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CoStar's Revenue Grew 19% Last Year As CRE Shifted Operations Online

Commercial real estate's shift to virtual operations during the coronavirus pandemic has been a financial windfall for CoStar Group, the $33B property data giant that owns several major online real estate platforms. 

RentPath has nixed CoStar Group's $588M acquisition as it faced a Federal Trade Commission complaint.

CoStar reported nearly $1.7B of revenue for full-year 2020, a 19% increase from the prior year as its products geared to researching and marketing all types of commercial real estate online soared in use, it reported in its quarterly earnings filing Tuesday evening. Its growth has only fueled its appetite for acquisitions, which it spent heavily on last year.

CoStar CEO Andy Florance said on Tuesday's earnings call its profitability was hurt by $59.5M it spent on a termination fee and other costs associated with the failed RentPath acquisition. While the D.C.-based company's revenue grew, its net income dropped from $315M in 2019 to $227M in 2020.

CoStar made three other acquisitions last year. It bought auction platform Ten-X for $190M, residential listing platform Homesnap for $250M and European property data company Emporis for an undisclosed price. 

Florance spent more than 10 minutes on the earnings call discussing CoStar's proposed bid to buy CoreLogic, which it increased last week after the residential data firm entered into an agreement with another buyer. He detailed a series of synergies the merger would create and said the combination doesn't present antitrust risk, an issue that led to the collapse of the RentPath deal. 

"Since Costar and CoreLogic serve very different industry segments with cycles that are generally not correlated, combining the companies will further diversify the revenue sources and create a more stable, combined revenue stream," Florance said. 

Following its earnings release, CoStar's stock price fell Wednesday morning. It had dropped 3.4% as of 11:30 a.m. The company has a market cap of roughly $33B.

CoStar experienced increased traffic and revenue across many of its online real estate platforms, a trend it partially attributed to industry professionals and customers shifting to virtual operations during the pandemic. 

CoStar CEO Andy Florance in the audience at a 2019 Bisnow event.

The company's platform brought in $599M in 2020 revenue, a 22% increase from the prior year. Florance said renters took 170 million virtual tours on the site last year, twice as many as the prior year. 

"People need a home in a pandemic more than ever," Florance said. "Virtual shopping on provides a safer alternative to touring apartments in person. More renters than ever are looking for new apartments, and more research is taking place from home."

LoopNet, the company's commercial property listing platform, experienced revenue growth of 20%. CoStar sees more growth potential in the platform and plans to double its investment in LoopNet marketing to $66M this year. 

Ten-X, the digital auction platform it acquired in June, experienced year-over-year revenue growth of 14% in the fourth quarter. CoStar plans to quadruple its marketing investment in Ten-X to $36M, a strategy Florance said is designed to benefit from the rise in distressed asset sales. 

"We've made great progress on our Ten-X integration plans in 2020 and now is the right time to accelerate our investments to be ready to take full advantage of the expected increase in distressed assets to come to market," Florance said. 

STR, the hotel research firm CoStar acquired in late 2019, experienced year-over-year subscription revenue growth of 5% in Q4 and 97% client retention, despite the hotel industry's devastating year. The company plans to embed STR's hospitality data into its main CoStar Suite platform this quarter.

"In a year which has brought the hospitality industry to a complete standstill, the performance of STR has been nothing short of miraculous," Florance said. "STR, like the rest of CoStar Group, is resilient and appears to be almost countercyclical, but certainly downwardly resistant."

CoStar Suite, the company's main commercial real estate data service, experienced 8% revenue growth for the full year. Florance said it recovered in the second half of the year after a "brief pause" at the beginning of the pandemic. 

The company had concerns about renewal rates during Q1 and Q2, CoStar Chief Financial Officer Scott Wheeler said, but he said it was primarily smaller customers that decided not to renew. 

"Large customers all stayed, there was really no increase at all in drop-off rates from anyone that was five or six brokers or more or in the owners category," Wheeler said. "It was the small brokers that dropped out over summertime, which also led to a little bit of an increase in our bad debt. We saw in the later part of year that certainly has trickled off and stabilized."

The company has roughly $3.8B of cash and cash equivalents on hand as of Dec. 31, and Florance said he is pursuing multiple acquisition opportunities beyond CoreLogic. 

"As we look ahead to 2021, our strong balance sheet and acquisition track record position us to pursue multiple large growth opportunities through organic investment and M&A," Florance said.