The paragraph is an introduction to the Q3 2024 CoStar Group Earnings Conference Call, led by the operator and Rich Simonelli, the Head of Investor Relations. It outlines that the call will cover the company's third-quarter results and include forward-looking statements about the company's expectations. These statements are subject to risks and uncertainties as detailed in CoStar's recent filings with the SEC. The company has no obligation to update these statements with new information. A reconciliation of non-GAAP financial measures discussed will be provided in the press release available on CoStar's website.

In the CoStar Group's third quarter earnings call, CEO Andy Florance announced the company's strong financial performance. The third quarter of 2024 saw a revenue of $693 million, marking an 11% year-over-year increase and maintaining 54 consecutive quarters of double-digit growth. Core businesses like CoStar and Apartments demonstrated robust expansion, with revenues growing by 10% and 16%, respectively. The multifamily sector is on track for 17% revenue growth in 2024, nearing $1.1 billion in run-rate revenue. Net income rose to $53 million from $7 million in Q1 2024, while EBITDA increased to $51 million from negative $13 million in Q1 2024. Adjusted EBITDA reached $76 million, surpassing the guidance range. Despite significant early 2024 investments in Homes.com, profit margins in their commercial information and marketplace businesses remained strong at 43%. Additionally, it was noted that Rich Simonelli had previously missed calls but was welcomed back.

In the third quarter of 2024, CoStar Group saw a 28% year-over-year increase in unique visitors to their websites, reaching 163 million. They generated $44 million in net new bookings. After launching Homes.com with a small sales team of 41, the entire CoStar sales force was redirected to focus on selling this new product. While this move temporarily reduced sales of their core products due to lower productivity and expertise, it was considered a necessary step for Homes.com's long-term potential. CoStar is now rapidly expanding its dedicated Homes.com sales team and returning most sales representatives to their core products, anticipating improved bookings from Q4 and into 2025. September marked their best net new sales month for CoStar in a year. The company is also increasing sales teams for CoStar, LoopNet, and Apartments.com by over 100 representatives each to capitalize on growth opportunities.

In the four years since the COVID-19 lockdown, the commercial real estate market has faced significant challenges, yet CoStar has thrived, expanding its subscriber base and maintaining a high renewal rate. The company has launched new products for institutional clients, like owners and lenders, resulting in notable sales growth, especially with its lender product which has achieved $50 million in annual revenue. CoStar's owner module offers comprehensive insights into major real estate owners, becoming increasingly valuable as commercial property values adjust in the coming years. Despite high CMBS delinquency rates and increased office delinquencies, there are emerging opportunities in the office market.

The paragraph highlights the growth and engagement of CoStar and its products. It mentions a significant increase in transactions expected next year and a rise in CoStar product activity among its 237,000 subscribers. Property searches and overall activity have notably increased, with high login numbers in September. CoStar serves subscribers in 112 countries, and the integration of STR has enhanced hospitality data analytics. The hotel asset class is valued at $3 trillion, and CoStar now offers analytics for numerous global markets. Apartments.com also performed well, with revenue of $272 million in Q3 2024 and a growing customer base. There was a record in rental tools and inventory listings, with $1.3 billion in rent payments processed.

The paragraph highlights the growth and strong market position of Apartments.com and Homes.com. Single-family rental listings have significantly increased lead generation for Homes.com. Apartments.com has seen substantial traffic and holds a strong unaided awareness among apartment seekers, especially in Canada. Marketing efforts are supported by prominent events and shows. Since acquiring Apartments.com in 2014, the company has experienced a 1,200% revenue growth, with multifamily revenue now 2.5 times that of Zillow's. The revenue model is subscription-based with high customer satisfaction and renewal rates. Insights from ForRent.com leaders indicate resilience in low vacancy rate markets, seen as adverse by some.

The paragraph discusses how the leading platform, Apartments.com, succeeds in both high and low vacancy markets because apartment communities consistently advertise on it. Second-tier sites struggle when vacancies are low but can grow when vacancies rise, as communities look to increase advertising beyond just the top platform. The paragraph highlights the success of Apartments.com with impressive client interactions, a high NPS rating, and a strong renewal rate. It also notes LoopNet's significant growth in Q3 2024, with increased sales and traffic compared to competitors, particularly in the Canadian and U.K. markets, as reported by Semrush. Finally, there is mention of early-stage efforts to launch the new Homes.com.

