The operator welcomes participants to the CoStar Group First Quarter 2024 Earnings Call and introduces the company's CEO and CFO. The Head of Investor Relations reads the Safe Harbor statement, which cautions about forward-looking statements and refers to the company's press release for more information. The press release can be found on the company's website.

CoStar Group's first quarter earnings call was held today and was webcasted for investors. Revenue for the first quarter of 2024 was $656 million, a 12% increase from the previous year. Net new bookings reached an all-time high of $86 million, with 60% from commercial products and 40% from new Homes.com memberships. Traffic to their websites also reached a record high of 170 million average monthly unique visitors. CoStar Group has also announced their acquisition of Matterport, a global leader in immersive 3D technology for the real estate industry.

Matterport, founded in 2011, offers a 3D capture solution for creating virtual tours or digital twins of properties. Their technology can be used on any type of property and has been utilized in various sectors of real estate. They have a large database of spatial property data and their technology has become even more valuable during the pandemic as it allows for remote real estate shopping. CoStar Group, a company with a similar mission, has incorporated Matterport's technology into their information product and online marketplaces. The use of Matterport on Apartments.com has led to longer site visits and increased leads for properties.

The CoStar Group has conducted market research and found that both consumers and advertisers prefer real estate portals with 3D digital twins. As a result, they plan to add more digital twins to their various platforms and have decided to acquire Matterport, a leading 3D digital twin solution. They believe this will increase customer satisfaction, renewals, sales, and site traffic. They also plan to increase Matterport's sales and marketing efforts to non CoStar Group advertisers.

Matterport's acquisition has allowed for increased influence on the product roadmap and the potential for exponential acceleration in 3D digital twin technology. There is a lot of potential for real estate in terms of artificial intelligence, machine learning, and generative AI. CoStar Group intends to support and invest in Matterport's research and development efforts. The possibilities for virtual reality and 3D digital twins are exciting and could lead to new opportunities for CoStar Group's global information and marketplace businesses. The company faces two major challenges in making Homes.com the leading US real estate portal: building massive site traffic and successfully monetizing their new listing and lead model.

In the first quarter, the company has successfully met their challenges of increasing revenue and traffic. They have achieved almost 40 million in net new bookings and 156 million monthly unique visitors. The Homes.com brand marketing campaign, which includes TV, digital, and social media, has generated almost 4.5 billion consumer impressions and increased unaided brand awareness from 4% to 24%. The campaign features notable celebrities and has attracted 110 million monthly unique visitors to the Homes.com site and 156 million to the overall residential network. This is a significant increase compared to the same period last year.

Homes.com and its residential network are experiencing rapid growth in terms of consumer traffic and sales. The launch of Homes.com memberships has been the fastest growing product in the company's history, surpassing the 40 million annualized bookings mark in just two months. The majority of agent members are choosing the 12-month contract option and the average monthly selling price is around $475 to $500. Feedback from agents has been positive, with many reporting an improvement in their business through Homes.com's "your listing your lead" model.

The sales team at Homes.com has been successful in selling memberships to real estate agents all over the country, with 85% of their sales representatives selling at least one membership. The company sees a huge market opportunity for their basic membership product and expects their sales to continue to grow. As they build up a dedicated homes sales team, they anticipate slightly lower sales for their other products.

The company's new VP of home sales is working on building a dedicated team for Homes.com in Richmond, Virginia. The initial 80 members of the team have been successful in generating more net bookings than the company average. The company is not involved in recent class action lawsuits in the real estate industry, but believes it will have an impact. The company's model focuses on selling the home as the highest priority, while competitors use a lead diversion model that prioritizes generating buyer agency leads. This model is unpopular and may become stressed due to recent legal settlements in the industry. Legacy portals will no longer be able to take a significant portion of the buyer-broker commission from diverted leads.

Buyer agents will need to have buyers sign a written agreement before showing them a house, which may be difficult. Homes.com connects buyers directly with listing agents without any paperwork. The company is confident in their ability to become the top residential marketplace. Their U.K. property portal, OnTheMarket, has surpassed Zoopla in site visits and has seen a 107% increase in monthly unique visitors. This has resulted in nearly 50% more leads for agents and more agents are choosing to list on the portal. Apartments.com has reached an annual revenue run rate of $1 billion.

In the first quarter of 2024, Apartments.com saw a 21% growth in revenue, surpassing their guidance of 20%. This marks the fifth consecutive quarter of growth at or above 20%, which is attributed to the quality of the product, effective brand marketing, and a strong sales force. The company celebrated their 10-year anniversary since being acquired by CoStar, during which they have seen significant growth in revenue and sales. Their 2024 marketing campaign, including a Super Bowl ad and new commercials featuring Jeff Goldblum, has already generated 2.3 billion media impressions and is expected to reach 90% of renters in the US. The CEO congratulates the Apartments.com team and looks forward to continued success in the next 10 years.

