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Zillow Group (A shares) (NASDAQ:ZG)
Q4 2018 Earnings Conference Call
Feb. 21, 2019 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Zillow Group fourth-quarter 2018 earnings conference call. [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.

RJ 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 at Zillow Offers Jeremy Wacksman, and President of Media and 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 Uber-ized and have grown to expect magic to happen with a 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 the Zestimate 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, op messy, process-heavy industry, and unstick these 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 closed out 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 in home loan originations, both for ZO 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. Buying and selling homes is not a new idea for Zillow Group. Lloyd, Spencer, the founding team, and I founded Zillow with a dream 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 that 10 years after the launch of the graphical web, nothing had really changed in real estate.

It was ripe for disruption. We already had helped rewire travel back in the late '90s when we founded and led Expedia, so we can recognize a pattern. Our earliest thesis and experiments at 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 worth? At first, we were enamored of the purity of the auction model as the perfect price discovery mechanism. By trial and mostly error, we found out that people didn't understand home auctions and they certainly weren't ready to buy and sell homes on demand.

However, in this process, we discovered the Zestimate, which became the backbone of our zillow.com marketplace and launched us down the road of an advertising-based business model, where we had a 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 Zestimate has become a key competitive advantage for Zillow Offers because almost every home seller comes to see her Zestimate. Now squint and see how it ideally and eventually becomes a robotically generated live offer for your house. While the market wasn't ready to embrace a live bid and an 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 receive one Zillow Offer request every five minutes. That's $100 million in demand value per day. Our current estimate is we convert 3% to 4% of the offer requests we receive 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.

Given 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 model to get much closer to a transaction, turning advertisers into partners, who we work closely with to satisfy the high expectations of the Uber-ized 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 North Star, the investment in Zillow Offers complements, with an E not an I, our commitment to our Premier Agents. Our PA partners are critical to Zillow Group for two key reasons. First, we know most sellers would likely not choose to sell their house directly to us via Zillow Offers, yet it's our mission to get everyone seamlessly into a place they love and can afford. Our partner PAs are not only necessary in 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, PAs are our 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 in 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-ready nurture leads, were to many of our PAs when we started more screening and filtering. This and 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's 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 is simply paid a success fee only when a Premier Agent closes a deal. Early indications 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 programs currently under way bring 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 a 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 model 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 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've 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 to date.

I first met Spencer more than 15 years ago when Expedia acquired Hotwire in 2003, which Spencer also cofounded. I knew from the moment I met him he'd be a great CEO. He's worn many hats at Zillow Group, including CMO, CFO -- those were at the same time, by the way, which saved us a boatload in marketing expense in our early years; and then COO before taking over as CEO for me in 2010. He's 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 -- Co-Founder

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 is better positioned to deliver. Rich, Lloyd, and I have been partners since the company's founding in 2005, and now it feels like the right time to turn this triangle of partnership on its side. When I look at the company we built during my nine years as CEO, I'm 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 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've helped support our company's growth so far. I will remain a large shareholder at 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 a really well-positioned one, with $1.3 billion in revenue, a huge engaged audience, and the leading brands in the industry, including Trulia, StreetEasy, [Inaudible], [Inaudible], 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 to 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 and app 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 and earnings and financial reporting.

You'll see in our press release that in addition to Q1 outlook, we included our current target estimates of our business looking out three to five years. We feel it is 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.

Operator

Thank you. [Operator instructions] Our first question comes from Ron Josey with JMP Securities. Your line is now open.

Ron Josey -- JMP Securities -- Analyst

Great. Thanks for taking the question, 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 a question for you, Rich, and then for Greg. Just Rich, as you return to CEO role in what is an incredibly evolving company across IMT and offers and Mortgages, I know you said 2019's another year of transformation and investment. But just perhaps, can you talk to us how your 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 are all up and improving with 4.1. But obviously, growth is slowing here, and it's very different in the past.

So just love 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 an organizational perspective, we don't expect much change. The reason we kind of turned this triangle is because I have a particular penchant for and attraction to big swings. And we are really in the process of remaking Zillow Group right now and formulating a new mission.