The paragraph discusses the successful launch and development of the Homes.com site, highlighting the company's ambition to create a leading residential real estate portal. Over seven months, significant effort by the staff has gone into the project, with plans for future global expansion. The business model focuses on ensuring agents retain control over their listings, contrasting it with other models that divert leads. Positive feedback from agents and industry leaders supports the model's potential success. The marketing campaign in the U.S. has been effective, generating 15 billion impressions so far, indicative of strong growth and confidence in achieving major market share and revenue.

The paragraph discusses Homes.com's successful marketing strategies, including airing over 25,000 commercials and achieving significant visibility through events like the Super Bowl and the Emmys. The campaign, featuring spokesperson Dan Levy, has helped boost Homes.com's unaided brand awareness from 4% to 33% since February. This rapid growth in awareness surpasses that of Apartments.com at the same stage, even in a competitive market with established players. Homes.com's new advertisements highlight the platform's features and improvements, contributing to an expected 80 billion impressions this year.

The paragraph discusses the significant growth and success of Homes.com as a real estate platform. It highlights a 500% increase in unaided intention to use the site and a rise in Net Promoter Score from 44 to 75. Homes.com attracted 130 million average monthly unique visitors in the third quarter, with an increase of 17% year-over-year. It is now the second most heavily trafficked U.S. residential portal. Homes.com benefits agents by marketing listings effectively without stripping leads and ensures members' listings are prominently displayed and extensively viewed online.

The paragraph discusses the benefits Homes.com offers to its members, highlighting how member listings receive significantly more exposure, selling faster and at higher prices than basic listings. This enhanced visibility and value help member agents secure 50% more listing assignments. Homes.com promotes the identity of agents and brokerages, unlike competitors like Zillow, by prominently displaying their names on listings, leading to direct client connections. The site is projected to show agents and brokerage names 272 billion times annually, underscoring their visibility. Homes.com claims to help home sellers market and sell homes more effectively, and its unique business model continues to gain traction, evidenced by improving Net Promoter Scores that gauge member satisfaction and likelihood to recommend the service.

The paragraph discusses the growth and success of Homes.com, highlighting a substantial increase in its Net Promoter Score (NPS) over several months and its effective use of Matterport 3D tours to boost consumer engagement and lead quality. Homes.com has significantly outperformed Apartments.com in revenue generation within the first two quarters post-launch, nearly doubling the latter's performance. The company is focusing on expanding its dedicated sales force to support Homes.com's growth, aiming to have over 275 salespeople by year-end, compared to 41 at the Super Bowl launch and 113 in production by September. The emphasis is on leveraging existing resources and building a specialized team to sustain this progress.

The paragraph discusses the ambitious expansion plans for Homes.com, aiming to double its sales force to 600 by 2025, potentially adding $142 million in annual billings. The average salesperson sells 2,108 gross and 1,641 net new sales monthly, equating to 236,000 annualized billings. On the market, the U.K. real estate portal acquired by CoStar a year ago, has seen significant traffic and listing growth. With dissatisfaction towards competitor pricing, there is potential for market growth in the U.K. The U.S. real estate market is also transforming, with brokerage firms and consumers expressing dissatisfaction post the NAR settlement, potentially benefiting Homes.com.

The paragraph discusses the criticisms of real estate portals like Zillow and realtor.com for misleading consumers by diverting leads to multiple buyer agents instead of the listing agent, creating a poor consumer experience. To address this, new MLS rules require buyer agents to have a written agreement with buyers before showing them properties, specifying compensation and payment responsibility. This rule is expected to challenge real estate platforms like Zillow, as potential buyers can contact listing agents directly through open houses or platforms like Homes.com without needing such agreements. While most home shoppers still use buyer agents, they prefer transparency and control over the process. The paragraph contrasts CoStar's reinvestment strategy for growth with businesses like REA Group or Rightmove, which focus on high margins possibly at the expense of long-term shareholder value growth.

