Q1 2022 CoStar Group Inc Earnings Call
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 of the non-GAAP financial measures discussed on this call, including EBITDA adjusted EBITDA adjusted EBITDA margin non-GAAP net income non-GAAP net income per diluted share and forward looking non-GAAP guidance are shown in detail in.
Our press release issued today, along with definitions for those terms.
Press release is available on our website located at Costar group Dot Com under press room. As a reminder, today's conference call is being webcast and the link is also available on our website under investors.
These refer to today's press release on how to access the replay of this call and with that I would like to turn the call over to our founder and CEO Andy Florance.
Thank you Jamie did that brilliantly I think everyone on the call is left inspired.
So good evening, everyone and thank you for joining us for Costar group's first quarter 2022 earnings call.
We had a really strong start to 2022 with our highest ever quarterly sales bookings at $68 million, which increased 31% year over year in the first quarter. Both revenue and profit are ahead of forecast.
Our costar product turned in its best sales quarter ever driving our overall outperformance and is expected to grow at or above 15% year over year for the rest of 2022.
Apartments Dot com delivered great sales results with net new sales bookings up 36% compared to the fourth quarter of 2021.
Total revenue for the first quarter 2002 was 516 million, representing a 13% year over year growth rate. Our profit performance was equally strong with adjusted EBITDA of $178 million in the first quarter, an increase of 12% year over year and $18 million above the high end of our February guidance as a result, we are raising.
Our full year 'twenty, two revenue adjusted EBITDA and EPS guidance.
Mr. Wheeler will give you more details on that.
Costar flagship product produced $199 million in revenue in the first quarter.
The Costar sales team grew annualized net sales, 96% over the prior year.
This latest sales performance makes the last three quarters of Costar sales the top three sales quarters for Costar on record.
Our Costar sales team has never been more productive in the first quarter, we achieved the highest costar net sales output per person in our history. We added 20, new sellers to the team. So far this year and intend to continue expanding our sales teams in the U S, Canada and the United Kingdom.
I look forward to the day, when we'll be able to tell you about hiring costar salespeople in Germany space, Spain, and France, not space before long.
We are building dedicated industry experts within the broader Costar sales group to focus exclusively.
And we'll continue for the next 18 months or so.
We really started new costar lender products in February and are seeing a very positive response from the market in the short time since we launched the products we've added over $1 million in annual revenue and the operated pipeline is building rapidly and must modestly say our clients are referring to this solution in terms of best in.
<unk>, the gold standard and even modestly the best product we've ever seen.
The lender solutions early success can be attributed to its unique ability to connect the clients loan portfolio to costars industry, leading property information market analytics into campus one of the most mature credit default models in the industry.
System delivers alive look in institutions loan concentration risk current expected credit losses in stress testing among many other functions. The result is an unmatched more efficient platform for strategic lending decisions and risk management.
Our initial banking customers have found the product very straightforward simple and easy to use the ability to generate sophisticated stress testing results with just a few clicks saves almost a week of work customers tell us They love all the loan concentration charged because the analytics are so much better and fully automated when compared to lesser.
Competitive products.
Of course, we're in the very early days of introducing the lender product, but I'm very encouraged with the market reception results. So far we.
We are currently operating with a dozen or so specialized dedicated sales team members and we fully intend to expand our sales and product inflammation implementation teams in the months ahead.
With at least 6000 potential customers in the U S alone we have a long way to go to realize what we see as a market opportunity for costar of well over $300 million.
I believe our impressive Costar results are built on a well balanced combination of new product innovation proprietary data and research in a highly productive sales team.
Customers are enjoying the expanded capabilities that we add to Costar every year and continue to renew subscriptions at rates above our long term historical averages.
Understood.
We continue to work hard on expanding our international business earlier. This month, we completed the acquisition of business CMO tranches Premier Real estate News service.
After all say you say business MMO.
Business <unk> is known for its impactful online real estate news attracts over 300000 unique visitors each month.
The publication boasts over 2000, and subscribing companies and 100000 followers on social media.
<unk> product portfolio also includes training education and industry conferences.
Business Emo is an important addition to costar group's growing global news team, which offers daily coverage across the United States, Canada, United Kingdom, Germany, and Hotel news now our international hospitality industry New service.
With over 235000 subscribers in 19000 articles published in 2021.
Costars Award winning news as one of the largest international real estate news networks in the world.
Business ammo reaches a large professional audience in France of brokers developers and owners and alike.
And Bureau loco reaches the tenant audience in France by combining these two audiences into one premium media buy we believe that we can capture a large and meaningful share of the properties property markets advertising spend in France.
France is one of the most important real estate markets in the world with an estimated.
The $40 billion in annual investment transaction value and I believe the number will ultimately prove to be a lot larger than that.
With the acquisition of business ammo this year alongside the Bureau Loco property marketplace, which we purchased last year. We're very excited about the potential of this market holds for us.
