{ "docId": "019dd923-622c-750b-8b99-74af5c9e9edb", "docSlug": "de028a1085e6", "documentTitle": "Zillow Group, Inc. (Z)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-03-05 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 81, "pageCount": 103, "prevPage": 80, "nextPage": 82, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "dense", "nDataPoints": 0, "notes": "The slide uses yellow highlighting to draw attention to the specific language in Zillow's 10-K that allows for management discretion.", "elementsJson": [ "headline_text", "callout_box", "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-74af5c9e9edb/81", "deckHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-74af5c9e9edb#slide-81", "components": [ { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "callout", "text": "Zillow’s revenue recognition regarding interest rate lock commitments allows it to recognize revenue upon sending the commitment to the potential customer which requires significant management judgement. It is not uncommon for home buyers to have multiple interest rate lock commitments from several banks and/or vendors. In addition, not all potential home buyers close on a home and/or loan especially in the current market environment.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "99107e3d-d886-434e-993a-bf57d3939149", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.96, "x": 0.02, "y": 0.38 }, "kind": "paragraph", "text": "Mortgages. Mortgages revenue primarily includes revenue generated by Zillow Home Loans, our affiliated mortgage lender, and marketing products sold to mortgage professionals on a cost per lead basis, including our Custom Quote and Connect services.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "23377fe5-2c7c-46e9-abb6-b4ed2a00d816", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.68 }, "kind": "paragraph", "text": "Interest rate lock commitments — The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an IRLC will ultimately result in a closed loan. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (Level 3).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b6c258da-c40e-44b0-95e1-6bc880aade6d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.96, "x": 0.02, "y": 0.46 }, "kind": "paragraph", "text": "Mortgage Origination Revenue. Mortgage origination revenue generated by Zillow Home Loans reflects origination fees on purchase or refinance mortgages and the corresponding sale, or expected future sale, of a loan. When an interest rate lock commitment is made to a customer, we record the expected gain on sale of the mortgage, plus the estimated earnings from the expected sale of the associated servicing rights, adjusted for a pull-through percentage (which represents the probability that an interest rate lock commitment will ultimately result in a closed loan), as revenue. Judgment is required to determine the appropriate pull-through rate, which is estimated based on expected changes in market conditions, loan stage and historical borrower behavior. Revenue from loan origination fees is recognized at the time the related purchase or refinance transactions are completed, usually upon the close of escrow and when we fund the purchase or refinance mortgage loans.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "dc56c46f-3de8-4658-9f3d-0bb6aa74cee1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.96, "x": 0.02, "y": 0.82 }, "kind": "paragraph", "text": "The pull-through rate is based on estimated changes in market conditions, loan stage and historical borrower behavior. Pull-through rates are directly related to the fair value of IRLCs, as an increase in the pull-through rate, in isolation, would result in an increase in the fair value measurement. Conversely, a decrease in the pull-through rate, in isolation, would result in a decrease in the fair value measurement. Changes in the fair value of IRLCs are included within revenue in our consolidated statements of operations.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f70e0bd8-a45a-4bcb-9e17-f4548b7e89c2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.1, "x": 0.02, "y": 0.97 }, "kind": "source-note", "text": "Source: Z FY23 10-K", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5c0930f9-8b05-4f3a-aec2-980e3d65ce9d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.63, "x": 0.34, "y": 0.03 }, "kind": "title", "text": "We Believe Mortgage Revenue Recognition Also Gives Zillow Significant Leeway", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "28e14cbc-859b-4173-9da8-d689255890a4", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }