CoStar, a commercial real estate and data giant that is emerging as a primary challenger to Zillow, announced Tuesday that it raked in more revenue than analysts had expected in the fourth quarter of 2021 — and that its residential business saw steady growth last year.
The new numbers come via an earnings report, published Tuesday, that showed CoStar earned $507 million between October and December last year. That’s an increase of 14 percent year over year, and it beat analysts’ expectation that the company would report just $500.59 million in revenue during the final three months of the year.
Perhaps more relevantly to observers in the residential space, CoStar earned $20.6 million from its residential real estate business during the fourth quarter of 2021. That’s down slightly compared to one quarter prior, when the company earned about $24.7 million from residential ventures, but it’s still way up compared to the $11 million it earned in the first quarter of last year.
Nearly all of CoStar’s residential revenue came from Homesnap, the portal company it moved to acquire at the end of 2020, Chief Financial Officer Scott Wheeler said during a call with investors Tuesday afternoon.
CoStar’s residential ventures are new, so it doesn’t have year-over-year data for the segment.
Andrew Florance
In Tuesday’s report, CoStar founder and CEO Andy Florance noted that 2021 was his company’s “first full year in the residential property space,” adding that “we are off to a strong start.” For all of 2021, CoStar’s residential real estate business brought in $75 million.
CoStar is well known for its detailed database on commercial property, but in recent years has been making a play for residential business as well. That effort really kicked off in earnest with the Homesnap acquisition, and has intensified more recently with the purchase of Homes.com, the announcement of a portal for New York City and with Florance’s apparent criticisms of Zillow.
The fact that CoStar’s revenue from its residential business is growing suggests the company is making inroads into the industry, and that its rivalry with other major players is only likely to intensify. That rivalry has grown into something of a cold war between CoStar and Zillow, specifically, with both companies promoting different visions of the way portals can engage with real estate agents. And as the rivalry grew into one of 2021’s most eye-catching real estate stories, many agents began quietly rooting for one vision or the other to win out.
In his investor call, Florance summed up his company’s philosophy as “working with the industry rather than working to disintermediate the industry.” The comment is in line with Florance’s past arguments that other portals “hijack” listings from agents.
“CoStar Group has a track record of competing against other people effectively and I think we’ll rest on our record,” Florance also said on Tuesday’s call.
Among CoStar’s specific upcoming moves into the residential space is the launch of Citysnap, the New York City-based portal, which Florance said Tuesday would go live in July. And over the next five to seven years, Florance envisions growing CoStar’s residential revenues to $1 billion. He added that over the long term “residential is a huge opportunity for CoStar Group” and that one day the segment will eclipse the company’s commercial business, which has long been its bread and butter.
Florance said in Tuesday’s report that “revenue from our Homesnap products grew over 50 percent for the full year 2021 on a year-over-year pro forma basis.” And he added during the call that “we doubled the site traffic in the fourth quarter of 2021.” The plan now is to grow, monetize and scale the platform, with the ultimate goal of increasing traffic and breaking down walls between agents and consumers.
“With an addressable market almost three times the size of our existing business, we believe that the residential property opportunity has the potential to add billions in revenue to CoStar Group over the medium to long term,” Florance said in the report.
Overall, CoStar earned $1.94 billion in revenue for all of 2021, up 17 percent compared to its haul of $1.66 billion in 2020. It made $293 million in profit in 2021, up 29 percent compared to 2020.
Going into Tuesday’s earnings report, CoStar stock was trading at just under $63 per share. That was down slightly for the day. It was also down compared to the company’s high point last October, when shares were trading at around $100.
Despite CoStar’s rising revenue last quarter, shares dropped in after hours trading following the publication of the company’s earnings report. And by the time Tuesday’s investor call wrapped up, shares were trading under $50.
Credit: Google
As markets closed on Tuesday, CoStar had a market cap of approximately $24.8 billion.
CoStar last reported earnings in October. At the time, the company revealed that it brought in $499 million in revenue during the third quarter of 2021 — making it CoStar’s best quarter in at least two years. Those numbers also represented a 17 percent year-over-year increase.
One quarter before that, CoStar earned $480 million in revenue.
Tuesday’s earnings came the same day that Business Insider published a report on what it characterized as a high employee turnover rate at CoStar. The story cited interviews with unnamed current and former employees, many of whom criticized the way CoStar tracked the performance of remote workers during the coronavirus pandemic and pushed for a return to in-person work.
Florance addressed the criticisms during Tuesday’s call with investors. He described CoStar as having a “demanding environment” and conceded that during the pandemic CoStar had a higher turnover rate than the industry average — though his figure was slightly lower than the one in the Business Insider report.
But Florance also argued that CoStar has now achieved a “99 percent vaccination rate and our employees have returned” to the office. Once that transition took place the turnover rate fell to below the industry average, Florance said, adding that “our staff is more productive back in the office.”
He also responded to criticism of CoStar’s work environment, describing the critics as “a tiny, vocal minority of disgruntled employees.”
Update: This post was updated after publication with additional information from CoStar’s earnings report and from the company’s call with investors.
