Q3 2020 CoStar Group Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q3 Twentytwenty Costar Group earnings Conference call.
This time, all participants are in listen only mode. After the speakers presentations there will be a question and answer session ask a question. During the session you will need to press star one on your telephone.
Require any further assistance. Please press star zero and I would like to hand, the conference over to your speaker today Mr. spray. Please go ahead.
Thank you good evening and thank you all for joining us to discuss the third quarter. Twentytwenty result of the Costar group before I turn the call over to Andy Florance, Costar, as CEO and founder and Scott Wheeler, Our CFO I would like to review our safe hybrid Harbor statement certain portions of the discussion today, making.
Forward looking statements, including expectations for the fourth quarter and full year Twentytwenty forward looking statements involve many risks uncertainties assumptions estimates and other factors that can cause actual results to differ materially from such statements important factors that can cause actual results to differ include but are not limited to.
Those stated in Costar group's press release issued earlier today and in our filings with the FTC, including our most recent annual report on form 10-K, and quarterly report on form 10-Q under the heading risk factors.
All forward looking statements are based on information available to Costar on the date of this call Costar assumes no obligation to update these statements whether as a result of new information future events or otherwise.
Reconciliation to the most directly comparable GAAP measure to the non-GAAP financial measures discussed on this call, including EBITDA adjusted EBITDA non-GAAP net income and forward looking non-GAAP guidance are shown in detail in our press release issued today along with definitions for those terms. The press release is available on.
Our web site located at Costar Group Dotcom under Pressroom As reminder, today's conference call is being webcast and the link is also available on our website under investors. Please refer to today's press release on how to access the replay of this call and with that I would like to turn it over to our founder and CEO Andy Florence.
Yes.
Good evening and thank you for joining us today for Costar group's third quarter Twentytwenty earnings call.
Total third quarter revenue was $426 million up 21% year over year.
For 20 years Costar has grown revenue, 20% plus on a compound annual basis.
Our performance this quarter is no different and shows clear evidence in the Miss So this pandemic our business a strong resilient and counter cyclical.
In the third quarter Twentytwenty, all of our businesses performed well and continued to be solid resilient.
Again showed the performance that we saw as we exited the second quarter.
In the third quarter, we achieved $53 million in quarterly sales bookings, a 53% increase over Q2 sales bookings.
It was one of our strongest sales quarters ever despite continued high levels of economic social and public health uncertainty.
Our marketplace businesses displayed very strong counter cyclical growth with apartments dot com revenue up 23% in the third quarter Twentytwenty over the third quarter of 2019 Sim.
Similarly loop net revenue was up 19% year over year in the third quarter.
Our earnings in the third quarter were very strong with net income of 58 million and adjusted EBITDA of $134 million.
Our sales team at apartments Dot com turned in one of their best performances ever in the third quarter with net new sales up a massive 59% versus the same quarter a year ago.
Customers continue to invest in apartments dot com, because a strong and growing lead flow, we delivered driven by growing site traffic and engagement.
During the quarter, we set yet another record for site traffic. According to Comscore. So the third quarter average unique visitors per month, the apartments Dot com network of sites in the quarter was over $25 million up 20% from the same quarter a year ago.
The growth in lead flow was even stronger as total leads generated for our clients from the apartment stock common network of sites in the quarter was up 43% over the prior year quarter, beating the previous record by 16%.
Our increased investment in marketing is driving these gains and allowing us to further distance ourselves from our competition.
According to Comscore in the third quarter apartments Dot Com had 2.3 times as many unique visitors as redpath nine times as many as dumper 12 times as many as apartment list and 22% more than the Zillow rental network.
Third quarter over second quarter Twentytwenty, the apartment stock Com network added 14.5 million visits sequentially, while Rentpath went down 5.3 million visits.
We believe that customers take notice of and care about the huge traffic and Lee advantage apartment stock com offers them.
Our customers routinely tell us who they are marketing with including whether marketing with rent.
Since the beginning of Twentytwenty, we estimate that we have added $36 million in annualized revenue to a parvus dotcom for multifamily properties that were advertising on rent path.
We have added thousands of new properties as advertisers on apartment stock comp this year.
During the same time period, we do not believe that Rentpath has grown their revenue.
In fact, we can see from their advertise sales promotions. They are shifting their focus to reselling advertising solutions that in fact compete with apartment guide and rent dotcom.
Brent path offer services, placing ads for apartment communities on Facebook, social media, Google SCM and alike.
They may be doing this because their core sites are less and less attractive to advertisers. We believe that this shift in our business this shift to lower margin less differentiated product.
From when we entered into an agreement to acquire Redpath before any of us ever heard of Cove. It it seems like the world has changed.
While we continue to seek approval at the Federal Trade Commission to close on our acquisition of rent path right. Now, we're very focused on laying the groundwork for a very strong 2020 one for apartments Dot com.
We believe that the total addressable for apartments Dot com is huge and growing.
In the US 51% of the larger apartment communities with at least 100 units are advertising on a parvus stock comp.
Our penetration of the multifamily market continues to grow as we added 879 more of these 100 unit plus communities. This quarter alone with an overall average revenue per property of $1060 per month.
The opportunity to grow our client base and the properties with less than a 100 units is much more exciting theyre, both exciting but the smaller mid size opportunities is really remarkable.
Just 3% of the over 35 350000 apartment communities with five to 100 units currently advertise with US that's 3% of the 350005 to 100 unit Kienitz.
Our advertising, but that customer segment is growing at twice the rate of the larger 100 unit plus community advertisers in the previous quarter alone 820 communities with five to 100 units began new advertising relationships with us.
For an overall average revenue per property per month of $536.
The broadest opportunity of all of this to provide marketing and leasing solutions to the 18 million properties with a one to four units. So far this year, we sold about 5900 adds to the one to four unit properties, including almost 2700 in the third quarter.
Were at an average price of $150 per month.
We are successfully adding clients from large medium and small rental properties. This quarter, we blew past the $600 million run rate annualized revenue and yet we only sold advertising to less than 1% of the U.S rental properties.
We clearly have a huge opportunity here and intend to invest in growing our apartment sales force into 2021 to capture more of this opportunity and the potential for high incremental margins.
The apartments Dot Com is brand is well positioned to capture this opportunity as I can argue apartment stock com is becoming a household name and part of the culture.
As many of you have seen the proof point is the wonderful.
Free advertising received earlier this month from the writers Saturday Night live.
In the VP fly debate Cold open Jim Carrey, playing Jeff Goldblum as a fly on Vice President Pence. This head delivers our slogan apartments Dot com is the place to find a place while the parvus outcome logo displays.
Tens of millions of viewers watch that Austin free placement.
This quarter Loopnet was also able to prove prove resilient and counter cyclical recording a new all time high in net new sales and year over year revenue growth of 19%.
In the third quarter loot Mets record high average monthly unique visitors at 8.3 million supported that revenue growth.
That higher traffic drove a 70% increase in email and phone leads to our loopnet advertisers in Q3 versus Q1 2020.
We have implemented a comprehensive re targeting program. This year, which we believe is instrumental to achieving both this growth in traffic and leads.
Loopnet strong traffic is driving strong sales of diamond adds our most prominent level, which reached a price price point of $11000 per month and averaged $3260 per month in the quarter.
As a bargain price point when compared to the hundreds of millions of dollars of potential lease revenue. These ads from marketing.
At the same time is a huge number compared to the average price point of only 10% to $20 a month that the loopnet was getting when we purchased loopnet a little more than eight years ago.
Im convinced the Loopnet opportunity is just as big as apartments Dot com.
As we begin making plans for Loopnet in 2021, we intend to invest in growing both our salesforce and our marketing with an eye to accelerating our revenue growth even faster.
We are working with our advertising agency to build a powerful loopnet marketing campaign for 2021 that will encourage both owners and brokers to unleash their digital potential by being in the know by being in the loop, it's a bit of a retro campaign and getting the loop was one of the first campaigns for Loopnet back at its founding but.
Since we acquired Loopnet. The platform is certainly transformed from a slow growing website offering as cheap as on lower class B properties to the premier marketplace for World class commercial real estate.
We believe that now is the time to bring the loopnet image in marketing up to the top level.
You will note when we have achieved our goal when you hear the loopnet slogan used in a future Saturday night live Cold open tense Harris presidential debate four years from now.
As Loopnet grows we are adjusting our organizational structure continue to facilitate that growth.
Going forward luminous organizational structure will more mirror, the parvus dot Com organization, which we believe will allow it to focus fully on developing the growth potential of loopnet.
We're looking at in the past has shared leadership across product design sales customer service and marketing with Costar goal.
Going forward, we will have a dedicated management team within Costar group focused just on loop net growth.
While the Costar sales team will continue to sell Costar for the foreseeable future. We have named James Min a veteran of the apartments Dot Com leadership team to senior Vice President leading loot net sales over the next 12 to 18 months, we plan to build out a dedicated loopnet sales team with an incremental 100 to 200 sales professionals.
We intend to announce a president of the Loopnet organization within the next month.
We plan to place additional leadership.
Positions over the next few months.
I want to highlight that all of our market places are growing traffic. This buy sell hit a new record in average monthly unique visitors. This quarter. The lands of America network also set a record this quarter and is now growing so fast it's approaching luminous traffic level with $6.8 million.
Lastly unique visitors.
The lands network monthly unique visitor count sword, 80% year over year.
Yes.
We completed our acquisition of 10 X at the end of the second quarter. This year and after only three months with the business I'm more excited than ever about its potential.
One of the first steps we've taken is to put any property going to auction on tenex to the top of Loopnet and Costar and present them as upgraded diamond placements with enhanced tree targeting this.
This is dramatically increasing their exposure to potential bidders.
The benefit was immediate and dramatic.
The auction that took place following this upgrade exposure we saw the number of qualified bidders coming to 10 x. jumped by 47%.
We also observed at 19 percentage point increase in trade rate to 68% versus buyer prior year.
The trade rate as a percentage of the successful sales at auction divided by total number of properties brought to that auction.
This trade rate of 68% is groundbreaking based on Costar and Loopnet data on sales transactions over the past three years or even longer the trade rate on traditional offline commercial real estate sales transactions is only 36% six.
64% do not sell on their first listing.
The minority that did sell were on the market for an average of 500 days before they sold.
Lastly specific properties vary widely but those are pretty depressing numbers.
Property selling the traditional method took five times as long to sell on average compared to the 90 days it takes to sell a profit in 10 x.
On 10, X., both sellers and brokers have a higher probability of closing the sale at a much faster pace.
Hypothetically a broker utilizing kinex can sell twice as many properties in a quarter as an offline broker can sell in a year.
We believe that that is a major game changer.
A potentially apt comparison for traditional commercial real estate sales market is back to the days that otcs pink sheets, which is a slow expenses be liquid and not very transparent market.
We believe that 10, x. could be comparable to the advent of NASDAQ in the Ninetys, which dramatically increased price transparency volume and liquidity in the OTC markets the upside potential for every player in the commercial real estate market is tremendous and good.
We are prioritizing the integration of Tenaris technology with both Costar loopnet to be ready for what could be a significant wave of distressed properties come to the market in the next 12 to 24 months. We will soon have reached real time information on properties come into to auction fed directly to costar and loopnet, creating additional exposure.
Sure and interest from our 150000, plus Costar users and 7.8 million monthly Wouldnt loopnet visitors.
The full merger the two back ends is expected to be achieved during 2021 10 acts as an exciting space to watch even from an operational perspective, I think that once we get those real time feeds going Evan will be glued to their screens as the auctions take place.
Costar has continued to grow through the pandemic. Despite the pandemics negative impact on commercial real estate Costar revenue grew 6% in Q3 over the same quarter a year ago net sales bookings surged back from a soft second quarter growing 146% third quarter over second quarter 2020.
Considering the scale of disruption to commercial real estate. This year I'm very impressed with our team's ability to maintain a strong renewal rate as we have.
The vast majority of cancellations from the second quarter occurred among small one and two agent broker shops.
Over the past six months only six firms with five or more brokers of cancel their contracts.
Clearly demonstrating that the information analytics that Costar provides are truly mission critical.
I'm very optimistic about costars potential moving into 2021.
Just one of our headline product enhancements in the pipeline for Costar is the integration of robust CMBS stay into Costar. This.
The CMBS data includes deep information on over 100000 commercial real estate loans with 90000 tenant lease expiration dates 40000 detailed operating statements and details on of thousands of distressed loans Costar customers will be able to search for properties based on loan maturity date and pain.
Current status ill have access a detailed operating statements at a property level and tenant lease expiration dates who will build income and expense models that customers can use to build their assumptions on acquisitions valuations are developments, we will be able to use this data to inform our forecast models and analytics and to enhance our overall research.
Efforts.
I'm also excited about the multitude of major enhancements, we have in the work as we integrate hospitality information into Costar.
We are close to integrating all of us tiers properties into the Costar database. We are building a suite of hospitality analytic tools into Costar that we believe will be the best in class.
We have designed the next phase of developments to migrate the STR bench, marking capabilities from emailed worksheets to a fully digitized end to end SaaS benchmarking solution for the hospitality industry.
All integrated with Costar, we aim to offer a broad range of functionalities, including a dashboard view of traditional benchmarks such as Revpar and.
And all the Star reports and also the piano metrics and forward booking data the tool will have enhanced portfolio analytics.
I believe that this is a potential killer app in the hospitality segment.
While the analytics and benchmarking we built our building here are specific to hospitality I think it's particularly exciting because it creates a proof of concept for costars ability to deliver robust benchmarking across other commercial real estate asset classes in the future.
Yes.
In addition, we have made excellent progress in our track to deliver.
A full featured internationalized and polyglot version of Costar in 2021, if you think Siri analytics are cool.
Both of you then you would love seeing our new capabilities to generate on the fly real time aggregated comparative analytics from multiple countries, but.
Multiple languages at multiple currencies, all presented the currency localization and language of users choice.
So exciting.
Given the progress on international Costar, it's timely there were announcing today the closing of our purchase of imports a German based international commercial real estate data provider across.
Acquiring and poorest allows us to integrate their 700000 building records in over 600000 images across 100 countries in the Costar, providing a jump start to our international data collection efforts.
In 2021, we plan to integrate enhance the international data, we have from our existing operations in Spain, and Germany into Costar beyond. This we have identified an additional 50 international cities that we plan to add to Costar with cost efficient data collection efforts initiated over the course of the next 24.
Once.
We believe the market opportunity for us internationally is more than twice the market opportunity in North America.
If you've noticed over the past six months, we've increased our cash reserves through a combination of equity and debt funding to almost $4 billion in cash.
I expect that the questions at the end of this call will be similar to every prior call and that someone will rightfully ask where are you with merger and acquisitions.
Given that I cannot discuss specific targets or potential transactions I thought it helpful to clarify what we look for in the criteria. We apply when were evaluating acquisition opportunities. So let me answer the quick question advance, but likely the question will be asked anyhow during Q in AG, just slightly differently, but nuance is fun.
