Targeting $10 Billion in Subscriptions as CoStar Puts “Pedal to the Floor”

CoStar-owned has remained an ubiquitous presence across television broadcasts, internet browsers and radio airwaves over the last couple weeks, thanks to a billion-dollar marketing push (included four Super Bowl commercials) and has so far achieved 560 million impressions.

On the company’s Q4 and full-year 2023 earnings call yesterday, CoStar CEO Andy Florance kept up the hype, regularly updating listeners with a live sales counter for subscriptions and revealing some impressive early numbers—and even loftier goals for the portal.

“Our entire team has worked extraordinarily hard in building the platform and business. We believe that we just launched CoStar Group’s next transformative billion-dollar business,” Florance said.

In six business days, agents spent over $5.3 million in annualized subscriptions to, according to Florance. The portal offers a somewhat different monetization approach compared to other portals, with a promise to funnel leads directly to listing agents and memberships allowing agents to beef up their presence on the site.

Florance claimed that at this pace, would reach $200 million in annual recurring revenue in the next 12 months. If the company is able to fully realize its goals—selling subscriptions to a somewhat curated subset of half a million higher-performing agents—the portal will earn between $2.5 billion and $10 billion, with that higher number based on subscriptions the company has tracked on its flagship rental portal.

“There are a number of factors working in our favor with We know the size of the residential market opportunity is multiple times bigger than multifamily,” said CoStar Chief Financial Officer Scott Wheeler. “And nobody else in the industry is competing with a ‘your listing, your lead’ business model that doesn’t try to take agent commissions, but lets them buy advertising exposure to sell their listings.”

The push is the culmination of years of planning by the real estate behemoth—founded by Florance as a data market for commercial properties, but now encompassing an empire of businesses across multiple sectors. Wheeler affirmed that 2024 will be the “peak net investment year for residential” as CoStar seeks to supplant incumbents®, Redfin and Zillow in the so-called “portal wars.”

Wheeler himself, however, will not be overseeing the final stage of this push, as Florance announced at the end of the conference call that he will be retiring after eight years in the position, to pursue his passion for mountain climbing.

“Scott has accomplished as much as anyone could wish to professionally,” Florance said. “Scott leaves with no disagreements or issues, he simply wants to enjoy the fruits of his labor. Godspeed, Scott, and thank you so much.”

Overall, CoStar appears to be fully committed to both short and long term, building an entirely new sales team for the brand and pushing the pace of its marketing much higher than the company did for other acquisitions, according to Florance.

When asked by an investor if CoStar had any plans for adjusting the pace of the marketing campaign, Florance said he was “very happy” so far, but also couldn’t imagine ramping it up.

“I don’t see a scenario where we accelerate the investment in marketing,” he said. “I think we put the pedal to the floor, and the floor is pretty tough. And I don’t think there’s anywhere to go from here…we think it will pay off.”

Florance also fielded a question about the ongoing commission lawsuits, with an investor asking specifically whether is positioned to take advantage of potential changes in who pays commissions.

Though he has in the past focused on the model as a stronger approach regardless of the lawsuits, Florance was more explicit in carving out his company’s potential advantage.

“If (the industry) were to shift to the buyer pay and the buyer agent, I would think that we would have a significant advantage in funding our business moving forward,” he said. “So I think we’re going to do well and win whatever happens, but I think it would create tailwinds if we ended up with a settlement that required buyers to pay their buyer broker commission.”

Florance added that continues to support both buyer and seller agents with leads and exposure, focused on being more “diversified” than competitors in terms of monetization.

“People like their buyer-broker,” he noted.

The numbers

While the results and near-term goals are still somewhat aspirational, with the current pace of sales bolstered by shifting sales teams from other parts of the company to push, Wheeler still projected $60 million in revenue from the portal this year. Revenue from residential is also projected to rise 150%.

Looking at last year, CoStar overall beat estimates for 2023, with revenue from its conglomerate of businesses up 13% to $2.46 billion., the company’s flagship rental market, saw a 23% growth in revenue in 2023 and is now the company’s single largest subsidiary, according to Florance.

CoStar also remains highly profitable, as the company reported a net income of $374 million in 2023. It has also defied headwinds in its core commercial businesses, reporting moderate year-over-year revenue growth from the LoopNet commercial marketplace and its flagship CoStar product.

Last year also saw a big increase in expenses, with Wheeler calling 2024 the “turning point” for the company’s investment cycle as it monetizes CoStar spent almost $989 million in sales and marketing in 2023, up from $684 million in 2022. The company also spent $47 million more on software development compared to 2022.

For 2024, the company projected revenue growth of 13% on the high end, reaching $2.77 billion.

Source link

About The Author

Scroll to Top