scale economies, we believe, but back to your original question mark, That's why we're so excited because we found a short circuit. We found we found a way to, you know it's not magical, it's going to take a lot of time, its going to take a lot of investment that I hope you you'll make with me. But we found a short circuit from a consumer perspective, all of this anxiety that the seller had that Susan the seller had about selling here house how long is it going to take what price.

Am I going to get all these people walking through my stuff like in my house my kids are. It's like this kind of personal emotional invasion uncertainty, it just means that there's all this pent-up demand and when we first got going with Zillow Offers, which was started out as a small experiment we were inundated with consumer demand.

And so this is it, we found a short circuit. So, yes, it's going to be hard. You're right. And I understand people's skepticism, but we have found one really interesting path over this CASM of despair. Okay.

Another path, however, right next to it is fully uberizing and automating the guided path. So in, we know a lot of people won't, a lot of people don't do Zillow. All right. But we still want to get everybody to that better place. And so, Greg and his team and the product teams are hard at work modernizing that process finally.

We are super motivated and we have line of sight to how we're going to do that now simply because we're so large and now we're getting into the transactions results. So I'm quite yeah, it's a big swing for sure, but you know I'm pretty confident, I see it as fairly control downside you know, on this, because the existing business we have is a fantastic business and we have a lot of growth to go even in that business as a stand-alone business. And so we have this unbelievable option on a giant TAM in the form of Zillow and mortgages.

Mark Mahaney -- RBC Capital Markets -- Analyst

Okay. Thanks, Rich. Thanks Spencer. And congrats to you, both.

Rich Barton -- Co-Founder and Chief Executive Officer

Thanks, Mark.

Spencer Rascoff -- Board of Director

Thank you, Mark.

Operator

Thank you. And our next question comes from John Campbell with Stephens. Your line is now open.

John Campbell -- Stephens, Inc. -- Analyst

Hey, Rich and Allen looking forward to working to you guys, and Spencer congrats on a great run. But on the Offers business. You guys have talked to that kind of rapid adoption, I mean that's been super impressive you're getting or request every five minutes. I think you guys said last that you touched about 35% or so the share in the Phoenix market you got that in a couple of months, but just thinking about the long-term opportunity in adoption curve.

Do you guys think it's unreasonable to assume that I don't know one day nearly every home seller comes you guys first just to kind of get that risk free offering, get a sense for the trade off around selling direct versus going to the traditional route?

Jeremy Wacksman -- Chief Marketing Officer

This is Jeremy. I'll take that one. No, we don't think that's crazy. As Rich talked about the short circuit that's kind of what we mean. I mean the Zestimate is that place where every seller is already starting and now right next to that Zestimates is to get an Offer, but so now they have two options, and -- well now they have three options with that as well as an agent. So that's really what makes this thing go as every seller is scared to get started and they're starting here and they want to know how to sell and that's what makes these two businesses works so well together is regardless of that we buy house via Zillow Offers or we help them was a great agent, we're helping himself, we're helping them get across that chasm Rich talked about.

John Campbell -- Stephens, Inc. -- Analyst

Okay, and just related to that. Can you guys maybe give us a sense. I don't know if you can size this up, but just an idea about the ramp or kind of build up to sell side revenue and listing revs over the next three to five years?

Allen Parker -- Chief Financial Officer

Yes. We don't have, we don't, it's not time to give you formal guidance for the next three to five year sell side ramp, like I said, we see something pretty compelling here it's part of how we get to this three to five year doubling of IMT is an important contributor. We got some invention do this here to figure out what really delight the consumer and get some on the phone with Premier Agent, we've got -- I promise we are working pretty hard on this and we got some pretty compelling idea. We got to get done before we're going to, before we going to forecast it.

John Campbell -- Stephens, Inc. -- Analyst

Okay, great. Thanks guys.

Operator

Thank you. Our next question comes from Ryan McKeveny with Zelman & Associates. Your line is now open.

Ryan McKeveny -- Zelman & Associates -- Analyst

Hi, thanks a lot. Just a follow-up on that last question related to the Homes business and just kind of size of the opportunity that you think about, I guess, the numbers you mentioned in the long-term targets its 5,000 homes a month would be 60,000 a year and I think you mentioned the 3% to 4% conversion rate, which I believe the math implies something like 25% or 30% of all existing home sales would kind of start with you guys having the opportunity that did. Is that kind of the rough math that you think about and on that 3% to 4% conversion, what's the thought process, or how do you get to that being the right level of conversion?