We're disciplined acquirer, our strong balance sheet and stayed intentions to deploy our cash for M&A have attracted attention from practically anybody considering selling their business in the profit Tech space.
It's a big group. There are currently 7000 prop tech companies trying to create value by digitizing real estate.
It's our practice to be open minded and talk to everyone and consider carefully all potential acquisition opportunities the vast majority of which we don't pursue.
For the ones that we do not pursue it could be because they are too far afield too far from what we do overvalued not strategically valuable to small throw red flags in due diligence or have no clear path to accelerate growth among other reasons.
One common theme for us has been to use acquisitions to add to enter a new closely related real estate segment. For example, we acquired.
National Retail Bureau to jumpstart, our retail entry, we acquired apartment stock comp to enter the apartment sector. We acquired STR to enter hospitality, we acquired lands of America as a rural land space. In these cases, 75% of the technology and processes are identical to what we already do.
Maybe more than 75%, placing appointed a map a geo query presenting acres in square feet property photos and videos property characteristics marketplaces aggregated analytics and more are the same from one property type to another our expertise in one sector enables us to innovate.
Quickly into a new segment.
We believe that each time, we added new property segment, our solutions become more valuable to many of our clients because we offer them a more comprehensive solution to their needs.
Banks.
Almost always lend money across many property types fraser's often value almost always more than just one property type brokers transact across multiple property types local government deals with all kinds of property types owners often on more than just one property type.
Given these clients consistent convenient information solutions in one integrated offering is invaluable to them.
And other theme for us is to target entering closer related solutions in the same property segment. For example, Costar is and was a strong commercial real estate information solutions provider.
A lot of data and by acquiring loot net we added commercial real estate market expertise and revenue.
The commercial real estate information resources, we already had allowed us to quickly innovate the marketplace solutions loop that offered making them more valuable to searchers.
Once we integrate the data behind loop and Costar each product essentially generate free data for the other is a byproduct, making each more valuable.
We sometimes acquire companies with complementary geographic footprints with similar segment coverage and solutions in order to accelerate our geographic expansion efforts. We have built have much of our US coverage 10 to 15 years ago. This way and some of the European coverage about 10 years ago five years ago.
We often refer to buy companies that are slow growing where we believe we see strategies to accelerate their growth rate.
We have a strong track record of buying slow growing companies and accelerating their growth rates.
Today apartments Dot Com is six times the size it was when we acquired it.
Lived net is over four times real estate managers, almost six times as big and Comstock commas over eight times as big.
Most of these companies were growing in the low single digits. If at all when we acquired them and we then accelerated them to strong consistent double digit growth.
We jump when we see a chance to acquire a larger company that has a similar product with redundant cost structures. Our acquisition of four rent is a good example of acquiring a company eliminating most of the cost structure, while maintaining most of the revenue.
It's great. When you can do a deal where you're converting revenue into EBITDA.
Weve pervert, we prefer to acquire larger companies to have same obtains scale results for relatively the same efforts, it's called the Frank Carchedi theory, since acquiring small or large companies seem to take about the same amount of effort to do right. It makes sense to acquire larger ones.
We generally invest in smaller companies only to obtain strategic new product solutions or for the purpose of research and development.
Each of the acquisitions, we consider must have multiple opportunities to create significant growth and profit for the business.
As we typically pass on the deal with.
With this approach it only takes one of multiple possible investment theses to pan out in order for the the acquisition to succeed.
Historically, we've taken a balanced a conservative approach to financing acquisitions over the top past 10 years, we have deployed approximately $6 billion for acquisitions.
And have leveraged operating cash equity raises in short term debt in roughly equal parts to fund these deals.
We anticipate continuing this balanced funding approach in the future with one additional criteria as a result of our debt offering.
Going forward, we're absolutely committed to protecting and maintaining.
Our investment grade credit rating.
Finally, I want to wrap up with some observations about the real estate economy.
Looking to the economy in the current state of the commercial real estate, we see a labor market recovery this noticeably slowed.
Furloughed workers continue to be rehired as the economy, reopens, but a slower and slower pace each month.
The hardest hit sectors, the economy like restaurants, hospitality entertainment are struggling to try and reopen safely as a colder months of the year approach what appears to be a third wave infections to begin to ramp up or.
As Dr fan she says the first ways.
The interesting thing is happening even as the possibility of new stimulus seems to be fading measures of household and business confidence have been rising recently and census data on new business formations shows the growth in new companies is up nearly 40% from year ago more than triple the growth rate at this time in 2019. This.
This isn't what we normally see during recessions new business formations fell 15% in 2008 and were zero in 2009.
Commercial real estate weathered a tough second quarter and showed resilience in Q3 2020, even the hardest hit sectors of the market hotel occupancy continued its slow grind higher reaching 50% by quarter end parts of the retail landscape clearly remain challenged by reduced traffic in social distancing mandates.
But I should note that leasing volumes recovered strongly for retail assets in the third quarter.
Retail properties leased to essential credit tenants had been a bright spots as well as discounters and grocery anchored properties, we seeing grocers, taking over previously challenge spaces vacated by home good retailers and even booksellers. This is maybe a good sign to note did tied to note. The Amazon opened its first physical grocery store during the third.
Quarter called Amazon fresh.
There is still plenty of distressed to workout in retail and hospitality and we're continuing to see increased usage of the product from our clients and asset management credit and especially valuation departments, we've heard from clients that costars.
Clients. The Costar services are more mission critical now than ever before and I think that shows in costars resilience.
On the other hand, I hardly need to tell you that the industrial sector has enjoyed great tailwinds in the current E commerce driven environment.
Costar data tells us that the third quarter 2020 was actually a new record for industrial leasing volume.
Amazon, obviously led the way, but a deep roster firms are looking to expand their distribution footprints to catch up.
Walmart and target had been especially active this year, along with third party logistics firms home good retailers in a long list of others. This.
The surge in leasing demand is coming at the perfect time as there is a record amount of space set to deliver in the near term much of which remains available.
The office market has been inundated with headlines for months now with competing stories of this company shifting towards permanent remote work, while another company starting to move towards a return to office.
It seems inevitable there will be increased adoption of flexible work schedules to some degree.
But there will also be demand for more space for social distancing it's.
It's interesting to note that one of the biggest office deals during the third quarter was facebooks purchase of a brand New 400000 square foot office campus in Bellevue, Washington, with a price tag of over $350 million.
That shows a lot of money to spend a lot of office space. They arent the only big tech companies buying or leasing office space in the third quarter, the likes of Google Apple Amazon, Microsoft and others have been very active acquiring office space.
The multifamily sector has been one of the most fascinating to track over the last seven months there isn't a lot of high frequency day in the commercial estate market, but apartments dot com provides us with millions of data points each day on rents and availabilities, giving us real time views of the market.
A large supply wave of four and five star properties in downtown CBD locations as continue to push those rents lower.
After the second quarter produced the lowest net absorption eight years. There are fears of a lost leasing season for 2020, but Q3 absorption rocketed back. It was the largest third quarter ever recorded Costar shown that apartment demand has simply been pent up during the first few months of the corn team.
Twentytwenty leasing season has simply been delayed and higher vacancies and expensive newly delivered product our expanded opportunity set for apartments dot com to help owners to fill those units.
The real estate capital markets have begun to show some stabilization third quarter deal volume was down 40% from last year, but a closer look shows that each month the quarter got better September deal volume was only 4 billion short of the average September over the last five years only.
