Zillow Group Stock Drops on Legal Cost Outlook

Forward margin pressure overshadowed solid growth.

Zillow Group (ZG) reported fourth-quarter revenue of $654 million, up 18% year over year, but its class C shares fell as much as 17% after management warned that ongoing legal expenses will dampen 2026 earnings. Investors focused on margin headwinds and lower-than-expected adjusted EBITDA guidance for the first quarter.

Key Points

• Fourth-quarter revenue rose 18% to $654 million, with adjusted EBITDA of $149 million.
• Ongoing legal costs are expected to reduce first-quarter EBITDA margin by roughly 200 basis points and 100 basis points for the full year.
• First-quarter EBITDA guidance of $160 million to $175 million came in below analyst expectations.

Earnings Growth Meets Legal Headwinds

Zillow reported fourth-quarter revenue of $654 million, reflecting 18% growth from a year earlier. Adjusted EBITDA increased 33% to $149 million, representing a 23% margin.

For the full year 2025, revenue grew 16%, while EBITDA rose 25%. The company also achieved GAAP net income of $23 million for the year.

However, management indicated that elevated legal expenses will weigh on profitability in 2026. Legal costs are projected to reduce adjusted EBITDA margin by about 200 basis points in the first quarter and approximately 100 basis points for the full year. A basis point is one-hundredth of a percentage point, meaning a 200 basis point headwind equals a 2 percentage point margin impact.

Why Did Zillow Group Stock Fall?

Investors reacted to the company’s forward guidance. Zillow expects first-quarter revenue between $700 million and $710 million, which implies 18% growth at the midpoint.

Adjusted EBITDA for the first quarter is projected between $160 million and $175 million. This range is below the roughly $183 million to $184 million analysts had anticipated.

In addition, free cash flow margin declined to 6.7% in the quarter from 15.9% a year earlier, raising concerns about near-term cash generation efficiency. The stock market today reflected how markets react to earnings when margin outlook shifts.

Segment Growth and Strategic Positioning

Despite the legal uncertainty, several business lines showed strong performance.

Rentals revenue increased 45% year over year to $168 million, driven in part by 63% growth in multifamily revenue. Mortgage revenue climbed 39% to $57 million, supported by a 67% increase in purchase loan origination volume to $1.5 billion.

For Sale revenue rose 11% to $475 million, while Residential revenue increased 8% to $418 million. Zillow ended 2025 with $1.3 billion in cash and investments and generated $420 million in free cash flow for the year, up 36%.

Management reiterated that it does not expect ongoing legal matters to materially affect its long-term strategy or financial position.

What It Means for Investors

The market reaction to news centered on forward margin pressure rather than historical growth. While Zillow delivered double-digit revenue expansion and segment strength in rentals and mortgages, legal costs are expected to weigh on 2026 EBITDA margins.

Zillow stock has experienced heightened volatility, and this stock market update underscores how guidance revisions can influence price action even when underlying revenue trends remain stable.

For investors evaluating Zillow Group stock news, the key themes remain margin durability, housing market conditions, and the trajectory of legal expenses through 2026.

Conclusion

Zillow’s fourth-quarter results showed 18% revenue growth and expanding profitability, but projected legal expenses are set to pressure margins in 2026. The decline in Zillow Group stock reflects investor sensitivity to earnings outlook adjustments amid ongoing litigation and housing market uncertainty.

FAQs

Why did Zillow Group stock drop after earnings?

Zillow Group stock dropped after earnings because management said elevated legal expenses will reduce EBITDA margins in 2026 and first-quarter guidance came in below analyst expectations.

How much revenue did Zillow report in Q4 2025?

Zillow reported $654 million in fourth-quarter revenue, representing 18% year-over-year growth.

How will legal costs affect Zillow’s margins?

Legal costs are expected to reduce first-quarter adjusted EBITDA margin by about 200 basis points and full-year margin by roughly 100 basis points.

What segments are driving Zillow’s growth?

Rentals revenue grew 45% year over year and mortgage revenue rose 39%, while the For Sale segment increased 11%.

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