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Why CoStar Group Stock Is Falling Today

By Jason Hawthorne – Jul 28, 2021 at 12:28PM

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Management is lowering guidance but keeping long-term targets in place.

What happened

Shares of CoStar Group (CSGP 3.56%) were down more than 6% this morning after the company reported earnings yesterday afternoon. Although the company raised revenue guidance for the full year, expenses related to its acquisition of residential marketplace is causing it to lower its projections for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

A person browsing on a laptop computer while sitting at a desk.

Image source: Getty Images.

So what

The reduced guidance is especially disconcerting after management raised its projections during its first-quarter update. For now, CoStar management deserves the benefit of the doubt. The purchase of was a follow-up to CoStar's acquisition of Homesnap, a tool for managing workflow and marketing.

Both deals are part of its strategy to expand in the massive residential real estate market. It will need to succeed to match its historical growth rates. CoStar -- a provider of information, analytics, and marketing services to the commercial property industry -- has posted annual increases in revenue and net income of 22% and 33%, respectively, over the past decade.

Now what

Along with the long-term business performance, shares delivered 1,380% gains over the the past decade. That's no consolation for recent shareholders. The stock has trailed the broader indexes so far this year. 

^DJI Chart

^DJI data by YCharts.

On the conference call, CEO Andrew Florance stated that the company was still in line to hit a 2023 target of 40% EBITDA margins. He did acknowledged the uncertainty between now and then, as the world returns to normal and workers begin going back to offices. 

With net new bookings up 47% over last year and visitors to the company's websites up 45%, any hiccups related to integration are likely to be short-lived. For long-term investors, past declines have been an opportunity. That will likely prove true about today's drop.

Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CoStar Group. The Motley Fool has a disclosure policy.

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