Only 4 billion a.
A slowing of the lending markets has certainly helped the CMBS spreads have come back down from their widest levels and new issuance has picked up.
Looking at pricing our same store price indices indicate valuations have largely plateaued and are yet showing year over year declines are broadly higher cap rates. This flattening of prices around pre coated levels is consistent with what we're hearing from clients. There's still plenty of demand for good assets and those that trade are going for meaningful discount.
It's more challenged assets are simply not trading if they don't have to it.
It seems that fewer being forced to trade today as underwriting standards and leverage we're more conservative going into this downturn than the last week.
We know from CMBS delinquency and special servicing rates that a wave of distressed assets and hospitality and retail is coming and the 10 X platform as expects us to give us is expect to give us insight into investor demand for those properties.
We believe the mountain of dry powder waiting on distressed properties is large which will make an interesting space as we look into 2021 and beyond.
This quarter is again demonstrated that our data and information are mission critical to our customers that are marking business are counter cyclical.
We're exploring extremely pleased with our strong third quarter results were very excited about a strong finish to the year and a great 2021 around the quarter.
So.
And to talk more about the growth.
I'm going to ask our CFO Scott Wheeler to please wear a mask on a shopping in our store and then he can deliver is.
Report for the quarter.
Yes.
Thank you Andy.
Now removed my math for all those wondering.
The fall and cost nearby.
Actually as our first earnings call since what February where were actually together in the same room integrate although the room now has the massive.
Her purifying fans and we're sitting at least eight feet. Apart first about the safest place you could be quite clearly in here in fact, my skin's drying out so much we could also booked skus delivering his section I'm going to manufacture integrated circuits.
Alright, well, what I was talking about that's right the recovery, we experienced a great third quarter prove.
Proved off the second quarter and our momentum is building nicely 53 million in net new bookings for the third quarter. We think is an outstanding result, the second highest ever and it was in the midst of our global pandemic.
With these strong sales our third quarter revenue of 426 million came in $6 million above the high end of our guidance range, resulting in 21% year over year growth in the third quarter, which was over 200 basis points above our forecast.
That makes 14 quarters in a row with growth at or above 15% and we have now crossed $1.7 billion in revenue run rate for the business.
We now expect consolidated revenue growth of approximately 18% for the full year of 2020.
Looking at our revenue performance by services Costar suite revenue growth was 6% year over year in the third quarter slightly ahead of our forecast.
Sales of Costar suite improved sequentially in the third quarter by over two times the level of Costar suite sales in the second quarter.
Accordingly, we expect revenue growth for Costar of approximately 7% for the year and approximately 4% in the fourth quarter of 2020 compared to prior year.
Revenue in information services grew 70% year over year in the third quarter of 2000 $20 million to $33 million as expected.
The revenue growth expectation for the full year remains unchanged at approximately 45%.
With revenue growth of around 14% in the fourth quarter as we begin to lap the acquisition of STR that occurred in late October of 2019.
Without STR, we expect information services revenue in the fourth quarter to be approximately the same as fourth quarter of 2019.
Multifamily revenue growth for the third quarter was outstanding improved 23% over the third quarter of 2019.
A number of properties advertising with us increased around 10%.
While the average revenue per property increased by approximately 12%.
We expect revenue growth of around 23% to continue in the fourth quarter.
Results in approximately 22% revenue growth for the full year of 2020.
Multifamily is now at a run rate of over $600 million in revenue and on an annual basis is adding approximately $120 million in revenue growth.
In two years time.
Clearly our apartments Dot com operating model is delivering fantastic results.
As Andy mentioned, we're looking forward to replicating that same model for similar results with Loopnet.
Commercial property and land revenues grew 38% year over year in the third quarter of 2000, Twentys slightly ahead of our expectations.
In this sector now includes 10 X for the first time this quarter.
Loopnet marketplace revenue grew 19% year over year in the third quarter of 2020 sequentially up a bit from 18% in the second quarter Luke.
That had the highest sales quarter ever in the third quarter as a result of all time high traffic improved marketing efforts and a strong effort by our combined Costar loop net sales team.
Including 10, X., we expect full year revenue growth for commercial property land of approximately 25% to 28%.
Organically, we expect full year revenue growth for commercial property and land to be approximately 15% with loopnet growing 20% for the full year.
Our gross margins came in at 82% in the third quarter of 2020 slightly increasing from 81% gross margin we achieved in the second quarter.
We expect overall gross margins of approximately 81% for the full year 2020.
Profitability was strong in the third quarter with net income adjusted EBITDA and non-GAAP EPS results. All ahead of the guidance we issued in July of this year.
Our third quarter adjusted EBITDA of 134 million was approximately 9 million above the top end of our guidance range.
Most of the improvement came from our higher revenue with some additional benefit and lower DNA costs than expected.
The resulting adjusted EBITDA margin of 31% is 200 basis points above the midpoint of our guidance range.
We increased marketing spend as planned in the third quarter compared to the second quarter, making the third quarter, our highest marketing spend quarter of the year for the first time since we acquired departments stock comp.
Cash and investment balances were approximately $3.9 billion as of September Thirtyth 2020 up over $300 million since the last quarter.
The cash increase reflects the closing of our investment grade bond offering in early July and repayment of our outstanding revolver balance.
Our net cash balance at quarter end was approximately 2.9 billion and our gross leverage ratio is 1.9 X. based on 1 billion debt outstanding and the midpoint of our guidance range for adjusted EBITDA for the year.
We're pleased to see that our bonds have consistently traded at a premium to the initial offer price we remain strongly committed to our investment grade rating as we pursue our M&A objectives.
Now I will look at some of our performance metrics for the quarter.
At the end of the third quarter, our Salesforce totaled approximately 860 people in line with the last quarter.
Excluding the acquired sales teams from STR in Texas, which we included in our Salesforce numbers last quarter. Our Salesforce has declined about 6% in 2020 overall.
We recently began hiring sales team members to support growth across all our businesses, which is a good sign and will soon start building the looting that salesforce that Andy mentioned.
No rate on annual contracts for the third quarter 2000, tiny was 89% in line with the second quarter slightly better than we expected.
We're encouraged that the renewal rate has stabilized after only one quarter downward pressure on the disruption in Q2.
Renewal rate for the quarter for customers, who have been subscribers for five years or longer remains strong and steady in line with the 95% renewal rate from the second quarter of 2012.
Again, the stability in the renewal rate is encouraging reinforcing the value of our platforms for our customers.
Finally during periods of disruption in the market.
Subscription revenue on annual contracts accounts for 79% of our revenue in the third quarter, which is down from the 82%. This time last year and last quarter.
Decline of 3% as a result of including 10 X. revenue in the calculation for the first time.
Tennants revenue is based on a percentage of the sales value for transactions completed using the 10 X platform.
In total when we include all subscription contracts, regardless contract length, approximately 94% of our revenue is subscription based after including the tenants revenue in our calculation.
I'll now discuss our outlook for the year and for the fourth quarter of 2020.
We currently expect revenue for the full year in a range of $1.644 billion to 1.65 billion, which represents a growth rate of 18% at the midpoint of the range compared to 2019.
This revenue outlook represents an increase of $12 million at the midpoint compared to our prior guidance.
We expect revenue for the fourth quarter in the range of $429 million to $435 million representing growth of around 15% midpoint compared to the fourth quarter of 2019.
We expect adjusted EBITDA for the full year 2020 to be in the range of 525 million to $530 million, which is an increase of approximately $8 million at the midpoint of the range from our prior full year guidance.
