Q3 2024 Earnings Summary
- CoStar Group expects growth to accelerate in 2025 for its core businesses like CoStar Suite and LoopNet, due to improving market conditions and the reallocation of sales resources back to these core products.
- The company is significantly expanding its sales force, which is expected to drive increased sales and growth in the coming years.
- The refocusing of the sales team on core products has already led to an uptick in sales, indicating strong potential for future growth.
- Decline in net new bookings may impact future revenue growth. The company reported that core bookings were down 34% in the quarter and 38% year-to-date, which will mechanically translate into lower revenue in the following year.
- Sales force productivity issues due to Homes.com launch may negatively impact overall sales. The reallocation of the sales force to focus on Homes.com resulted in lower productivity, lower service skills, and suboptimal value propositions, causing lower overall productivity and renewal rates.
- Reduced revenue guidance for the residential segment and concerns about seasonality. The company reduced its full-year revenue outlook for the residential segment, expecting revenue to approximate $100 million, and there are concerns about seasonality affecting renewals in the Homes business due to short-term contracts.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +11% | The increase to $692.6 million was driven by continued growth in the Multifamily and CoStar segments, as well as rapid gains in Residential, which more than offset slower growth in LoopNet and a decline in Information Services. Higher traffic and sales volume fueled this revenue expansion ( ). |
CoStar Segment | +10% | Building on momentum from prior quarters, revenues reached $256.9 million due to growth in subscribers, continued new logo wins, and successful conversion of legacy STR customers to CoStar-based products. However, increased marketing and personnel costs compressed some of the segment’s operating contribution ( ). |
Information Services | -26% | Revenues decreased to $33.0 million, reflecting the ongoing transition of STR customers into the CoStar segment and fewer price adjustments. Despite consistent demand for certain analytics, the shift of banking and real estate manager clients to other products lowered Information Services revenue ( ). |
Multifamily | +15% | Rising to $271.8 million, propelled by increased sales volume, higher pricing on renewals, and more properties advertising on Apartments.com. Elevated vacancy rates (around 9% for high-end properties) also encouraged property owners to invest in online marketing, continuing the segment’s strong recent performance ( ). |
LoopNet | +5% | Revenues reached $70.9 million, reflecting incremental listing price increases. However, growth moderated due to less favorable pricing adjustments compared to prior periods and ongoing sales team reorganization. Steady demand from office/industrial owners advertising vacancies provided some counterbalance ( ). |
Residential | +169% | Surging to $27.7 million, mainly due to the launch of Homes.com membership subscriptions and significant traffic growth (the Homes.com network has seen record average monthly unique visitors). Recent strategic investments in marketing and product development substantially boosted brand awareness and monetization ( ). |
North America Revenue | +9% | At $658.2 million, ongoing Multifamily and CoStar gains propelled North American growth, while Residential also made large strides. Strong marketing spend backed traffic increases, but other segments (like Information Services) held down further expansion. The positive macro environment for online real estate advertising also aided growth ( ). |
International Revenue | +57% | Climbing to $34.4 million, this surge was primarily fueled by the OnTheMarket acquisition and higher CoStar subscriber growth abroad. The company’s continued push into new geographic markets and expanded product offerings similarly boosted international sales relative to earlier quarters ( ). |
Operating Income | -62% | Dropping to $23.6 thousand, reflecting significant increases in selling and marketing spend (particularly for Homes.com), higher software development expenditures, and added G&A costs. Despite top-line gains, these strategic outlays outpaced revenue growth and weighed on operating profits ( ). |
Net Income | -99% | Falling to $53 thousand, largely as a result of the substantial uptick in operating expenses overshadowing revenue improvements. Intense marketing campaigns, personnel expansion, and product investments—especially within Residential—curbed net margins. Although management views these investments as essential for long-term growth, they constrain near-term earnings ( ). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA | FY 2024 | $195M to $205M | $205M to $215M | raised |
Revenue | FY 2024 | $2.735B to $2.745B | $2.72B to $2.73B | lowered |
Residential revenue | FY 2024 | $105M to $110M | $100M | lowered |
Apartments.com revenue growth | FY 2024 | no prior guidance | 17% growth | no prior guidance |
LoopNet revenue growth | FY 2024 | no prior guidance | mid-single-digit growth | no prior guidance |
Information Services revenue | FY 2024 | no prior guidance | modestly higher than $130M | no prior guidance |
Other Marketplaces revenue | Q4 2024 | no prior guidance | similar to Q3 2024 revenue of $32M | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue | Q3 2024 | $692 million to $697 million | $692.6 million | Met |
