CoStar Group, Inc — Q2 2024
Transcript Notes
CoStar Group, Inc — July 23, 2024
Highlights
Second quarter 2024 revenue was $678 million, a 12% increase year-over-year, coming in above the midpoint of guidance. Apartments.com grew 18% and CoStar grew 10%.
Commercial margins remained strong, delivering over 40% in the quarter and are expected to expand throughout the remainder of the year. Average monthly unique visitors reached a record of 183 million in the second quarter, up 81% over the prior year.
Homes.com network delivered 148 million average monthly unique visitors for the second quarter, which was an increase of 73%. Homes.com site alone delivered 99 million average monthly unique visitors for the quarter, an increase of 197%. Revenue was up 40% sequentially.
OnTheMarket listings on the platform are now up to 716,000, an increase of 41% from June of 2023. Average monthly visits for the month of June were 35 million up 78% compared to June 2023, and average monthly unique visitors were up to 18 million in June or an increase of 118% over June 2023.
Apartments.com grew paid subscribers by almost 22% in the second quarter compared to the same quarter a year ago.
Lender product had the highest net new sales quarter ever, with a 47% increase in revenue over the same period last year. 298 banks and lending institutions on the platform up 50% year-over-year.
Total subscriber base grew to 230,000 CoStar professional users, which is up 19% year-over-year.
2nd Quarter EBITDA was 400% higher than guidance.
Borrowing salesforce from other devisions to continue growing Homes.com. Hiring more sales people that will be dedicated to Homes.com. Higher NPS for dedicated Homes.com sales teams.
Recession Resilient: Costar Q2 2024 Presentation
Costar Suite Organic Levers
Continuing to develop products that are geared towards the corporate user, the owner, the lender institutions, that's a wide open area with relatively low penetration rates. And as we add more and more people in those other sectors or segments, it creates more -- more energy in the customer base, brokers are more likely to engage in the product more if corporate users are engaging in the product owners are more likely to engage in the product when corporate users are in the product.
So, we're building out a lot of vibrancy in the platform by going into those building features and functions to reach into the segments in which we have historically had -- had not been our first and second priorities but are huge growth areas.
Also, we are continuing progress towards moving Germany, France, Spain, some other markets into CoStar as well as our global hospitality functions. So I believe, later this year, we'll be releasing the more full STR global functionality. So Global will be another driver. So I think that those are the main segments.
We still have a lot of way to -- I mean, as crazy as it is. All these years later, we still have a lot of brokers to sell to. And increasingly, residential firms over the last 10, 15 years have been doing more commercial. So as we get into more and more into residential, we'll be providing more CoStar services to folks that you would have viewed as more historically residential.
I had a call today with a head of sales of CoStar with a major residential player trying to figure out how they could get access to CoStar and LoopNet. And I don't think that call would have happened except for the fact that we're now on that CEO's radar because of Homes.com. So CoStar Group -- I mean, sorry, CoStar remains the product with, as far as I can tell, after 38 years perpetual growth opportunity.
Homes.com
Unaided brand awareness metric = North Star Metric.
Unaided brand awareness continues to increase and is now at 27% and up from prelaunch baseline of 4%.
Revenue is double that of apartments.com at same stage.
So I think that big picture, we are coming out with this Homes.com product offering in our first full quarter with a good result, which is more than, when I look at the early stages of Apartments.com, I believe we're running more than double the sales we ran Apartments.com, and it's a question of building it out. So, it's a little early in the first full quarter of launch to call it a stutter because you don't really have a reference point.
So we're -- we -- as we've said earlier, we do not anticipate growing the net investment in the product, but we do have high confidence that we are on the road to building the best site and creating substantial value, and we haven't changed our minds about this. So we're going to continue investing at that same level. But you can see in our solid EBITDA beat this quarter, you sort of hit the nadir of that reinvestment period. And then, Chris, on the -- he's got the ARR question on exit.
We had provided previous guidance in the range of $475 million to $500 million in exit ARR and at the lower end of that range is where we still feel comfortable.
Apartments.com - Trends & Competition
Plenty of room to grow here still - still under 10% penetration.
41% EBITDA margin target.
The economic environment we're operating in for Apartments.com, I do believe we are in the Goldilocks zone. So we don't want to see vacancy rates too high. People then aren't -- don't have liquidity to pay for the ads and we don't want to see them too low because the demand for the ads go down.
So in terms of how we maintain our competitive advantage, we have a robust and broad product development line Apartments.com, you can see the traffic continue to grow. And you can see us consistently outpacing and lead to lean -- lead-to-lease conversion, into unaided awareness, and the traffic growth, just all the different metrics, we're doing quite well.
And really, it's sort of a broader playbook here where there's a lot of room in this space because most of the apartment units are in the smaller category and in the mom-and-pop individual units and houses.
And so frankly, nobody has any real penetration there. I mean it is while we're growing down there, we're in the single-digit penetration. So there's tons of room for us to grow in there. And you will see likely some other players grow in there, but that's because it's a big market, and we're both developing a big market.
Buyer leads vs. Listing leads
Balance the value of the platform to home buyers and upper funnel advertising for agents to go win more listings is the goal, but building the best site for the home buyer is the priority right now.
I firmly believe that the "your listing, your lead" model is preferred by sellers because when they make that important decision to hire a real estate agent to help them get the best result for selling their most important asset, their home, they want that real estate and they hired to answer that first question for a potential lead, they don't want to go to someone who has never seen their home, knows nothing about their neighborhood. They want the selling agent to get. And that's what you're listing your lead model we have has.
The agents like the "your listing, your lead" model because they want to get the leads off their listings. The biggest source of buyer agency leads actually comes from having listings. So when someone calls on your sale listing, you're generating buyer leads because they are -- 9 out of 10 times, they're not buying the house, they first call on. But as an agent, you can get them as a buyer agent show them other homes because you're an expert in the category in the neighborhood they're familiar with.
You also get referral commissions and the leads you refer off your listings come back to you as referrals from other people's listings. What we're not doing is stealing everybody's leads and reselling them to a handful of lower-end agents. So that does not mean that we're not creating buyer agency, and we're not focusing on buyers. It means we're doing it more intelligently and we're doing it in a way that resonates with the industry long term.
And frankly, I'm really excited about the fact that I am becoming more and more confident that we have the vastly superior model. And I'm seeing one of our competitors starting to figure that out and attempting to pivot their business, which requires cannibalization of their business. And I see the other competitor not having figured out where they are and what's happening, and that's wonderful.
So we're not saying we're stepping away from buyers or buyer agency far from it, we're just generating buyer agent more -- buyer agency more harmoniously with the way the industry has historically done it in a more sustainable advantaged way over the long term.
