The US firm, which focuses on providing data and analytical tools for the commercial and residential real estate market, is one of the key players in the digital real estate services space. Its platforms have access to extensive real estate market information today, including pricing trends, historical transaction data, as well as demographic data that allows professionals to better navigate the complex real estate environment.

In 2024, the firm saw year-over-year revenue growth of 10.9%, reaching total revenue of over $690 million. This growth is primarily driven by expansion into the residential market and growing revenue from its online real estate sales and rental platform. Another interesting trend is the continued expansion of the team, particularly on the residential-focused platform, which boasts 169% year-on-year revenue growth.

Company introduction

CoStar Group $CSGP is an American commercial real estate data and analytics company founded in 1987 and headquartered in Washington, D.C. It focuses on providing detailed real estate market information used by real estate investment professionals, commercial leasing, development and other market players. Its products help clients better understand market trends and make informed business decisions.

CoStar Group's major products include CoStar Suite, which includes comprehensive commercial real estate analysis and reports, and LoopNet, one of the largest online marketplaces focused on commercial real estate, which provides direct access to leasing and sales information. This platform includes a wide range of data such as leases, sales prices, property history, demographic data and other statistical indicators.

CoStar Group has grown and expanded its footprint over time through a series of strategic acquisitions. In 2011, a major expansion occurred with the acquisition of LoopNet, which significantly increased CoStar's reach in the commercial real estate market and solidified its position in the digital commercial real estate listing space. In 2014, the company acquired Apartments.com, entering the residential rental market and strengthening its position in this area as well.

The company operates not only in the US, but has gradually expanded its activities to European markets and other world regions. With the aim of creating a global real estate market platform that provides a uniform standard for market information, CoStar Group announced the acquisition of Germany's ImmobilienScout24, one of Germany's largest residential and commercial real estate portals, in 2020, strengthening its presence in Europe.

The company is also investing heavily in the development of artificial intelligence technologies and advanced analytics tools that enable detailed predictions of market trends and automation of data collection. It uses advanced methods of data collection and analysis to gather information, including aerial mapping and tracking demographic changes. This approach to delivering real-time data and analytics increases the appeal of CoStar Group's platform to a growing number of real estate clients who want to make the most accurate decisions based on up-to-date information.

Why do analysts trust the company?

CoStar Group recently released its financial results for the third quarter of 2024, posting a 10.9% year-over-year increase in revenue to $692.6 million, which fell slightly short of analysts' expectations. The residential segment was a significant driver of growth, mainly driven by the Homes.com platform, which grew revenue 169% year-over-year due to active monetization and an increase in the number of sales reps, which management said should support further growth.

Analysts point out that CoStar Group's fundamentals remain solid despite some near-term risks. Business in the commercial segment has seen modest growth, despite the difficult economic climate in commercial real estate. According to management, the addition of sales representatives in the Homes.com product sales force will contribute to growth as they complete training and achieve productivity.

At the same time, CoStar Group executives said they are seeing improving conditions in the office real estate market, which may be a positive thing in the future. Further expansion of the sales team is also planned for the Homes.com platform to increase its reach and improve monetization opportunities. Currently, the platform has 113 reps, with another 75 undergoing training, and the company plans to reach a total of 600 reps by the end of 2025.

Analysts remain optimistic about CoStar Group, especially with its long-term growth prospects, but caution that near-term results may come under pressure due to a decline in net orders and weak demand in the residential housing market.

How was the last quarter?

CoStar Group reported strong financial results for the third quarter of 2024, with revenue of $693 million, up 11% year-over-year. Net income achieved strong growth, increasing 176% from the previous quarter to $53 million. Earnings per share were $0.13. EBITDA grew 320% to $51 million, and adjusted EBITDA, which reached $76 million, beat the company's median expectation by 54%. This quarterly result marks the 54th consecutive quarter of double-digit revenue growth.

According to founder and CEO Andy Florance, the result is consistent double-digit expansion in the Apartments.com and CoStar segments, which comprise the company's core billion-dollar businesses. He also emphasized that marketing investments are fueling growth, which puts the company in a strong position for the future, especially with the potential decline in interest rates and rising transaction volume.

