CoStar Group: 3Q24 Business Update
Homes.com softness, elevated investments continue, and sales force shuffle
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CoStar Group: 3Q24 Business Update
CoStar is down -9% after posting 3Q24 earnings.
Analyzing CoStar is tricky because not only do they have 6 distinct segments, they are constantly acquiring new companies and are not afraid to aggressively invest in them, which causes distortions to profitability.
Let’s start at the top. Revenues grew 11% y/y. This is their 54th consecutive quarter of double digit growth, or basically every quarter since exiting the financial crisis. Their total revenues of $693mn came in at the low end of their guidance of $692-697mn.
The two largest segments are “CoStar” and Multifamily, which houses their Apartments.com platform among other apartment websites. Each generates over $1bn annually. Their next most meaningful segment is LoopNet, followed by their Information Services segment. As shown below, LTM revenues are currently $2.67bn.
The CoStar Suite.
CoStar revenues were up +10% y/y, but slightly decelerated from last Q (10.4% vs 10.1%).
It is worth pointing out that as CoStar moves legacy STR customers (hotel data business they acquired) to their CoStar benchmarking product, it moves revenues from the information services segment to CoStar. If you adjust for this, then core CoStar is growing closer to low to mid-single digits.
However, they moved some of their sales force from CoStar to Homes.com for the short-term and are just now returning those sales reps. This is in addition to increasing sales headcount (adding 100 reps to each CoStar, LoopNet, and Apartments.com).
Also explaining the lackluster growth is the macro backdrop. They note that since 2020 it has been the worst commercial market in a generation. Nevertheless, their renewal rate has stayed steady at 93% and they note that NPS scores are at all time highs. Lastly, they imply that as commercial values “reset” with $930bn of loans coming due in ’24, that CoStar will see increased activity and value to the client.
Other Stats:
On their recently launched lender product, CoStar disclosed they are run rating $50mn in revenue against a TAM of $400mn.
Launched new institutional client focused product for owners and lenders
CoStar activity increased 29% y/y
New high of 164k distinct log-ins in September (240k subscribers vs >230k last Q)
Multifamily.
Multifamily revenues were up +16% y/y and they note they are on track for $1.1bn for the full year or +17% y/y. This is very strong, especially on the back of a strong 2023 when they did +23% y/y growth (2022 was +10% y/y).
They also showed signs of successfully penetrating the smaller unit apartment complexes. If you recall, they have typically been strongest with apartment community owners and 100+ units, whereas Zillow has commanded the smaller unit apartments. On this call they noted “record inventory” in the house, condo, townhouse listing below 20 units.
Part of the more unspoken benefit of the homes.com acquisition is it can help them gain small unit supply. The same way many small apartment owners listed their apartments on Zillow despite it being primarily for single homes, homes.com can bring a similar benefit.
They now have 75k paying customers on the network and over 10k are in the 5-50 units range.
LoopNet.
LoopNet revenues grew +5% y/y, a deceleration from last quarter’s growth of +6%. Paid listing are up +4%. They note that they had 6x the traffic to their nearest competitor, which is Crex, but we would not be surprised if that figure is embellished.
They continue to focus on expanding LoopNet internationally after several acquisitions that they brought under the LoopNet brand. They note in the UK they have 2x the traffic of the nearest competitor and 4x in Canada.
Residential (Homes.com)
Despite the residential segment being only 4% of current revenues, what happens to this segment tends to drive the narrative of CoStar.
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