CoStar Group’s star is continuing its meteoric rise. While much of the industry is struggling this year, the Washington, D.C.-based company, a leading provider of online real estate marketplaces, information and analytics in the property markets, continues to charge forward.
In a third quarter earnings report Oct. 24, CoStar showed revenue of $625 million, up 12% over the $557 million for the quarter ended Sept. 30, 2022. Net income was $91 million in the third quarter, an increase of 25% over the prior year. The solid revenue number represented the 50th-straight increase of double-digit gains.
“CoStar Group delivered strong results this quarter on our two principal fronts,” said Andy Florance, founder and CEO. “First, our commercial information and marketplace businesses are fortress-strong in a turbulent market, with revenue growing 14% year-over-year and margins approaching 40%. As we move into the fourth quarter, our adjusted EBITDA, for our commercial information and marketplace businesses, is approaching $1 billion annualized. We continue to generate strong net new bookings, with $65 million of net new bookings in the third quarter.
“On the second front, we are investing aggressively, but prudently, in Homes.com, with the goal of unlocking the enormous potential of becoming the leading, successful U.S. residential real estate portal. In September, we celebrated a major milestone on that road to success with 100 million unique visitors to Homes.com.
“Unique visitors to Homes.com in September grew 1,290% year-over-year, significantly outperforming our competitors’ traffic, the largest of which were relatively flat or declining. We believe that the competitive balance in the industry is shifting in our favor,” he continued. “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.”
Florance continued by admitting that not buying realtor.com® earlier this year was a blessing in disguise.
“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% higher than realtor.com® and 90% higher than Redfin in September, according to ComScore,” he said. “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.
“Our returning users have increased almost 900% over September of last year, which is a testament of our success in building rich content and providing a great consumer experience. We’ve already delivered double the 50 million unique visitors that we initially targeted. In the Apple apps store, Homes.com has climbed from 136 under Lifestyle to now 19.
“Earlier this year, media reports said we were in talks to acquire realtor.com® for approximately $3 billion. If that was true, the primary objective in acquiring it could have been to take the No. 2 traffic position in the United States. Given that that speculation did not come to pass, we might have been good stewards of our shareholders’ $3 billion that we saved by building the traffic to Homes.com for a fraction of the cost of buying realtor.com®. Clearly building traffic is no longer Homes.com’s primary risk factor.”
How the current commission trial in Kansas City could play in CoStar’s favor was also emphasized by Florance.
“We could be seeing the biggest change to the residential real estate industry in history,” he said. “Sitzer-Burnett and other class action lawsuits are challenging the legality of the buyer broker commission rule, which requires the home seller to pay the homebuyer agent’s fee.”
Florance noted that Sitzer-Burnett and a similar upcoming case, Moehrl, could result in devastating judgments, in the multiple billions of dollars.
“Several defendants have already agreed to collectively pay $138 million in settlements and to make changes to the rule. The first-generation real estate portals leveraged the buyer broker commissions 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.
“Many agents 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 commission splits.”
Florance then pivoted to what the future holds, specifically with another acquisition.
“Last week, we announced our offer to acquire OnTheMarket, one of the top three residential property portals in the United Kingdom,” he noted. “Having operated successfully in the United Kingdom for two decades, we believe that we can grow competitive traffic share in the UK just as we have done so many times before in the U.S., and that our significant software investments into Homes.com will give us technology scale advantage in the UK.”
The Company expects revenue in the range of $2.445 billion to $2.450 billion for the full year of 2023, representing year-over-year growth of approximately 12% at the midpoint of the range. The Company expects revenue for the fourth quarter of 2023 in the range of $630 million to $635 million, representing revenue growth of approximately 10% year-over-year at the midpoint of the range.
CoStar was also pleased to showcase its positive gains in a skittish market.
“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,” said Scott Wheeler, CFO of CoStar Group. “Our commercial information and marketplace business is expected to deliver 12% year-over-year revenue growth in the fourth quarter of 2023, and 14% revenue growth for the full year of 2023. Our Homes.com strategy is proving to be very successful and has moved us into second place in the U.S. We are wisely accelerating our investment in our residential marketplace in the second half of 2023. We now expect adjusted EBITDA for the full year of 2023 in the range of $485 million to $490 million. For the fourth quarter of 2023, we expect adjusted EBITDA in the range of $123 million to $128 million.”
