Financial Performance Overview

CoStar Group, a leading provider of online marketplace services, information, and analytics for the commercial real estate industry, has reported its financial results for the year ended December 31, 2024. The company’s revenues increased by 11% to $2.7 billion, driven by strong performance across its key business segments.

Segment Highlights

• CoStar: Revenues increased by 10% to $1.02 billion, due to an increase in subscribers and price increases, as well as converting legacy STR customers to the new CoStar-based benchmarking product.

• Multifamily: Revenues increased by 17% to $1.07 billion, due to an increase in the number of properties listed on the company’s network and increases in pricing for existing customers.

• Residential: Revenues increased by 118% to $101 million, primarily due to the launch of the new Homes.com membership subscriptions and the OnTheMarket acquisition, partially offset by the discontinuation of certain products.

• LoopNet: Revenues increased by 6% to $282 million, due to an increase in the average price per listing and an increase in the number of paid listings.

• Information Services: Revenues decreased by 20% to $136 million, attributable to converting legacy STR customers to the new CoStar-based benchmarking product, partially offset by an increase in revenue from CoStar Real Estate Manager and the Visual Lease acquisition.

• Other Marketplaces: Revenues decreased by 3% to $130 million, due to lower property volumes auctioned on Ten-X, partially offset by increases in revenues from the Land.com Network.

Profitability and Expenses

Gross profit increased by 11% to $2.18 billion, with the gross profit percentage remaining consistent at 80%. The increase in gross profit was due to higher revenues, partially offset by an increase in the cost of revenues.

Operating expenses increased by 29% to $2.17 billion, primarily due to:

• A 38% increase in selling and marketing expenses to $1.36 billion, driven by higher marketing expenses for advertising the company’s brands and an increase in personnel costs related to the sales force.
• A 22% increase in software development expenses to $325 million, primarily due to higher personnel costs.
• A 15% increase in general and administrative expenses to $439 million, mainly attributable to higher professional services fees and personnel costs.

As a result, income from operations decreased by 98% to $4.7 million.

Segment Performance

North America segment revenues increased by 11% to $2.6 billion, while International segment revenues increased by 53% to $136 million.

North America EBITDA decreased to $181.5 million, primarily due to increases in marketing costs, personnel costs, professional services fees, and web hosting costs, partially offset by the increase in revenues.

International EBITDA decreased to a loss of $58.5 million, primarily due to the OnTheMarket acquisition, for which the company has increased marketing expenses, and an increase in personnel costs associated with the expansion of the international research team.

Liquidity and Capital Resources

As of December 31, 2024, the company had $4.7 billion in cash and cash equivalents, which it believes will be sufficient to satisfy its cash requirements over the next 12 months and beyond.

The company’s material cash requirements include:

• $1.0 billion in outstanding Senior Notes due in 2030, with future interest payments of $168 million.
• $139 million in lease obligations, with $32 million payable within 12 months.
• $244 million in purchase obligations, with $94 million payable within 12 months.
• $395 million in construction commitments for the expansion of the company’s Richmond, Virginia campus, with $361 million expected to be paid in 2025.

The company also has a pending acquisition of Matterport, Inc. for an estimated $940 million in cash consideration and the issuance of approximately 11.2 million CoStar Group shares.

Outlook and Priorities

The company expects its investment in the sales force to increase selling and marketing expenses for the year ending December 31, 2025 compared to the prior year. It also plans to continue investing in and developing Homes.com, expanding its CoStar and LoopNet products internationally, and using the data from CoStar Real Estate Manager and Visual Lease to create a trusted source of pricing and occupancy information for the commercial real estate industry.

Analysis

CoStar Group’s financial performance in 2024 was mixed, with strong revenue growth in key segments like Multifamily and Residential offset by declines in Information Services and Other Marketplaces. The company’s profitability was significantly impacted by a substantial increase in operating expenses, particularly in selling and marketing, as it invested heavily in marketing its brands and expanding its sales force.

The strong revenue growth in the Multifamily and Residential segments, driven by the launch of new products and acquisitions, demonstrates the company’s ability to capitalize on emerging trends in the real estate market. However, the decline in Information Services revenues, due to the transition of legacy customers to the new CoStar-based benchmarking product, highlights the challenges the company faces in managing the evolution of its product offerings.

The company’s focus on international expansion, particularly in Europe, and the development of new data-driven products and services, such as the integration of CoStar Real Estate Manager and Visual Lease, suggest a strategic shift towards leveraging its extensive data and analytics capabilities to drive future growth. However, the significant increase in operating expenses, particularly in selling and marketing, raises concerns about the company’s ability to maintain profitability in the near term.

The company’s strong cash position and access to capital markets provide it with the financial flexibility to pursue its strategic priorities, including the pending acquisition of Matterport. However, the company’s ability to effectively integrate and capitalize on these investments will be crucial in determining its long-term success.

Overall, CoStar Group’s financial performance in 2024 was mixed, with strong revenue growth in key segments offset by a significant increase in operating expenses. The company’s strategic focus on international expansion, data-driven products, and acquisitions suggests a path forward, but the near-term impact on profitability remains a concern that investors and analysts will be closely monitoring.