Key Takeaways:
– CoStar Group earned $625 million in Q3, marking its 50th consecutive quarter of revenue gains.
– Homes.com, a part of CoStar’s residential business, experienced a 1,290 percent annual growth in traffic.
– CoStar’s commercial information and marketplace businesses saw a 14 percent year-over-year revenue growth and approaching 40 percent margins.
– CoStar’s profits increased by 25 percent year over year to $91 million.
– The company’s adjusted EBITDA declined by 26 percent to $112 million, but the CEO is not concerned.
– Homes.com surpassed Realtor.com and Redfin in terms of unique visitors, with 100 million in September.
– CoStar plans to monetize Homes.com in the second quarter of 2024 with the introduction of memberships.
– CoStar expects Q4 revenues between $485 million to $490 million and adjusted EBITDA between $123 million to $128 million.
– Analysts predict CoStar stock to reach a high of $114 per share in the next 12 months.
inman:
CoStar Group earned $625 million in Q3, clinching its 50th consecutive quarter of revenue gains. The company also highlighted a 1,290 percent annual growth in Homes.com traffic.
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CoStar Group’s revenue increased 12 percent year over year to $625 million, according to the company’s third-quarter earnings results on Tuesday. The revenue bump represents the 50th consecutive quarter of double-digit revenue gains, as CoStar continues its quest to dominate the residential real estate market.
Andy Florance | Photo credit: CoStar
“CoStar Group delivered strong results this quarter on our two principal fronts,” CoStar Group founder and CEO Andy Florance said in a statement ahead of Tuesday evening’s live earnings call. “First, our commercial information and marketplace businesses are fortress-strong in a turbulent market, with revenue growing 14 percent year-over-year and margins approaching 40 percent.”
In addition to continuing its revenue streak, CoStar’s profits continued their upward march — increasing 25 percent year over year to $91 million. The company’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) experienced a 26 percent annual decline to $112 million; however, Florance wasn’t worried.
“As we move into the fourth quarter, our adjusted EBITDA for our commercial information and marketplace businesses is approaching $1,000,000,000 annualized,” he said. “We continue to generate strong net new bookings with $65 million of net new bookings in the third quarter.”
Florance then turned his attention to Homes.com, the crown jewel of CoStar’s residential business which includes the NYC-focused portal Citysnap.
The CEO said monthly unique visitors to Homes.com in September grew 1,290 percent year over year to 100 million, according to Google Analytics. That performance, he said, put Homes.com 35 percent ahead of Realtor.com and 90 percent ahead of Redfin during the month, when comparing the portals’ Comscore data.
“We believe that the competitive balance in the industry is shifting in our favor,” he said. “Our key competitors’ sites combine rentals and resale homes, so when we likewise combine our Homes.com and Apartments networks we had 140 million unique visitors in September, according to Google Analytics.”
“In the past year we have quickly grown to become the second most heavily trafficked residential network by a wide margin, with monthly unique visitors 35 percent higher than Realtor.com and 90 percent higher than Redfin in September, according to Comscore,” he added. “We continue to build out the full potential of Homes.com and are focused on continuing to grow traffic and beginning monetization in the second quarter of 2024.”
CoStar’s claims about Homes.com’s growth have stirred controversy, with rivals questioning CoStar’s ability to jump from 35.5 million monthly unique visitors in June to 100 million in September.
“We have been doubted before,” a CoStar spokesperson said in Inman’s deep-dive into portal traffic. “We were doubted before we grew LoopNet to become the leading commercial real estate portal in the U.S. We were doubted before we grew Apartments.com to become the leading multifamily portal in the U.S. This is not our first rodeo.”
Florance said Homes.com’s growth is the result of a savvy search engine optimization (SEO), search engine marketing (SEM) and user experience (UX) strategy, and the portal’s ability to deliver on its “your listing, your lead” value proposition — something he said puts Homes.com ahead of the game as a hot-button lawsuit attempts to upend buyer-broker commissions.
“The first-generation real estate portals have been leveraging this threatened buyer-broker commission rule to divert listing leads from all the agents in the market to a small handful of agents who are then required to split their commissions with the portal,” he said in a previous Inman article. “Many agents and brokers strongly resent that model. Now that Homes.com is one of the most heavily trafficked portals, there is a strong and viable alternative for lead generation available to agents that does not require usurious commission splits.”