When where 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, hairy, audacious goal, BHAG, 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'd rotate this triangle and put the guy in this quarterback, who really loves taking these big swings and leading these big efforts. So that -- I'd say that is the primary inspiration.

Send it over to Greg.

Greg Schwartz -- President of Media and Marketplaces

Hi, there. Greg here. So question on Premier Agent program and why we're optimistic, which we are. Hey, demand is as strong as it's ever been for this business.

We will sell more in MRR this year than we have ever. Now by the nature of an MRR business, which is why the forecast is lighter than you'd like, we'd like, the nature of an MRR business, we dig a hole with elevated churn. You got to fill it up before you get to grow on a more normal level. So that's what we're actively doing today.

Churn, like Rich mentioned, is coming back to normal levels. Haven't declared victory quite yet on that, but 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 on-demand, more joyful, more predictable transaction experience for consumers. And we're doing that by achieving these levels of high connection between -- high real-time connection between agents and consumer that's flowing through an improved CSAT, customer satisfaction scores, that we track very closely.

We're seeing very significant improvement in customer satisfaction in our computed rate of transactions, so lead to transaction, conversion is up. So signals are looking pretty good. Allen and I aren't declaring victory quite yet. We want to be conservative in the financial projections that we're laying out here, and we'll have a good year ahead. 

Questions and Answers:

Operator

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

Brad Berning -- Craig-Hallum Capital Group -- Analyst

Good afternoon, everybody. Interview -- or Wacksman, maybe 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 grabbing 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 rollouts that you're seeing out of the Zillow Offers leads, kind of attachment rates economics, how you're thinking about how big this business can be relative to that $20 billion-type target?

Jeremy Wacksman -- President and Co-Head at Zillow Offers

For sure. This is Jeremy. I'll take the offers question, and then Greg can handle the listings. Yes, 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 prize, 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 that 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 listings opportunity around.

Greg Schwartz -- President of Media and Marketplaces

Yes, I'll take that. It's Greg. Yes, so pretty competitive long-term opportunity in seller leads. It's part of how we get to the $2 billion in Premier Agent revenue and IT revenue in three to five years.

We're in the experimenting and in the invention phase right now. We've got some miles to walk to figure out the compelling offer to a consumer -- to a seller that will ignite through to get on the phone and engage with a Premier Agent. So, it is not material -- it is not a material component of our 2019 forecast, and we think it 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 Inc. -- Analyst

Great. Thanks for taking my question. Allen, you are the newest person in the room. Welcome to Zillow.

As you take on the CFO role, curious if you could share your thoughts about the objectives and goals. And in relation to your long-term target, can you share with us what you'll be focused on in '19 and beyond? It would be great to hear what you are prioritizing. Thank you.

Allen Parker -- Chief Financial Officer

Great. This Allen, and this is -- as my first call, I did want to take just a brief 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 I feel like the current position we're in and 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 too-big ideas.

We weren't 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 the 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 that gets a little bit to your long-term question, is a focus on ensuring we are building good processes and plans on scaling our Home and Mortgages business to achieve these long-term targets. This includes developing input-driven models to both sides of the opportunity and to manage and monitor our progress. It also helps, looking further out, to identify the key innovation and processes required to reach the scale. And then with respect to our core businesses, I'm 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 cost. 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, 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 and start 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

OK. 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 -- I used to...

Rich Barton -- Co-Founder and Chief Executive Officer

You know a lot about it, Mark.

Mark Mahaney -- RBC Capital Markets -- Analyst

Yes, yes. I love the use of the term Uber-ized in the financial press release. I think that's a first. I'm assuming that was your idea.

And 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 BHAGs before. Just talk big picture about how long do you think it will 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 ask 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 there -- 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 does it really work when you bring in synergies 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 -- Co-Founder

Sure. Hey, Mark, I am going to punt that one to Jeremy, predictively. But as a director and major shareholder, I anxiously await Jeremy's answer. Jeremy?

