Source: CoStar Group.

The Internet has transformed every aspect of modern life, and even the most well-established industries have found ways to adapt their business models to online possibilities. Real estate is one of those areas, and CoStar Group (CSGP -0.81%) has built its business around providing commercial real-estate information, analytics, and marketplaces using online tools and technology. Coming into Wednesday evening's fourth-quarter financial report, CoStar Group investors were increasingly optimistic about the company's future prospects, having bid shares back up toward their early 2014 highs. In its report, CoStar Group posted exceptionally strong growth that came as a surprise even to the most optimistic of investors. Moreover, with a key new initiative just having taken place, CoStar Group has positioned itself for even more growth in 2015. Let's look at CoStar Group's results with an eye toward seeing how it plans to move forward this year and beyond.

CoStar Group finishes 2014 with big numbers
CoStar Group's main results were unequivocally positive. Sales for the fourth quarter jumped 35% to $156.1 million, surpassing even the expectations among investors for 33% revenue growth. More of those sales also made it to the bottom line, with adjusted net income climbing 34% and producing adjusted earnings of $0.93 per share, a nickel more than those following the stock had projected.

Looking more closely at CoStar's numbers, the company saw solid results on several fronts. The company's expanded sales force helped it hit a new record for net new sales at a rate of $17.3 million on an annualized basis during the fourth quarter. For the CoStar information services segment, annualized net new sales climbed 26% from the year-ago quarter. Meanwhile, the company's LoopNet core online marketplace also posted considerable growth, with revenue climbing 20% year over year.


Source: CoStar Group.

For the most part, CoStar remains focused on its core domestic market, getting all but about 4% of its revenue from its North American operations. Yet the international business also grew during the quarter, with revenue gains of almost 8% helping to push full-year international sales up by 16%.

CEO Andrew Florance was happy about the results, terming 2014 "an exceptional year for CoStar Group" and citing its gains in revenue and operating income. Florance attributed much of the company's success to its sales force, which has benefited from the money that CoStar spent to expand its ranks.

What will make CoStar Group grow in 2015?
Yet the real news that CoStar seems most excited about is its launch earlier this month of its newly revamped Apartments.com website. CoStar reported seeing big gains in organic traffic as a result of the new site, which has better search tools and considerably more available listings for users to look at. At the same time, CoStar spent a lot of time working to optimize the new site so that search engines would list its offerings among top results. As Florance noted, CoStar now has "a total of 1,407 keywords in the top five organic positions [on Google], or 47% more than our second closest competitor." Strength in SEO should help drive traffic and make Apartments.com a more useful site for prospective renters and property owners alike. Moreover, the company has high hopes for the website, with projections of as much as $550 million in annual revenue and $250 million in adjusted operating earnings from Apartments.com within the next decade.


Source: CoStar Group.

With CoStar having given guidance for 2015 just last week, the financial report only had to reaffirm its previous numbers. CoStar expects to bring in sales of $655 million to $660 million in 2015, with adjusted earnings per share of $1.95 to $2.05. Those figures represent a considerable drop in adjusted net income, but that stems from the massive $75 million investment that CoStar expects to make in promoting and marketing Apartments.com. The company said that those expenditures alone would cost the company about $1.45 per share in earnings, but Florance believes that "this investment will generate massive brand awareness and site traffic for Apartments.com and quickly position [it] as the #1 destination for renters."

Looking forward, CoStar Group clearly has a broad-based strategy for expanding its reach to incorporate both commercial and residential real-estate information and related services. With such a huge potential market, CoStar will inevitably face strong competition. Yet the rewards of success could be so large that investors can't help but be excited about the prospects for CoStar Group realizing its full potential.