雅虎香港財經 CoStar Group, Inc. (NASDAQ:CSGP) Q1 2023 Earnings Call Transcript
CoStar Group, Inc. (NASDAQ:CSGP) Q1 2023 Earnings Call Transcript April 25, 2023
CoStar Group, Inc. beats earnings expectations. Reported EPS is $0.29, expectations were $0.25.
Operator: Good afternoon. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group First Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Now Cyndi Eakin, Head of Investor Relations will read the Safe Harbor statement. Cyndi, you may begin.
Cyndi Eakin : Thank you, Hannah. Good evening, and thank you all for joining us to discuss the first quarter 2023 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar's CEO and Founder; and Scott Wheeler, our CFO, I would like to review our Safe Harbor statement. Certain portions of the discussion today may contain forward-looking statements, including the company's outlook and expectations for the second quarter and the full year of 2023, based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to those stated in CoStar Group's press release issued earlier today and in our filings with the SEC including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q under the heading Risk Factors.
All forward-looking statements are based on the information available to CoStar on the date of this call. CoStar assumes no obligation to update these statements, whether as a result of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure of non-GAAP financial measures discussed on this call including EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per diluted share, and forward-looking non-GAAP guidance are also shown in detail on our press release issued today, along with definitions for those terms. The press release is available on our website located at costargroup.com under Press Room. As a reminder, today's conference call is being webcast and the link is also available on our website under Investors.
Please refer to today's press release on how to access the replay of this call. And with that, I would like to turn the call over to our Founder and CEO, Andy Florance.
Andy Florance: Good afternoon, and thank you for joining us for CoStar Group's first quarter 2023 earnings call. Revenue for the first quarter of 2023 was $584 million, or 13% growth year-over-year coming in at the high end of our guidance range and above consensus estimates. I'm very pleased with the growth of our commercial information and non-residential marketplace businesses, which delivered 15% year-over-year revenue growth in the first quarter. I'm also very pleased with the progress we're making in building the new Homes.com, which I believe will become the best online residential marketplace in the world bar none. We started the year strong with net new sales of $80 million, our second highest sales quarter ever and a 17% increase over the first quarter of the prior year.
Apartments.com achieved the highest net new sales quarter for the second quarter in a row. LoopNet achieved outstanding results in the quarter with a 100% increase in net new sales over the first quarter of last year. We hit a new high watermark in traffic to our marketplaces in March. Monthly unique visitors totaled $94 million for the month with Apartments.com, Homes.com, LoopNet Lands, BizBuySell, Belbex, BureauxLocaux business in all of our marketplaces contributing up to tens of millions of unique visitors. Apartments.com continued its impressive run with another outstanding quarter. Apartments.com revenue was $211 million in the first quarter, climbing to 20% year-over-year for the first time since the first quarter of 2021. Net new sales bookings were at an all-time high breaking the record set just last quarter with an increase of 110% in over the first quarter of '22.
Apartments.com while very successful has millions of apartments that do not yet advertise on the site. We are focused on continuing to grow our sales force to reach this huge potential untapped audience. Our attention to attracting the best talent and excellent on-boarding and training of new hires is paying good dividends. Our sales team productivity is up over 40% compared to last year for hires who have been with us less than a year. We are committed to excellent customer service and that's a big contributor to our success. The apartment sales team conducted close to 140000 quality meetings this quarter which is 24% higher than the same quarter last year. Of those 140,000 quality meetings over 50,000 were in person, a 45% increase over the first quarter of '22.
This attention to servicing continues to be well received by our clients as evidenced by our industry-leading Net Promoter Score of 94. The number of properties advertising on our platform continues to expand and is now at a record 64000 properties. Our customers are selecting higher ad package levels to obtain more leads as evidenced by our average revenue per property increase of 14% over the prior year. The economic fundamentals of the apartment industry continue to move in our favor. The vacancy rate for three, four and five-star properties rose another 30 basis points to 7.7% in the first quarter and net deliveries continue to outpace net absorption in the quarter with twice the units delivered as absorbed. Deliveries in '23 are expected to be the highest in over 40 years and vacancy rates are forecast to increase for the remainder of the year.