This increased forecast for adjusted EBITDA, we are now slightly above the midpoint of the full year EBITDA guidance that we provided for 2020 back in February for the pandemic.
Certainly wasnt a straight line from there to here, but we're very pleased that our team was able to deliver the profit numbers that we guided to at the start of the year. Despite all the disruption and dislocation.
For the fourth quarter 2020, we expect adjusted EBITDA in the range of $139 million to $144 million.
The strong traffic growth and record sales levels for Loopnet in the third quarter, we increased marketing spend for Loopnet at 10 X in the latter part of Q3.
We expect to continue this marketing spend level in the fourth quarter of 2020.
Beyond in some part of the expected growth in both of these businesses.
This is why our adjusted EBITDA guidance increase is less than the increase in our revenue guidance.
Our outlook for the year currently includes a year over year increase our marketing spend approximately $90 million.
Heartless Dot com Rep presents approximately $70 million to $75 million of the increase with the rest attributable to net and recently. The addition of tenants to our business.
Success of our marketing campaigns evident in our outstanding traffic sales and revenue results.
We expect full year non-GAAP net income per share in the range of 939 to $9.49 per share based on 38.3 million weighted average shares.
There is an increase of 12 cents per share from the midpoint of our prior guidance.
For the fourth quarter of 2020, we expect non-GAAP net income per share in the range of $2 to 34 cents to $2.44 per share based on 39.5 million shares.
I know some of you undoubtedly are curious about our outlook for 2021.
We're not planning to provide 2021 guidance until after the end of this year.
We're currently working through our planning and budgeting process on the many great growth opportunities we have.
We'd like to have the benefit of four more months of results under our belt before we finalize and communicate our plans for 2021.
Overall, we remain committed to our long term objectives of $3 billion in run rate revenue and 40% adjusted EBITDA margins in 2023.
In summary, we certainly had an impressive third quarter sales rebounded strongly from the early phase of the pandemic and our momentum continues into the fourth quarter.
We expect to exit the year with strong double digit revenue growth both in total and organic revenue growth. Despite the continuing global pandemic answer uncertain economic environment.
Our balance sheet is rock solid and ready to support significant acquisition driven expansion.
While we remain committed to maintaining our fresh brand new investment grade credit rating.
So thank you for your time in your support I look forward to updating you on this year's results and discussing our 2021 operating plan in February 2021.
With that operator, we can now open up the call for questions. Thank.
Thank you as.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press pound or the hash key.
We ask that you. Please limit yourself to one question. Each if you have any follow up questions. Please contact hairspray Costar.
One moment. Your first question will come from the line of Peter Christiansen of Citi. Please go ahead.
Hi, good evening, Thanks for the question nice try and gentleman.
I wanted to dig into that to them the growth that you're seeing in multifamily bookings a bit.
And there's this notion that you have a bifurcation in the market between maternal in suburban areas.
Sees going in metro areas higher competition.
In suburban areas can you talk about what you're seeing from a from a sales perspective, where whereas whereas.
The platform really winning today.
I don't think we have our sales results broken down by urban and suburban.
My sense of it is that.
We are seeing.
We're going to be seeing strong sales in the in the Cbds. Because these there are lot of properties in the central business districts that are in lease up there has been a high supply there and those folks would have well ahead of any disruption would have allocated significant investment for marketing for lease up.
But at the same time, we havent heard anything to indicate that suburban properties are also.
At accelerating our investment in apartment stock comp so it's across the board that we're we're seeing this I think one of the more exciting things is when you look at that that number for accelerated sales into one to four units, which is both suburban and CBD you can see that in the year to date.
And there was 5700 5900 and half of the sales occurred in the last quarter and Thats that midmarket sales team and they're basically geographically dependent they're covering suburban urban rural the whole nine yards. So good good pacing on that.
Across the board there.
Next question will come from the line of Matthew tendon Needham. Please go ahead.
Thank you Andy you mentioned the international opportunity to domestic you want to get your thoughts on.
Sort of how you go about building it out is it still market by market I think you launched Madrid like several years ago, and if you did that deal in UK real I believe in then you got this deal you announced today just want to get your thoughts on inorganic versus organic to take advantage of the opportunity internationally. Thank you.
Sure so.
Sarah spray is holding up.
Her hand, saying is three times the global I would say is three times the us opportunity.
Hi.
In editing the script sandbagged it down to two X the opportunity we could we could debate the semantics of potential there, but we can all agree it's large.
And.
And the nice thing about it is it's also.
It continues to differentiate us as a particularly valuable vendor to folks who are flowing capital cross border. So when you look at some of the bigger markets.
London, New York, often more than half as much as 70% of the capital going into investment grade properties is crossing borders. So building a good international solution is particularly valuable to a lot of our best clients.
I don't think we have the same opportunity to acquire in the traditional commercial real estate space internationally like we're just well ahead of.
Any other solutions out there around the world I mean, there are couple of little players here and there but.
Not quite the same opportunity we had here in the United States.
We are.
The the new coast International Costar really looks quite impressive when you see it you'll think okay. That's really nice it's very elegant.
And and our thought is that our clients have subscribed to national data in their countries will just build to see profit.
Properties around the world.
And the addition of import this allows us to really crank up what they are going to see when we integrate that in so.
Since we finished that someone in new York ability to see thousands of properties in San Paulo, or endpoint Srs or in Tokyo Neville.
That we won't have the same level of detail that we have on costar properties in London, or New York, or Richmond, but it'll still be decent content.
Our plan is to focus first on integrating in.
Germany, and Spain already have a wealth of content and get that in there and then we've identified.
On a crazy number of parameters.
But I won't go into.
A target set of countries in the pacing for those countries based on liquidity transparency availability of data bunch of other things and we're going to start with a light model, we might put a team of five or 10 folks into a.
Into Portugal.
And and focus on comparable sales news market analytics.
Comparable cell research.
And then scraping a lot of the availability content user data and we're going to treat it little bit likely trade the United States, where we completed flights of cities. We Didnt do wanted time, we did five at a time 10 at a time, so we'll flight cities and.
And we'll just keep working at it until Weve.
Got it through our initial hit list of about 50, and we'll put one or two salespeople in each one of these markets. Again. These are these investments are not nearly as large as the investments. We have made we went into the United Kingdom or be relying more on scraping.
And user entry, which has become bigger and bigger for US and then also uploading.
Additionally, up flooding.
User content. So the it's an odd time to do it when you can't cross in international border.
The time were but by the time Weve.
[music].
Got it and ready to go anticipate that you will be able to cross borders again.
Next question will come from line right.
Income from KBW. Please go ahead.
Good evening, everyone. Thanks for taking the questions.
The the for sale housing market is clearly seeing an acceleration in demand, which I think has a lot of people wondering if fixed represents.
Secular shift in homeownership preferences. So my question is with that as a backdrop is there any desire to expand costars footprint enhancing beyond the rental market.
What types of areas about sector can make more sense.
And be most complementary.
For example, anything on the marketplace side or perhaps on the construction data side that would be an interesting area for costar.
Yes. So I mean, there are lot of different subsectors, just like there are a lot of different sectors in the commercial real estate information and marketplace area. There are lot of sectors in the residential side.
I think that.
Hi.
It's good to note that.
Costar group actually began life as a residential information business.
So when I first started up I was.
Doing assessor, a quarter deeds and downloading MLS data. So actually we started residential we focused on commercial obviously.
The the cost looking at some of the areas you're talking about the construction data areas interesting historically not terribly interesting for a number of different reasons there is.
