CoStar Earnings: Homes.com Becomes the Second-Most Trafficked Residential Marketplace in the United States

Wide-moat-rated CoStar Group CSGP reported a decent set of numbers in the third quarter as the firm reported non-GAAP EPS of $0.30, slightly higher than the FactSet consensus estimate of $0.29 per share. The company has maintained its full-year revenue guidance of $2.45 billion but has reduced its adjusted EBITDA guidance to $485 million-$490 million from $510 million-$520 million because of accelerated investments in its residential strategy. Management indicated that if the current market trends continue into the next year, then it expects revenue growth to slow to around 7%-8% in the first couple of quarters of 2024 but improve in the second half of the year. Management has guided for 11%-12% revenue growth in 2024 and over $1 billion in adjusted EBITDA from the commercial portfolio, which excludes the residential business.

The shares of the company were down about 6% in response to the quarterly results. We think that the current guidance is solid given the stressed commercial real estate environment, and accelerating investments in the residential business are prudent given the current competitive environment and the momentum that the company has achieved on its investments.

Overall revenue increased 12.2% on a year-over-year basis on the back of strong growth in the CoStar Suite, LoopNet, and Multifamily segments. Net new sales bookings, an indicator of future revenue growth, came in at $65 million for the third quarter, a slowdown compared with $82 million in the previous quarter. The adjusted EBITDA margins were recorded at 17.9% in the current quarter, down from 21.1% in the third quarter of the previous year largely because of the increased residential investments of the company. We note that the margins excluding residential investments in the relatively mature commercial information and marketplace businesses are approaching 40%. We are maintaining our $76 per share fair value estimate for Costar Group after incorporating third-quarter results.