CoStar Q2 Net Income Down Despite Traffic and Revenue Gains

US commercial real estate and data giant CoStar has released its results for Q2 of 2021. Despite gains in revenue and traffic to its many platforms, the company's profits decreased from Q1 highs and its share price dipped as much as 6% in after-hours trading.

Headline figures for the Washington-based firm's second-quarter include:

• $61 million in net income representing a -17.5% drop from Q1's $74 million and flat compared to a heavily pandemic-hit Q2 of 2020
• $480 million in revenue representing a 21% gain year-on-year and a slight uptick of increase of $22 million on Q1.
• Net new bookings of $51 million representing a 47% rise year-on-year
• Adjusted EBITDA of $150 million, well above high-end guidance of $135 million

CoStar owns and operates many data and portal businesses in the states including commercial property marketplaces LoopNet and Ten-X, eponymous data platform CoStar and residential rental marketplaces Apartments.com and Forrent. The company is also looking to move into the residential marketplace to challenge Zillow with its acquisition of Homesnap and Homes.com.

Despite what CEO Andy Florance referred to in an earnings call as a market "lit on fire", CoStar's quarterly profits for the period from April to July did not live up to the levels the company set in the previous quarter. There were however gains for the company in both revenue and EBITDA continuing the upward trends in those metrics which have made CoStar an investor favourite over the years.

Despite Q2's profits failing to reach the levels seen in the previous period, Florance was typically bullish on CoStar's performance and outlook:

"With great momentum in our core business, we are focused on significantly expanding our total addressable market by leveraging our strengths into the digitization of residential real estate and into international markets.

"We are committed to accelerating future growth, as evidenced by the acquisition of Homes.com in May of this year; the steps we have taken to improve that experience for sellers, buyers and real estate agents; and our planned investment in residential technology and content in the second half of 2021"

In the investor conference call, Florance hinted that one reason for the downturn in net profit was the company's shift from selling services as modules to a more holistic approach:

"Historically, we have sold CoStar on a module basis, offering clients modules covering basic property information, comparable sales, tax information, and various geographical modules covering cities, states or countries. Clients buying just a few product modules for just one geography were only getting a fraction of the value we could offer them.

As we’ve grown and as we continue to expand internationally, it requires more and more effort to offer our products as limited modules. Perversely, it costs us more money to offer clients less. Effective this month, we started selling only the full global CoStar Suite product to new clients, which we now simply call CoStar."

As has been the case for many online real estate marketplaces over the last 12 months, traffic to CoStar's portal businesses was up over the period and particularly strong for rental portal Apartments.com which set a new traffic record and generated a 57% year-on-year increase in customer leads.

This uptick in performance for Apartments.com is clearly an encouraging sign for a company now looking to establish itself on the sales side of the US residential market as well. In addition to agent platform Homesnap which it bought for $250 million in November 2020, CoStar has now started building out its flagship residential portal Homes.com which is a month old and will see $25 million of investment across the rest of 2021.

Speaking about his company's plans to move in on a market that has been dominated by Zillow for many years, Florance told investors:

"what we’re offering is really quite simple, really brutally simple, which is 90% of the real estate transactions in the United States; a buyer collaborates with an agent...

it’s got something really unique. It’s the only website that I’m aware of the United States where you can actually look at a property for sale and see – clearly see the name and phone number, the agent, push a button and contact them. So, that puts a million real estate agents on our site."

With its sights firmly set on the residential sector and a reported $3.7 billion in cash and cash equivalents to go after it, CoStar will be generating plenty more headlines in the coming 12 months.