There are currently over one million units under construction, with approximately 750,000 of them being at the top end of the market. Pressure on these assets will be intense throughout 2023 as rent levels moderate. We expect vacancy rates to remain elevated by historical standards. All this could create a jet stream like tailwind for advertising demand. March marked the official role to the new 2023 Apartments.com marketing campaign with new TV commercials, streaming videos and streaming audio commercials. Jeff Goldblum, as Brad Bellflower was featured during March Madness and all month across top networks like CVS, BRAVO, TBS, TNT, and more. We launched a new social media campaign, our streaming audio and podcast campaigns have hit the airwaves and engagements are at an all-time high.
We anticipate that our 2023 campaign will yield 12 billion media impressions. The early results of this campaign are strong with our first quarter unaided brand awareness for Apartments.com jumping to our highest score ever. Apartments.com continues to attract qualified renters to our platform with an average of over 43 million monthly unique visitors in the quarter according to Google Analytics. Apartments.com is also benefiting from the addition of Homes.com rental area to its network and the tremendous growth in traffic to Homes.com. Visitors to the homes rental area up 83% since the fourth quarter of 2022 and those visitors delivered approximately 200,000 leads to our paying of Apartments.com customers, that's up 124% from just last quarter.
With more content than ever before on our network including unit level details and touring capabilities our lead quality continues to outperform our competitors. Our mobile sessions were an all-time high in the first quarter with 75% of Apartments.com user sessions conducted on a mobile device. Just five keywords now account for 33% of unbranded search activity on these devices. When the top 376 cities in the United States are examined, Apartments.com ranks number for all five of these terms 99% of the time. The combination of the kickoff of our 2023 marketing campaign, market conditions and our larger and more seasoned sales teams helped continue to drive strong results. In sum, I am very pleased to report that we expect Apartments.com to deliver 22% to 23% revenue growth in 2023.
I'm very excited about the progress we've made on many Homes.com initiatives in the short period of time. Last year, we laid out the key milestones for Homes.com grow, monetize and scale. The grow phase, focused on increasing traffic engaging buyers and sellers on our platform. Our initial goal in the grow phase was to achieve 25 million unique visitors, while our goal in the scale phase was to reach 50 million unique visitors. Traffic to our Homes.com network grew dramatically. We reached 27 million unique visitors in March, according to Google Analytics. Months-to-date in April traffic to Homes.com grew 53% over the same period months-to-date. As of this morning for the partial months-to-date we have already seen 28 million unique visitors to Homes.com network.
Unique visitors for our Homes.com network is 88% above March of last year and traffic to our Homes.com site is up 183%, compared to last year. We are now four times the traffic levels from when we purchased Homes.com almost two years ago. By comparison, two years after we purchased Apartments.com, we'd only double the traffic. As we continue to build Homes.com and combine single-family residential with rental content from Apartments.com, we can now aggregate our traffic across both property marketplaces. In total, monthly unique visitors in March for our Apartments.com and Homes.com network was $72 million, according to Google Analytics. For the fourth quarter of 2022, Realtor.com reported 66 million monthly unique visitors while Redfin reported 44 million average monthly unique visitors.
According to comScore, Homes.com unique visitors were up 153% year-over-year in March Realtor.com's monthly unique visitors decreased by 20%. Zillow's unique visitors were down 5% and Redfin's traffic increased 5% compared to March of last year. Alongside our increase in consumer traffic engagement agent engagement continues to improve. We now have approximately 1.1 million agents registered in Homes.com network up 37% for the first quarter of 2022. Active users are those who visit the site monthly have increased 64% versus last year. I believe the engagement will continue to improve as we're providing millions of free leads to agents that could generate billions of commission dollars for them under our Your Listing Your Lead Business model.
