Q4 2023 Earnings Summary
- Aggressive Investment in Residential Sector: CoStar Group is investing approximately $1 billion in its residential business in 2024, nearly doubling the spend from 2023. These investments focus on marketing for Homes.com in the U.S. and OnTheMarket in the U.K., aiming to rapidly gain market share and move faster than competitors expected. ( , )
- Exceeding Initial Expectations with Strong Early Results: Initial sales and traffic results for Homes.com are exceeding expectations dramatically, indicating strong market demand. The company is pleased with the early performance, which supports their aggressive investment strategy in the residential sector. ( )
- Improving Margins and Profitability Outlook: CoStar expects a steady sequential increase in margins throughout 2024, reaching over 15% to 16% by year-end. Additionally, investments in the residential business are anticipated to moderate in future years, suggesting improved profitability and a positive long-term outlook. ( , )
- CoStar and LoopNet experienced softer performance in Q4, with net new bookings slightly behind last year ($286 million vs. $300 million). This softness in core businesses could indicate potential challenges ahead.
- The company plans to invest approximately $1 billion in residential in 2024, nearly double the amount from 2023, mainly in marketing for Homes.com and OnTheMarket. This aggressive investment may pressure margins and profitability if returns are not as expected.
- Management indicates limited flexibility to reduce marketing spend even if performance does not meet expectations, stating they've "put the accelerator to the floor" with little room to pull back, potentially increasing financial risk.
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Residential Investments and Margin Outlook
Q: Where are residential investments going and margin expectations?
A: The company is investing $1 billion in residential this year, nearly double the 2023 spend . Investments focus on marketing for OnTheMarket with $50 million committed, boosting listings and traffic toward the #2 position . Additional investments are in Homes.com's U.S. business, mainly marketing, content research, and technology . Margins are expected to improve sequentially, reaching 12%-13% in the second half and over 15%, probably 16% exiting the year . -
Homes.com Monetization and 2027 Targets
Q: Thoughts on 2027 targets after starting Homes.com monetization?
A: With Homes.com now monetizing, the company remains committed to its 2027 goals . They're seeing traction toward these targets and plan to discuss revenue growth next quarter . Peak net investment occurs this year; costs won't significantly increase in future years . -
Legal Backdrop and Competitive Advantage
Q: How does the legal situation affect Homes.com?
A: The legal environment is complex, but Homes.com is advantageously positioned as its revenue model is agnostic to buyer/broker participation rules . The platform generates leads for both buyers and sellers, unlike competitors relying on seller agents splitting commissions with buyer agents . Potential shifts to buyers paying their own agents could create tailwinds for Homes.com . -
Net New Bookings and Cyclicality
Q: Explain net new bookings dynamics and cyclicality.
A: Net new bookings were $286 million this year, slightly behind last year's $300 million . Fourth-quarter cyclicality was observed, with Apartments.com performing strongly due to vacancy levels . CoStar and LoopNet were relatively softer in Q4 . Next year, higher total company sales growth is expected, aided by Homes.com and reduced drag from legacy residential products . -
Sales Force Strategy for Homes.com
Q: When will sales activities shift back to a dedicated team?
A: The entire sales force will sell Homes.com throughout 2024 for rapid sales . It will take a full year to build a dedicated Homes.com sales team . In 2025, they expect to shift back to the general group . -
Homes.com Revenue Model and Membership
Q: What is included in the Homes.com membership?
A: Memberships are sold to agents, priced based on transaction volumes and markets . Members' listings rank higher, feature more agent branding, and benefit from aggressive traffic retargeting . Members receive 1.3 million impressions per month on average, compared to 5,000 for nonmembers . Members experience an 8 to 14 times increase in lead flow . -
Agent Targeting and Pricing
Q: Are specific agents being targeted for bookings?
A: Initially targeting 540,000 agents earning above $30,000-$40,000 annually out of 1.6 million total . Price points range from $100-$200 per month at the lower end to tens of thousands monthly for larger teams . Strong inbound interest from all agents, with sales responding swiftly . -
Investment Flexibility
Q: Is there flexibility in investment plans this year?
A: Early results exceed expectations, so there's no plan to adjust aggressive marketing investments . They've deployed 80 billion impressions or 600 impressions per household . While they have flexibility to pull back if necessary, they don't anticipate doing so . -
Front-Loading Investments
Q: Are you front-loading investments into 2024?
A: Yes, over half the investment is marketing in the UK and US, effectively front-loading . Previously spent $40 million on Apartments.com marketing in year one; they're being more aggressive now .