Apartments.com's brand marketing strategy has been successful, with unaided brand awareness surpassing Zillow for 4 consecutive quarters. The website remains the most highly trafficked rental website in the U.S. with over 43 million monthly unique visitors. Despite flat growth in unique visitors, the sales team has conducted more quality meetings and the number of properties advertising on the platform has reached an all-time high. However, there is still room for growth as the company is below 12% penetration in the market opportunity estimated to be worth $9 billion. Economic conditions are favorable for rental property advertising, with high vacancy levels and a decrease in new unit deliveries. CoStar's revenue for the quarter increased by 11% compared to the same quarter last year.

In the first quarter, two of our products, CoStar and Apartments.com, reached a revenue run rate of $1 billion. CoStar has seen strong revenue growth, with a 20-year compound annual growth rate of 12%. Our lender product has also experienced significant growth, with a 57% increase in revenue and a 71% increase in the number of institutions on our platform. The CoStar hospitality product, STR, has seen the fastest sales growth in the company, with a 44% increase in the first quarter. CoStar's sales team delivered strong sales for Homes.com and our renewal rates and NPS scores remain high. LoopNet revenue was $69 million in the first quarter, with a 29% increase in international revenue.

LoopNet remains the top commercial marketplace in the U.S. with high monthly traffic and quality leads. Sales have increased significantly and the Net Promoter Score has improved. The company has a new President, Ben Drew, who has extensive experience in digital marketplaces. Despite a decrease in commercial real estate sales transactions, Ten-X outperformed the market with an increase in assets brought to the platform and a higher trade rate. The company's approval rates for proposed assets also increased in the first quarter.

The real estate economy is facing challenges in the office, industrial, and residential sectors. Office vacancies have risen for 19 consecutive quarters, but construction levels are at a 10-year low, leading to a potential shortage of premium office space. The industrial sector has seen a significant drop in demand, while retail vacancies remain low. Mortgage rates are impacting affordability in the residential sector, but a recent decline in rates has led to increased sales activity. The company's investment in Homes.com is proving to be successful and is expected to become the largest revenue business in the portfolio. The Chief Financial Officer will now provide more details.

The first quarter of the year was a great success for the company, with a 12% overall revenue growth and the Residential business making a positive contribution. The launch of Homes.com and OnTheMarket resulted in a 90% sequential increase and 42% year-over-year increase in residential revenue. The company plans to raise their revenue forecast for Residential revenues by $15 million at the midpoint, with expected growth of 180% in total and 105% organically by 2024.

The company expects the exit run rate for Homes.com to increase to $130-140 million, up from $100 million in February. The commercial businesses saw a 12% year-over-year increase in revenue, but there was a shift towards residential due to the launch of Homes.com. The first quarter saw a 60% commercial and 40% residential sales split, resulting in a $10 million shift in revenue for the full year. Apartments.com exceeded expectations with a 21% revenue growth and has reached $1 billion in annualized revenue. The company is impressed with the consistent 20%+ growth rate and sees potential for further growth in the multifamily market.

The company is maintaining its revenue forecast for Apartments.com of around 17% growth for the full year of 2024, despite a modest sales substitution effect. CoStar revenue grew 11% in the first quarter, in line with expectations, and is expected to continue growing at a rate of 10% for the full year. LoopNet revenue grew 9% in the first quarter, and is expected to have mid single-digit growth for the full year. Revenue from Information Services and Other Marketplaces were consistent with expectations, with slight improvements in Ten-X trade rates and deal closings. The company confirms its previous guidance for the full year 2024 revenue to be relatively flat compared to the previous year.

In the first quarter, the company's adjusted EBITDA was $12 million, exceeding their guidance range by $27 million. This was due to strong revenue performance and lower personnel costs. The company remains on track with their planned investment levels for Homes.com and expects to have around 1,500 sales team members by the end of the year. The contract renewal rate was 90%, with long-term subscribers at 94%. The company has increased their revenue guidance for the year, with a projected revenue growth of 11-12% in the second quarter and 12% in the first half, accelerating to 14% in the second half. Despite a challenging property market, the company is still experiencing strong growth.

CoStar is increasing their adjusted EBITDA guidance and raising the midpoint of their guidance range. They are also maintaining their outlook for interest, capital, and taxes. The pending acquisition of Matterport was announced, and it operates with a similar financial model to CoStar, with a history of strong revenue growth and a high renewal rate. Matterport's customer base is diverse and their business is scalable for high profit margins and cash generation. They also have a strong and conservative balance sheet with a significant amount of cash and no debt.