In the months ahead, we're intensely focused on product development, generating proprietary content and building consumer traffic. Our team is extremely talented and singularly focused on winning. I wish I could share more detail on some of the great success stories, but I cannot for competitive reasons. With the progress we've made to-date, I remain confident that we're on track to begin monetizing Homes.com advertising product in the later part of this year. LoopNet was 63 -- revenue was $63 million for the first quarter up 16% year-over-year and accelerating from 12% growth rate in the fourth quarter of 2022. Our investment in building a direct sales force for LoopNet's paying off. Net new bookings are up 100% year-over-year, which is directly attributable to our larger and more effective sales teams.
The productivity for sellers in the first year has increased in each of the last four quarters as new reps ramp and become more productive. Sales of new signature ads are up 27% year-over-year. LoopNet captured record traffic in the quarter with 14 million average monthly unique visitors to a network of marketplaces up 12% year-over-year. According to Semrush LoopNet has eight times the traffic of our nearest competitor in March. We're also seeing traffic gains in Canada as our unique visitors for LoopNet Canada in the first quarter are over five times the unique visitors of our nearest competitor there. These accomplishments and investments reinforce our position as the most popular place to find a space and give me confidence in our ability to achieve our target of 18% to 19% revenue growth in 2023.
As we continue to focus on international expansion with our revenues they are expected to exceed $80 million in 2023. By revenue our international business now ranks number four behind Apartments.com, CoStar and LoopNet. We now have over 500 international employees including 200 researchers and 130 sales representatives. In Europe, we currently operate more than a dozen cities in five countries with aspirations to expand our CoStar and LoopNet products into most of these major markets. Currently, CoStar and LoopNet are only offered in the US, Canada and the United Kingdom. We believe there's a $30 billion European market for real estate information services and marketplaces, which is roughly the same size as our North American market. A key step to capturing a significant share of that market is building and selling CoStar and LoopNet on a pan-European basis.
One of the core unique competencies of our research operations is our on-the-ground field research operations. Our goal over the next few years is to photograph map and document all of the commercial properties 10,000 square feet or larger roughly 1,000 square meters in 15 European countries and approximately 36 cities. We will divide each city into one kilometer grids and capture all the relevant building inventory in each area. We anticipate capturing information on more than 1.5 million properties with a combined value in the trillions of euros. We have done this before in the US, Canada and the UK, and in each instance these massive efforts have resulted in a profitable and very valuable information asset. CoStar revenue increased $225 million in the first quarter, up 13%.
For each month of the quarter, we saw a record number of distinct users in CoStar and in March exceeded 140,000 distinct users. Usage of CoStar and product engagement continues to grow as evidenced by nearly 6.5 million log-ins in the first quarter, a 26% increase over the last year. During those user sessions, property searches exceeded $20 million each month and property detail views averaged 15 million a month. Whilst CoStar continues to be the premier product for real estate professionals -- brokers, significant opportunities exist for selling to new customers. We have a 75% plus penetration rate amongst brokerages with five or more brokers and continue to prospect smaller firms with an annual revenue potential of $96 million. In addition, our sales teams are focused on owners, lenders and corporations where we have a significant addressable market.
We believe we have over 51,000 owner prospects, 10,000 lender prospects and almost 4,000 corporations or 50 or more locations for a total of $1.4 billion in potential revenue. For the first time this quarter, product demonstrations to these aforementioned prospects exceeded those to the broker customers and broker prospects. Overall, we're seeing slightly lower than -- slightly lower net new bookings for CoStar, but still expect double-digit revenue growth in 2023. We've releasing corporate information on 12,600 real estate investment funds and 70,000 commercial properties within those funds into CoStar. The sub-fund information helps clients understand who has capital available to invest in the commercial real estate and what sort of product types they want to invest in and where they want to invest.