The paragraph discusses the growth strategies of REA Group and CoStar. REA Group primarily increased its revenue by raising fees per agent, achieving a 15% compound annual growth rate from 2009 to 2024. Although this strategy has been successful in the past, the author doubts its sustainability in the long term, especially since recent attempts to expand through acquisitions, such as Rightmove in the U.K., have failed. In contrast, CoStar has focused on expanding its customer base by investing in platforms like LoopNet and Apartments.com, leading to significant market cap growth from $1 billion in 2011 to $30 billion today. This approach has allowed CoStar to provide sustainable long-term shareholder value.

CoStar Group has announced its acquisition of Visual Lease, aiming to boost its real estate management capabilities by combining resources with Visual Lease's strength in lease management and accounting services. This strategic move seeks to provide comprehensive services to existing customers and support growth both nationally and internationally. The commercial real estate market shows signs of recovery, with office prices down 18% and multifamily prices down 11% over the past year. Despite these declines, multifamily demand is strong, with 174,000 units absorbed, potentially doubling last year's levels and nearing 2021 records.

The real estate sector is experiencing varied dynamics across different segments. The residential market has high vacancy rates, with 720,000 units under construction and office vacancies at record highs, despite signs of recovery such as slowing vacancy rate increases and rising leasing volumes. Meanwhile, new office constructions are at their lowest since 2013. The industrial sector sees modest demand with deliveries surpassing absorption, causing a slight rise in vacancy rates. The retail sector remains balanced in supply and demand, and the hospitality sector shows improved performance.

Over the past year, upper-scale hotels have seen a slight increase in occupancy, while lower-scale hotels experienced a decline. Mortgage rates have dropped but remain high, discouraging homeowners from moving, which limits home sales and keeps prices high. Despite economic challenges, the commercial real estate and multifamily sectors are performing well, with double-digit growth and strong margins. Residential portals are benefiting from enhancements and effective marketing. CoStar Group reported an 11% revenue growth in the third quarter, continuing a long streak of double-digit growth, with plans to strengthen their sales force and aim for further growth in 2025.

The paragraph provides an update on the revenue performance and growth strategies for CoStar Group's various products in the third quarter. CoStar's revenue grew by 10%, with expectations for similar full-year growth. The Lender product saw a significant 36% year-over-year revenue increase. Apartments.com achieved a 16% revenue growth, while LoopNet's growth was in line with its mid-single-digit forecast. Residential revenue was $28 million, with a 2024 full-year target of $100 million. The company is focusing on refining sales strategies for Homes.com and expanding its sales team. Revenue from Information Services declined due to integration changes, and other marketplaces generated $32 million in revenue, with fourth-quarter expectations mirroring this performance.

In the third quarter, the company reported an adjusted EBITDA of $76 million, an 11% margin, surpassing its 7% guidance due to effective expense management and strong performance in its commercial information and marketplaces businesses. The sales force grew by 19% year-over-year to 1,340 people, and contract renewal rates were high. The company maintains a strong balance sheet with $4.9 billion in cash and earned $56 million in net interest income. Upcoming acquisitions, Matterport and Visual Lease, are expected to close by early 2025, but their financial impacts are not included in the current guidance. Full-year 2024 revenue is projected to be $2.72 billion to $2.73 billion, reflecting 11% growth, while adjusted EBITDA is expected to be between $205 million and $215 million. The guidance adjustment accounts for challenging property market conditions and residential guidance. The operator then opened the floor for questions.

In the paragraph, Stephen Sheldon inquires about the growth outlook for commercial real estate businesses like the Suite and LoopNet in 2025, noting potential acceleration after overcoming current distractions with Homes.com sales. Andrew Florance responds optimistically, indicating that market conditions are improving, which could transform current challenges into growth opportunities. He highlights growth potential in broker, corporation, owner, and institution penetration, and notes that LoopNet's growth is stable due to sales force expansion and pricing model improvements. He mentions the importance of maintaining sales force productivity to manage low cancellation rates and expresses optimism for future growth, barring any unforeseen external events.