Jeremy Wacksman -- President and Co-Head at Zillow Offers

The answer is yes. Yes, on a stand-alone basis. And if you look at the three- to five-year target we put out there, 5,000 homes a month at a $20 billion annualized run rate, that has 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 listing Zillow mortgage opportunities.

Rich Barton -- Co-Founder and Chief Executive Officer

And the bigger we get -- the bigger we get there and the more density we have there, the more we can drive expenses down that Allen was talking about. And that actually feeds back in to increasing demand because we can lower fees. So there's a really interesting virtuous -- I guess, this is a virtuous cycle of sorts, but it's like traditional scale of companies. They're very strong traditional scale of companies, we believe.

But back to your original question, Mark, that's why we're so excited because we found a short circuit. We found a way to -- it's not magical, and it's going to take a lot of time. It's going to take a lot of investment that I hope you all make with me, but we found a short circuit from a consumer perspective. All this angst that the seller had, that Susan the seller had about selling her house, how long is it going to take? What price am I going to get? Am I going to get all these people walking through my stuff, like in my house, where 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 started out as a small experiment, we were inundated with consumer demand, and so this is it. We found the 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 chasm of despair, OK? Another path, however, right next to it is fully Uber-izing and automating the guided path. So, we know a lot of people won't do ZO, 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're 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 themselves. So I'm like -- yes, it's a big swing for sure, but I'm pretty confident. I see it as fairly controlled downside 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

OK. Thanks, Rich. Thanks, Spencer, and congrats to you both.

Rich Barton -- Co-Founder and Chief Executive Officer

Thanks, Mark

Spencer Rascoff -- Co-Founder

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 with you guys. And Spencer, congrats on a great run. But on the Offers business, you guys have talked to the kind of ramping adoption. I mean, that's been super impressive.

You're getting a request every five minutes. I think you guys said last that you touch about 35% or so of the share in the Phoenix market. You got that in a couple of months. But just thinking aboutthe long-term opportunity and adoption curve, do you guys think it's unreasonable to assume that -- I don't know, one day, nearly every home seller comes to you guys first just to kind of get that risk-free offer and get a sense for the trade-off around selling direct versus going the traditional route?

Jeremy Wacksman -- President and Co-Head at Zillow Offers

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 Zestimate is a Get an Offer button. And 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 is 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 work so well together is regardless if we buy their house via Zillow Offers or if we help them with a great Premier Agent, we're helping them sell. We're helping them get across that chasm Rich talked about.

John Campbell -- Stephens Inc. -- Analyst

OK. And then 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 rev over the next three to five years.

Rich Barton -- Co-Founder and Chief Executive Officer

We don't have -- we don't -- it's not time yet to give you formal guidance for the next three to five yearsfor sell-side rev. 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. It's an important contributor.

We got to do some -- we've got some invention to do this year to figure out what really delights the consumer and gets them on the phone with a Premier Agent. We've got -- I promise you we're working pretty hard on this, and we've got some pretty compelling ideas. We got to get it done before we're going to forecast it.

John Campbell -- Stephens Inc. -- Analyst

OK. Thanks, guys.

Operator

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

Ryan McKeveny -- Zelman and Associates -- Analyst

Hi. Thanks a lot. Just a follow-up on that last question, related to the Homes business and just kind of sizing the opportunity that you think about. I guess, the numbers you mentioned in the long-term target, so 5,000 homes a month would be 60,000 a year.

And I think you mentioned a 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 to bid. Is that kind of the rough method 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 -- President and Co-Head at Zillow Offers

Yes, this is Jeremy. Well, two things on that. That conversion rate goes up over time. I mean, right now, our demand is still immense, 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 rollout, feet on the street, the ability to make offers on more homes. So you can expect those conversion rates to change as we get to scale. And so that's part of how that math works to get to what will be eventually a large percentage of homeowners making a request on their house and seeing if this can work from them.

