The conference call is being held to discuss CoStar Group's fourth quarter and full year 2023 results. The call will include a question-and-answer session and is being recorded. The Head of Investor Relations, Cyndi Eakin, will read the Safe Harbor statement before turning the call over to CEO and Founder, Andy Florance, and CFO, Scott Wheeler. The discussion may contain forward-looking statements and important factors that can cause actual results to differ are stated in CoStar Group's press release and SEC filings. Any non-GAAP financial measures discussed will be reconciled to the most directly comparable GAAP measure.

The press release for CoStar Group's fourth quarter and year-end 2023 earnings call is available on their website. The call will be webcast and a link is provided on the website. The CEO, Andy Florance, begins the call by thanking everyone for joining and discussing the company's financial performance for the year. CoStar achieved their second highest net new bookings level ever and had a strong year in sales despite challenges in the property market. They also achieved a major profit milestone in their commercial real estate and marketplace businesses. The CEO is proud of the team's work in building the new homes.com and conducting focus groups to improve the residential portal.

The company listened to feedback and created a real estate portal that is clean, powerful, and spam-free. Their team of developers and content creators worked hard to capture the essence of neighborhoods, schools, and parks, resulting in a successful and fast-growing website with a significant advantage over competitors. In the fourth quarter of 2023, the website had a 600% year-over-year growth and surpassed its largest competitors in traffic.

The company recently launched a marketing campaign for homes.com during the Super Bowl, reaching an estimated 123 million viewers. They plan to continue advertising during major events throughout the year and believe they can generate $80 billion in revenue by 2024. They also aim to increase unaided awareness from low single digits to over 50% to attract more advertisers.

The company is confident that their marketing campaign for homes.com will drive brand awareness, traffic, and revenue. They have deployed their entire sales force to sell memberships to agents and have already seen success with over 5 million annualized subscription revenue in just over a week. They are also building a dedicated sales force for homes.com and have already recruited a vice president, sales managers, and 100 sellers. The response to their sales effort has been phenomenal, with over 827 memberships sold and a majority of agents choosing 12-month subscriptions.

The Homes.com product has been successful in attracting agents with both large and small portfolios, with pricing ranging from $100 to $7,400 a month. The company has only reached a small percentage of potential agents and expects to generate $200 million in annual revenue in its first year. The company is focused on a pool of 500,000 agents, with a potential annual revenue of $2.5 billion. The company is also proud of its success in the past three years and expects continued growth in the future. The company has also acquired OnTheMarket in the UK for £100 million.

The company believes that the acquisition of OnTheMarket was a wise move and they are focused on growing the site's appeal and traffic. They have already seen significant progress in terms of traffic and leads. In contrast to Rightmove, they plan to invest in product and technology and partner with agents to generate leads at a lower cost. Agents are supportive of OnTheMarket as an alternative to Rightmove. Since the acquisition, they have added a large number of agent advertisers and listings and their long-term goal is to become the top property portal in the U.K.

The company is expanding its presence in the European residential market through its acquisition of OnTheMarket, and had a successful year with Apartments.com generating over $900 million in revenue and becoming the first billion-dollar revenue run rate business for the company. The sales team at Apartments.com also had a strong performance, with net new bookings growing 34% and a high customer satisfaction rating. The company plans to continue growing its mid-market sales efforts and increasing its penetration in the small property sector.

The company's marketing campaign, featuring Jeff Goldblum, was successful in delivering media impressions and website visits. The brand's long-term marketing strategy has resulted in high brand awareness and usage among industry decision makers. The company's website received a high number of unique visitors, making it a top advertising solution in the rental property market. Economic conditions are expected to continue to be favorable for rental property advertising.

In 2024, Apartments.com is expected to see strong double-digit revenue growth, balanced by the sales efforts of Homes.com. CoStar had a successful quarter with 11% year-over-year growth and 8% growth in the fourth quarter. The strength of CoStar lies in its ability to expand its product to cater to different customer sets, such as owners, lenders, and corporate tenants. In 2023, CoStar sold twice as much to these sectors compared to brokers. The CoStar lender product had a successful year, doubling its customer base and generating five times more revenue. CoStar's competitive data advantage has helped it win deals against its main competitors, and there is potential to expand its target market beyond depository institutions. The total addressable market for CoStar's expanded target customer set is estimated to be over 600 million.

The company plans to increase its sales and product teams to tap into the remaining 85% of the market opportunity. They have successfully migrated over 600 customers to their hospitality benchmarking product in CoStar and plan to migrate the remaining customers in the first half of 2024. The company has had a successful year, with a 13% increase in revenue and a record sales quarter. They expect to continue growing and unlocking value for customers with the full capabilities of CoStar and SDR combined.