Jeremy Wacksman -- Chief Marketing Officer

Yeah, this is, Jeremy. Well, two things on that. That conversion rate goes up over time. I mean, right now our demand is to -- as Rich pointed out, we're offering on a subset of those requests while we're constrained. I mean, our biggest constraint right now is market roll-out feet on the street, the ability to make offers on more homes. So you can expect this conversion rates to change as we get the scale and so that's part of how that math works to get to what will be eventually a large percentage of homeowners making request on their house and seeing if this can work for them.

Ryan McKeveny -- Zelman & Associates -- Analyst

Yeah, there's one conversion rate that tips above. The 3% to 4% which is how many people raise their hand and ask for an offer?

Spencer Rascoff -- Board of Director

Right. So you know, that's, that's a huge lever you know indications are that it's very popular and as prices going down certainly more and more people will raise their hand and take the convenience of over the alternative and I just as -- that's what I'm talking now.

Operator

Thank you. And our next question comes from Jason Helfstein with Oppenheimer. Your line is now open.

Jason Helfstein -- Oppenheimer & Co. -- Analyst

Thanks, two questions is back on Premier Agent, and I've been on two earnings call, so I apologize if some of this is covered, but with respect to kind of where we are has churn kind of bottomed out from the Premier Agent relaunched and then how are you guys thinking about macro housing effecting kind of the guidance for Premier Agent. Obviously, we heard, we went talking about more optimism about the market, but obviously team up -- we are up fourth quarter.

So, if you just help us understand how much of it specific to the relaunch of Premier Agent versus macro and then, obviously you've been very vocal about homes has there been any pushback from Premier Agents about your expansion at the homes and how you do anything that you are still aligned with them versus competing with them, et cetera. Thanks.

Greg Schwartz -- President, Media and Marketplace

Sure, I'll grab that. It's Greg. So quick one, yeah, in terms -- in terms to normal. We have not enough runway yet to declare victory on it, but we feeling pretty positive, that was the first question. I think your second question is...

Rich Barton -- Co-Founder and Chief Executive Officer

Agents and home...

Ryan McKeveny -- Zelman & Associates -- Analyst

On macro..

Rich Barton -- Co-Founder and Chief Executive Officer

And pushback?

Greg Schwartz -- President, Media and Marketplace

No, pushback. Hearing of push, our Premier Agents want to partner with us in Zillow Offers. They want to represent us some transactions, they want to help us invest on several listings -- listings drive a lot of towers authority in local markets and they're looking for opportunity. I haven't had a real significant pushback beyond those who want us to move a little faster, so they can get all this course and ride it, our relationships with Premier Agents are warm inner scaling and is dedicated to building those partnerships is been ever happened, and it's well received -- the question is how we work it? Undoubtedly, appreciation is slowing in many, many markets, almost all markets. An inventory is increasing, but volume isn't we still need more homes for first time homebuyers, the builders still need to bring more lots online and do affordably. They're pushing the margin there. So, we are not seeing headwinds from -- in the peer business from macro in 2019.

Ryan McKeveny -- Zelman & Associates -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Lloyd Walmsley with Deutsche Bank. Your line is now open.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thanks, I have two. I guess, the first one, for Rich and then the second one, I'll jump off. So, Rich, I'm wondering if you see a path for Zillow Offers to ultimately shift back to becoming more of an asset-light marketplace where you're less involved as a principal and more platform taking on a fee, similar to how the business kind of started and maybe give us some more broad color on kind of how you see that side of the business.

And then the second one, would just be on the Homes segment. I was curious how you guys see the competitive dynamics in the industry structure there ultimately impacting margins there I would assume most people who would like to get an offer on the most valuable asset, they own look to get one from multiple platforms, which maybe drive competition in ways that aren't similar to the core media business. So, the question would just be, how do you see competitive dynamics in the Homes segment evolving and how do you see the durability of the unit economics in a competitive market?

