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The CoStar Group train just won’t stop.
The Virginia-based commercial and residential real estate behemoth released its first-quarter earnings on Tuesday, revealing the company grew its revenue 12 percent year over year to $656 million. The company remained profitable, although its net income dropped 91 percent from $87 million in Q1 2023 to $7 million.
CoStar Group founder and CEO Andy Florance said he was proud of his company’s performance, which includes a wide-ranging portfolio of 15 commercial and residential real estate brands. Florance said residential portal Homes.com fueled CoStar’s performance during the first quarter, as subscriptions to the site yielded $40 million in net new bookings.
Andy Florance
“CoStar Group delivered exceptional revenue, sales and marketplace traffic results in the first quarter of 2024, fueled by the launch of our monetization of Homes.com on February 12th of this year,” Florance said in a written statement before the company’s Monday afternoon earnings call. “With less than two months of selling in the first quarter, Homes.com membership subscriptions reached nearly $40 million in net new bookings.”
“This is by far the strongest sales launch of any product in the company’s history, and we are raising our sales and revenue forecast for Homes.com for the full year 2024,” he added.
Florance said traffic to Homes.com reached 156 million monthly unique visitors in March, according to internal Google Analytics data. He said those metrics put them ahead of Realtor.com and Redfin in terms of website traffic, which is a key performance indicator.
“We believe that Homes.com is now one of two most heavily trafficked residential marketplace portals in the U.S,” he said. “Our aggressive marketing campaign successfully catapulted our unaided awareness from 4 percent in the fourth quarter of 2023 to 24 percent by the end of March 2024.”
CoStar’s Tuesday earnings report caps off an ambitious Q1, where CoStar subsidiary Homes.com intensified its efforts to dethrone Zillow as the industry’s leading residential portal through a $1 billion advertising campaign, the headline-making acquisition of 3D scanning company Matterport and well-timed quips from CEO Andy Florance.
Florance set his intentions for the year at Inman Connect New York, where he criticized competitors Zillow, Realtor.com and Redfin — whom he coined Ziltorfin — over their alleged “bait and switch” business models that enable listing agents to pay for priority advertising on listings that don’t belong to them.
Florance said Homes.com’s “Your Listing, Your Lead” model was the antidote to agent and consumer frustrations, as evidenced by triple-digit traffic growth during Q3 2023 that gave them a contested lead on Realtor.com as the second-most-trafficked residential portal.
“In the rest of the world, when an agent has a listing, their name is on the listing, their phone number is on the listing, and there’s branding happening,” he said to riotous applause. “Only in the United States is it the portals’ brand goes on the listing rather than the agents’ brand. That’s bizarre.”
Since January, Florance has continued to up the ante — first with the launch of a $1 billion star-studded Homes.com advertising campaign in February, then with the $1.6 billion acquisition of Matterport on Monday. CoStar Group has long relied on Matterport for 3D scans for listings on its other sites, such as Ten-X.
Although CoStar didn’t reveal its exact plans for Matterport on Monday, Florance used a sizable chunk of Tuesday’s earnings call to outline a plan to capitalize on digital twinning, a term used to describe hyper-realistic 3D listing experiences.
Florance said digital twinning could enable homebuyers to visualize what their current home furnishings would look like in a new home, play with renovation options for a fixer-upper, or walk with a virtual agent through a virtual listing.
“In residential focus groups, homebuyers are telling us that they prefer listings that offer 3D digital twins so that they can best understand the property,” he said. “Adding virtual reality to Matterport, you can take a virtual tour of the property with your virtual agent who will walk into the space with you.
Florance said Matterport is a pioneer in creating digital twins and already has 300,000 across CoStar’s online property marketplaces. He said Matterport 3D tours have made a marked difference in Apartments.com’s performance, and he expects similar results with Homes.com.
“I believe we’re standing on the verge of a potential exponential acceleration in the technology surrounding 3D digital twins, which will create transformative value for real estate, artificial intelligence, machine learning [and] generative AI computational photography,” he said. “The possibilities are certainly exciting to imagine and represent a massive opportunity to propagate new technologies to our global information and marketplace businesses.”
Along with these two moves, the preliminary approval of the National Association of Realtors’ settlement terms, which will move offers of buyer compensation off the MLS and require buyers’ agents to have signed representation agreements before touring homes, has given rise to an increasingly bullish stance on Florance’s vision of Homes.com as a portal disruptor.
BofA Securities analyst Heather Balsky and JMP Securities analyst Nicholas Jones both upgraded their outlook for CoStar in March, saying NAR’s “settlement and policy changes” could be “beneficial” for CoStar as “listing agents … seek independence from buyer’s agents.”
Florance spent a few moments of the call focusing on buyer-broker commissions and reiterated Homes.com’s potential value when NAR’s settlement terms go into effect this summer. Florance said Homes.com will give buyers an avenue to directly connect with listing agents to view a home, bypassing the potential pressure to sign a representation agreement before they’re ready.
“Currently only 30 percent of buyer agents ever get a written agreement at any point in the transaction process,” he said. “Homes.com connects homebuyers directly with the listing agent, so they can arrange to see the house with no paperwork or commitments.”
“We are increasingly confident in our ability to build out the number one residential marketplace in terms of traffic revenue and profitability in the years ahead,” he added.
CoStar’s stock (NASDAQ: CSGP) has been on the upswing over the past year, with the price per share increasing 14.36 percent year over year to $84.62.
The company’s market cap stands at $34.56 billion.