CoStar's renewal rates are strong and they are seeing signs of increased activity in the leasing and sales market. They expect solid revenue growth in 2024. LoopNet's revenue and traffic are also increasing, making it the top commercial property listing site globally. They plan to expand LoopNet to France and Spain in 2023. The sales team for LoopNet has been successful in transitioning accounts and increasing sales productivity. Ten-X has also demonstrated the value of their digital sales platform, despite a decline in overall sales transactions.

In 2023, Ten-X had a 52% trade rate, which was almost double the offline trade rate, but lower than the previous year. Despite this, they increased their share of property sales in the $1 million to $10 million category. The market outlook for 2024 is uncertain, but in the first 45 days of the year, their trade rate and number of bidders have increased. Ten-X sees a long-term market opportunity of $3 billion in the $1 billion to $10 billion asset category. The real estate capital markets in 2023 were impacted by higher borrowing costs, tight lending standards, and declining real estate fundamentals. Transaction volumes were down 49% and price declines ranged from 10% to 35% across all sectors. However, with expected interest rate declines, sales volumes are expected to increase compared to last year. The office sector was hit the hardest, with 58 million square feet of negative absorption in 2023 and a record high vacancy rate of 13.5%.

The decline in construction starts has led to a potential shortage of premium office space, prompting the company to purchase a five-star office building in Arlington, Virginia at a discount. The industrial sector has also seen a rise in vacancies due to new construction, but demand remains positive and vacancies are expected to decrease in the future. The retail sector has performed well with low vacancy rates and limited new construction. The U.S. hotel sector ended the year with positive growth, driven by an increase in ADR and occupancy.

In 2023, CoStar Group experienced strong growth due to robust group demand and corporate transient demand. RevPAR is expected to continue outpacing inflation in 2024. The U.S. residential sector saw a decrease in mortgage rates, but rates are still high enough to limit home sales. CoStar had a successful year in the distressed commercial real estate market, with record profits and revenue growth. The company launched a new platform, Homes.com, which has already generated $5.2 million in subscription sales. The first half of 2024 will see peak investment in Homes.com, with significant growth expected in profits and margins in the second half of the year. The call will now be turned over to the Chief Financial Officer.

The company had a strong year in 2023, with 13% revenue growth and 20% adjusted EBITDA margin. They have had 13 consecutive years of double-digit growth and are seeing continued success in their core CoStar business. Apartments.com grew 23% in the fourth quarter and added twice the revenue of its nearest competitor. The company expects profitability to increase in 2024 as they exit the investment phase of Homes.com.

In 2024, Apartments.com expects revenue growth of 17-18%, with moderation in renewal pricing and aggressive growth in the smaller property space. The sales team is proving effective at selling both Apartments.com and Homes.com. CoStar's revenue grew 8% in the fourth quarter and will become the second brand business with over $1 billion in revenue. Adjusting for the STR revenue shift, CoStar expects growth of 7-8%. LoopNet's revenue grew 12% in the fourth quarter and 15% for the full year, exceeding guidance.

CoStar Group expects first quarter LoopNet revenue growth to be between 8% and 9%, with the sales team making significant contributions to selling both LoopNet and Homes.com in 2024. Information services revenue is expected to reach $130 million to $135 million in 2024, with real estate manager being the largest component and expected to grow in the mid-to-high single digits. Other marketplace revenue was $134 million in 2023, with expected similar outcomes in 2024. Subscription marketplace businesses, lands and business for sale, are expected to contribute solid double-digit growth in 2024.

In 2024, the company expects double-digit revenue growth in subscription marketplace businesses and conservative growth in Ten-X transaction revenue. The residential revenue for 2023 was $10 million in the fourth quarter and $44 million for the full year. The 2024 residential revenue outlook includes homes.com, on-the-market, and legacy residential products. The homes.com membership product has started generating revenue and all brand sales teams are competing to sell it. The CoStar team is currently leading the homes.com top selling contest, but the momentum is building and all nine brand sales teams have contributed to net new sales for homes.com.

The company is expecting a great sales year for both their core brand products and homes.com, but it's too early to tell which will sell more. In 2015, when they took a similar approach with apartments.com, their net sales increased by 80%. The company believes that homes.com has even more potential for success due to its larger market opportunity, a bigger marketing campaign, and a unique business model.

The company's 2024 forecast predicts a revenue contribution of $50-60 million from homes.com memberships, with an expected $40 million in revenue from the U.K. residential business. Legacy residential products are expected to decline, with a total residential revenue range of $110-120 million in 2024. Net income for 2023 was $96 million in the fourth quarter and $375 million for the year, thanks to a strong net interest income of $220 million. The company's sales force totaled 1,160 people at the end of the year.

