What happened
Shares of CoStar Group (CSGP 8.66%) had tumbled by 5.2% through noon ET Wednesday after the real estate information provider delivered a fourth-quarter report after the close Tuesday that missed analysts' earnings estimates.
Ahead of the report, analysts had forecast CoStar would earn $0.36 per share on sales of $576 million. But in fact, CoStar earned only $0.31 per share on sales of $573 million -- and guided lower to boot.
So what
Sales grew 13% year over year at CoStar Group during the quarter -- par for the course in a year when total sales grew by 12% to $2.2 billion. And although investors seem disappointed by the fact that CoStar didn't hit Wall Street's earnings target, what CoStar did accomplish was pretty impressive. Quarterly sales grew 34% year over year to $0.93 per share -- a significant acceleration from the year-long total earnings growth of 26%.
Indeed, CEO Andy Florance called 2022 "an outstanding year" for CoStar.
Now what
In particular, net new bookings at the company's Apartments.com business hit a new record in Q4, rising 177% year over year. Florance predicted this will result in 20% or greater revenue growth for that subset of CoStar's business in 2023, and 13% year-over-year revenue growth for the company.
So why are investors not happier with this prediction? Management is forecasting revenue in the $575 million to $580 million range for the first quarter, and nearly $2.5 billion for the year, which is a good start. However, CoStar did not give an estimate for earnings as calculated according to generally accepted accounting principles (GAAP). Instead, it predicted that non-GAAP earnings per share will be $0.25 to $0.26 in Q1, and in the range of $1.06 to $1.09 for the year.
And that right there could be the problem. While it's not an apples-to-apples comparison, these non-GAAP predictions appear to imply a significant (16%) year-over-year decline in earnings in Q1. The good news is that earnings for the full year could perk up and deliver growth of 14% or greater. Still, the combination of an earnings miss in Q4 and a prediction of an earnings decline in Q1 has CoStar stock losing altitude today.
Trading at a forward price-to-earnings ratio of 66 based on management's most optimistic earnings prediction, CoStar stock just plain looks overpriced.