There are.
Information services their lending services there are.
Marketplaces I would note one of the things that really stands out for me is that.
The United States is a.
Oddly under develops.
Country when it comes to residential marketplaces, if I look at.
A mature residential market place provider like ARIA group in Australia.
And I take the relative size of us and Australia.
On a GDP basis, it would imply that you create a market cap of about 200 billion in the us on a residential marketplace you create a billion plus of EBITDA.
[music].
In that area and yet no one's really doing a good job of same thing with the right move the United Kingdom. If you just take their 50% plus margins I think theyre 60, 70% margins, but the huge.
And you just scale them to the U.S., there's clearly a lot of opportunities in the us theyre underdeveloped while people are moving in a way from really appeared digital models in getting into.
Actually becoming players in brokerage and flipping in mortgages and.
And so I think theres, some big opportunities out there.
Nothing to talk about today, but very focused on it and it's an area, we feel very comfortable with because we.
We've been working with that space for a while you can see we're selling a lot of product that what in essence are houses for apartments Dot com recently so.
It's interesting, we're keeping an eye on it and were.
No there is nothing.
Remarkably different about the picture of a house.
Not on a map for house, a dot on a map for a building.
Assessor parcel record for an industrial building or a house or a walk up so all very similar.
But again the whole space of digital real estate is just massive and.
Unlimited amount opportunity.
Next question comes from the line of Mario Corso of Jefferies Go ahead.
Hi, Thanks for the time.
And this just curious about Q3, new bookings and I know the Q2, a majority of it was in June and I'm, assuming that that pent up demand party over into Q3, So yes one.
Wanted to get a sense for what the cadence of the net new bookings work.
For the quarter and then maybe you can even go a little deeper.
Maybe to give us a sense for.
What the cadence was her for Costar suite, and Loopnet and apartments Dot com.
To get a sense for which was when we had accelerated versus which.
You may have just had that that pent up demand and had maybe the first month he the largest.
Sure let me take a shot at helping you with that Mario the.
From what we saw in the second quarter was clearly one of significant disruption early in the quarter and then with strong rebound, particularly led by apartments Dot com in the marketplaces I think when I look at the pattern that we saw in the third quarter.
It was really pretty well distributed there wasn't.
A slowing in the first month, and then a big acceleration to the end.
It was pretty evenly balanced I think that pent up demand that came out of April and possibly may a lot of that came into June at minutes.
Sustain itself pretty strongly in the third quarter across all of the all of the month.
Typically the third quarter of in our third month of any quarter is as our strongest from a sales perspective, that's as much just with the sales pacing.
And making the the quarter closings of the Salesforce is focus on but.
I think if you look at each of the each of the businesses you know the marketplaces, we're very steady.
Sequentially on the quarters your multifamily tends to come off in the third quarter versus second quarter numbers that's seasonally.
Same thing this year, but it was still very strong versus last year and that Andy mentioned.
And then Luke net performed strongly across across all the months.
Information services, the same with by some slight.
Growth is STR continues to this month to month.
Do well with its customers and Costar I think had a very solid pattern across the quarter as well with no no major real cycles to point out so.
I think it was it was pretty.
Pretty evenly balanced and more so than actually some other quarters. So it's encouraging that we've seen that in that Oh.
We will see those same the same strength carried into the fourth quarter I think the stick at the stand that was probably a loop not really.
The.
Mr. Salesforce I felt.
It came up.
Pretty positive about the loopnet product and the potential for that.
As the quarter went on.
Your next question.
I will come from the line of Sterling Auty of JP Morgan. Please go ahead.
Yes, Thanks, Hi, guys.
You said it but did you guys give us some more detail on the acquisition that you made you gave some of the properties but.
What what is the price paid for an asset like that and how much does that jumpstart your ability to really get kicked off in that region.
Yes, so ill.
Let Scott comment on the price I think he'll say de Minimis.
Hi, good saying I think it's in line room, it's in line with the coffee budget.
And lately, we haven't been using much coffee here.
Yes.
[music].
Though I did buy my own milk for the headquarters today.
So the.
Yes, so it's a relatively small purchase price small revenue stream. Its a company have known I've known I've known the founders in the principles for a number of years as it's recently been acquired a couple of years ago I think I have known this company for.
10, or I think it went over to visit them 15 years ago, or 12, 15 years ago. They have a network of photographers and researchers who are volunteers certainly quickie around the world.
Two.
Go around to take pictures of buildings and collect data about who the architects are the construction company. They focus intensely initially focused intensely on skyscrapers. They gave in annual award for the best skyscraper in the World.
But as time went on they start focusing on smaller and smaller buildings in some cities where theyve got.
Good volunteers out there they'll have great coverage, whether it be some paulo or or blindness areas or whether the Tokyo.
They don't have the current availability and comparable sale data we might have they don't have the news, but it's a great.
It's a great sort of grid for us to use to start to.
Bring content in these markets and has.
Tremendous branding benefits so the first time.
Next year, when a customer a longtime customer in New York, who actually has crew.
Cross border investments turns on their Costar terminal.
And Ken.
Browse different city beautiful buildings in different cities around the world I think people are going to waste a bunch of time looks good buildings the world from from their Costar terminal and I think it's a great branding event I don't you know when I look at a London broker.
They often sort of look at Costar as a London company or a Chicago broker often looks at Costar is in Chicago Company I think this sort of expands their brand and has them view us a little bit more like a bloomberg a global player.
Really moving away from.
What started life as an outsourcing function for these brokered terms, our owners to becoming more of a unique completely different animal that.
A vast global network of valuable commercial real estate data. So it's a teeny company.
But it's a fun one it's exciting it's got some great field researchers we can't wait until.
We can travel and we can host these photographers for global conference and we'll end up taking a number of these volunteers and hiring them and making them full time for tire for researchers and south.
South Africa, or in Kyoto or in Sydney or in Moscow or in.
Bogota wherever they might be.
Your next question comes from Andrew Jeffrey of Truth Security. Please go ahead.
Hey, good evening.
I appreciate you taking the correct.
Hi, Mike.
Description of some of the customer.
Customer characteristics property characteristics and apartments.
I'm wondering if you could talk a little bit about sort of how you frame up.
I don't know if there's an average typically.
Hi, good customer but.
You talk about.
The average spend especially in your bigger customers could also down market can you kind of frame up how much more.
You could take it in what the average revenue per property might look like bike segment.
Maturity.
The wallet share sure. So if I just take the and I think that there's some noise in that one to four category, but at the 100 unit plus category.
We're at a thousand some per month per property.
I think that.
As.
The value propositions of digital marketing continue to grow for these owners I think that number Ken.
Ken.
Theres room to grow there overall pretty significantly.
I think that the when you look at the five to 100 500. Some dollars. That's an impressive amount initially those are often being sold by.
Relatively junior new piece.
People to the sales world for us in our Midmarket group so.
As they gain experience and as people become familiar with the value proposition of apartments Dot com I think that people bid for more exposure and drive some of those price points up in particular in the middle that might move up closer to the 1000 Mark.
And then any time now street northwest, Turkey Mysteries.
Well sorry, Google.
Google maps was going to go somewhere.
So.
The.
And then at the.
The that lower end that number is really quite impressive to me. This is our first year really focusing on that area and two.
AD sales team about 30 folks.
Actually on the mid market and the smaller properties and come up with 5700 properties of $150 per month and that number maybe a little rough because.
They they can extend that the time periods, a little flexible, but many of them usually lease their property up within the month. They go a little bit for isn't that the roughly 150 per month do you think about it the per unit cost.