In 2023, there will be modest increases in revenue focused on marketplace businesses. Salesforce expansion in 2024 will be focused on the homes.com residential business. Contract renewal rates are strong and subscription revenue is expected to increase. For 2024, full year revenue is expected to range from $2.75 billion to $2.77 billion with a growth rate of 12-13%. Adjusted EBITDA is expected to be in the range of $170 million to $190 million with positive margins returning after the first quarter. The financial strategy for 2024 is to drive operating leverage and profit generation in commercial businesses while investing in homes.com and on the market. There are plans to increase residential investment levels in 2024 to support the brand launch and sales capabilities.

In 2024, residential net investment is expected to peak with the launch of a marketing campaign in the U.K. and full team strength in content, technology, and sales. Capital expenditures are projected to increase significantly due to construction projects in Richmond and Arlington, while operating capital remains consistent. Net interest income is forecasted to be around $200 million, taking into account increased capital spending and potential interest rate reductions. Despite challenges in 2023, the company achieved record profits and remains focused on strategic investments in the residential market. With the monetization of homes.com, the company adds another high-growth revenue stream to its portfolio. Overall, the company is making progress towards its long-term revenue and profit goals and is confident in its ability to grow homes.com into a billion dollar business. The call is now open for questions.

The speaker, Andrew Florance, is updating the audience on the progress of the sales blitz for Homes.com. He mentions that they have sold 58 more accounts and the sales force is dedicated to selling the product. He believes it is effective when salespeople can say they are nearby and can visit the customer's office. It will take a year to build a dedicated Homes.com sales team, and there will be similar service and support as other products like Apartments.com. The speaker expects the sales to shift back to the general group in 2025, but for now, they are focused on speed of sales.

Heather Balsky from Bank of America asks about the company's spending plans for the future, now that they have officially launched Homes.com. Scott Wheeler, the company's representative, explains that this year will be the peak of their spending, but they expect to see revenue growth in the following years. They will provide an update on this growth next quarter and are committed to reaching their revenue goals for 2027. However, it is too early to determine the revenue leverage rates for Homes.com. George Tong from Goldman Sachs is up next to ask a question.

George Tong asks about the company's residential investments and margin outlook for the year. Scott Wheeler discusses the expected margin cadence, with margins expected to increase in the second half of the year and reach over 15% by the end of the year. The company is investing $1 billion in residential, with a focus on marketing for OnTheMarket and Homes.com U.S. The investments are expected to moderate in the coming years.

During a conference call, Andy Florance and Scott Wheeler discussed their company's investments and net new bookings. Florance mentioned that they are front-loading some of their investments into 2024, with a focus on marketing between the UK and US. He also noted that their sales have been strong in the first week, indicating a market and product for their company. Wheeler then discussed the net new bookings, which were slightly lower than the previous year, with Apartments.com performing the best and CoStar and LoopNet experiencing lower numbers in the fourth quarter.

In the upcoming year, the company expects to see less of a drag from legacy residential products and higher growth in total sales due to the addition of Homes.com. They are currently pleased with initial results and do not anticipate increasing their marketing investment. There are no plans to become more conservative as there is no indication of a need to pull back.

The legal situation surrounding the real estate industry is complex and in flux, with various angles and views. Some big broker terms are pursuing settlements and major brokerage firms are not interested in a prolonged battle over seller compensation for agents. There may be an outcome where buyers pay their own agent, which would not affect Homes.com's revenue model as their product generates buyer/agency leads.

The company's business model is focused on generating seller leads and helping people sell homes with more exposure and lead generation. It has an advantage over competitors who rely on a pre-agreed split between seller and buyer agents. If there was a shift to buyers paying their own agent, the company would have a significant advantage. The company also offers membership packages to agents, which are priced based on transaction volumes and market.

The speaker discusses the competitiveness of the company's pricing and the benefits of being a member, including higher rankings and more agent branding. They also mention the significant increase in lead flow for members and the success of this strategy. The questioner asks for clarification on the annual recurring bookings and the range of prices for agents.

The speaker, Andrew Florance, responds to a question about the kinds of agents they are targeting. He mentions that they are targeting 540,000 agents who earn at least $30,000 to $40,000 annually. The price points range from $100 to tens of thousands of dollars per month. Florance has been monitoring sales calls and is pleased with the response from prospects and buyers. He mentions that they will continue to refine their strategy and that the inbound lead flow is strong. The company also has an e-commerce channel for agents to sign up quickly. The speaker then announces that he has some news to share.

The paragraph discusses the retirement of Scott Wheeler, the CFO of the company, after 8 years of service. It mentions his achievements and friendship with the speaker, as well as his love for mountain climbing. The speaker thanks Scott and announces plans for a smooth transition and search for a new CFO. The call concludes with a farewell message from the speaker and the operator ending the call.

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