CoStar Sees Record Revenue as It Prepares to Enter Residential

The American commercial real estate company CoStar Group has announced record revenues for the fourth quarter of 2020. The company, which operates a commercial real estate data business as well as running several online marketplaces in the commercial and rental sectors, saw fourth-quarter revenues of $444 million (up 19% year-on-year) and yearly revenues of $1.66 billion (up 19%).

The increased revenue did not translate into profit however as Spring coronavirus closures meant that net profit sank almost 28% to $227 million for the year ended 31st of December. The firm did close out the year strongly however as CEO Andy Florance highlighted:

"Following the initial pandemic disruption early in the year, we demonstrated that our business is strongly countercyclical as our sales rebounded strongly in the second half of the year. In the fourth quarter, we delivered annualized net new sales of $49 million, bringing our total sales bookings to over $100 million in the second half of 2020."

CoStar expects 2021 revenues to be in the region of $1.925 to $1.945 billion and EBITDA of between $640 to $650 million, figures which would represent growth of around 17% on both counts.

Traffic increases with booming market

Apart from a strong second half to the year in terms of sales and revenues, CoStar also saw a big increase in traffic to its real estate marketplaces with visitation up 20% on the year overall and 29% in the fourth quarter year-on-year as the domestic real estate market flourished. Of all the company's marketplace sites, rental portal Apartments.com was singled out for praise by Florance:

"Apartments.com turned in its strongest performance since we first launched the platform in 2015, with revenues growing 22% to almost $600 million. Apartments.com net new sales increased 35% for the year, network visits grew 20% to over 1 billion in 2020, and quality leads to our customers increased over 20%. We believe that our increased investment in marketing for Apartments.com in 2020 was a key driver in our performance and produced outstanding results."

The company's primary commercial portal Loopnet also saw a good year with revenue up 20% on 2019 as Florance said that CoStar plans to further invest in Loopnet's marketing and sales teams to accelerate its growth.

Acquisitions and development to enter residential

The company raised $2.7 billion in debt and equity over the course of the year and despite the aborted acquisition of rental portal owner Rentpath costing nearly $60 million, it managed to get deals for Ten-X, Emporis and Homesnap over the line in 2020. Of all of these, the deal for residential real estate portal and MLS collaborator Homesnap may end up being the most important along with CoStar's purchase of the Homes.com domain which is expected to house a rival to Zillows portal sometime in 2021.

CoStar has made no secret of its desire to move into the residential real estate sector and take on Zillow at a time when the US housing market is predicted to have a bumper 18 months, and yesterday's trading report stated that the firm was "well into developing additional important acquisition opportunities". While one of these is known to be a mooted $6.8 billion bid for fellow publicly traded property data company CoreLogic, there may be other key acquisitions in the residential space as CoStar tools up for the fight with Zillow.

After Zillow's $500 million purchase of viewing scheduling and data analysis toll Showing Time, CoStar owned Homesnap announced that it was working on a direct rival, and we may well see a lot of CoStar's nearly $2 billion in predicted revenue channelled into similar companies and tools to round out the real estate experience for consumers. Perhaps indicative of this is the figure of nearly $162 million CoStar spent in 2020 on software development, an increase of  22% on 2019's figure.