The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the related notes included elsewhere in this annual report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in "Risk Factors".

Overview

Zillow operates the leading real estate and home-related information marketplaces on mobile and the Web, with a complementary portfolio of brands and products to help people find vital information about homes, and connect with local professionals. In addition to our websites, including Zillow.com, we also own and operate Zillow Mobile, our suite of home-related mobile applications, Zillow Mortgage Marketplace, where borrowers connect with lenders to find loans and get competitive mortgage rates, Zillow Digs, our home improvement marketplace where consumers can find visual inspiration and local cost estimates, Zillow Rentals, a marketplace and suite of tools for rental professionals, Postlets, Diverse Solutions, Buyfolio, Mortech and HotPads.

Zillow provides products and services to help consumers through every stage of homeownership - buying, selling, renting, borrowing and remodeling. We are transforming the way people make home-related decisions, and enabling homeowners, buyers, sellers and renters to find and connect with local professionals best suited to meet their needs.

Our living database of more than 110 million U.S. homes-homes for sale, homes for rent and homes not currently on the market-attracts an active and vibrant community of users. Individuals and businesses that use Zillow have updated information on more than 37 million homes and added nearly 100 million home photos, creating exclusive home profiles available nowhere else. These profiles include detailed information about homes, including property facts, listing information and purchase and sale data. We provide this information to our users where, when and how they want it, through our industry-leading mobile applications that enable consumers to access our information when they are curbside, viewing homes, and through our websites. Using industry-leading automated valuation models, we provide current home value estimates, or Zestimates, and current rental price estimates, or Rent Zestimates, on approximately 100 million U.S. homes.

The following is a listing of our significant milestones for the year ended December 31, 2012:

• In April, we announced a renewal of our exclusive advertising agreement with Yahoo! Inc., which creates the Yahoo!-Zillow ® Real Estate Network, the largest real estate network on the Web. The companies entered into an advertising agreement in 2011, creating the Yahoo!-Zillow Real Estate Network to give real estate agents and brokers the ability to buy local advertisements on both sites with just one transaction.

• In April, we announced the opening of a new office in Irvine, California, where we have expanded our sales team.

• In April, we announced the launch of Zillow® Rentals for Android™ App, our first dedicated rentals application, optimized for renters who need to make decisions quickly.

• In May, we announced the launch of Premier Agent Websites, which allow real estate agents to quickly and affordably create a custom WordPress ®-powered website for their personal brand and business.

• In May, we acquired RentJuice Corporation ("RentJuice"), a company that provides rental relationship management software for landlords, property managers and rental brokers.

• In July, we announced an expansion of our successful relationship with Yahoo!® Homes to include rentals. Zillow is now the exclusive provider of both for-sale and for-rent listings to Yahoo! Homes.

• In September, we sold and issued 3,844,818 shares of our Class A common stock, including 419,818 shares of our Class A common stock pursuant to the underwriters' option to purchase additional shares, and certain shareholders sold 575,000 shares of our Class A common stock, at a price of $43.00 per share. We received net proceeds of $156.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We received no proceeds from the sale of our Class A common stock by the selling shareholders.

• In October, we introduced Zillow® Rentals, a free marketplace and suite of tools for rental professionals. Zillow Rentals provides property managers, rental agents and landlords with best-in-class productivity tools and resources to help them manage and market their listings, for free.

• In October, we introduced pre-market inventory to our home-search experience. Home shoppers on Zillow now are able to search for and find information on 1.2 million pre-foreclosure and foreclosed properties, for free.

• In October, we launched the Zillow Mortgage Marketplace App for iPad®, a new personalized mortgage research and shopping application designed especially for the iPad's interactive, multi-touch capabilities.

• In October, we acquired The Guru Group LLC, dba Buyfolio.com ("Buyfolio"), an online and mobile collaborative shopping platform where home shoppers can search, track, organize and discuss for-sale listings with their real estate agent, significant other or a private group.

• In November, we acquired Mortech, Inc. ("Mortech"), a mortgage technology company that provides essential software tools to the mortgage industry.

• In December, we acquired HotPads, Inc. ("HotPads"), a map-based rental and real estate search site.

