Why is CoStar (CSGP) down 5.2% since its last earnings report? – May 23, 2024

About a month has passed since the last report on the results of the CoStar Group (CSGP – Free Report). Shares have lost about 5.2% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CoStar waiting for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

CoStar Group’s first quarter earnings exceed estimates, revenues increase y/y

CoStar Group reported first-quarter 2024 non-GAAP earnings of 10 cents per share, which topped the Zacks Consensus Estimate by 66.67% but declined 65.5% year-over-year.

Revenues of $656.4 million surpassed the Zacks Consensus Estimate by 1.10% and increased 12.3% year-over-year. Good results in key segments contributed to the growth.

Top-shelf details

CoStar’s revenues (38.1% of revenue) of $250.3 million missed the consensus estimate by 0.30% and increased 11.2% year over year. Apartments.com’s revenues increased by 21% year over year. Both Apartments.com and CoStar generated more than $1 billion in sales in the first quarter. Net new bookings in the first quarter were $86 million.

Information services revenue (5% of revenue) of $33 million topped the consensus estimate by 1.23% but declined 20.7% year-over-year.

Multifamily revenues (38.8% of revenues) of $254.8 million topped the consensus estimate by 1.42% and increased 20.9% year-over-year.

LoopNet’s revenue (10.5% of revenue) of $69.1 million topped the consensus estimate by 0.65% and increased 9.2% year-over-year.

First-quarter residential revenues (2.8% of revenues) were $18.6 million, topping the consensus estimate by 12.73% and up 40.9% year-over-year. In March, residential traffic reached a record 156 million unique users, up 102% year-over-year.

Other market revenues (4.7% of revenues) of $30.6 million exceeded the consensus by 2.69% and were flat year over year.

According to Google Analytics, Homes.com has reached a milestone of 110 million unique visitors in the first quarter of 2024, representing 386% year-over-year growth.

Operational details

During the quarter, sales and marketing expenses increased 61.8% year-over-year to $366.1 million. As a percentage of revenue, sales and marketing expenses were 55.8% compared to 38.7% recorded in the same quarter last year.

General and administrative expenses as a percentage of revenue decreased 30 basis points (bps) year-over-year to 15%.

Software development expenses as a percentage of revenue increased by 120 bps. Customer base amortization costs decreased by 10 basis points year-over-year.

Adjusted EBITDA margin in the first quarter was 1.9% compared to 21% in the year-ago quarter.

Acquisition details

In the first quarter of 2024, CoStar Group announced a definitive agreement to acquire Matterport, a global leader in immersive 3D digital twins and artificial intelligence (AI) for the real estate sector, for $5.50 per share in a cash and stock transaction valued at $1.6 billion .

The acquisition of Matterport is a step towards integrating Matterport’s 3D capture technology into CSGP’s real estate marketplace, thereby enhancing CoStar’s offering and capitalizing on the growing demand for virtual real estate experiences.

Balance sheet and cash flow statement

CoStar reported cash and cash equivalents of $5 billion as of March 31, 2024, compared to $5.2 billion as of December 31, 2023.

The company had long-term debt of $990.8 million as of March 31, 2024, compared to $990.5 million as of December 31, 2023.

It generated $139.6 million in cash from operations compared to $489.5 million in the prior quarter.

Conductivity

CoStar expects second-quarter 2024 revenues of $674 million to $679 million, representing year-over-year growth of approximately 12% at the midpoint.

The company forecasts second-quarter 2024 adjusted EBITDA to be between $5 million and $10 million.

Earnings in the second quarter of 2024 are expected to be between 9 cents and 10 cents.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

As a result of these changes, the consensus estimate moved by -18.75%.

VGM results

CoStar currently has a Weak Growth Rating of D, but its Momentum Rating is performing slightly better at C. However, the stock is rated F on the Value side, putting it in the fifth quintile for this investment strategy.

Overall, the company’s overall VGM score is F. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show a downward trend, and the scale of this revision indicates a downward shift. Notably, CoStar carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

CoStar is part of the Zacks Computers – IT Services industry. Over the last month, Infosys (INFY – Free Report), a company in the same industry, gained 1.4%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Infosys reported revenues of $4.56 billion, representing a year-over-year change of +0.2%. EPS of $0.23 for the same period compared to $0.18 a year ago.

For the current quarter, Infosys is expected to report earnings per share of $0.18, representing a change of +5.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the past 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Infosys. The stock also has a VGM Rating of D.

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