Sign in

    CoStar Group Inc (CSGP)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$84.62Last close (Apr 23, 2024)
    Post-Earnings Price$92.53Open (Apr 24, 2024)
    Price Change
    $7.91(+9.35%)

    What went well

    • CoStar Group's Homes.com platform exceeded expectations, selling 8,000 memberships at an average price of $475 to $500 per month, with 90% of customers opting for annual agreements, demonstrating strong market adoption and revenue potential.
    • The company sees significant growth opportunity for Homes.com, aiming to increase memberships to 100,000 in the near term and ultimately reaching hundreds of thousands, leveraging a unique offering with little direct competition.
    • Elevated vacancy rates in the apartment rental market at 9.1%, expected to persist for the next 2 to 3 years, provide a favorable environment for CoStar's Apartments.com platform to drive advertising and revenue growth.

    What went wrong

    • The initial surge in Homes.com memberships may not be sustainable, as it was partly driven by specific events and conferences, and the company needs to aggressively scale the Homes.com sales team to maintain growth.
    • Elevated vacancy rates in the apartment sector at 9.1% and potential financial stress on apartment building owners could negatively impact Apartments.com's future revenue growth.
    • The company is experiencing a sales substitution effect, with sales shifting from their core commercial products to Residential products, potentially affecting revenue growth in their traditional businesses.

    Q&A Summary

    1. Homes.com Sales Progress
      Q: How is Homes.com performing in sales and market potential?
      A: Homes.com has exceeded expectations, selling around 8,000 memberships at an average price of $475 to $500 per month. The company aims to grow to 100,000 members sooner rather than later, with the potential to reach hundreds of thousands of members. The close cycle is extremely fast, typically closing simultaneously with the demo.

    2. Homes.com Pricing Strategy
      Q: Will Homes.com adjust pricing as growth matures?
      A: CoStar plans to maintain the current pricing of $475 to $500 per month, with no changes anticipated over time. The pricing scheme is bespoke to each agent, considering factors like listing value and market. While there is demand for premium tiers, the focus remains on mass adoption before introducing premium options.

    3. EBITDA Margin Outlook
      Q: Are you still on track to reach the full-year EBITDA margin target?
      A: Yes, CoStar remains on target for the 42% EBITDA margin for the year. In the first quarter, adjusted EBITDA margins were about 39%.

    4. Residential Spend and Profitability
      Q: Has residential spend peaked, and how will it impact profitability?
      A: Quarterly expenses in residential will be roughly the same in the second quarter as the first, then decline throughout the year. Total expected residential spending remains unchanged from prior communications.

    5. Apartments.com Outlook
      Q: What's the outlook for Apartments.com given unit deliveries?
      A: Unit deliveries are slightly decreasing but remain high historically. The vacancy rate is around 9.1%, which is elevated. CoStar expects 2 to 3 years of elevated vacancy, considered ideal for selling Apartments.com.

    6. Matterport Integration Strategy
      Q: How will CoStar integrate Matterport and drive growth?
      A: CoStar plans to make Matterport's digital twins ubiquitous across its platforms, including Homes.com, Apartments.com, and LoopNet. By adjusting pricing and adopting digital twins broadly, they aim to significantly accelerate Matterport's sales and revenue outside of its use within CoStar.

    7. Homes.com Sales Force Scaling
      Q: When will sales incentives shift back to core businesses?
      A: CoStar will continue using the broader sales effort through the end of the year, planning to focus more on a dedicated Homes.com sales team in 2025. They aim to build up a 300 to 400 person sales force for Homes.com.

    8. Homes.com Market Reach and Conversion
      Q: How long to reach the target market with demos?
      A: They've demoed to about 7% of the 540,000 core prospects. With high conversion rates from demos to closes, the challenge is scaling to conduct more demos.

    9. Value for Agents Without Listings
      Q: Why are agents without listings subscribing?
      A: Agents without current listings can still gain value by enhancing their presence as neighborhood experts and retargeting potential clients. Even without active listings, they receive significant exposure on and off the site.

    Related Publications