We continue to focus on our banking customers with our lender product. Last month marked the one-year anniversary of releasing our fully integrated solution for lenders in CoStar. Sales continued to be strong in Q1 ending our first year by breaking the 150 total client milestone. These clients spend many lender types including banks, life insurance companies, credit unions and private lenders while ranging in size from $50 million CRE portfolios to over $50 billion CRE portfolio, proving a large opportunity moving forward. Our sales pipeline for lender is strong and we expect to build on that pipeline as the solution for lenders is uniquely positioned for continued growth in this uncertain environment. The value proposition is unmatched. No other company can connect a lender's portfolio to our rich property level information and provide a fully integrated credit model that assesses refinance risks as well as stress test a portfolio for an economic downturn.
We expect continued sales opportunities due to regulators calling for increased portfolio surveillance by CRE focused lenders for multiple reasons, including the concern over office properties, rising rates, refinancing risks and the threat of a potential economic downturn. I remain confident in our ability to grow CoStar revenue, given our mission-critical data ongoing product enhancements and the continued expansion and diversification, of our customer base. Although overall CRE transaction volume was down 51% year-over-year, Ten-X continues to outperform the market, with a solid 60% trade rate up 3 times that of the off-line market and up 51% in the fourth quarter of 2022. We also saw the average number of bidders per auction on the platform increased over 3.2 in the first quarter, compared to 2.6 in the fourth quarter of 2022.
In Q1 2023, Ten-X saw the average asset value increased 18% over the last year from $3.3 million to $3.9 million, average winning bid price increased 29% compared to the prior year from $3.1 million up to $4 million, and the average buyer premium increased 35% over the last year from 71,000 to 97,000. I believe this indicates that our expanded sales force is delivering higher quality assets, that investors are seeking, even in a price-challenged market. With roughly $1.5 trillion of CRE debt maturing in the next 24 months, and $700 billion maturing by year-end, we expect the continued interest rate-driven market shift to drive transaction volume up. Ten-X is already seeing an increase in momentum in the second quarter, with $1.7 billion of inventory come into the platform, a 44% increase from Q2 of 2022.
Ten-X remains the go-to platform for accelerated asset transactions, which buyers, sellers, brokers, lenders and special servicers, benefit from as the markets continue to shift. Our land’s business is focused on creating opportunities for our real and clients to capture more leads for their priority properties for sale, with signature ad opportunities. This business continues its consistent profitable growth with 14% year-over-year revenue growth. STR has achieved a record sales quarter with the highest net new in its history, and delivered 14% year-over-year revenue growth, on a constant currency basis compared to the first quarter of 2022. We're on track to launch our new benchmarking product this month, and execute our plan of migrating more than 175,000 users to the CoStar platform.
This release will open access to new clients, including owners, hotel operators and brands that will enable execution of our integrated strategy. Owners will have clear visibility into asset performance, market performance and competitive landscape. This insight is invaluable for asset acquisition, repositioning and dispositioning. Operators, will have access to data and tools to better forecast budget, yield, manage and identify demand drivers and supply implications. Hotel brands will have a full suite to support and develop teams, franchise owners, relationships and management contracts, what's not to love about all that. Overall, higher interest rates and increased economic uncertainty have reduced transaction volumes in the market, and impacted prices since the second half of 2022.
As I mentioned earlier, transaction volumes declined by over 50% year-over-year in the first quarter of 2023, in the commercial real estate markets. In addition, we're now seeing asset price declines for seven consecutive months with valuations off by 8% over that time. The office sector continues to show real weakness with vacancy rates reaching almost 13% in the first quarter Phantom vacancy rate is much higher than that. And it's matching the all-time peak seen after the great financial crisis. With continued weak demand negative net absorption and other 58 million square feet of deliveries expected in 2023, we expect vacancies to push higher for the foreseeable future. Not surprisingly, delinquency rates on commercial property loans have doubled in the past three months to 2.8% and it's probably actually higher than that.
