Zillow's Rental Business Under Fire: FTC Antitrust Scrutiny and the Looming Threat to Growth

The Federal Trade Commission's (FTC) antitrust lawsuit against Zillow and Redfin has thrust the real estate tech giant into a regulatory crossfire, raising urgent questions about its rental business model and long-term growth prospects. At the heart of the dispute is an alleged $100 million agreement between Zillow and Redfin, which the FTC claims eliminated competition in the multifamily rental advertising market, violating antitrust laws and harming consumers the FTC's complaint. For investors, the case underscores the fragility of Zillow's market dominance and the potential for structural disruptions in its revenue streams.

The FTC's Case: Suppressing Competition or Strategic Partnership?

According to a FinancialContent article, Zillow paid Redfin to exit the multifamily rental advertising market, transfer its clients to Zillow, and forgo competition for up to nine years. Redfin also agreed to syndicate Zillow's listings, effectively merging their platforms and neutralizing Redfin as a competitor, as a CBS News report details. The FTC argues this arrangement stifles innovation, raises advertising costs for property managers, and reduces choices for renters-a classic antitrust violation, according to a Fast Company article.

Zillow and Redfin have defended the partnership as "pro-competitive," claiming it expands access to rental listings and benefits consumers, as USA Today reported. However, critics highlight the abrupt termination of Redfin's advertising operations and layoffs of hundreds of employees as evidence of anticompetitive consolidation, in line with reporting from a CNBC report. The FTC's lawsuit, joined by attorneys general from five states, seeks to dissolve the agreement and impose structural remedies, such as forcing Zillow to divest parts of its rental advertising business, per a CRETI analysis.

Operational Risks and Market Reactions

The Redfin partnership contributed approximately $100 million in annualized revenue for Zillow and was a cornerstone of its 2026 growth strategy, according to a Simply Wall St analysis. If the agreement is dismantled, Zillow may face immediate revenue shortfalls and higher customer acquisition costs, particularly in a market where it already holds a dominant position, as noted in an Arnold Porter briefing. The stock market has already priced in some of these risks: Zillow's shares fell 8% on the lawsuit's announcement and continued to decline to a 20% drop from its 52-week high by early October 2025, a trend highlighted in the FinancialContent article.

Compounding these challenges, Zillow faces a government shutdown-induced pause in the lawsuit, delaying resolution until federal operations resume, as described in the FTC press release. Meanwhile, the company grapples with additional legal headwinds, including a $1 billion copyright infringement lawsuit from CoStar over listing photos and a class-action suit over hidden agent fees in its referral program-themes covered by Fast Company. These parallel cases amplify regulatory scrutiny and could force operational overhauls, such as revising referral economics or enhancing transparency in listing practices, as the CRETI analysis suggests.

Broader Implications for Zillow's Growth Narrative

Zillow's ambitious projections-$3.6 billion in revenue and $415.2 million in earnings by 2028-depend on sustained growth in its Rentals segment, which has been bolstered by the Redfin deal, according to the Simply Wall St analysis. However, the FTC's case signals a shift in regulatory priorities toward curbing anticompetitive practices in digital marketplaces, a trend that could reshape Zillow's partnership strategy, as the Arnold Porter briefing explains. Analysts are divided: some view the stock's decline as an overreaction, while others warn of potential divestitures or restructuring that could derail growth targets-a debate discussed in the FinancialContent article.

Conclusion: Navigating a Regulatory Storm

For investors, Zillow's current predicament highlights the dual risks of regulatory intervention and operational fragility in its rental business. While the company's Q2 2025 financials showed resilience-with $641 million in revenue and revised growth guidance-the FTC's lawsuit and related litigation cast a long shadow over its future, as noted in the Simply Wall St analysis. The outcome of this case could set a precedent for antitrust enforcement in proptech, compelling Zillow and its peers to prioritize compliance over aggressive market consolidation.

As the legal battles unfold, Zillow's ability to innovate beyond its rental advertising dominance-such as through its "Showcase" marketing tool or housing "super app" initiatives-will be critical to mitigating growth disruption, a point underscored by the CRETI analysis. Yet, without a resolution to the FTC's case, the company's path to 2028 remains fraught with uncertainty.