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Why CoStar Group Shares Are Up 12% Today

By Jordan Wathen – Updated Apr 23, 2019 at 3:48PM

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The real estate information and marketing company had a great 2018, and guided for continued growth in 2019.

What happened

Shares of CoStar Group (CSGP 1.09%) are up about 12% as of 12:30 p.m. EST on Wednesday after the company reported its earnings for the fourth quarter after the market closed on Tuesday.

The real estate information and analytics company earned $83.5 million in the fourth quarter, an 89% increase over the year-ago period, on a 24% increase in revenue year over year. It also guided for continued double-digit revenue and profit growth over the course of 2019.

So what

CoStar's business can generally be split into two. Its software business is built around CoStar Suite, a product that is to physical real estate what a Bloomberg Terminal is to stocks. In the fourth quarter, revenue from CoStar Suite increased 16% compared to the prior-year period.

Apartment building.

Image source: Getty Images.

It also has a fast-growing advertising-driven business in the form of its ownership of LoopNet, Apartments.com, ForRent.com, and other websites that allow landlords and brokers to list commercial and multifamily properties for sale or rent online.

Its online advertising-based businesses are on fire, helped by a boom in multifamily rentals and CoStar's ability to grab a larger share of advertising dollars. On the conference call, management said that it believes the multifamily business will exit 2019 with revenue growth "in line with the 20% full-year outlook" in 2018. Put another way, CoStar sees opportunities for 20% revenue growth in its multifamily business even after the business starts lapping accounting periods in which ForRent.com revenue is included. That acquisition closed in late February 2018.

CoStar's commercial marketplaces (LoopNet, primarily) also had an excellent 2018, posting revenue growth of 16% for the full year and 17% in the fourth quarter. On the conference call, Scott Wheeler, CoStar's chief financial officer, said that LoopNet was rolling out more expensive listing options geared toward property owners, not brokers, which will help the business grow as the mix shifts toward costlier options.

Check out all our earnings call transcripts.

Now what

CoStar's guidance for 2019 is rosy, to say the least. The company expects full-year revenue of $1.37 billion to $1.38 billion, a 15% to 16% improvement over 2018. Meanwhile, it anticipates that total operating expenses will grow at a rate of 9% to 11%, resulting in wider margins as revenue grows at a faster pace than expenses.

CoStar doesn't give guidance for GAAP (generally accepted accounting principles) net income, though it does offer guidance on a non-GAAP basis, calling for non-GAAP net income of $9.80 to $10 per share, a roughly 20% increase over 2018 at the midpoint. An impressive end to 2018 and healthy guidance for 2019 is sending shares higher today.

Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool recommends CoStar Group. The Motley Fool has a disclosure policy.

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