• In December, we announced the addition of Property Management Websites to the Zillow® Rentals suite of free tools and productivity solutions, whereby property managers and rental agents can quickly and easily create a custom website for their personal brand or business, for free.

In the year ended December 31, 2012, we completed four acquisitions that align with our growth strategies, including deepening, strengthening and expanding our marketplaces and, in particular, our emerging marketplaces of rentals and mortgages, focusing on consumers and optimizing opportunities for Premier Agent participation. Each of these strategic acquisitions support the expansion of our platform through our suite of marketing and business technology products and services for real estate professionals. Further, with the introduction of new tools and solutions, such as Zillow® Rentals, Property Management Websites and Premier Agent Websites, we continue to focus on strengthening our marketplaces for both consumers and professionals and enhancing the Premier Agent experience.

We generate revenue from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. Our revenue includes marketplace revenue, consisting of subscriptions sold to real estate agents whereby we charge for the number of impressions delivered in zip codes purchased, and advertising sold on a cost per click, or CPC, basis to mortgage lenders, and display revenue consisting of advertising placements sold primarily on a cost per thousand impressions, or CPM, basis.

We have experienced significant revenue growth over the past three years. In 2010, 2011 and 2012 we focused on growing our marketplace revenue, which accounted for the majority of our revenue growth over that period. The increase in marketplace revenue resulted primarily from growth in our Premier Agent program. Our Premier Agent program established a significant source of more predictable subscription-based revenue that complements our display revenue, and created a more diversified revenue mix. As a greater proportion of our revenue has shifted to marketplace revenue, with a corresponding lesser proportion of revenue being display revenue, we believe we are experiencing less quarterly seasonality in our business as compared to prior periods.

For the years ended December 31, 2012, 2011 and 2010, we generated revenue of $116.9 million, $66.1 million and $30.5 million, respectively, representing year-over-year growth of 77%, 117% and 74%, respectively. We believe achieving these levels of revenue growth were primarily the result of significant growth in the following areas:

• Traffic to our owned and operated mobile applications and websites-indicated by the average number of monthly unique users for the three months ended December 31, 2012, 2011 and 2010 of 34.5 million, 23.5 million and 12.7 million, respectively, representing year-over-year growth of 47%, 86% and 66%, respectively;

• Marketplace revenue-due primarily to the launch of our Premier Agent program in 2008, for which we have generally experienced increases in average monthly revenue per subscriber primarily driven by price increases supported by growth in our audience across our mobile and desktop platforms, as well as increased sales to existing Premier Agent subscribers looking to expand their presence on our platform; and

• Display revenue-resulting from our traffic growth and the improved productivity of our sales force.

Key Growth Drivers

To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we frequently review the following key growth drivers:

Unique Users

Measuring unique users is important to us because our marketplace revenue depends in part on our ability to enable our users to connect with real estate and mortgage professionals, and our display revenue depends in part on the number of impressions delivered. Furthermore, our community of users improves the quality of our living database of homes with their contributions. We count a unique user the first time an individual accesses our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Beginning in October 2011, we measure unique users with Google Analytics. Prior to October 2011, we measured monthly unique user metrics with Omniture analytical tools. We believe Google Analytics and Omniture result in materially consistent measurements of our monthly unique users. Beginning in June 2012, the reported monthly unique users reflect the effect of Zillow's May 31, 2012 acquisition of RentJuice. Beginning in December 2012, the reported monthly unique users reflect the effect of Zillow's December 14, 2012 acquisition of HotPads.

                          Average Monthly Unique
                        Users for the Three Months
                            Ended December 31,              2011 to 2012       2010 to 2011
                      2012          2011         2010         % Change           % Change
                              (in thousands)

Premier Agent Subscribers

The number of Premier Agent Subscribers is an important driver of revenue growth
as each subscribing agent pays a monthly fee to participate in the program. We
define a Premier Agent subscriber as an agent with a paid subscription at the
end of a period.



                                                At December 31,                2011 to 2012        2010 to 2011
                                        2012          2011         2010          % Change            % Change
Premier Agent Subscribers               29,473        15,799        8,102                 87 %                95 %


Basis of Presentation

Revenue

We generate revenue from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. Our revenue includes marketplace revenue and display revenue.