Rich Barton -- Co-Founder and Chief Executive Officer

Okay. Hi, Lloyd. Yeah, I'll start. We're not really contemplating the marketplace model right now. I don't know that -- when Amazon got going they were contemplating the third-party sellers model either, so I don't want to close down strategic possibility in the future. Job number one is to get scale. And to get the scale economies working, we think our access to capital will be unrivaled and so we think our access to customers will be unrivaled from an acquisition cost perspective, we think we have a lot of built in advantages here I get your points about, Hey, isn't money just money.

But I think in any industry you look when you think a product is just a product, you realize that brands matter and trust matters and especially with such a big transaction people want to work with the brand and a Company they know and trust and love. And so we're going at this, you know, without the intention of going to a marketplace model on this particular thing.

I'll add one more thing and that is I'm mainly excited about the optionality that has opened up as we head toward the transaction. Okay. There is a flourishing of creativity and innovation at the real estate transaction right now, both the rental transaction and the home transactions you see lots of activity and start doing all kinds of things that when you hear the pitch, you like, what? You're -- we work for residential, we'll buy the house, we'll turn into an Airbnb side and will lower your monthly payment in rent because we're doing turning into Airbnb its tonnes of really -- there's tons of really interesting innovation happening around real estate right now and finally, and one of the wonderful things about our move into Zillow Offers is that it opens up a world of interesting possibilities for how to innovate at the transaction to satisfy the needs of what the seller and the buyer, the renter and the mortgage shopper wants. So I believe this is not the end of innovation, this is the beginning of innovation around this concept.

I don't remember the second part, I think it was at a...

Spencer Rascoff -- Board of Director

Dynamic..

Jeremy Wacksman -- Chief Marketing Officer

No, its on homes. This is Jen. It's another flavor on what Rich said the advantages we think we have that consumers will allow also the advantages that we think will allow us to rationally provide a profitable offering that's the strongest, right. The brand trust we have, the access to audience cheaper than anybody else, that audience then allowing us to resale and reduce whole times, the integration and internalization of mortgages and ancillary. Those same components that we think the consumer wants are also then the things that build the network effects to provide the strongest offering at a rational point.

Lloyd Walmsley -- Deutsche Bank -- Analyst

(Multiple Speaker).

Operator

Thank you. Our next question -- our next question comes from Justin Patterson with Raymond James. Your line is now open.

Justin Patterson -- Raymond James -- Analyst

Great, thank you. From the Offers perspective, could you help provide more commentary in terms of how aggressively you're thinking of investing in that opportunity and the cost getting toward scale, you did guide to a large Q1 loss in that business, but referring from commenting on annual revenue and EBITDA trends for Homes.

And then secondly, I wanted to tease out your commentary on Zestimates being a key advantage in the Offers space. Historically, as we look at Zillow there tends to be a large gap between your Zestimates and where less prices are market-by-market. So, curious what you need to do there to refine that if that's true, we can to be a driver for Offers? Thanks.

Allen Parker -- Chief Financial Officer

Yeah. So, this is Allen. I'll take the first part of your question. So we are -- we did guide in Q1, the EBITDA margin level that range from negative 38% to negative 28.7%, we are not providing guidance out past that, but you can compare that range EBITDA margin to Q4 actuals, which was negative 56.9, but we will be invested mode for a while and we're going to grow as fast as we can. Jeremy, had mentioned some constraints as we scale we think this is important business and it's important to be there at first. So, we believe the most accurate homes there's only one quarter out, which is why we are only providing one quarter of guidance. The second question you had is respect to the gap between the...

Jeremy Wacksman -- Chief Marketing Officer

Zestimates, well -- we could...

Allen Parker -- Chief Financial Officer

Okay.

Jeremy Wacksman -- Chief Marketing Officer

That's a huge task.. (Multiple Speakers)

Justin Patterson -- Raymond James -- Analyst

Zestimates accuracy. You basically saying Zestimates are inaccurate. So how can you base (inaudible) up as Zestimates?

Allen Parker -- Chief Financial Officer

Yeah. And you'll see us in every market price based on the Zestimates and based on a local market opinion, based on a pricing underwriting model and then ultimately based on visiting the home with the seller. And so, Zestimates can be a great starting point in that conversation, it can also be a challenge and starting with the conversations, but the jurisdiction is specific for each house end up being the conversation around price discovery.

Justin Patterson -- Raymond James -- Analyst

Channel (ph) are to stand now..