Rich Barton -- Co-Founder and Chief Executive Officer

Yes, there's one conversion rate that sits above the 3% to 4%, which is how many people raise their hand and ask for an offer, right? So I'd say that's a huge lever. Indications are that it's pretty popular, and that as prices come down, certainly, more and more people will raise their hand and take the convenience over the alternative. I just [Inaudible]

Operator

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

Jason Helfstein -- Oppenheimer and Company -- Analyst

Thanks. Guys, two questions, just back on Premier Agent. And I've been on two earnings calls, so I apologize if some of this was covered. With respect to kind of where we are, has churn kind of bottomed out from the Premier Agent relaunch? And then how are you guys thinking about macro housing affecting kind of the guidance for Premier Agent? Obviously, we heard -- well, Greg was just talking about more optimism about the market, but you obviously came off [Inaudible] in a rough fourth quarter.

So maybe just help us understand how much of it is specific to the relaunch of Premier Agent versus macro? And then obviously, you're being very vocal about Homes. Has there been any pushback from Premier Agents about your expansion into Homes and how you -- to the extent that you're still aligned with them versus competing with them, etc.

Greg Schwartz -- President of Media and Marketplaces

Sure. I'll grab that. It's Greg. So quick one, yes.

Churn is returning to normal. We haven't had enough runway yet to declare victory on it, but we're feeling pretty positive. That was the first question. I think your second question...

Rich Barton -- Co-Founder and Chief Executive Officer

Agents and Homes [Inaudible]

Jason Helfstein -- Oppenheimer and Company -- Analyst

On macro.

Greg Schwartz -- President of Media and Marketplaces

Oh, pushback. Here's the push, our Premier Agents want to partner with us on Zillow Offers. They want to represent us on transactions. They want to help us invest on seller listings.

Listings drive a lot of power and authority in local markets, and they're looking for opportunity. I haven't had any real significant pushback beyond those who want us to move a little faster so they can get on this horse and ride it. Our relationships with the Premier Agents are warm and are scaling, and we're as -- is dedicated to building those partnerships as we ever have been. And it's well received.

Hey, the question on housing market, undoubtedly, appreciation is slowing in many, many markets, almost all markets. And 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 it affordably.

They're pushing their margin there. And so we're not seeing headwinds from --- in the PA business from macro in 2019.

Jason Helfstein -- Oppenheimer and Company -- 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 is for Rich, and then the second one, a jump ball. 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 of a 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 and the industry structure there ultimately impacting margins there. I would assume most people who look to get an offer on the most valuable asset they own look to get one from multiple platforms, which maybe drives 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 unit economics in a competitive market?

Rich Barton -- Co-Founder and Chief Executive Officer

OK. Hey, Lloyd. Yes, 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 seller model either, so I don't want to close down strategic possibility in the future. Job No. 1 is to get scale and to get those 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 point 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 a brand and a company they know and trust and love. And so we're going at this without the intention of going to a marketplace model on this particular thing.

I'll add one more thing, and that is I'm very excited about the optionality that has opened up as we head toward the transaction. OK? I -- there is a flourishing of creativity and innovation at the real estate transaction right now, both the rental transaction and the home transaction. You see lots of activity and start-ups doing all kinds of things that when you hear the pitch you're like, "What?" You're -- we work for residential. "We'll buy the house.

We'll turn it into an Airbnb on the side, and we'll lower your monthly payment and rent because we're doing and turning it into an Airbnb." 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 a transaction to satisfy the needs of what the seller, 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 [Inaudible]?

Jeremy Wacksman -- President and Co-Head at Zillow Offers

[Inaudible] No, it's on Homes. This is Jeremy. I can get that. It's another flavor on what Rich said.

The advantages we think we have that consumers will want are also the advantages that we think will allow us to rationally provide a profitable offering. That's the strongest trait. The brand trust we have, the access to audience, cheaper than nobody else. That audience then allowing us to resale and reduce hold times, the integration, and internalization of mortgages and ancillaries, those same components that we think the consumer wants are also then the things that Zillow the network effects to provide the strongest offering at a rational point.

Operator

Thank you.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Got it. Very helpful. Thanks.