Overall sales prices for office buildings are down 26% from their peak in Q1 of 2022. Fortunately, our 10x platform is well positioned to assist with the recapitalization of those properties as they come to market. The residential housing market remains constrained. Mortgage rates are down from the earlier highs at the end of last year, but affordability is still low by historical standards. Sales of existing homes tipped higher earlier this year after 12 consecutive months of declines. Sales of new homes have trended higher since reaching a bottom last year as builders are offering incentives like rate buydowns to clear inventories. Inventories remain tight which should prevent values from declining rapidly. The retail sector continues to benefit from reduced store closures, steady demand and minimal new supply.
Available retail space fell to a new all-time low of 4.7% during the first quarter, leaving it difficult to find space strong market. Industrial net absorption has slowed in the first quarter after two years of record high net absorption and tenant demand is beginning to moderate. At 4.3% the US industrial vacancy rate is half of the levels recorded 10 years ago and rents have climbed 10% over the last 12 months still a strong market. I'm very pleased with the performance of our business in the first quarter. CoStar continues to grow and remain resilient despite industry headwinds elsewhere. Apartments.com and LoopNet show accelerating countercyclical sales success. I am very optimistic about the progress we're making building traffic and value at Homes.com.
We're very pleased to see our array of diverse platforms drawing more than 94 million unique visitors in March and I look forward to reporting 100 million unique visitors before too long. At this point, I'm going to turn the call over to the very capable hands of our Chief Financial Officer, Scott Wheeler.
Photo by sean pollock on Unsplash
Scott Wheeler: Thank you, Andy. It's a great way to start the year, again. Financially, we are certainly on track, if not slightly ahead where we expected to be this quarter and for the year. With regards to revenue and our revenue growth outlook which is a 13% total revenue growth for 2023. Now, one of our sell-side analysts recently pointed out that we have logged 50 quarters in a row of double-digit revenue growth, although we actually just completed 48 consecutive quarters of double-digit revenue growth, but who's counting. I actually use my favorite AI tool which I call an Excel spreadsheet to go back and figure out how many actual quarters we had double-digit growth. So it was back in 2011. So I am applying AI here at CoStar to our financial results.
Andy Florance: It might just be eye.
Scott Wheeler: The question of my eye sometimes. So revenue by services, CoStar revenue grew 13% in the first quarter. It was in line with our guidance expectations. CoStar expansion into new customers remain strong with new business sales consistently or slightly above the levels we've seen since mid-2021 after the pandemic. The brokers are certainly facing a tough transaction and leasing environment, which dampened new broker sales and renewal rates primarily among the very small broker shops. We expect that our revenue forecast will reflect the current market conditions, which would have CoStar revenue growing at 10% for the second quarter and for the full year of 2023. For multifamily, we added more than $35 million in year-over-year revenue during the first quarter on our way to once again achieving 20% revenue growth.
Our bigger sales team is giving us the capacity to reach more and more prospective customers that have never advertised for Apartments.com. The number of paid properties increased by 8% in the first quarter of 2023 on a year-over-year basis. This is the largest volume increase we've seen since the second quarter of 2021. In addition, we're seeing more and more customers upgrading to higher level ads versus those that are downgrading to lower level ads. This net revenue contribution from the positive ad level mix is now back to the levels we saw last during the pandemic surge, which was the second quarter of 2020, which were certainly good strong high levels. Looking ahead, we expect these trends to continue with rising vacancy rates and increased productivity from our recent sales force expansion classes.
So we're now forecasting revenue growth as Andy said of 23% for multifamily for the year and for the second quarter up from our prior guidance of 20% revenue growth for 2023. LoopNet revenue grew 16% in the first quarter up from 12% revenue growth in the fourth quarter of 2022, thanks to the success of our dedicated LoopNet sales team. We expect 18% revenue growth for LoopNet in the second quarter of 2023 with a full year revenue growth that we now expect at the upper end of our 18% to 19% guidance range. Revenue from Information Services increased 12% in the first quarter at the upper end of the guidance range with strong results from STR and revenue contributions from our growing European businesses. We expect revenue growth for both the second quarter and the full year of 2023 to be 10% slightly above the 7% to 9% full year revenue growth guidance range that we provided in February.