Marketplace Revenue. Marketplace revenue consists of subscriptions sold to real estate agents under our Premier Agent program and CPC advertising related to our Zillow Mortgage Marketplace sold to mortgage lenders.

Zillow's Premier Agent program offers a suite of marketing and business technology solutions to help real estate agents grow their businesses and personal brands. The Premier Agent program allows agents to select products and services that they can tailor to meet their business and advertising needs. The program has three tiers of participation including Premier Platinum, our original flagship subscription product, as well as Premier Gold and Premier Silver, to meet different marketing and business needs of a broad range of agents. All tiers of Premier Agents receive access to a dashboard portal on our website that provides individualized program performance analytics, as well as our personalized website service, and our CRM tool that captures detailed information about each contact made with a Premier Agent through our mobile and web platforms. Our Premier Gold product also includes featured listings whereby the agent's listings will appear at the top of search results on our mobile and web platforms. Our Premier Platinum product includes the dashboard portal on our website, our personalized website service, our CRM tool, featured listings, and inclusion on our buyer's agent list, whereby the agent appears as the agent to contact for listings in the purchased zip code.

Since the launch of our Platinum Premier Agent subscription product, we have historically charged for this product based upon a percentage of the total Platinum Premier Agent views in the zip code rather than the number of impressions actually delivered on our buyer's agent list. Thus, up until the end of the third quarter of 2012, Premier Agent subscription advertising revenue was primarily recognized on a straight-line basis during the contractual period over which the advertising was delivered, typically over a period of six months. In the year ended December 31, 2012, we transitioned sales of our Platinum Premier Agent subscription product to charging for the number of impressions delivered on our buyer's agent list in zip codes purchased.

Our Platinum Premier Agent subscription product includes multiple deliverables which are accounted for as a single unit of accounting, as the delivery or performance of the undelivered elements is based on traffic to our mobile applications and websites. We recognize revenue related to our impression-based Platinum Premier Agent subscription product based on the lesser of (i) the actual number of impressions delivered on our buyer's agent list during the period multiplied by the contracted maximum cost per impression, or (ii) the contractual maximum spend on a straight-line basis during the contractual period over which the services are delivered.

We charge a fixed subscription fee for our Premier Gold and Premier Silver tiers of participation. Subscription advertising revenue for our Premier Gold and Premier Silver tiers is recognized on a straight-line basis during the contractual period over which the services are delivered, typically over a period of six months and then month-to-month thereafter.

In Zillow Mortgage Marketplace, participating qualified mortgage lenders make a prepayment to gain access to consumers interested in connecting with mortgage professionals. Consumers who request rates for mortgage loans in Zillow Mortgage Marketplace are presented with personalized lender quotes from participating lenders. We only charge mortgage lenders a fee when users click on their links for more information regarding a mortgage loan quote. Mortgage lenders who exhaust their initial prepayment can then prepay additional funds to continue to participate in the marketplace.

Display Revenue. Display revenue primarily consists of graphical mobile and web advertising sold on a CPM basis to advertisers primarily in the real estate industry, including real estate brokerages, home builders, mortgage lenders and home services providers. Our advertising customers also include telecommunications, automotive, insurance and consumer products companies. We recognize display revenue as impressions are delivered to users interacting with our mobile applications or websites. Growth in display revenue depends on continuing growth in traffic to our mobile applications and websites and migration of advertising spend online from traditional broadcast and print media.

Costs and Expenses

Cost of Revenue. Our cost of revenue consists of expenses related to operating our mobile applications and websites, including associated headcount expenses, such as salaries and benefits and share-based compensation expense and bonuses. Cost of revenue also includes credit card fees, ad serving costs paid to third parties, revenue-sharing costs related to our commercial business relationships, and facilities costs allocated on a headcount basis.

Sales and Marketing. Sales and marketing expenses consist of headcount expenses, including salaries, commissions, benefits, share-based compensation expense and bonuses for sales, sales support, customer support, marketing and public relations employees. Sales and marketing expenses also include advertising costs and other sales expenses related to promotional and marketing activities, and facilities costs allocated on a headcount basis.

