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CoStar to Acquire Homes.com: Should Zillow Be Worried?


[Updated: Apr 15, 2021 ] Apr 15, 2021 by Matt Frankel, CFP
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We've seen quite a bit of M&A in the real estate technology space, and it doesn't appear to be slowing down anytime soon. In fact, we just learned that massive real estate technology and analytics company CoStar Group (NASDAQ: CSGP) has agreed to acquire real estate listing and marketing platform Homes.com.

CoStar has traditionally focused on commercial real estate technology, but this is the second acquisition related to residential real estate sales it has made in the past few months. Should larger players in the space, specifically Zillow (NYSE: Z) (NYSE: ZG), be worried about this?

CoStar is acquiring Homes.com -- the details

CoStar has announced it has agreed to acquire Homes.com from its current owner, Dominion Enterprises. The transaction will be at a purchase price of $156 million in cash, and CoStar expects the deal to close before the midpoint of 2021.

In its press release, CoStar said it expects Homes.com to add $5 million to $10 million in revenue during the second half of 2021, but the acquisition isn't just about Homes.com. It's what it could do when integrated into the rest of CoStar's business.

Homes.com vs. Zillow

Homes.com has a similar business model to massive real estate website Zillow, at least as far as Zillow's core business goes. Homes.com is a property listing portal that helps agents and brokers market properties. The platform supports more than a half-million agents and brokers, and the website receives about 5 million unique visitors each month in the form of buyers searching listings.

For the time being, Homes.com is a much smaller business. Zillow's real estate platform received more than 200 million unique monthly users in the fourth quarter of 2020 and was visited 2.2 billion times altogether. And Zillow has a rapidly growing business of directly buying and selling homes, while Homes.com is solely a home search platform. What's more, keep in mind that CoStar is buying Homes.com for $156 million -- Zillow's market cap is about $34 billion.

However, it's not just Homes.com anymore. Once it's brought under CoStar's umbrella, it will join forces with brands like the LoopNet commercial real estate marketplace (an area where Zillow doesn't operate), Apartments.com, Apartment Finder, and most importantly, the Homesnap real estate agent workflow software business.

Homesnap is another recent acquisition, purchased by CoStar in December 2020. The Homesnap platform offers a marketing platform for agents, and CoStar plans to take advantage of the combination with Homes.com. As CEO Andrew Florance said in the press release announcing the acquisition, "Our plan in bringing Homesnap and Homes.com together is to help agents market their listings in support of the ‘your listing, your lead’ philosophy -- which stands in contrast to most players in the industry.”

The Millionacres bottom line

To be sure, CoStar and Zillow are two different businesses heading in very different directions. Zillow sees its iBuying business as the future of the company, while CoStar is focused on the information and analytical side of the real estate business. However, the acquisition of Homes.com certainly puts the two in more direct competition, and Homes.com could become a much greater threat to Zillow's core business now that it's backed by CoStar's resources and expertise.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool recommends CoStar Group. The Motley Fool has a disclosure policy.