CoStar Group, Inc. Earnings Boosted by Apartments.com Growth

CoStar Group (CSGP -1.50%) reported fourth-quarter results on Feb. 22.

The provider of commercial real estate information, analytics, and online marketplaces is reaping the rewards of its investments in its apartments business while it works to integrate its other product lines.

Image source: Getty Images.

CoStar Group results: The raw numbers

Source: CoStar Group Q4 2016 earnings press release.

What happened with CoStar Group this quarter?

Costar's revenue rose 13% year over year to $218 million, driven by growth in its Apartments.com business and Costar Suite product line.

"Three years ago we saw an opportunity to capture the lead in the massive apartment rental listings industry, and we invested aggressively in Apartments.com to successfully capture that opportunity," said CoStar founder and CEO Andrew Florance in a press release. "Those investments have paid off as we have now taken the number one position in the industry in visits (as reported by comScore for December 2016), revenue, and momentum."

With its Apartments.com business firing on all cylinders, Costar Group is turning its attention toward the integration of two of its other core products.

As investments into Apartments.com shift to profits from Apartments.com, we are shifting our focus to an opportunity to accelerate CoStar revenue growth by merging the LoopNet information products into CoStar. In the fourth quarter of 2016, we began expanding CoStar's research capabilities to support this strategy by opening a new research headquarters in Richmond, Virginia. We already have over 250 researchers in Richmond, and have increased research productivity by more than 100% year-over-year yielding higher quality research to support our CoStar upselling priorities in 2017 and 2018.

Those efforts are already starting to bear fruit, with CoStar enjoying strong bookings growth in the fourth quarter.

Our investment in our sales force in 2016 enabled us to achieve our best fourth quarter of net new bookings with $29 million, which is up 16% year-over-year and up 13% sequentially over the third quarter of 2016. In 2016, we also achieved our highest year ever of net new bookings of CoStar Suite. Our investments in Apartments.com also produced outstanding results, with multifamily net new bookings up over 60% in the fourth quarter of 2016 year-over-year.

CoStar's profitability also continues to improve. EBITDA (earnings before interest, taxes, depreciation, and amortization) -- adjusted to exclude stock-based compensation, restructuring charges, acquisition-related costs, and other special items -- jumped 15% to $75 million, with adjusted EBITDA margin rising to 34.4% from 33.7% in the prior-year quarter.

All told, adjusted (non-GAAP) net income leapt 18% year over year to $42 million, and adjusted earnings per share increased 17% to $1.29.

Looking forward

For the first quarter, CoStar Group forecasts revenue of approximately $223 million to $225 million, adjusted EBITDA of $57 million to $60 million, and non-GAAP EPS of $0.92 to $0.97.

CoStar also issued its full-year 2017 outlook, including:

• Revenue of $935 million to $945 million, representing growth of 11% to 13% compared to 2016
• Adjusted EBITDA of $260 million to $265 million, up 2% to 4% year over year
• Non-GAAP EPS of $4.18 to $4.28, down 2% to flat versus 2016

As evidenced by its full-year guidance, CoStar expects its 2017 profits to be impacted by its integration and growth investments.

"2016 was a year of strong growth and rapid margin expansion for CoStar," said CFO Scott Wheeler. "As we look forward to 2017, we plan to reinvest a modest portion of these margin gains back in the business before continuing to expand our margins as we exit 2017."

Looking further ahead, CoStar expects these investments to pay dividends in 2018.

"We believe we will exceed our goal of $1 billion in revenue in 2018 and remain committed to achieving 40% margin in the fourth quarter of 2018," said Florance.