Technology and Development. Technology and development expenses consist of headcount expenses, including salaries and benefits, share-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development and testing of our mobile applications and websites, equipment and maintenance costs and facilities costs allocated on a headcount basis. Technology and development expenses also include amortization costs related to capitalized website and development activities, amortization of certain intangibles and other data agreement costs related to the purchase of data used to populate our mobile applications and websites, and amortization of intangible assets recorded in connection with acquisitions.

General and Administrative. General and administrative expenses consist of headcount expenses, including salaries, benefits, share-based compensation expense and bonuses for executive, finance, accounting, legal, human resources, recruiting and administrative support. General and administrative expenses also include legal, accounting and other third-party professional service fees, bad debt expense and facilities costs allocated on a headcount basis.

Other Income

Other income consists primarily of interest income earned on our cash, cash equivalents and investments.

Income Taxes

We are subject to federal and state income taxes in the United States. During the years ended December 31, 2012, 2011 and 2010, we did not have taxable income. We have provided a full valuation allowance against our net deferred tax assets as of December 31, 2012 and 2011 because, based on the weight of available evidence, it

is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax asset will not be realized. Therefore, no tax liability or expense has been recorded in the financial statements. We have accumulated federal tax losses of approximately $115.7 million as of December 31, 2012, which are available to reduce future taxable income.

Results of Operations

The following tables present our results of operations for the periods indicated and as a percentage of total revenue:

                                                               Year Ended December 31,
                                                       2012                2011            2010
                                                        (in thousands, except per share data)
Statements of Operations Data:
Revenue                                            $     116,850       $     66,053      $  30,467
Costs and expenses:
Cost of revenue (exclusive of amortization)
(1)(2)                                                    14,043             10,575          4,973
Sales and marketing (1)                                   49,105             25,725         14,996
Technology and development (1)                            26,614             14,143         10,651
General and administrative (1)(3)                         21,291             14,613          6,684

Total costs and expenses                                 111,053             65,056         37,304

Income (loss) from operations                              5,797                997         (6,837 )
Other income                                                 142                105             63

Net income (loss)                                  $       5,939       $      1,102      $  (6,774 )

Net income (loss) attributable to common
shareholders                                       $       5,939       $         -       $  (6,774 )
Net income (loss) per share attributable to
common shareholders-basic                          $        0.20       $         -       $   (0.53 )
Net income (loss) per share attributable to
common shareholders-diluted                        $        0.18       $         -       $   (0.53 )
Weighted-average shares outstanding-basic                 30,194             19,815         12,770
Weighted-average shares outstanding-diluted               32,709             22,305         12,770

Other Financial Data:
Adjusted EBITDA (unaudited) (4)                    $      25,181       $     11,869      $     140

(1)  Includes share-based compensation as
follows:
Cost of revenue                                    $         380       $        189      $     210
Sales and marketing                                        2,433                388            445
Technology and development                                 1,886                546            389
General and administrative                                 1,912                822            671

Total                                              $       6,611       $      1,945      $   1,715

(2)  Amortization of website development costs
and intangible assets included in technology
and development is as follows:                     $      11,179       $      5,384      $   4,184
(3)  General and administrative includes a
facility exit charge as follows:                   $          -        $      1,737      $      -

                                                Year Ended December 31,
                                             2012           2011       2010
            Percentage of Revenue:
            Revenue                             100 %         100 %      100 %
            Costs and expenses:
            Cost of revenue                      12            16         16
            Sales and marketing                  42            39         49
            Technology and development           23            21         35
            General and administrative           18            22         22

            Total costs and expenses             95            98        122
            Income (loss) from operations         5             2        (22 )
            Other income                          0             0          0

            Net income (loss)                     5 %           2 %      (22 %)

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed Adjusted EBITDA within this annual report, a non-GAAP financial measure. Below, we have provided a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this annual report as it is a key metric used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

• Adjusted EBITDA does not reflect certain facility exit charges; and

• Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results.

The following table presents a reconciliation of Adjusted EBITDA to net income
(loss) for each of the periods presented:

                                                           Year Ended December 31,
                                                     2012            2011            2010
                                                                (in thousands)
Reconciliation of Adjusted EBITDA to Net
Income (Loss):
. . .