In the paragraph, Jeff Meuler from Baird asks Andrew Florance for more details on an observed upturn in CoStar sales following a reprioritization of sales resources back to their core responsibilities. Florance explains that the upturn is due to salespeople focusing more on their primary product, CoStar, after initially dividing their attention with Homes.com. The sales team struggled with the dual responsibility due to inexperience and unclear value propositions for Homes.com, which led to a slowdown in their core product sales. Florance acknowledges the challenge of building a salesforce for a new product envisioned to become a major business. He highlights the ongoing effort to ramp up a dedicated sales team for Homes.com in Richmond, emphasizing the ambition and progress of establishing a strong, energized sales force.

In the paragraph, Andrew Florance discusses challenges faced when rapidly transitioning 1,300 salespeople to sell a new product with minimal training. This led to misunderstandings about the product's value proposition, with some clients mistakenly believing they were purchasing a buyer agent lead diversion product. Despite these challenges, Florance is confident in the actual value proposition, which focuses on helping clients secure new listings in a competitive market, showing a 50% improvement in win rate.

The paragraph discusses the positive return on investment (ROI) and improving Net Promoter Score (NPS) for a product, indicating that users are recognizing its value. It suggests that people will increasingly view this as an annual subscription, especially for those with consistent real estate listings, who are likely to be high renewal rate subscribers to Homes.com. However, those without many listings may not benefit as much. The paragraph also includes a brief exchange acknowledging a strong statement from a financial leader, and introduces a question from Ryan Tomasello about residential spending and nonresidential EBITDA margin for the year.

In the paragraph, Andrew Florance responds to a query about investment levels for Homes.com, stating that while their initial investment was significant, it is sustainable, and they do not foresee needing to increase marketing or investment next year. Chris Lown adds that the company is on track with their planned spending and margin growth in their commercial business. George Tong from Goldman Sachs inquires about reductions in the residential guide, asking whether they are due to sales force productivity issues or client demand. Andrew Florance clarifies that it's more related to factors other than client demand.

The paragraph discusses the mechanics of hiring and training a sales force, emphasizing the balance between hiring enough salespeople to meet demand while maintaining quality. The company has successfully hired many new, less experienced salespeople who quickly become profitable. However, there is a limit to how many can be hired without impacting quality. The operator then shifts to a discussion about sales and marketing expenses, noting a significant sequential drop in spending, particularly in the third quarter, which hasn't happened since 2019. John Campbell questions whether the residential investment might decrease next year, suggesting that marketing strategies like fewer Super Bowl commercials and less search engine marketing could be contributing to good traffic despite reduced spending.

In this discussion, Andrew Florance addresses concerns about the potential for reduced results in the next year by highlighting a 33% reduction in Super Bowl ads for Homes, indicating some cost adjustments. Despite this, he remains optimistic about the opportunities ahead and expresses confidence in their current trajectory. Chris Lown adds that while there will be changes in the mix of expenses, driven by a significant growth in the sales force and reduced marketing spend, overall expenses are expected to remain the same. In response to a question from Surinder Thind about the sustained success of the Homes.com product amidst uncontrollable factors, Florance emphasizes the importance of patience in product development. He argues that significant outcomes can't be expected within seven months and stresses the value of tracking consumer awareness and site preference as positive indicators of growth and success.

The paragraph discusses a shift in the industry towards using portals to market homes for sale, emphasizing the excitement and challenges involved, such as the need for patience and capital. It mentions improving sales metrics and growth in customer satisfaction, suggesting positive trends that may become more apparent next year. The interaction includes a transition to a Q&A session, where Ashish Sabadra from RBC asks about the impact of declining core bookings, which are down 34% for the quarter and 38% year-to-date, on future revenue. Andrew Florance explains that in a subscription business, net bookings affect future revenue and highlights the importance of reengaging and investing in the sales force to boost bookings in upcoming quarters, which will impact growth in 2026.

The paragraph is from an earnings call where Andrew Florance takes over from Rich Simonelli to deliver the closing remarks. Florance thanks everyone for attending and encourages participants to reach out to Rich Simonelli with any further questions. He also mentions looking forward to providing updates in the next quarter. The call is then concluded by the operator.

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