During the live earnings call, Florance unveiled additional Homes.com data, including a 900 percent annual increase in returning users on the platform and Homes.com’s rise from No. 136 to No. 19 on the Apple App Store’s most popular lifestyle app list.
While those are promising developments, Florance said the company needs to lift Homes.com’s unaided awareness marketing score from “the low single digits.” The CEO said building unaided awareness is key to the company’s monetization strategy for Homes.com, which includes the rollout of Homes.com memberships in Q2 2024.
“Achieving significant unaided awareness is important because it improves SEO, optimizes SEM investments and facilitates sales of advertising products to prospects,” he said. “We do not believe that building unaided awareness is our most significant risk factor. We anticipate selling homes.com memberships in the second quarter of 2024.”
He added, “Costar Group has created dozens of successful monetization strategies and we believe that our planned monetization strategy for Homes.com will become a dozen plus one of our successful monetization strategies.”
Scott Wheeler
CoStar Group CFO Scott Wheeler said the company expects to close Q4 with revenues landing between $485 million to $490 million, with an adjusted EBITDA between $123 million to $128 million. For the full year, Wheeler said revenues should be in the range of $2.445 billion to $2.450 billion, with $43 million of that coming from the residential side of the business.
“The old Pro Plus products are holding up better than we expected, while the Facebook advertising products decline,” he said. “I suspect agents are finding that our millions of free leads from Homes.com are a much better source of potential customers than the poor-performing Facebook ads that were sold through Homesnap.”
“Against one of the worst property markets in decades, we continue to demonstrate that our commercial information and marketplace businesses can deliver strong, double-digit revenue growth regardless of market cycles,” he added. “Our Homes.com strategy is proving to be very successful and has moved us into second place in the U.S.”
Investors seem to be buying what CoStar is selling, as the company maintained its ‘Buy’ rating leading up to today’s earnings. Analysts expect CoStar stock to reach a high of $114 per share over the next 12 months, which would be a roughly 60 percent change from the $70 range CoStar stock has been trading at for the past month.
The company’s market cap stands at $30.29 billion.
Update: This story was updated after publication with additional information from CoStar’s earnings report, and from a call company leaders held with investors.
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Property Chomp's Take:
CoStar Group, a leading provider of residential and commercial real estate information, has reported impressive earnings for the third quarter of 2023. The company's revenue increased by 12 percent year over year, reaching $625 million. This marks the 50th consecutive quarter of double-digit revenue gains for CoStar.
CoStar's CEO, Andy Florance, expressed satisfaction with the company's performance, stating that their commercial information and marketplace businesses are strong even in a turbulent market. Their revenue growth is attributed to a combination of factors, including a robust commercial information business and increasing margins.
In addition to the revenue growth, CoStar's profits also saw a significant increase of 25 percent year over year, reaching $91 million. While the company's adjusted EBITDA experienced a decline, Florance remains optimistic, stating that their commercial information and marketplace businesses are on track to reach an annualized adjusted EBITDA of $1 billion in the fourth quarter.
One of the highlights of CoStar's report is the impressive growth of Homes.com, their residential business. Florance revealed that Homes.com experienced a staggering 1,290 percent annual growth in traffic, with monthly unique visitors reaching 100 million in September. This puts Homes.com ahead of competitors such as Realtor.com and Redfin in terms of traffic.
Florance attributes Homes.com's success to a savvy search engine optimization (SEO) and search engine marketing (SEM) strategy, as well as a user-friendly experience. He also mentioned that Homes.com's growth provides an alternative for lead generation that doesn't require high commission splits, which is a hot topic in the real estate industry.
Despite some controversy surrounding CoStar's claims about Homes.com's growth, Florance remains confident in the portal's potential. He emphasized the importance of building unaided awareness for Homes.com to optimize its monetization strategy. CoStar plans to launch Homes.com memberships in the second quarter of 2024.
CoStar's CFO, Scott Wheeler, provided financial guidance for the fourth quarter, projecting revenues between $485 million and $490 million. For the full year, revenues are expected to be in the range of $2.445 billion to $2.450 billion. Analysts have maintained a positive outlook on CoStar, with a projected high of $114 per share over the next 12 months.
Overall, CoStar Group's strong performance in the third quarter showcases its continued dominance in the residential and commercial real estate market. With consistent revenue growth and a focus on innovation, CoStar is well-positioned for future success.