Is.
As higher and higher as you get smaller so the folks over 100 units getting a real bargain at 1000 and the folks.
The thousands of people beginning to buy from us from single family homes, and condos and townhouses, they're willing to pay real premium at that 150 price point, that's probably.
That's probably 10 times, the price point or more that a great start paying for 100 unit plus community. So I think we'll get we've had we've had five years of continued appreciation our average price point in all these areas I think that trend will continue as we continue to build out a stronger and stronger product offering.
And then the thing that I'm very focused on I hope you're listening to me page Forest is.
We need to build a bigger boat Costar info.
One wants to write so we need more salespeople.
What we can do that we can we can build that team adds a great ROI its real straightforward and.
We have a great team to to to grow it.
Next page for US is our head of sales for a part of the stock comp by the way.
Your next question comes from the line of George Tong of Goldman Sachs. Please go ahead.
Hi, Thanks, good afternoon.
Building on a dedicated sales force remove that with 100 200 sales professionals can you discuss the timing of when the sales team will be built by how.
How you plan to transition the sales process away from Costar suite sales and what the implications are for margins.
Sure so.
14.
Just two questions.
You're supposed to guess.
Really wants me to guess and really want to see that do it I'm going to kill.
Siri area of just just killed sorry, sorry towards so.
Yes, I don't know excise happening there so.
Yes, so live net separate Salesforce I believe we already have hired the first 15 to 20 people. We have also reassign, maybe five or six deals already 15% to 20 folks in that group.
For the foreseeable future the apartment style. The Costar sales team has done a great job selling live then we'll continue to do so.
They get the hang of it they're doing a great job, but we just have.
So much opportunity to lift net side and so much opportunity in the Costar side, we really want to give folks the ability to focus on their core areas and make sure that.
Make sure that all the good prospects are getting covered in any given year and that we are pursuing best practices on retaining and renewing those folks that do begin buying so what we'll do is as we as we have both the costar team selling loopnet and the new Loopnet team selling loopnet.
We will do cross commissioning, which means that.
If I'm the primary lead on an accountant I'm a costar rep.
When I lived net rep comes in cells that account I will get some referral commission and I get higher rates or my Costar. So everyone's on the same team the more they are selling loopnet and the market both the costar and the Loopnet people will get.
Escalation in their commission rates, we do it so that it's still very high margin.
I think that I think that the ramp up period for Costar has historically been six months.
As we bring people in and if they focus on the more entry level loopnet buyers that ramp up period is typically two months.
And then as they go to higher end properties that might be six months. So I don't think theres a huge sag as we invest in bringing these people on board I think we'll get productive pretty quickly.
So ultimately our.
Our fixed costs are really the research the software and were end of March and as you add these salespeople they are incredibly.
Hi margin incremental adds after the first six months of Onboarding. So I.
I think it will just allow us to accelerate revenue growth and I think it will.
And I think it will.
Enhance margin and allow us to invest more in the product while maintaining a high margin over time and the one thing. That's just obvious to me is that the market opportunity.
Is just larger.
And our current Salesforce and our current Salesforce done a great job on a one by one basis. These folks are productive there they're selling but.
They're profitable but.
But we just need more resources and will we will be doing that over the next year or so so one of things I've done with all of our sales forces.
As.
I've asked them to give me a five year plan and a one year plan as to how many salespeople they think they need and to base that on how many high quality prospects. We have what's best practice for keeping contact with us high quality prospects and then the customers. We have in each of these sales areas and what has been.
Best practice on on boarding and ongoing maintenance or relationship with those folks and such as sort of mechanical calculation level, one year goal for staffing gains and a five year goal for staff again so.
That's where we are.
Your next question comes from the line of Stephen Sheldon William Blair. Please go ahead.
Hi, Thanks.
On the on the multifamily side with solid levels of supply in the market recently and over the next year and with.
Some forecast the vacancy rate to trend higher including I believe the forecast from your research group.
What could that mean in terms of the AD sales environment for farmers Dot com and any other multifamily marketplaces next year could it become an even more favorable environment than what you've seen this year as owners try to compete for tenants and to fill vacant units.
Yes so.
Historically.
The conventional wisdom has been and then the trickle experienced this year is that.
The higher the vacancy rate goes the greater the demand for lead generation with an online marketplace like apartments Dot com. So we had we had heard when operating of harborside comp to last for.
Five years prior to the pandemic, we'd heard that when the market goes south and the Vegas rates rise demand goes up for these pads and then the pandemic hit and in fact Thats, what we observed.
If we do get a continued secular shift to housing.
And obviously you know new home construction now is through the roof lumber prices are through the roof numbers are huge.
There could be.
More competition for renters and.
And that would bode very well for apartments dot com.
I was on the phone with a friend last night is.
Looking at renting out their New York City flat and.
And they're having a tough time and.
I sold my lifelong friend, a $159 at as how good a friend I am.
[laughter].
Always there to help you have always there to help and no no you can't use my and they can't use my pickup truck to move.
I'm sorry.
Your next question comes from the line of David Chu of Bank of America. Please go ahead.
Hi, Thanks. So can you just discuss the Loopnet marketing plans, so sounds like maybe about $15 million to $20 million in 20, or the fourth quarter and just how much should we think about incremental in 2021. Just wondering if this is going to be something large similar to apartments.
Yes.
When talking about it yeah. So what we saw obviously as we we got into the third quarter and the strong response with Loopnet that.
Both from a paid traffic and a retargeted. We found that that was generating great leads and really helping our sales teams are going to grow and grow the revenue.
So.
To keep it in perspective, obviously the apartments business is a direct to consumer business, which you have to cover an awful broad territory in your marketing scope to generate the consumer traffic that we need when we talk about advertising for loop that it's going to be towards the owners and the brokers involved in property transactions. So it's a much more direct.
Approach and is not as broad as the consumer side. So.
Fundamentally it's not going to be as large as apartments now when you look at our overall spend in marketing apartments is 80% of what we spend every year and that's only about 10% and so when we ratchet loot net up by.
Three or four more percentage points of that in the second half of the year, it's not a whole big number so.
You annualize what we're spending in the second half of this year, you might get another $10 million to $15 million of marketing spend less next year for Loopnet. So no.
Now that our marketing budgets or is significant as they are.
That's not a whole lot.
But we haven't set our plans for 2021, yet we will still be working on those for the rest of the fourth quarter and as the marketplace for Loopnet continues perform we build that Salesforce, then we'll definitely want to give them the marketing support they need but the growth will pay for all this very easily and loop that just like it has for apartments dot com.
Right so.
It is increased investment in SCM.
We're having great success with our re targeted initiatives for both Loopnet and for China ex that is giving birth and providing real value to our diamond platinum advertisers great results. The fact that we know who's in market uniquely know who's in market searching for office space or investments or industrial.
Retail.
Once we discover isn't market, we can dramatically drive the frequency with re targeting and Thats working well. So we want to continue that and then also since we have a good sense is in market to invest in properties with 10, X., we're investing in increasing their re targeting there that the metrics are great on the.
Results were getting there and then we want to do in general.
Branding to elevate the image of Loopnet from what had in the distant past been more of a Craig's list for commercial real estate to more of a higher end marketing platform like harvest stock comp. So we will invest but we're investing at a lower level and apartments dot com significantly lower levels of harvest outcome.
But with a view to the fact that we can achieve the same sort of revenue numbers in loopnet as we can in apartments dot com.
Your next question comes from the line of Jeff Mueller from Baird. Please go ahead.