Jeremy Wacksman -- Chief Marketing Officer

And brag on Zestimate. I don't want people to think that Zestimate is inaccurate. The Zestimate is outstanding.

Allen Parker -- Chief Financial Officer

For sure, I mean approaching 4% median absolute percent error, it's the most accurate AVM (ph) out there in the country -- across the board and it is a fantastic tool for us to price off, and first thing we can start off.

Jeremy Wacksman -- Chief Marketing Officer

Yeah. And you can imagine our motivation for accuracy on this Zestimate now is just ratcheted up a couple notches as well, because we're putting real money -- we're putting real money into this and that we can really -- this is a dream, this is just an idea that I'm holding out here, but if we can literally turn that into a live offer or near live offer on every home in the country updated every night, well that's like a big deal, but that would be a big deal now we may never get there, that's just to be hogged (ph), but it is a great design goal.

Operator

Thank you. And our next question comes from Heath Terry with Goldman Sachs. Your line is now open.

Heath Terry -- Goldman Sachs & Co. -- Analyst

Great. Just curious on a couple of maybe more immediate things around the Premier Agent business, given all the fluctuations that you've seen in conversion and lead improvement, and lead generation as well as pricing, what's your latest thoughts on sort of where ROI is, or is trending for agents in the program and then as you think about priorities for this year, where is marketing to drive visits, I know visit is a metric that can have a lot of meetings with, particularly as the business evolves, but wondering how you should -- or how we should be thinking about the growth do you expect that the top of the funnel as defined by that?

Greg Schwartz -- President, Media and Marketplace

Sure, I'll start. This Greg. So profits in ROI for agents remained strong in the system. I -- we tell that the following question is why we do have elevated churn in the fourth quarter and what we found is the basic principle psychology is nor I am making profit, but what was I making before and what is now occurring?

We pushed price little hard over 25% last year and even though many of our customers had significant profit in the models as cost structures in their lives and in their businesses that had assumes relatively stable levels of profits and they were disrupted by poor building that trust with them, that many Premier Agents coming back. And is a lot of profit left in the system, giving you a specific number I think is unwise. It varies a great deal by the business practices of our customers and that's what -- that will help us address and normalize and that's the point of this investment inter Flex test.

Jeremy Wacksman -- Chief Marketing Officer

This is Jeremy. I'll take the advertising question. I think we gave visits up 14% on the full year and I think the peak you count was like almost $200 million and $195 million for the year across the brands. That's obviously as Rich mentioned a bunch of our brands really achieving significance and growing share will continue to do that this year and you'll continue to see our leverage on our ad spend as we've been doing and you'll continue to see that pay dividends on top line growth, but as we hit larger and larger numbers, we're focusing as much on engagements and on converting those people to do more and more things as we go from just to the media business to multiple businesses and so, as much of the focus of the dollar is about reframing and giving penetration as it is top line growth.

Operator

Thank you. And our next question comes from Tom White with D.A. Davidson. Your line is now open.

Philip Bugay -- D.A. Davidson & Co. -- Analyst

Thanks, this is actually Philip Bugay on for Tom. I wanted to touch back on the feet on the street aspect of the Homes segment. Could you just talk about how you're looking at the capabilities in Zillow Offers particularly with regards to purchasing and turning the Homes round and any update you can give us regarding your efforts and scaling up their capacity in either inspection or renovation and also interesting big learnings you can share about the process or any areas where you think you still need to improve? Thanks.

Jeremy Wacksman -- Chief Marketing Officer

Yeah, this is, Jeremy. I'll take that one. I would say the limit on our growth is our operational (Technical Difficulty)

Operator

(Operator Instructions). You may resume.

Jeremy Wacksman -- Chief Marketing Officer

Hey, this is Jeremy, I'll start to answer again, I'm not sure, we got cut off apologies for the line drop. On homes, the limit or on our growth is just our operational capabilities, our feet on the street, I mean, we got to build this business our market at the time with a lot of market specific staff and then on what we've learned. I mean what we've learned is that it's early and we're excited every market we go into has its own nuances, every home has its own nuances and so, as we're building up the capabilities to service the immense demand we're seeing, we're excited to share more with you guys about what we've learned but it's early.

Operator

Thank you. And our next question comes from Tom Champion with Cowen. Your line is now open.

