The conference operator, Lisa, welcomes everyone to the CoStar Group Third Quarter 2023 Earnings Call and introduces Cyndi Eakin, Head of Investor Relations, who will read the Safe Harbor statement. The statement discusses the company's outlook and expectations for the fourth quarter and full-year of 2023, and reminds listeners of the risks and uncertainties involved. The statement also mentions that non-GAAP financial measures will be discussed and provides a link to the press release for further information.

The speaker introduces the conference call and reminds listeners that it is being webcast and can be accessed on the company's website. They also mention how to access the replay of the call. The CEO then takes over and discusses the company's third quarter earnings, highlighting a 12% growth in revenue and strong net new bookings. They also mention the company's impressive track record of 50 straight quarters of double-digit revenue growth and their focus on diversification and building a subscription-only revenue portfolio. Despite a down market, the speaker emphasizes the company's resilience and steady growth.

CoStar Group made significant investments to expand their geographical footprint and enter new segments, such as the apartment marketplace business. They believe that digitizing real estate will lead to enormous value creation and expect their revenue to grow tenfold in the next 12 years. They are confident that Homes.com can compete and win in the residential market, as they have in previous asset classes. Homes.com has seen a 1,290% increase in unique visitors compared to last year, making it the fastest growing residential marketplace in the US. According to ComScore, Homes.com is now the second most heavily-trafficked residential network, with monthly unique visitors 35% higher than Realtor.com and 90% higher than Redfin.

The author discusses the success of Homes.com in terms of traffic and user engagement, highlighting the site's growth in monthly unique visitors and returning users. They also mention the site's ranking in the App Store and the speculation surrounding CoStar Group's potential acquisition of Realtor.com. The author suggests that Homes.com has proven its ability to compete without a large investment in brand marketing and that the primary risk factor for the site is now monetization.

The unaided awareness for Homes.com is low compared to competitors, but the company has successfully increased unaided awareness for Apartments.com through persistent branding. Building unaided awareness is important for improving SEO and sales of advertising products. The company plans to start monetizing Homes.com in 2024 and believes it will be successful like their other monetization strategies. They have previously had success with reselling Facebook ads through HomeSnap. William Blair published a paper on competition among home search portals, highlighting the potential for agents to spend marketing dollars on these portals instead of traditional methods like print. Most agents do not currently spend marketing dollars with Zillow or realtor.com.

Zillow's clients believe that the value of the product is declining and are open to alternative sources for lead generation. Homes.com is already generating billions in annual commissions for agents. The Sitzer/Burnett lawsuit could bring significant changes to the real estate industry and several defendants have already agreed to pay settlements and make changes to the buyer broker commission rule. The first generation real estate portals used this rule to divert listing leads to a small group of agents.

Homes.com is a popular portal for lead generation that offers an alternative to the traditional model of commission splits for agents. The company has decided to accelerate its investments in Homes.com and has announced its offer to acquire OnTheMarket, the third most trafficked residential property portal in the U.K. for approximately £100 million. OnTheMarket was founded by agents in 2013 to provide a competitive alternative to existing U.K. portals and has successfully developed a large network of agents and property listings. The intention of the acquisition is to create the number one property portal in the U.K. by combining the strengths of both companies.

CoStar Group has acquired OnTheMarket, a leading property portal in the U.K., to enter the $8 trillion residential property market. They plan to invest £46.5 million in sales and marketing to drive consumers to the portal and increase the quality of leads for their agent clients. CoStar has a track record of successfully investing in and growing property portals, and they believe that consolidation in the European market is imminent. They chose to acquire OnTheMarket instead of overpriced assets in the number one position, which private equity firms are more likely to pursue.

The company believes that acquiring assets in Europe can create more value for shareholders. They estimate the market cap for publicly traded and large private portals in Europe to be around $30 billion. Despite a decline in stock value since announcing an acquisition, Apartments.com continues to show impressive growth and is on track to reach a billion dollars in revenue by 2024. The brand has achieved high brand awareness and attracts high-quality renters, with strong performance in terms of website visitors and leads. The sales team also had a successful quarter, conducting a record number of quality meetings.

