Business context and reporting period
CoStar Group, Inc. provides commercial real estate information, analytics, and online marketplaces, as well as apartment-rental and residential real estate services. Its operating segments are North America and International. This Form 10-K reports the fiscal year ended December 31, 2021, compared primarily with fiscal 2020; it is not a standalone fourth-quarter report.
2021 included acquisitions of Homes.com, completed in May for approximately $152 million, and French commercial property marketplace BureauxLocaux, completed in October for approximately $41 million. Homesnap was acquired in December 2020.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $1.944 billion | $1.659 billion | +17% |
| Gross profit / margin | $1.587 billion / 82% | $1.350 billion / 81% | +18% gross profit |
| Operating income / margin | $432 million / 22% | $289 million / 17% | +49% |
| Net income / diluted EPS | $293 million / $0.74 | $227 million / $0.59 | +29% net income |
| EBITDA (non-GAAP) | $565 million | $406 million | +39% |
| Cash from operating activities | $470 million | $486 million | -$16 million |
Revenue growth was broad-based. Multifamily revenue rose 13% to $679 million, CoStar revenue rose 9% to $723 million, and LoopNet rose 15% to $208 million. Residential contributed $75 million from acquired operations; Other Marketplaces grew 38% to $119 million, largely reflecting additional Ten-X contribution. Subscription services generated 93% of revenue, down from 95% in 2020, partly reflecting acquired and shorter-term transaction-based offerings. Annualized net new subscription bookings were approximately $217 million, versus $184 million in 2020; the company-wide renewal rate was 92%, compared with 89%.
Cash, cash equivalents, and restricted cash totaled $3.827 billion at year-end, up $71 million. The company reported $1.0 billion of face-value senior notes, bearing 2.8% interest and due in 2030, and no borrowings under its $750 million revolving credit facility. Approximate cash less face-value debt was $2.8 billion. Management said cash, operating cash generation, and capital-market access should cover cash requirements for the next 12 months and beyond. Contractual obligations included $134 million of lease payments and $95 million of purchase obligations, including $30 million and $40 million due within 12 months, respectively.
Investing cash outflow was $381 million, including $193 million for acquisitions and substantial property and equipment purchases. Financing cash outflow was $16 million, versus $2.7 billion of inflow in 2020, when the company completed a $1.7 billion net equity offering and issued $1.0 billion of senior notes. Gross margin improved by about one percentage point. Net margin was approximately 15%, versus 14% in 2020. The effective tax rate rose to 28% from 16%.
Material changes versus the prior comparable period
- Operating income improved despite higher selling and marketing, software development, and amortization costs. General and administrative expense declined, chiefly because 2020 included the $52 million RentPath termination fee and $8 million of related extension payments, and 2021 benefited from lower credit-loss expense.
- Operating cash flow declined modestly, with working-capital effects that included payment of the $52 million RentPath termination fee in 2021.
- Acquisitions expanded residential and marketplace operations; Homes.com recorded $14 million of revenue after acquisition but reduced reported net income by $23 million over that period.
- CoStar resumed annual price increases for contract renewals beginning in September 2021 after a temporary suspension. Apartments.com customers shifted toward lower-priced packages in the second half as leads per advertisement rose and rental vacancy rates declined.
Outlook, management commentary, risks, and unusual items
- For 2022, management expects CoStar revenue growth to increase, information-services growth to remain broadly consistent, Multifamily growth to decrease, LoopNet growth to decrease, and Residential revenue to decline. Other Marketplaces revenue is expected to increase, partly as more properties sell through Ten-X. The filing provides no consolidated quantified revenue or earnings guidance.
- Management expects to increase investment in residential products by approximately $200 million in 2022, primarily for content, marketing, and technology; it expects this spending to reduce 2022 operating results and operating cash flow. The company also plans continued investments in CoStar, Apartments.com, LoopNet, and Ten-X, and a Richmond, Virginia campus expansion that may require significant capital spending over several years.
- Management said COVID-19 did not materially affect the consolidated financial statements in 2020 or 2021, while identifying uncertainty around office demand, hybrid work, customer demand, and the broader real estate market. It also cited workforce attrition and potential hiring and retention costs as employees returned to offices.
- Key risks include customer retention and advertising demand, competition, real estate-market weakness, execution and integration of acquisitions, privacy and cybersecurity incidents, data accuracy, search-engine traffic, and the costs and returns of marketing and product investment. The company also disclosed approximately $2.8 billion of goodwill and intangible assets, creating exposure to potential future impairment.
- The $750 million credit facility has a 4.50-to-1.00 maximum total net leverage covenant; the company reported compliance and no facility borrowings at year-end. Borrowings would be variable-rate, and the company noted uncertainty around replacing LIBOR. Litigation was described as incidental; management did not expect current matters to materially affect financial position, results, or liquidity, while noting outcomes are uncertain.
- The 2021 effective tax rate increase was attributed in part to an international tax restructuring and lower excess tax benefits. The company reported no goodwill or intangible-asset impairment in 2021. It pays no common-stock dividend and does not anticipate doing so in the foreseeable future.
Important facts for investors to verify
- Whether 2022 residential investment delivers the expected product adoption and revenue, and how the approximately $200 million planned spend affects margins and cash flow.
- Whether subscription bookings, renewal rates, and CoStar pricing increases sustain growth, and whether Multifamily and LoopNet trends align with management’s outlook.
- Acquisition integration progress and returns, including Homes.com and Homesnap, and any remaining purchase-price or tax contingencies.
- Cash requirements and financing for the Richmond campus expansion, alongside capital expenditures, acquisition activity, and debt covenants.
- Potential changes in commercial real estate demand, especially office demand, and related effects on customers, cancellations, and marketplace advertising.
- Use GAAP results alongside EBITDA and other non-GAAP measures; the filing cautions that these measures are supplemental and not substitutes for GAAP measures.