Residential Revenue | Q3 2024 | ~$30 million | $27.7 million | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent focus on Homes.com expansion and product adoption across Q1–Q3 | Q2: Aggressive marketing, brand awareness 27%, building dedicated sales • Q1: 8K memberships sold, heavy launch marketing • Q4: No specific details provided | Continued strong emphasis, ramped marketing (15B impressions), scaled sales force to 113 | Ongoing emphasis, increasingly positive |
Reallocation and growth of the sales force for Homes.com | Q2: Borrowed reps less effective, building a dedicated team • Q1: Initial substitution effect, ramping dedicated sellers • Q4: Broad deployment of sales force, quick results | Challenges from reallocated core-product reps improving; dedicated Homes.com sellers grew from 41 to 113 | Shift from early challenges to successful scaling |
Recurring declines or softness in core commercial net new bookings due to Homes.com emphasis | Q2: Year-over-year core commercial declines tied to Homes.com focus • Q1: Substitution effect impacted non-Homes products • Q4: Not specifically addressed | Temporary dip as sales pivoted to Homes.com, but beginning to rebound | Persistent challenge, outlook improving |
Reduced revenue guidance and margin pressure, evolving toward expected Q4 margin improvements | Q2: Lower residential revenue outlook, H2 margin rebound expected • Q1: Margins at 1% in Q2, rising to 15% by year-end • Q4: Heaviest investments in 2024, margin upswing in H2 | Guidance at $2.72B–$2.73B; margins pressured but Q3 EBITDA beat forecasts, aiming for Q4 lift | Still pressured, expecting near-term improvement |
Emergence of seasonality concerns for Homes.com renewals in Q3 | No mentions in Q2, Q1, or Q4 | Addressed as mostly sales training issues, not true seasonality | New topic this quarter |
Apartments.com growth highlighted in Q2 but not repeated afterward | Q2: 18% revenue growth, 76K paying communities, single-family listings +108% • Q1, Q4: No similar new details | No specific Q3 update provided | Briefly mentioned in Q2 only |
Rising brand awareness and Net Promoter Scores for Homes.com as a key driver of future growth | Q2: Brand awareness at 27%, dedicated team earning higher NPS • Q1: Saw unaided awareness jump from 4% to 24%, noting ongoing NPS gains • Q4: No specific mention | Unaided awareness at 33%, NPS up to 75 | Steady improvement each quarter |
Large-scale residential investment of $1B in 2024 with major future impact | Q2, Q1: No mention • Q4: $1B residential plan for 2024, top marketing spend | Not cited as $1B in Q3, but continued heavy Homes.com investment | Mostly discussed in Q4, not reiterated in Q3 |
International expansion, including OnTheMarket in the UK, as a new growth avenue in Q4 | Q2: Listings +41%, visits +78% • Q1: Surpassed Zoopla to #2 in site visits • Q4: $50M marketing plan, aim to become UK’s #1 property portal | OnTheMarket traffic up 212%, leads +76%, strong year-over-year gains | Consistently growing, remains a key strategic focus |
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Core Bookings Decline Impact
Q: Weak bookings down 34%—impact on future revenue?
A: In our subscription business, net bookings translate into revenue the following year. The 34% decline in core bookings this quarter will affect 2025 revenue. We're reengaging the sales force and investing in them. Watch our net bookings in Q4 and early next year, which will influence growth into 2026. -
Growth Outlook for Core Businesses
Q: Outlook for growth in CoStar Suite and LoopNet in 2025?
A: We're optimistic about growth in 2025 as the market improves. Early signs in the office market should shift from a headwind to a tailwind, benefiting us. There's ample room to grow among brokers, corporations, and institutions, and growth will be easier in a better market. -
Homes.com Investment Levels
Q: Will investment in Homes.com affect margins next year?
A: We launched Homes.com with aggressive investment appropriate for its scale. We don't see a need to increase investment in marketing or Homes.com next year. Margins should stabilize as we've passed the low point in net investment. -
Marketing Spend Reduction
Q: Will Homes.com marketing spend decrease next year?
A: We anticipate a 33% reduction in Homes.com Super Bowl ads this year. While marketing spend may decrease, we'll significantly grow the sales force, so overall investment levels will remain similar. -
Reengaging Sales Force
Q: How is shifting sales focus back to core products going?
A: We've seen an uptick in CoStar sales recently as salespeople refocus on core products. Previously, selling Homes.com distracted them and affected productivity. By 2025, 100% of legacy sales teams will be back on their products, reenergizing growth. -
Homes.com Seasonality and Renewals
Q: Is seasonality affecting Homes.com renewals?
A: The main issue wasn't seasonality but launching a new product with limited training. Some customers misunderstood the value proposition. However, we're showing a 50% improvement in win rate on new listings, providing adequate ROI. NPS scores are improving, and we expect agents with consistent listings to be high renewal subscribers. -
Sales Force Capacity for Homes.com
Q: Is reduced guidance due to sales force issues or demand?
A: It's about sales force mechanics, not client demand. We're hiring many salespeople for Homes.com. A high percentage are ramping up quickly, but there's a limit to how many we can hire and train effectively. -
Patience with Homes.com's Progress
Q: How patient should investors be with Homes.com's progress?
A: Building a $1 billion product takes time; it doesn't happen in seven months. We're seeing growth in consumer awareness, site preference, and a shift in the industry. Positive sales metrics and improving NPS scores indicate we're on the right path, but it may be next year before success is evident to everyone.
Research analysts covering COSTAR GROUP.