CoStar has agreed to purchase Matterport for approximately $2 billion, with $400 million in cash and investments on Matterport's balance sheet. The purchase price will be paid 50% in cash and 50% in CoStar stock. After closing, CoStar expects to use $550-600 million in cash to complete the acquisition. Matterport is projected to break even in cash flow in the second half of 2024 and turn positive in 2025. The acquisition is expected to be neutral to slightly accretive to non-GAAP earnings per share in the first year post-closing. CoStar has a strong track record of successfully acquiring and integrating companies and expects the post-integration benefits of this acquisition to be highly value accretive. CoStar is in a strong financial position and remains committed to achieving long-term revenue and profit goals.

The speaker thanks the CFO, Scott Wheeler, for his time at CoStar and mentions his upcoming departure. They also review his performance during his 8 years at the company, including significant increases in cash balance and stock price. The speaker also compares his performance to the previous CFOs.

The speaker congratulates Scott on his success and mentions the growth of the company's market cap. They then turn to Q&A and the first question is about the production of Homes.com. The speaker explains that the production exceeded expectations and was mostly outbound, with strong interest at industry events. The sales cycle is fast and there is no real competition for their unique offering. Some substitution effect has been noted with other providers. The product is mainly sold to individual agents.

In the paragraph, the speaker discusses the progress of Homes.com sales, including the fact that 8,000 memberships were sold in the first quarter at an average price of $475 to $500 per month. They do not anticipate the price changing and are happy with the current price point. The focus going forward will be on scaling the sales team and there is a large potential market for the product.

The paragraph discusses CoStar Group's solid price point per person and their growth potential in the real estate market. The company has seen a surge in buying activity and is aggressively growing their Homes team. They aim to reach 100,000 members and have the potential to reach hundreds of thousands. The company also aims to balance price and volume to create goodwill across a larger section of the market. The paragraph also mentions the EBITDA margin for their non-Residential business, which was at 39% in the first quarter, but they are still on track to reach their full year target of 42%.

The speaker, Scott Wheeler, is discussing the company's forecast for the second quarter and mentions that they are looking for positive EBITDA for the Homes.com business. He explains that marketing expenses will be slightly lower in the second quarter due to a fast launch in the first quarter, but will decline throughout the year. He also mentions that the total expected spending in Residential remains unchanged from previous communication. The next question from Ryan Tomasello is about pricing at Homes.com, to which Andrew Florance responds that he is satisfied with the current pricing model and that it is tailored to each agent's needs. The reaction to the pricing has been positive.

The company has not faced much resistance in implementing their new pricing formula, except for one person who was priced out at $500,000 a month. They are currently in the early stages with 8,000 members and plan to focus on mass adoption before considering premium tiers. There is demand for premium tiers, especially among residential real estate agents who want to be at the top of the page. In other countries, the home seller often pays for the premium levels, but there is also demand for a gold level at the agent level. Scott Wheeler is retiring and the company is confident in their future success.

The speaker is pleased with the success of Homes.com and wants to continue its traction. They plan to focus on the product for the rest of the year and then shift to a dedicated sales team in 2025. They also mention that the sales force for Apartments.com and other products is interested in selling Homes.com. The speaker also mentions that the unit deliveries for Apartments.com will peak this year and may decrease slightly in the future.

The vacancy rates in the apartment industry are still high, causing concern for refinancing and liquidity. However, this creates a favorable environment for selling Apartments.com. Homes.com is currently being demoed to 2% of all U.S. agents, with a solid conversion rate in the 20s to 30s. The challenge is getting enough demos, but eventually, everyone will be reached.

The company has demoed 7% of their defined prospects, which may actually be closer to 1 million given the number of people who have subscribed without listings. Many agents who are trying to break into the residential real estate market are subscribing, and the company offers exposure and retargeting opportunities for these agents even if they do not have current listings. However, the company acknowledges that changes in the market may make it more difficult for agents without listings to succeed.

The speaker is responding to a question about the integration of Matterport into CoStar and its potential for revenue growth. They express confidence in being able to accelerate Matterport's sales and revenue through various strategies, including adopting digital twins and utilizing capture networks. They also mention Matterport's low penetration rates in the United States and Europe.

The speaker believes that the use of Matterport, a 3D virtual tour technology, is valuable in selling high-end properties and predicts that adoption rates will increase by 50%. They also mention that CoStar, a real estate management tool, will incorporate 3D technology to enhance its services. The speaker emphasizes the importance of aggressively adopting 3D technology to differentiate from competitors and capitalize on the valuable data it provides.

The failure of automated valuation models (AVMs) in real estate can be attributed to their reliance on limited tabular data. Matterport, on the other hand, provides a much more comprehensive understanding of a property through its ability to capture a wide range of information, including quality, layout, and views. This data can greatly inform AVMs and improve their accuracy. Additionally, with the development of headsets and drones, Matterport's capabilities will expand to include exterior views and smooth walk-throughs, making it even more valuable in the real estate industry.

The speakers discuss the challenges of using weekend research projects and the importance of professional work in the real estate industry. They also mention the value of data and the need for digital twins in property assessment. The call concludes with a thank you to the CFO and an apology for a previous comment.

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