The company has seen a 36% increase in the current quarter compared to last year, with a net promoter score of 95. The mid-market sales team expansion has resulted in a 48% increase in properties under 50 units advertising on Apartments.com. Despite competition shrinking their sales teams, the company continues to add and train new sales reps to capitalize on the opportunity. Overall economic conditions for rental property advertising are favorable, with vacancy rates increasing and new unit deliveries expected to continue at high levels. CoStar revenue has increased by 10% and the focus on high-value customers has yielded great returns. Despite challenging property markets, customer engagement and usage of CoStar remains high. The company's subscriber count is above 180,000 and renewal rates have increased to above 93%. The sales force is strong and active, with low attrition rates.

The demand for CoStar's new lender product remains strong, with 230 customers currently on the platform, representing a 45% increase in net new bookings compared to last year. CoStar lender is now managing over $620 billion of debt and there is still room for further growth. LoopNet revenue for the quarter was $68 million, up 15% year-over-year, with international revenue increasing by 38%. Office vacancy rates have increased, creating a need for advertising empty commercial space. LoopNet has seen a 16% increase in signature ad listings, with more customers upgrading to higher performing ads. The website has also seen a 10% increase in monthly unique visitors. A new sales leader, Brandon Liu, has been appointed for LoopNet.

The company has made changes to the LoopNet dedicated sales team commission plan to focus on both sales and service, resulting in increased sales activities and customer meetings. The dedicated LoopNet sales team is expanding while direct customer account responsibilities are shifting from the CoStar sales team. STR revenue and subscription revenue have both grown, with a record number of participating hotels and impressive renewal rates. The migration of customers to the new CoStar hospitality benchmarking product is ongoing, with plans to migrate over 900 corporate accounts and 6,000 independent hotels. Strong double-digit revenue growth is expected to continue for STR due to the enhanced value of CoStar's information analytics for hospitality customers.

Ten-X, a digital transaction platform for real estate, had a successful third quarter with $1.1 billion in assets and a 51% trade rate. However, bid ask spreads are high, leading to only 35% of potential assets being auctioned. The real estate market continues to face challenges, with transaction volumes down and values decreasing. Banks are not lending and are shedding CRE loans from their balance sheets, and CMBS delinquencies are increasing. Despite these challenges, Ten-X sees long-term value in digital transaction platforms and is focused on improving technology and aligning with LoopNet.

The office sector has been experiencing negative absorption since the pandemic began, with over 170 million square feet of negative absorption. This trend is expected to continue as indicators show continued weakness, such as flat numbers of workers returning to the office and lower lease renewal and new lease activity. The hotel sector is approaching pre-pandemic levels, while the industrial and retail sectors continue to perform well. However, the residential sector is facing challenges due to rising mortgage rates and declining home sales.

The speaker concludes that CoStar Group has achieved double-digit revenue growth and success in their Homes.com residential strategy. They are proud of their team's accomplishments, including reaching 100 million monthly unique visitors and becoming the second largest residential marketplace in the US. The commercial real estate team has also seen significant growth and success in a downturn. The CFO then discusses the impact of declining commercial real estate transaction volumes on different customer types, such as brokers, owners, corporations, and lenders.

The company has seen an increase in bookings with owners, corporates, and lenders due to their sales strategy and new product offerings. The reduction in year-over-year sales volume is only impacting Ten-X. The bookings growth this quarter may be an inflection point or bottom, but more quarters are needed to determine a trend. Q2 is seasonally a high quarter for Apartments, fueled by the NAA conference. CoStar's sales are mildly improving, while LoopNet's have not changed much. The new sales teams are performing well.

The speaker explains that they do not provide forward guidance on bookings due to quarterly volatility, but they hope to give an understanding of changes in the quarter. A question is asked about spending and the speaker says they will begin integration after the transaction closes, which is expected to happen at the end of the year. They expect synergies and advertising to begin within six months after the closing, but it will not materially change their 2027 outlook.

