COSTAR GROUP, INC. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Revenue: Q2 2024 revenue was $678 million, a 12% year-over-year increase, above guidance midpoint. Adjusted EBITDA was $41 million, well ahead of guidance ($5M - $10M).
• Traffic: Global websites had 183 million average monthly unique visitors (up 81% y-o-y). Homes.com network had 148 million average monthly unique visitors (up 73% y-o-y), with the Homes.com site alone at 99 million (up 197% y-o-y).
• Homes.com Progress: First full quarter of sales with over $55M net new bookings since mid-February. Has 10,200 member agents, 86% on 12-month contracts. Marketing efforts generated almost 10 billion consumer impressions and 21,000 commercial placements.
• Apartments.com Performance: Revenue $264M, 18% y-o-y growth. 76,000 paying communities, Net Promoter Score 94. Mid-market efforts grew paid subscribers ~22% y-o-y, and new construction contributed 75% of new 100-plus unit communities.
• CoStar Strength: 53rd consecutive quarter of double-digit revenue growth. Lender product revenue up 47%, STR sales up 54%, benchmarking product revenue up 28%. Subscriber base grew to 230,000 professional users.
• LoopNet and Others: LoopNet revenue up 7% y-o-y, international revenue up 17%. Real Estate Manager up 9% y-o-y, Land.com up 5% y-o-y, BizBuySell up 6% y-o-y, Ten-X trade rate 50%.

Segment Performance

• Apartments.com: Q2 2024 revenue was $264 million, representing 18% growth year-over-year. The segment has almost 76,000 paying communities, with single-family rental listings up 108% year-over-year in June. Mid-market efforts grew paid subscribers by ~22% y-o-y, and new construction contributed 75% of new 100-plus unit communities advertising with Apartments.com. Average monthly unique visitors grew 3% y-o-y to 48 million.
• CoStar: Q2 revenue was $253 million, a 10% increase year-over-year. The lender product had a 47% revenue increase, with 298 banks and lending institutions on the platform (up 50% y-o-y). STR sales had a 54% net new sales increase, and benchmarking product revenue grew 28%. Subscriber base grew to 230,000 professional users (up 19% y-o-y).
• LoopNet: Q2 revenue was $70 million, up 7% year-over-year, exceeding the high end of guidance. International revenue grew 17% y-o-y. The network remains the number one platform with 6x the traffic of competitors, and average monthly unique visitors were 13 million.
• Real Estate Manager: Up 9% year-over-year with 99% renewal rates, and two-thirds of customers sharing lease data for analytics.
• Land.com: Up 5% year-over-year. Signature Ads up 9%, Diamond Ads up 10-fold last quarter.
• BizBuySell: Up 6% year-over-year, with $2 billion in enterprise value transacted in Q2. Franchise directory leads up 25%, listing leads up 16%.
• Ten-X: Trade rate 50% (more than double offline rate), and 57% more assets on the platform in Q2 vs Q1 2024.
• Homes.com: Net new bookings over $55 million in first full four months of sales (exceeding launch sales pace of prior products). Has 10,200 member agents, 86% on 12-month contracts. Average monthly unique visitors for Homes.com network 148 million (up 73% y-o-y), Homes.com site alone 99 million (up 197% y-o-y).

Guidance

• Full Year 2024: Revenue guidance revised to $2.735 billion to $2.745 billion, a 12% year-over-year increase at midpoint. Q3 2024 revenue expected to be $692 million to $697 million, 11% y-o-y growth at midpoint.
• Adjusted EBITDA: Revised guidance to $195 million to $205 million for full year. Q3 2024 adjusted EBITDA expected to be $47 million to $52 million.
• Residential: Full year residential revenue guidance revised to $105 million to $110 million. Q3 residential revenue expected around $30 million, a sequential increase from prior expectations.

Risks

• Sales Force Dependence: Borrowed sales teams from core products returning to their comfort zones, requiring buildout of dedicated Homes.com sales team.
• Market Conditions: Commercial real estate market conditions impacting transaction volumes and CMBS delinquency rates.
• Competition: Competition in residential and commercial spaces affecting market share and revenue potential.

Question and Answer

Q: Pete Christiansen on sales force adjustment for Homes.com and refunds A: Andrew Florance stated that broad sales force shifts to sell Homes.com initially, but dedicated Homes.com team has higher NPS. No significant refunds, with initial cancellations often due to credit card issues. Education needed as agents transition from lead diversion sites to Homes.com's listing-focused model.

Q: Alexei Gogolev on revised resi guidance A: Chris Lown explained new product launch modeling led to revised guidance, with Homes.com's strong initial results and focus on building dedicated sales force driving momentum.

Q: George Tong on resi revenue guidance change A: Andrew Florance attributed the change to borrowed sales teams returning to core products, emphasizing need to build dedicated Homes.com sales team for long-term growth.

Q: Heather Balsky on commercial EBITDA margin A: Chris Lown confirmed commercial margins remained strong at ~41% in Q2 and expected to stay in similar range.

Q: Soham Bhonsle on CoStar Suite organic levers A: Andrew Florance mentioned continuing to develop products for corporate users, owners, and lenders, global expansion, and increasing penetration in new segments like residential firms seeking CoStar services.

Q: Jeff Meuler on Homes.com budget and ARR A: Andrew Florance and Chris Lown stated steady investment in Homes.com with ARR guidance still in $475 million to $500 million range at lower end.

Q: John Campbell on Homes.com unaided awareness A: Andrew Florance stated Homes.com's unaided awareness growing faster than Apartments.com, with steady investment and multiyear buildout expected.

Q: Nick Jones on balance between home buyers and agent listings A: Andrew Florance clarified Homes.com prioritizes best experience for home buyers first, with 'your listing, your lead' model preferred by sellers, focusing on generating best traffic and value for both buyers and agents.