Will Zillow report positive GAAP net income for FY2026?

FY2025 GAAP net income was $23M. SBC is expected to decline >10% (from $390M to ~$351M or less), freeing ~$39M+ in GAAP profitability. Revenue growing mid-teens and EBITDA margin expanding ~200bps add incremental operating profit. The SBC reduction alone should more than offset the $23M baseline — suggesting FY2026 GAAP income could reach $60-80M. The primary risk is a one-time charge (litigation settlement, impairment) or tax provision change that swings the thin GAAP income negative. The RESPA case is the most likely source of a material one-time charge.

The math favors GAAP profitability: FY2025 GAAP income was $23M, SBC declining $39M+ provides a direct tailwind, and EBITDA growth adds further. Even accounting for the 100bps legal expense headwind (already in the EBITDA guide), the net effect should be solidly positive. The only scenario for GAAP loss is a discrete one-time charge exceeding ~$80-100M (the likely GAAP income buffer). A RESPA settlement large enough to cause this is possible but unlikely given our 30% probability on any RESPA resolution this year. Restructuring charges are also possible but Zillow's cost structure appears stable.

I give slightly lower probability because tax provision dynamics are genuinely uncertain for a company with Zillow's history of losses (large deferred tax assets from iBuying). Changes in tax provision estimates, particularly regarding the valuation allowance on NOLs, could swing GAAP income by tens of millions in either direction. Additionally, the $23M baseline is thin enough that a combination of modestly higher-than-expected D&A (from recent acquisitions) and a modest one-time charge could produce a GAAP loss. Still more likely than not to be profitable, but the thin margin makes it vulnerable to accounting adjustments.

The SBC reduction is the clearest driver: $390M declining >10% means ~$39M less SBC, directly flowing to GAAP bottom line. With $23M in FY2025, the baseline for FY2026 should be ~$60-80M GAAP net income before one-time items. This provides a meaningful cushion. The question is whether any one-time charges can erase this buffer. RESPA litigation costs are already baked into guidance (100bps margin headwind). A settlement payment would be a one-time item but would only be recorded if a settlement actually occurs (our ensemble prices at 30%). More likely than not profitable.

I am somewhat less confident because companies transitioning from GAAP losses to GAAP profits are vulnerable to volatile below-the-line items. Interest income on the $1.3B cash position provides a positive tailwind. But restructuring charges (even small ones), impairment reviews (intangible assets from ShowingTime/Follow Up Boss acquisitions), or litigation-related accruals could each individually impact GAAP income. The probability of ANY such charge exceeding $80M is perhaps 15-20%. Taking the complement, ~80% × 80% (for tax provision risk) gives ~65% overall.

The structural tailwinds are clear: SBC declining, revenue growing, margins expanding. FY2025 was the inflection year, and FY2026 should consolidate GAAP profitability. The $23M baseline growing to $60-80M with SBC reduction and operating leverage makes GAAP profitability the base case. Risks are concentrated in one-time items and tax provisions, which are real but represent tail scenarios, not base cases. Two-thirds probability reflects the favorable base case modulated by meaningful tail risks.

SBC declining $39M+ directly boosts GAAP income from $23M baseline. Revenue growth and margin expansion add further. GAAP profitability is the base case. Main risk is large one-time charge.

GAAP profitability likely but thin margin makes it vulnerable. Tax provision changes and acquisition-related amortization could compress. SBC decline is the strongest tailwind. ~65% probability.

FY2025 crossed the GAAP profitability threshold. Multiple tailwinds in FY2026 (SBC decline, revenue growth, operating leverage). Would need a significant adverse event to reverse. High probability of sustained GAAP profitability.