CoStar Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison is Q1 2023. CoStar provides commercial real estate information, analytics and marketplaces, alongside residential and other property platforms. Approximately 96% of Q1 revenue came from subscriptions.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $656.4 million | $584.4 million | +12% |
| Gross profit / margin | $515.2 million / 78% | $465.2 million / 80% | +11% gross profit |
| Operating income (loss) | $(42.8) million | $72.2 million | Down $115.0 million |
| Net income | $6.7 million | $87.1 million | Down 92% |
| Diluted EPS | $0.02 | $0.21 | Lower |
| Operating cash flow | $139.6 million | $123.2 million | Up $16.4 million |
| Cash and equivalents, quarter-end | $4,951.6 million | $5,215.9 million at Dec. 31, 2023 | Down $264.3 million |
Operating expenses rose 42% to $558.0 million. Selling and marketing increased 62% to $366.1 million, including $125 million more in marketing costs, principally reflecting advertising investment. Operating margin was approximately -6.5%, versus 12.4% in Q1 2023; net margin was approximately 1.0%, versus 14.9%. Management-reported segment EBITDA was a loss of $12.7 million, compared with $97.8 million of EBITDA in the prior-year quarter; EBITDA is a non-GAAP operating measure.
Net cash used in investing was $380.3 million, largely reflecting the $343.0 million Arlington office property acquisition and campus-related spending. Financing used $22.5 million. The company reported $990.8 million of long-term debt, net, comprising $1.0 billion of 2.8% senior notes due 2030; its $750 million revolving facility was undrawn. Cash substantially exceeded debt. Management said cash, operating cash generation and access to capital should cover requirements over the next 12 months and beyond.
Business trends and changes from the prior period
- Multifamily revenue grew 21% to $254.8 million, supported by more listed properties and renewal pricing.
- CoStar revenue rose 11% to $250.3 million, reflecting subscriber growth and conversion of legacy STR customers to a CoStar-based benchmarking product.
- LoopNet revenue grew 9% to $69.1 million. Information Services revenue fell 21% to $33.0 million, primarily related to the STR product conversion.
- Residential revenue increased 41% to $18.6 million, reflecting the OnTheMarket acquisition and new Homes.com memberships, partly offset by discontinued products.
- North America revenue was $623.3 million, up 11%; International revenue was $33.1 million, up 59%, mainly reflecting OnTheMarket. North America segment EBITDA fell to $3.2 million from $96.6 million; International segment EBITDA was a loss of $15.9 million versus income of $1.2 million.
- Annualized net new subscription bookings were $86 million, versus $80 million. Trailing 12-month renewal rates for subscriptions of at least one year were approximately 90%, unchanged year over year.
Outlook, notable items and risks
- Management expects 2024 CoStar revenue growth to be consistent with 2023; Information Services growth to decrease; Multifamily growth to moderate; LoopNet growth to decelerate; and Residential revenue to increase. Other Marketplaces revenue is expected to be broadly consistent with 2023. These are qualitative expectations, not quantified company-wide guidance.
- Management plans continued investment in Homes.com and OnTheMarket marketing, residential sales capacity, and product development. These investments are expected to raise expenses and reduce cash on hand in 2024. The company also expects substantial Richmond campus construction spending: estimated total cost net of tax incentives of $450–$600 million, $156 million paid and a further $460 million committed as of March 31; 2024 cash expenditures are expected to be about $385 million. Completion is expected in the first half of 2026.
- In February 2024, the company acquired an Arlington office tower and land for $343 million. It intends to relocate its Washington, D.C. headquarters employees there; most of the property was leased or available to third parties at quarter-end.
- After quarter-end, CoStar agreed to acquire Matterport in a cash-and-stock transaction, subject to conditions and expected by management to close in 2024. The filing estimates approximately $940 million in cash consideration and approximately 11.2 million CoStar shares, using the cited April 19 share price. The company expects to fund the cash portion with cash on hand. The agreement includes an $85 million termination fee in specified circumstances; closing and integration are uncertain.
- Management cites potential commercial real estate weakness, elevated interest rates, client cancellations or payment issues, execution risks in residential expansion and construction, acquisition integration, competition, data and cybersecurity matters, and foreign-currency exposure. Credit-loss expense increased $3 million, partly due to expectations of increased delinquent receivables. Litigation is not expected by management to have a material effect. The effective tax rate rose to approximately 42% from 25%, primarily due to lower U.S. income and U.K. losses receiving no tax benefit.
Investor verification priorities
- Track whether elevated Homes.com advertising and hiring translate into customer growth and revenue sufficient to offset lower operating margins.
- Monitor revenue, bookings and renewals by segment, particularly the STR product conversion and the Residential ramp.
- Verify Richmond construction spending, remaining commitments, tax-incentive conditions and the use of cash following the Arlington purchase.
- Review Matterport closing conditions, final cash and share consideration, any termination exposure, and integration costs and benefits.
- Assess commercial real estate credit trends, receivable losses, and the company’s cash and debt position as major investments proceed.