The stock market was having a generally weak day on Wednesday, fueled by political fears and interest-rate uncertainties, with all three major averages firmly in negative territory at 3:30 p.m. ET. However, real estate data-technology leader CoStar Group (CSGP -0.56%) was having an awful day. Shares were down by 14% and declined so sharply at the open, they had to be temporarily halted.
As you might guess, CoStar's downward move was fueled by its latest earnings report, which was released after the closing bell on Tuesday.
At first glance, CoStar's results might not seem too bad. The company's results for the fourth quarter beat analyst estimates on both the top and bottom lines, and its net bookings in the quarter were the strongest they've ever been.
However, the most reliable way to tank a stock after earnings is to issue weak guidance, and that's exactly what happened here. CoStar is forecasting 2022 revenue of $2.155 billion at the midpoint, while analysts had been looking for $2.22 billion. Earnings guidance came in significantly weaker than expected, as well.
As commonly happens when weak guidance is issued, CoStar's report triggered a wave of analyst downgrades on the stock. But the news wasn't all bad.
CoStar has historically been focused on commercial real estate but has recently started to aggressively build out its residential real estate capabilities in a bid to compete with companies like Zillow. Only about 4% of CoStar's revenue comes from residential so far, but the company sees potential to build a multibillion-dollar revenue stream and is planning to invest aggressively to pursue it.
If the company is successful, the current stock price could seem like a bargain to patient long-term investors.