Thomas Champion -- Cowen & Co. -- Analyst

Okay, great. First off, Spencer, congrats on a great tenure. Best of luck. Guys, two questions, please. On the 140 homes you sold in 4Q, it look -- it looks like there were 170 purchased in, in 3Q. And could you just comment on that result in whether you guys are tracking to the 90 date turn time in Homes.

And then second, can you talk a little bit about just the roll out of PA 4.1. I think there was 30% of the footprint that was going direct to 4.1. How did that let the rollout go? Thank you.

Jeremy Wacksman -- Chief Marketing Officer

Yeah, this is Jeremy. I'll take homes and Greg will take PA. So on the inventory, you're right, we saw 141 sold in 4Q. And obviously as we're scaling, you're going to continue to see that inventory level grow because we're going to buy more each month and we're selling from the previous cohorts. So it's going be hard for you to model hold time on a vintage basis, we're really pleased what we're seeing. Obviously we underwrite every home into its own case of whole time and as we're investing in scale, we're being as aggressive as we can there, but we're pleased what we're seeing so far and you should expect to see fluctuations in that as we scale and as we're solving for scale and for getting into more markets, and then Greg on PA.

Greg Schwartz -- President, Media and Marketplace

Yeah, have just put 4.1. So, 4.1 is 100% deployed today that was those improvements the Premier Agent program which were principally around allowing our Premier Agents in teams to opt to take their nurture leads, that leads didn't qualify for lot of connection. Those will push live in the fourth quarter and that quelled and then concerned about volume and then that's why we're seeing this more moderated rate of churn and improvement in the business in line for business. So, 4.1 is fully deployed and we're looking forward to what's next, and what's next principally is a focus on reiterating on Flex and some of the exciting progress we're making there and which isn't yet in the model for the year for 2019, but we got to learn a lot and I think make a lot of progress.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session for today's call. I would now like to turn the call back over to Rich Barton, CEO for any further remarks.

Rich Barton -- Co-Founder and Chief Executive Officer

Thanks again for your time today folks. As we discussed, we are in the middle of a critical transformation that is reshaping our Company and redefining the rules of real estate as we know them. By moving into transactions, Zillow Group will cover the entire consumer home shopping funnel top to bottom, giving today's on-demand consumers a full spectrum of options to shop, engage, transact on their terms.

By transitioning our relationship with agents from advertisers to real partners we better align our mutual goals and incentives, and cooperate to delight our shared customers. This all makes us well positioned to unstick (ph) those shoppers ready to follow their dreams and getting into a place they love and can afford.

Finally, just to restate, I know Zillow Group's aggressive expansion has not just evolved our business model, it's affected your ex-models. We've added a high revenue, low margin business that requires large investment and distributed operations to have proven high margin media business that you know and love. And that can be unsettled especially when our execution on the core business has been bumpy. It was unsettling for us to, initially. But, we came to believe the prize is quite large and further it was a strategic necessity. This is where consumers are heading and will ultimately get what they want with or without us. We decided to lead them there.

Can you imagine if Netflix had just ignored streaming. You can probably tell, I'm excited. I hope you are too. Thank you, in advance for keeping an open mind and for giving us a chance to show you what we see, we value your counsel and I look forward to our upcoming conversations.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone have a wonderful day.

Duration: 57 minutes

Call participants:

Raymond Jones -- Vice President of Investor Relations

Rich Barton -- Co-Founder and Chief Executive Officer

Spencer Rascoff -- Board of Director

Ronald Josey -- JMP Securities -- Analyst

Greg Schwartz -- President, Media and Marketplace

Bradley Berning -- Craig-Hallum Capital Group, LLC -- Analyst

Maria Ripps -- Canaccord Genuity -- Analyst

Allen Parker -- Chief Financial Officer

Mark Mahaney -- RBC Capital Markets -- Analyst

John Campbell -- Stephens, Inc. -- Analyst

Jeremy Wacksman -- Chief Marketing Officer

Ryan McKeveny -- Zelman & Associates -- Analyst

Jason Helfstein -- Oppenheimer & Co. -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

Justin Patterson -- Raymond James -- Analyst

Heath Terry -- Goldman Sachs & Co. -- Analyst

Philip Bugay -- D.A. Davidson & Co. -- Analyst

Thomas Champion -- Cowen & Co. -- Analyst

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