Our first quarter residential revenue came in at $13 million as expected. Estimated revenue for the second quarter is around $12 million with our full year 2023 revenue expectations remaining unchanged at $45 million. As a reminder, we've not assumed any revenues from Homes.com advertising products in our 2023 outlook. Other marketplace revenue contracted 4% in the first quarter of 2023, which was actually an improvement from the 10% to 13% first quarter revenue decline we expected a few months ago, as the trade rates for Ten-X that improved sequentially in the first quarter providing the extra revenue versus our forecast. We now expect revenue from other marketplaces to grow in the mid to high single-digits in the second quarter and we're increasing our full year revenue growth estimate to 11% to 12% based on the better-than-expected first quarter results.
Adjusted EBITDA was $123 million in the first quarter, $7 million above the high end of our guidance range. The outperformance was primarily attributable to our strong revenue performance and the timing of marketing spend in the quarter, which we expect to reverse as we move into our peak marketing season in the second and third quarters. Our adjusted EBITDA margin was 21% in the first quarter one percentage point higher than our guidance. The size of the sales force in total remains largely unchanged from where we were at the end of 2022. The Apartments and LoopNet Marketplace teams grew in the first quarter sequentially offset by modest attrition across the rest of the sales force. Our focus for the rest of 2023 is to continue to increase our sales teams in the marketplace businesses, including apartments, LoopNet lands and residential.
Our contract renewal rates remain in the 90% to 91% range, while the renewal rate in the first quarter for customers who have been subscribers for five years or longer remained strong at 95%. Subscription revenue on annual contracts increased to 82% for the first quarter of 2023, up from 81% at the end of 2022 and 80% a year ago. Both CoStar and Apartments.com have our highest annual subscription concentration percentages. And as these two products grow in relative size we see our total subscription percentage increasing along with it. With a strong start to the year, we are reconfirming our revenue guidance and raising the midpoint of our guidance range. The new revenue range of $2.465 billion to $2.48 billion implies revenue growth of 13% to 14% for the year.
Second quarter 2023 fee revenue is expected to range from $603 million to $608 million, representing revenue growth of approximately 13% at the midpoint. We are also reconfirming our adjusted EBITDA guidance and raising the midpoint of our guidance range. The new adjusted EBITDA forecast range is now $505 million to $520 million. Our investments in the Homes.com, residential marketplace are yielding excellent results and our investment plans remains unchanged from what we communicated in February. For the second quarter of 2023, adjusted EBITDA is expected to be in the range of $118 million to $123 million, indicating a second quarter adjusted EBITDA margin of 20%. Before we move to Q&A, I want to reassure everyone that our cash and our investments are safe and sound with no adverse impacts from the failure of the Silicon Valley Bank and the other recent banking turmoils.
We also have nothing related to First Republic Bank by the way. We maintain a very conservative treasury strategy that keeps our cash with only the strongest financial institutions and in the safest short-term investments. We actively manage our deposits to maximize interest income within the confines of our low-risk investment practices. In the first quarter, our $5.1 billion of cash earned a net interest of approximately 4.1% for the quarter, producing approximately $44 million of net interest income after deducting the interest expense on our debt. Projecting these results for the rest of the year is expected to yield net interest income of approximately $195 million, which is well above our prior estimates. We're raising our outlook for non-GAAP net income per diluted share to include our latest estimate of net interest income.
We now expect non-GAAP net income per diluted share of $1.21 to $1.24, an increase from our prior guidance of around 15%, which is $0.15 per diluted share at the midpoint. So that about wraps it up for me. You can see we're in a very strong financial position as we head into the second quarter and our growth our investment and our profit plans are all on track for another great year. So with that, I will now turn the call back over to our operator for a little bit of Q&A. Hannah, back to you.
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