Operator

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

Lloyd Walmsley -- Deutsche Bank -- 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 to getting toward scale? You did guide to a large Q1 loss in that business, but refrain from commenting on annual revenue and EBITDA trends for Homes. And then secondly, I wanted to tease out your commentary on estimates being a key advantage in the offers space.

Historically, if you look at Zillow, there tends to be a large gap between your estimates and where list prices are market by market. So curious what you need to do there to refine that, if that's truly going to be a driver for offers. Thanks.

Allen Parker -- Chief Financial Officer -- Analyst

Yes, so -- this is Allen. I'll take the first part of your questions. So we are -- we did guide in Q1 an 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 in investment 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 an important business, and it's important to be there first. So we believe our most active view of Homes, though, is only one quarter out, which is why we're only providing the one quarter of guidance.

The second question you had was with respect to the gap between the --

Rich Barton -- Co-Founder and Chief Executive Officer

Zestimate. Yes, we could --

Justin Patterson -- Raymond James -- Analyst

OK.

Rich Barton -- Co-Founder and Chief Executive Officer

Who's asked? Me or Jeremy?

Justin Patterson -- Raymond James -- Analyst

[Inaudible] I don't know.

Rich Barton -- Co-Founder and Chief Executive Officer

It was Zestimates accuracy. If you -- he's basically saying your Zestimates are inaccurate, so how can you base ZO off of this estimate?

Jeremy Wacksman -- President and Co-Head at Zillow Offers

Yes, and you'll see us in every market price based on Zestimate, based on the local market opinion, based on our pricing underwriting model, and then ultimately, based on visiting the home with the seller. And so the Zestimate can be a great starting point in that conversation. It can also be a challenge in a starting point of that conversation. But the heuristics and the specifics about each house end up being the conversation around price discovery.

Rich Barton -- Co-Founder and Chief Executive Officer

Channels ought to stand, though. And Greg, on the Zestimate. I don't want people to think that the Zestimate is inaccurate. The Zestimate is outstanding.

Jeremy Wacksman -- President and Co-Head at Zillow Offers

For sure. I mean, approaching 4% median absolute percent error, it's the most accurate AVM out there in the country across the board. And it is a fantastic tool for us to price off of and pursue [Inaudible] also.

Rich Barton -- Co-Founder and Chief Executive Officer

Yes. And you can imagine our motivation for accuracy on the Zestimate now just ratcheted up a couple of notches as well because we're putting in real money into this. And if we can really -- this is a dream. This is just an ideal that I'm holding out here but if we can literally turn that into a live offer or a near-live offer on every home in the country, update it every night, well, that's like a big deal.

That would be a big deal. Now we may never get there, that's just the BHAG, 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 -- 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, in lead improvement, in lead generation as well as pricing, what's your latest thought 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 visits is a metric that can have a lot of meanings with -- particularly as the business evolves but wondering how you should -- or how we should be thinking about the growth that you expect at the top of the funnel as defined by that.

Greg Schwartz -- President of Media and Marketplaces

Sure. I'll start. It's Greg. So profits and ROI for agents remain strong in the system.

I'd point out that the follow-on question is why did we have elevated churn in the fourth quarter. And what we've found is the basic principle of psychology is not am I making profit, but what was I making before and what is now occurring. We pushed price a little hard, over 25% last year. And even though many of our customers had significant profit in their models, the cost structures in their lives and in their businesses that had assumed relatively stable levels of profits, and they were disrupted by it.

We were building that trust with them. We've got many Premier Agents coming back and there's 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 Flex will help us address and normalize, and that's the point of this investment in our Flex test.

Jeremy Wacksman -- President and Co-Head at Zillow Offers

This is Jeremy. I'll take the advertising question. I think we gave visits up 14% on the full year. And I think the PQUU count was like almost $200 million, $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. We'll 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 a media business to multiple businesses. And so as much of the focus of the dollar is about reframing and deepening 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.

