Costar Posts Record Revenue in Q3 as It Continues to Make Moves in Residential

October 27, 2021
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American commercial real estate giant and pretender to Zillow's residential throne released its results for the third quarter of the financial year yesterday.

Results for the period from the three-month period ending September 30th show record revenue of almost half a billion dollars, EBITDA of $123 million and net profit of $64 million.

Until recently the company was best known in the commercial sector for its data business but CoStar also owns and operates leading verticals in commercial real estate, a number of prominent rental portals and is increasing its presence in the US residential sector as well.

The group's main rental portal Apartments.com saw a "soft sales quarter" which Florance attributed to high occupancy rates in apartment buildings - the logic being that when occupancy rates are at a 20 year high, apartment owners don't need to spend on marketing. Despite the spend levels being down for Apartments.com, traffic to the portal was up 17% and lead volumes were up 39% for the quarter year-on-year.

In the last two years, the cost per lead for Apartments.com clients has dropped from $9.55 in 2019 to $6.24 in 2021. To address this, CoStar tested a restructuring of its pricing putting rates up by an average of 7%. Florance noted that the firm would have to be careful when rolling out the increases to all clients given the market volatility.

Florance also told investors that CoStar's eponymous property data product had its best new bookings quarter of all time in Q3 with net bookings up 57% on the previous quarter.

"The record performance was driven by multiple factors, including the growing success of our upsell program, high renewal rates, new product and information capabilities, the return of annual price increase for renewals and continued economic recovery."

The group's flagship commercial portal LoopNet saw quarterly revenue growth of 17% with a large national branding campaign helping to push Q3 traffic figures up almost 20% year-on-year with 11 million unique monthly visitors (40% above pre-pandemic levels).

Having been frustrated by the FTC in its attempted acquisition of RentPath and by shareholders with its bid for CoreLogic last year, CoStar Group has increasingly been looking overseas for M&A opportunities. In Q3 the firm tied up a deal to acquire French commercial portal BureauxLocaux to add to its European commercial portal assets Belbex (Spain) and Realla (UK) and is increasingly looking to drive value with cross border data insights.

In terms of the company's residential real estate operations, Florance singled out the Homesnap business for praise saying that it is something that "residential agents like". Homesnap, which combines a public-facing portal with back end agent tools, saw 40% revenue growth as CoStar continues to lean into residential to challenge Zillow.

Apart from Homesnap and its various rental portals, CoStar continues to work hard on its Homes.com portal which it sees as a challenger to Zillow's portal further down the road. Around 800,000 Apartments.com listings went live on Homes.com in August to boost audience and lead figures and Florance was excited about the possibilities for the portal in a call with investors:

"For the first time ever, consumers can come to Homes.com or a major real estate portal, and connect directly to the listing agent, consistent with our Your Listing, Your Lead philosophy. Consumers are no longer served up buyer agents who know nothing about the property or the buyer.

And that’s been a major pain point for consumers with other competing residential sites. So, we’re doing something completely different, and hopefully, it will be a much better experience for the agents and the buyers."

The other significant news from CoStar's residential real estate division in Q3 was the announcement of a collaborative project with the Real Estate Board of New York to build a new portal to rival Zillow's StreetEasy in the city. CitySnap will be free to list on with the option of paying for promoted listings and will follow CoStar much-touted 'Your Listing, Your Lead' philosophy.

CoStar remains on a collision course with Zillow in residential and Florance's call with investors was full of characteristic verbal swipes at his company's west coast rival which he did not mention by name. Responding to a question around CitySnap at one point the CoStar founder said the following of Zillow's business model in New York:

"blackmail is too strong a word for it, but it’s zillamail or something"

Once the company's work building out its capabilities in the residential sector is done the next phase, in which it must try to grow an audience to rival Zillow's, is sure to be fascinating.

CoStar Group's share price continues to trade close to record highs at around $97 per share. The share price dropped slightly in after-hours trading as the Q3 results were made public before rallying after Florance's investor call.

October 27, 2021
Edmund got to know the world of portals and marketplaces working at Mitula Group (which became Lifull Connect after the buyout in 2018). He worked directly with hundreds of portals across the world in his role in the content department for three and a half years before transferring to the SEO department to understand the inner workings of listings sites. He joined Online Marketplaces as Head of Content in March 2020.

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