Homes.com, one of CoStar Group's major residential portals, has reached an average of 130 million unique visitors per month. The success of the marketing campaigns was reflected in the growth of unaided brand awareness to 33%, up from 4% at the beginning of the year. In the U.K. market, where CoStar recently acquired OnTheMarket, CoStar saw year-over-year growth in operational performance, including a 212% increase in traffic and a 348% increase in unique visitors.

The company's outlook for 2024 remains positive, with CoStar expecting its revenue to reach a range of $2.72-2.73 billion, which should represent 11% year-over-year growth.

Long-term results

Revenue and gross profit

CoStar Group's revenue for the past 12 months was $2.667 billion, up 9% from $2.455 billion in 2023. This growth trend has been seen in previous years as well, with revenue of $2.182 billion in 2022, $1.944 billion in 2021 and $1.659 billion in 2020. The growth in revenue points to steady and increasing demand for CoStar Group's services, particularly in the digital real estate markets and analytics tools.

Gross profit has also been steadily strong, reaching $2.113 billion over the past 12 months, up year-on-year from $1.963 billion in 2023. Gross profit was $1.768 billion in 2022, $1.586 billion in 2021 and $1.350 billion in 2020. These positive developments show that the company is effectively managing to control its direct costs, thereby maintaining a high gross margin even as revenue grows.

Operating costs and operating profit

Operating expenses for the last 12 months were $2.079 billion, a significant increase from $1.681 billion in 2023. This cost growth was also evident in previous periods, with operating expenses of $1.317 billion in 2022, $1.155 billion in 2021 and $1.061 billion in 2020. This increase is likely related to investments in development and marketing, particularly to expand the product portfolio and expand into new markets.

Operating profit for the last 12 months has fallen to US$34 million due to higher operating costs, a significant decline from US$282 million in 2023 and US$451 million in 2022. Operating profit has thus fallen even as sales have grown, suggesting that increased investment has not yet led to a corresponding increase in profitability.

Net profit and earnings per share (EPS)

Net profit for the last 12 months was $175 million, down from $374 million in 2023. This decline is attributable to increased operating expenses as well as other one-off items. In 2022 net profit was $370 million, in 2021 it was $293 million and in 2020 net profit was $227 million. Although net profit has declined over the recent period, the long-term trend remains positive.

The distribution of net earnings per share (EPS) reflects the decline in profitability, with basic earnings per share declining to $0.42 over the past 12 months, compared to $0.92 in 2023, and EPS of $0.93 in 2022. This decline in profitability may be short-lived if the investment in growth starts to pay off.

Analysts' forecasts

Based on 11 Wall Street analysts who have offered 12-month price targets for CoStar Group over the last 3 months. The average target price is $90.20 with a high prediction of $100.00 and a low prediction of $75.00.

What could contribute to the upside?

CoStar Group buys Matterport for $1.6 billion and moves headquarters to Arlington 👇

CoStar Group, known for its real estate platforms such as Apartments.com and Homes.com, announced the acquisition of Matterport, a California-based 3D digitization firm. The transaction is worth $1.6 billion, with CoStar paying $5.50 per share - half of the amount will be in cash, the other half in CoStar stock.

Matterport, founded in 2011 and based in Sunnyvale, California, develops technology to create "digital twins" of real estate. The latter enables the creation of photorealistic virtual tours using ordinary smartphones. Matterport reported 2023 revenues of $158 million, a 16% year-over-year growth. Matterport's technology is used across sectors from residential to industrial real estate, and its 3D models have become a key tool in online property selection.

CoStar's founder and CEO, Andy Florance, said the acquisition will expand the use of 3D technology in real estate and improve the customer experience. CoStar plans to invest in the development of Matterport, including the implementation of artificial intelligence and machine learning. Already, CoStar uses nearly 300,000 Matterport digital twins on its platforms.

CoStar also announced plans to move its headquarters from Washington, D.C., to Arlington County, Virginia. The move involves approximately 500 employees, and the company plans to open a new 150,000-square-foot facility in late 2024.

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