Phil Rigby -- D.A. Davidson -- Analyst

Thanks. This is actually Phil Rigby 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 around? And any updates you can give us regarding your efforts in scaling out your capacity in either inspection or renovation? And also interested in big learnings you can share about the process or any areas where you think you still need to improve.

Thanks.

Jeremy Wacksman -- President and Co-Head at Zillow Offers

Yes, this is Jeremy. I'll take that one. I would say the limiter on our growth is our operational --[Audio gap]

Operator

Ladies and gentlemen, your conference will resume momentarily. Thank you for your patience [Inaudible] staying by. [Operator instructions]

Jeremy Wacksman -- President and Co-Head at Zillow Offers

This is Jeremy. I'll start to answer again. I'm not sure we got cut off. Apologies, the line dropped.

On Homes, the limiter on our growth is just our operational capabilities, our feet-on-the street. I mean, we got to build this business one market at a 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 out 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.

Tom Champion -- Cowen and Company -- Analyst

OK. 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 looks like there were 170 purchased in 3Q. And could you just comment on that result and whether you guys are tracking to the 90-day turn time in Homes. And then second, can you talk a little bit about just the rollout of PA 4.1? I think there was 30% of the footprint that was going direct to 4.1.

How did that leg of the rollout go?

Jeremy Wacksman -- President and Co-Head at Zillow Offers

Yes. 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 than we're selling from the previous cohort. So it's going to be hard for you to model hold time on a vintage basis. We're really pleased with what we're seeing.

Obviously, we underwrite every home to its own case of hold time. And as we're investing at scale, we're being as aggressive as we can there but we're pleased with 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.

Rich Barton -- Co-Founder and Chief Executive Officer

And then Greg, on PA.

Greg Schwartz -- President of Media and Marketplaces

Yes. Happy to address 4.1. So 4.1 is 100% deployed today. That loose -- those improvements in the Premier Agent program, which were principally around allowing our Premier Agents and teams to opt to take their nurture leads.

Those leads then didn't qualify for lack of connection, those were pushed live in the fourth quarter. That quelled some of the concern about volume. And then that's why we're seeing this more moderated rate of churn and improvement in the business -- in the line of the business. So 4.1 is fully deployed, and we're working forward to what's next.

And what's next principally is a focus on iterating on Flex and some of the exciting progress we're making there, which isn't yet in the model for the year for 2019 but we're going 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've 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 those shoppers ready to follow their dreams and getting to 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 Excel models. We've added a high-revenue, low-margin business that requires large investment and distributed operations to our proven, high-margin media business that you know and love. And that can be unsettling, especially when our execution on the core business has been bumpy.

It was unsettling for us, too, initially, but we came to believe the prize was quite large, and further, it was a strategic necessity. This is where consumers are heading, and they'll 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

[Operator signoff]

Duration: 57 minutes

Call Participants:

RJ Jones -- Vice President of Investor Relations

Rich Barton -- Co-Founder and Chief Executive Officer

Spencer Rascoff -- Co-Founder

Ron Josey -- JMP Securities -- Analyst

Greg Schwartz -- President of Media and Marketplaces

Brad Berning -- Craig-Hallum Capital Group -- Analyst

Jeremy Wacksman -- President and Co-Head at Zillow Offers

Maria Ripps -- Canaccord Genuity Inc. -- Analyst

Allen Parker -- Chief Financial Officer

Mark Mahaney -- RBC Capital Markets -- Analyst

Mark Mahaney -- RBC Capital Markets -- Analyst

Rich Barton -- Co-Founder and Chief Executive Officer

John Campbell -- Stephens Inc. -- Analyst

Ryan McKeveny -- Zelman and Associates -- Analyst

Jason Helfstein -- Oppenheimer and Company -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

Operator

Lloyd Walmsley -- Deutsche Bank -- Analyst

Allen Parker -- Chief Financial Officer -- Analyst

Justin Patterson -- Raymond James -- Analyst

Heath Terry -- Goldman Sachs -- Analyst

Phil Rigby -- D.A. Davidson -- Analyst

Tom Champion -- Cowen and Company -- Analyst

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