CoStar Group: The correction has fallen too far (NASDAQ: CSGP)

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Established in 1987, CoStar Group (NASDAQ: CSGP) is a leading provider of online commercial real estate information, analysis and marketplaces. The company’s more than thirty years of service and extensive research have distinguished it as the largest and most comprehensive database of commercial real estate information. Beginning as a data provider for real estate, over the years CoStar Group Incorporated has redefined itself and transformed into a group of companies that provide a range of online services for the real estate industry. As a group, CoStar now covers the entire real estate landscape, from office buildings to hotels and industrial property, from apartments to land and residences. CoStar Group Incorporated serves all of these areas using its many online brands, including LoopNet, Apartments.comTen-X, Houses.comBizBuySell and Lands of America.

CSGP Award

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As a real estate analytics data company, it has acquired its headquarters for $41.3 million in 2009. The same building had been sold two years earlier for $79 million. CoStar enjoys strong fundamentals, which means long-term bullish sentiment. With a market cap of over $20 billion, CoStar has a history of rewarding long-term investors until recently. The company’s renewed strength and new market opportunities in the Post-Covid real estate sector will help boost its revenue.

Performance overview

CSGP Price vs Revenue

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The CoStar Group had a profitable financial year in 2021. The company’s revenue grew with the global ease of restrictions on the economy. Fiscal 2021 was also a positive year for CoStar in terms of sales growth. CoStar generated $1.94 billion in revenue at the end of fiscal 2021. This is a 17% increase from the prior year of $1.66 billion. During the fourth quarter of 2021, CoStar generated revenue of $507 million. An increase of 14% compared to Q4 2020. One of the significant factors in the astronomical increase in revenue for the company was the acquisition of Houses.com in 2021. Previously, CoStar Group acquired Homesnap in December 2020. The two Houses.com and Homesnap have been integrated to create a more seamless, productive and amazing experience for real estate agents and buyers. Before acquiring Houses.comthe company has been rated as one of the largest real estate portal sales forces in the United States.

CSGP Price vs Net Income

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Additionally, Costar Group Incorporated recorded a net profit of $293 million for fiscal year 2021. A 29% increase over net profit for fiscal year 2020, which was $277 million. Additionally, CoStar had an outstanding performance in its net income for the fourth quarter of 2021 with $93 million. A 160% increase from $39 million was recorded in the fourth quarter of 2020. CoStar also recorded a strong year-over-year (YoY) booking of 18% over the prior year. It should also be noted that the income from Apartment.com, which grew strongly during the fourth quarter of 2021, and Homesnap’s revenue, which increased more than 50% in the last fiscal year, were among the main drivers of the company’s consolidated revenue increase for the fiscal year 2021. CoStar maintained a leverage profile of $1. billion at the end of the financial year. However, the company has about $3.8 billion in cash, cash equivalents and restricted cash, which is strong against its debt. With $2.3 billion in liquid assets, this means CoStar Group has the ability to repair its balance sheet without being overburdened. Therefore, it is fair to say that CoStar does not have a heavy debt burden.

CSGP price vs cash

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Acquisition spree

CoStar Group began as a company that provides comprehensive, objective and reliable information to clients in the real estate industry. The company’s big wave of acquisitions began in 2012 when it acquired an online marketing website LoopNet for $860 million. This strategic agreement gave CoStar title to LoopNet’s properties, “BizBuySell and Land of America”. Prior to the acquisition, LoopNet was a rival online commercial real estate company with 4.8 million registered members and over 6 million unique visitors per quarter. Although LoopNet was allowed to continue operating under its brand name, CoStar has access to LoopNet’s market within the mainstream commercial real estate suburb. Additionally, the two brands have agreed to share some behind-the-scenes data, which has helped increase revenue generation.

Additionally, around April 2014, CoStar acquired an online apartment search company called Apartments.com in a deal worth $585 million. At the time of the acquisition, the US apartment rental industry was worth $2 trillion. This transaction also gave CoStar the privilege of acquiring ApartmentHomeLiving.com and RentalHomesPlus.com. A year before the acquisition, a combination of the three websites collectively generated 114 million visitors and an average of 7 million unique visitors per month. This acquisition of the three websites was another step in the transformation of CoStar Group into a leader in online real estate services. Within three months of acquisition, Apartments.com sales increased by 50% annualized rate.

One year after acquiring Apartments.comCoStar embarked on another acquisition venture in 2015. This time it was Apartment search in a deal worth $170 million. Apartment Finder was a direct competitor of Apartments.com. Prior to the acquisition, Apartments Finder had recorded $70 million in revenue the previous year. It has over 13,000 properties listed on its web pages. As Apartments.com, Apartments Finder has been licensed to operate as a separate brand. However, there was a back-end integration that aimed to optimize the operations and marketing strategies of both brands to generate more revenue. After the acquisition of Apartments Finder, CoStar spent $30 million to reposition the brand. A few months later, Apartment Finder was ranked the second-largest rental search site for apartment communities in the United States, just behind Apartments.com. Both brands have now had more than 17 million unique visitors per month, a milestone parent company CoStar has called groundbreaking.

CoStar’s acquisitions have continued over the years: its latest acquisitions were Homes.com in a $156 million deal and LocalOffices.com. LocalOffices is one of the largest specialized real estate portals for the purchase and rental of commercial real estate. The acquisition of Homes.com presented a revenue increase of $5-10 million for the CoStar Group. Homes.com serves more than 500,000 US residential agents and brokers while receiving approximately 5 million visitors each month to its more than 1.8 million residential listings. It is evident that CoStar Group Incorporated owes much of its astronomical growth to its strategic acquisitions of competing or complementary businesses within the same or similar industry. CoStar currently has fifteen major brands in its portfolio, most of which are significant players in the online real estate and data insights industries.

Future prospects

There is no doubt that CoStar had a rock-solid balance sheet over the past fiscal year, and the company is backed by strong fundamentals. Thanks to its e-commerce real estate solution, the company experienced massive growth during the height of the Covid-19 pandemic. CoStar Group profits also have the prospect of doubling over the next few years. The company nevertheless intends to intensify its marketing efforts on residential income in the hope that residential real estate has the market size to add billions in income to the company in the medium and long term. CoStar saw a 29% increase in international operations year-over-year. CoStar is sitting on strong fundamentals, and the positive metrics point to a bullish sign with strong potential to reward both long- and short-term investors.

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