COSTAR GROUP, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Strength: Q3 2024 revenue was $693 million, an 11% YOY increase, marking the 54th consecutive quarter of double-digit growth. Net income grew to $53 million, EBITDA to $51 million, and adjusted EBITDA to $76 million, well ahead of guidance.
• Product Growth: CoStar and Apartments.com, billion-dollar businesses, grew 10% and 16% respectively. Homes.com launched, with growing unaided awareness, NPS, and unique visitors. LoopNet saw strong traffic growth, and Apartments.com maintained leadership in multifamily.
• Market Insights: Commercial real estate market showing signs of improvement; office vacancy rate increase slowing, industrial and retail sectors stable. Apartments.com dominated in Canada, with strong marketing campaigns.
• Acquisitions: Announced acquisition of Visual Lease to enhance real estate manager business, providing additional lease management and accounting services.

Segment Performance

• CoStar: Q3 2024 revenue grew 10%, in line with guidance. Lender product saw 36% revenue growth YOY. Core business remains strong with 93% contract renewal rate in Q3.
• Apartments.com: Q3 revenue was $272 million, up 16%. Multifamily revenue approaching $1.1 billion run rate. Saw strong growth in rental tools and rent payments, with 75,000+ paying communities on network.
• LoopNet: Q3 revenue grew 5%, with mid-single-digit growth expected for full year. Traffic numbers impressive, with 72x unique visitors of average competitor over past 12 months.
• Homes.com: Residential revenue in Q3 was $28 million. Full year 2024 revenue expected ~$100 million. Unaided awareness rose to 33%, NPS climbed to 75% in less than a year, with 130 million average monthly unique visitors in Q3.
• Information Services: Dropped 26% YOY due to STR transition, but annual revenue guided to be modestly higher than $130 million.
• Other marketplaces: Q3 revenue $32 million, with fourth quarter expected to be similar to Q3.

Guidance

• Full Year Revenue: 2024 revenue outlook is $2.72 billion to $2.73 billion, representing 11% growth.
• Adjusted EBITDA: Expected to be $205 million to $215 million, $10 million higher than second quarter guidance.
• Residential: Full year 2024 residential revenue expected ~$100 million. Rapidly growing dedicated Homes.com sales force, aiming for over 275 salespeople in production by year-end, with goal to double sales force by 2025.
• Margin: Commercial information and marketplaces businesses delivered a 43% profit margin in Q3.

Risks

• Sales Force Transition: Pivoting sales force to promote Homes.com initially impacted core product productivity, leading to lower productivity and renewal rates in early sales process.
• Market Competition: Intense competition in residential real estate, particularly from entrenched competitors like Zillow, posing challenges to Homes.com's market penetration.
• Macroeconomic Uncertainties: Broader economic conditions can impact real estate markets, affecting company performance and growth prospects.

Question and Answer Q: Stephen Sheldon with William Blair on growth outlook in 2025 for LoopNet and CoStar A: Andy Florance discussed improving market conditions, growth potential in penetration rates across brokers, corporations, etc., and sales force growth aiding LoopNet and CoStar's growth.

Q: Jeff Meuler with Baird on sales resource reprioritization A: Andrew Florance explained sales force distraction from focusing on Homes.com initially, ramping a dedicated sales force for Homes.com, and expected improvement in core product growth by 2025 when legacy sales teams are fully focused.

Q: Pete Christiansen with Citi on Homes.com seasonality and renewals A: Andrew Florance discussed NPS improvement, value proposition of Homes.com in winning new listings, and renewal rates tied to consistent listings by agents Q: Ryan Tomasello with KBW on residential spend and next year's investment A: Andrew Florance and Chris Lown discussed steady residential investment, no dramatic pullback from current levels, and sales force growth offsetting some marketing spend changes Q: George Tong with Goldman Sachs on Homes.com client demand and sales force productivity A: Andrew Florance explained sales force mechanics impact on net bookings, hiring and training of Homes.com sales force, and growing perception of demand as NPS improves Q: John Campbell with Stephens Inc. on sales and marketing spend for Homes.com A: Andrew Florance mentioned a 33% reduction in Homes Super Bowl ads, but continued investment in Homes.com; Chris Lown noted sales force growth driving expenses which will partially offset marketing spend changes Q: Surinder Thind with Jefferies on Homes.com product execution and patience A: Andrew Florance discussed the long-term nature of building a new product, focusing on consumer awareness, preference, and NPS as key indicators of progress Q: Ashish Sabadra with RBC on weak bookings impact A: Andrew Florance explained net bookings translate to future revenue, focusing on upcoming quarters' net bookings for visibility into 2025 and beyond growth