The speaker, Ella Smith, from JPMorgan, asks CoStar CEO Andy Florance about their investments in the residential business for the next year. Florance responds that they have yet to set specific plans for 2024, but they will continue to invest in residential and are prepared for potential changes in the industry. Smith also asks about market dynamics in the U.K. and how CoStar plans to disrupt the market despite their minimal presence in Europe. Florance downplays the idea of disrupting the market and does not assign god-like characteristics to their company.

The speaker discusses the recent acquisition of a U.K. residential portal and the potential for expansion into other European markets. He notes the company's experience in building traffic and its ability to offer value in the market. He also mentions the fragmented nature of the European portal market and the possibility for future acquisitions.

The speaker believes that technology will play a significant role in the digitization of real estate and that there will be consolidation in the market. They also see an opportunity for differentiation between brands through technology. The speaker compares the current state of the real estate market to the U.S. market 10 years ago before consolidation occurred. They believe that their technology is competitively advantaged and that they have a strong position in the market. The speaker also sees potential for Homes.com to benefit from structural changes in the market, such as unbundling commissions, which could unlock the under-monetized home advertising TAM in the U.S.

Andy Florance believes that Homes.com can still be successful even if the plaintiffs win their cases. He thinks that the changing conditions brought on by the lawsuits could benefit Homes.com, as they do not rely on monetizing buyer agent leads. When it comes to resi spend, the company plans to continue investing in Homes.com and will focus on building out neighborhood content and evolving with more general blog and school content. The mix of spending on branding, SEM, and content will shift from quarter to quarter, with a focus on building unaided brand awareness.

The speaker discusses the success of their website and traffic, but mentions the need to increase unaided awareness. They mention potential changes and investments, but do not provide specific details. They also mention the breakdown of their marketing spend, with a focus on SEM and performance marketing this year and more brand development next year.

The company is going through a marketing change and the interviewer asks about their residential strategy and how Ten-X fits into it. The CEO says that Ten-X will not be involved in the residential market for the next 12-18 months, but may have a role in the future. They are currently focused on building their site and developing their brand, with plans to deliver value in the next few years. Ten-X may be able to bring value by facilitating transactions and improving efficiency in the market.

The speaker, John Campbell, thanks the operators for their helpful response to a question. He then asks about the change in EBITDA guidance, to which Scott Wheeler confirms that it is mostly due to increased investment in Homes. John also mentions the impressive traffic numbers for Homes.com and asks about the potential benefits, such as marketing and SEO efficiencies. Scott mentions the high return traffic as a positive sign and hints at future strategies for optimizing results.

The speaker is pleased with the progress of the website and its traffic, which is double what was expected. They are also seeing good lead flow numbers, indicating that consumers prefer the site's direct connection to property information rather than being sold a buyer agent. The speaker believes this may be affecting other sites' lead flow as well. They also mention their success with lead quality on their other site, Apartments.com.

During a conference call, a representative from Homes.com responded to a question about the quality of leads on their website. The representative denied any issues with slow response times and suggested that their approach, which involves a single point of contact for each listing, is more efficient than other websites where multiple agents may respond to a single inquiry. The representative also mentioned that international leaders in the portal industry have expressed interest in their approach.

The speaker states that consumers prefer to contact the person with the listing and knowledge of the property. The company's lead process is seen as superior. The speaker also discusses their approach to international M&A opportunities, stating that they are interested in the number one asset in the market but want to avoid overpaying. They consider factors such as traffic and potential acquisition cost of other portals in the market.

The speaker discusses the strategy of building traffic on a portal to reach the number one position, and compares the cost of buying a top portal to building one. They also mention the importance of technology in maintaining a top position and the dynamic nature of the market. They express a desire to optimize investments and mention potential international expansion plans.

The speaker discusses the importance of focusing on similarities rather than differences when delivering technology to different markets. They reference Steve Jobs' belief that humans are similar across different countries and that obsessing over cultural differences would be a mistake. The speaker thanks the participants and announces the date for the next earnings call.

This summary was generated with AI and may contain some inaccuracies.