Yes. Thank you good evening with the build out of the dedicated sales team wanted to ask you about plans for our.
Sales team passed to the prioritization. So just first are you planning to maintain or grow that capacity and reallocate. It and then just from a timing perspective.
And given I guess, some CRB end market challenges.
Is this just the size of the opportunity with bank lenders investors owners it will drop.
So big in kind of those cool new CRM analytics, you have in the product development pipeline, but just if you could address dispersed the reallocation or gross profit and second.
Timing of when you're doing it thanks.
Yes, so we're.
The.
Uh huh.
The opportunity for the Costar team, so we've seen them going more and more into selling loopnet in the last quarter or two which is great news I mean, that's giving US great results from Loopnet gave us our best sales quarter ever Loopnet.
But that means you're just not enough people left to sell to banks honors all other folks corporations, who are buying costar and as I look forward to 2021, and we've got a very robust rich product pipeline that is transformative.
We got to make sure we have a sales team ready to carry that adds all the opportunities we've got.
So.
Art will be pacing in a 10 15, new hires something in that neighborhood each month going into the Loopnet side, we might be doing a little bit of growth in the costar side.
And so just incrementally as we.
And were setting up the commission structure so that the.
Costar salesperson benefits by making the introduction for a loop that person to do the work and selling into one of their accounts.
Freeing them up to go sell something else, but still being able to make money by selling loopnet into that facilitated the sale of live into their accounts. So it will be it it'll be a.
Intense or ramp up of both sales forces as we free up capacity and Costar over the next 12 months, but it'll probably be a growth rate of about two years. Most of the growth is in the loopnet side, but thats freeing up resources of the Costar side and there'll be some growth in the costar side because.
Just we can see were unable to reach and prospect all the good targets. We've got on either Costar core Loopnet I hope that answers the question but.
The overall message is we got a good prospect, we are investing into high margin.
And we.
We have a huge market opportunity, we're kind of bullish and we want to grow.
Okay.
Thank you.
Your next question will come from the line of Joe Goodwin of JMP Securities. Please go ahead.
Thank you for taking the question just a quick one on tenants.
How did that perform in the quarter from a revenue standpoint, due to beat expectations and then as far as your what that asset will contribute for the remainder of 2021.
The one with you previously.
Provide thank you.
Yeah, we're pretty much in line with what we talked about last quarter earnings at 25 to 30 million contribution for the year, we're still right in that range.
It seems to be doing just as expected our focus on tenants right now is integrating the platforms is connecting to the loop net.
Diamond added that Andy talked about and and really until we get the platforms connected some time into 2021, we don't expect connects to perform really any differently than where it is today, even though have more interest but until we can start.
Elevating both the supply and demand side with that back and put together, we expect it to be about about where it is until two things we see the integration and then we see the advent of the distressed properties start to come through which we expect probably later later next year and I would add another element to that so we're clearly in.
The under construction phase with Tenex.
And as Scott says optimizing.
The eyeballs to bring.
To bring more bidders, we want to bring more demand to that market. So that when someone puts an asset up there. There is a robust set of bidders. So in each auction I'm watching carefully to see how many registered bidders how many people actually bid on each property anime and this is not a monetary event. This is more of a tuning in to make sure we're bringing the demand the marketplace.
And we're getting fantastic results. There. So the number of bidders is going up the sell through rate is going up.
And as you do that and then also were so as we do that we're making good progress there. We're fine tuning some of their go to business strategy. The go to market strategies like their pricing scheme of the way there like there are some that are using traditional auction pricing, which I don't think is appropriate and digital marketplace.
Well you know, we've been exactly and playing with their gross mark margins at different price levels and trying to optimize that a little bit.
But the one thing that really stands out is that.
These numbers are great I mean, if we've got a process here.
That take share success rate on selling a commercial property from 36% to 70 some percent that's.
Thats really.
This can that's discontinuous change that's transformative if you take a process from taking 500 days down to 90 days, that's discontinuous change.
We have appraised values for all these CMBS properties and we'll take that data set to write a white paper to show that the properties actually sells the same or more in a digital process that offline process than you have we can show that establish that weve got you're achieving the same value, but you're doing it at a higher sell through rate and you're doing it fast.
They're dramatically reducing risk everyone makes more money all good so you got a big winner.
10 X was a relatively small company and it sort of sat and the and the shadow of auction dot com the residential arm of that that business generating Google had invested in tenant and 10, X. and auction dot com and I'm told their primary interest was the commercial real estate marketplace side and I can see why.
But but recently there hasn't been a lot of investment in that company scaling it has potential and they have a very very small salesforce to feed the supply side, we're tuning the demand side right now, but the supply side was underdeveloped so effectively 10 12 so.
Salespeople.
To try to reach hundreds of thousands of properties selling so that means that 99% of the property is going to market never heard from a sales person from 10, X. and one of the cool things is we've got this very large research marketing consulting group in Richmond, Virginia that cost.
Recently talking every month with all these people that happened to be selling buildings, so were going to be training them on how to.
Develop interest in using this digital platform and that will be happening over the next month or so and then we are ramping up.
That tech Salesforce, so that we can take those leads and pursue twice as many three five times as many 10 times as many prospects.
And so with great team up with research and a growing salesforce we've.
Put a new.
Leader into that sort of field co traditional costar field research for us for 10, accessing gentleman named brand and Lou.
And so that'll feed the supply side. So we're doing all these things.
Not moving the dial for revenue this month or next month, but.
Getting us really optimistic about the potential going into the back half of 2021, 22 and potentially change in the world.
Your next question comes from the line of Brett Huff with Stephens. Please go ahead.
Good afternoon or evening, indeed, there I hope you're well.
Thank you my question.
Thanks, So a little bit bigger question, because I'm, having trouble trying to wrap my head around it and I've gotten some questions from clients, although moratoria better still in place and that May stand plays through however, long they go for no apartment eviction.
How do you all think about that both impacting the business. Today is it is it is it a negative demand driver today are positive and then as those moratoria roll off presumably at some point what is the impact on apartment that I'm I don't understand how that bad.
Bad indifferent or otherwise go thanks, yes.
Yes, so it puzzles me a little bit because I would have expected a higher default rate at this 0.4.
People paying their partner right now you saw the article I think in the Wall Street Journal, it's definitely growing and that in a consortium of folks who are collecting rents.
Have shown that the number of people who are in default on the rent is growing.
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While there is a moratorium and the fact that in theory is bad for apartments Dot com because I can't move in a new tenant if there is a more terminals eviction.
In practice, what's happening is the landlords want to build that supplies. So that the second they can make someone who isn't paying their rent. They can they can bring new renter and so in practice short term in monitoring were.
It's not impacting us negatively and then when that actually.
When the system clears that will probably create a lot of demand because you can have a lot of flow obviously, there's a terrible human cost here, but the question is more technical in the business I did double check in preparation for the call today I just checked with.
We're handling hundreds of thousands of rent payments for individual generally single family homes and.
And surprisingly that rent payments, they're holding up remarkably well.
So.
So far.
No negative signals to our business.
And what I would have thought would have created a big negative signal.
But when it clears its a positive signal.
We have no further questions at this time I will now turn the call back over to presenters for closing remarks.
Thank you all for joining us for this third quarter earnings call and we look forward to.
Wrapping up the year and.
I guess, a number of months from now but.
To update you on our progress towards some of the goals we've talked about today and hope you all have a good evening and stay safe and great for us to be back together in the same conference room for earnings call. Thank you.
This concludes today's conference call you may now disconnect. Thank you.
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