CoStar Group, Inc. Widens Its Lead in the Multifamily Arena

By Markets Fool.com

Image source: CoStar Group.

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CoStar Group(NASDAQ: CSGP)reported second-quarter results on Oct. 26. Market share gains and cost cuts helped to drive the online real estate marketplace's profits sharply higher.

CoStar Group results: The raw numbers

Metric

Q3 2016

Q3 2015

Growth (YOY)

Revenue

$213 million

$189 million

12.5%

Net Income

$23 million

($5 million)

N/A

Earnings per share (EPS)

$0.72

($0.17)

N/A

Data source: CoStar Group Q3 2016 earnings press release. YOY = year over year.

What happened with CoStar Group this quarter?

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Revenue rose 12.5% year over year to $213 million, coming in at the high end of CoStar's guidance for third-quarter sales of approximately $211 million to $213 million.

"Net new sales of our flagship service CoStar Suite continued to accelerate," said Founder and CEO Andrew Florance in a press release. "Year-to-date in 2016, we have outpaced CoStar Suite net new sales over the same time period in 2015 by 33%."

The strong performance of Apartments.com continues to fuel CoStar Group's growth, as noted by Florance:

In just two and a half years, we have transformed Apartments.com. At the time of the acquisition in the first quarter of 2014, Apartments.com averaged 7.8 million visits a month according to comScore and generated annual revenue of $86 million, placing it third among internet listing sites. In the third quarter of 2016, Apartments.com is now number one in visits averaging 21 million visits a month according to comScore and we believe we are number one in annualized revenue we generate in the multifamily space. From November 2015 to September 2016, Apartments.com visits are up 39% while our next closest competitor is down 10% according to comScore.

CoStar's strong sales performance, combined with its continued focus on cost reductions, led to a sharp increase in profitability.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 164% to $58 million compared to the third quarter of 2015. Adjusted EBITDA -- which excludes stock-based compensation, restructuring charges, acquisition-related costs, and other special items -- likewise jumped 86% to $67 million.

All told, adjusted net income surged 112% year over year to $36 million, and adjusted earnings per share increased 109% to $1.11.

"Our focus on investing in growth and cost management has generated net income and EBITDA through the first nine months of 2016 that is as high or higher than in any other 12 month period in our history," said Florance.

Looking forward

For the fourth quarter, CoStar Group expects revenue of approximately $216 million to $219 million and non-GAAP EPS of $1.23 to $1.28.

Additionally, it tightened its guidance range for full-year revenue to between $835 million to $838 million, compared with previous estimates of $834 million to $840 million. CoStar Group also boosted its 2016 adjusted earnings forecast to a range of $4.20 to $4.25, raising the midpoint by $0.13 from its prior outlook and by $0.55 from its initial 2016 guidance.

"The company continued to deliver strong revenue growth and better than expected earnings in the third quarter of 2016," added CFO Scott Wheeler. "With our continued focus on profitable growth, we are again increasing our full-year earnings forecast."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends CoStar Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.