These two well respected online property websites combined with Bell Beck's in Spain reality U K Costar in the UK and Thomas Daily in Germany directly support our goal of building out the Premier online European marketing solutions and information solutions, we remain focused on offering both costar and Loopnet integrated in.
Seamlessly across the U K, Germany, France, Spain, and eventually other European markets.
In the first quarter, we launched the first international version of Loopnet Rolling at Loopnet that CA in Canada, Loopnet did not see a delivers a tailored and localized Canadian search experience, including custom Canadian content, French Canadian language capability and acceptance of Canadian currency, most importantly acceptance.
The Canadian currency.
We are seeing strong traffic growth in Canada, with Loopnet dossier, reaching traffic levels almost twice that of the nearest competitive site after less than two months in the market.
<unk>, Canada is only the beginning as the site architecture and international capabilities with the Canadian version of Loopnet will be the foundation of our first ever Pan European parent Americas commercial real estate marketplace.
Apartments Dot com sales picked up strong momentum with bookings up 36%.
<unk> in the first quarter of 'twenty two revenue for apartments Dot com was $175 million in the first quarter growing 6% year over year.
With strong margins.
Properties advertising on our platform increased in March over February which is the first sequential increase in average advertise property volumes since about the middle of 'twenty. One this increase along with rising vacancies and improving pricing makes me increasingly confident that we've turned the corner over last year's high occupancy.
Headwinds as you might recall last year, we saw demand for apartment rental surge and then vacancy rates suddenly dropped to a 20 year low record low of just four 8%.
<unk> was 700000 units in 'twenty, one which is extremely high was more than double the five year pre pandemic average.
Dramatic drop in vacancy rates pushed national rent growth to a record high of 11% on a year over year basis in 'twenty, one made a tough environment to sell advertising.
Though we still sold a lot of advertising.
In the first quarter 'twenty, two absorption moderated dramatically from 187000 units 12 months ago to 34000 units during the first three months of this year at.
At the same time deliveries of new units increased resulting in the first quarter vacancy rates rising 10 basis points to four 9%.
Current projections for 'twenty, two show demand dropping to pre pandemic levels with new rental unit delivery is expected to exceed demand.
The vacancy is therefore expected to rise past, 5% by the end of this year, resulting in more modest annual rent growth of about six 7%.
This is still elevated by historical standards, but we see the supply of new years continued to grow during the year in 'twenty, three which we expect will create excellent high value advertising opportunities for apartments Dot com.
Search activity at apartments Dot com continues to trend near record levels, indicating a robust spring and summer rental season <unk>.
Traffic in the first quarter increased 13% over the first quarter of last year, which is the strongest first quarter traffic on record for the apartments Dotcom network.
Not only did traffic increase quality leads generated for advertising clients increased 18% on a year over year basis in the first quarter our.
Our sales team is doing a great job selling and renewing businesses at higher price levels, resulting.
Our resulting in a cost per lead for the first quarter of 'twenty two coming in at about the same level as it was in the first quarter of 'twenty one.
Apartments Dot com continues to attract more and more renters, while our market data indicates the traffic declined year over year for a number of our competitors.
With tighter market conditions, putting pressure on revenue for our smaller competitors, we believe that the marketing budgets and SCM of those competitors are shrinking and will negatively impact their traffic. We believe this will result in fewer leads for their advertising customers, which will make apartments dot com a more attractive advertising alternative.
<unk>.
In early April we launched apartments Dot coms, most comprehensive marketing plan ever.
Jeff Goldbloom returns for his eight years the parts of mentor net founder Brad Bellflower.
With great New television and social video spots that.
Play off of recent cultural headline.
Headlines with themes such as billionaire is going up in this space. Our ads also focus on what matters most to renters that want to add more space change location or change lifestyle to fit their post pandemic situations.
In total we expect the campaign will deliver over 10 billion media impressions.
Around 20000 commercials on top primetime shows premieres in finales as well as major sporting events Importantly, we now know we know now more than ever that renters are kind of according to consuming media primarily through streaming video and audio platforms.
With a little less on Netflix recently.
As such we are doubling our investment in video on demand streaming audio and social media with a huge presence on top platforms, such as HBO, Max Paramount Hulu Peacock Youtube <unk> Heart radio Spotify, Pandora and many others.
The new campaign apartments Dot Com will also connect with renters like never before through custom content and unique creative developed specifically for renters favorite social and digital video platforms, including Tictac, Instagram Snapchat Youtube and Facebook.
We plan to launch several new social series developed in partnership with top tier influencers across all renting categories, including DIY projects pet life apartment tours apartment living tips and tricks and more.
Our advertising is increasing in its effectiveness as we are able to deliver highest first quarter levels of traffic and unaided brand awareness, while proactively managing our spend below prior year levels.
In the first quarter of this year our feeds it field sales team delivered their highest net sales productivity since the end of 2020 with our mid market sales team also having their highest productivity on record in the first quarter. So the sales teams are doing really quite well.
Very impressive work there.
I believe our ability to once again meet safely with customers and prospects face to face is also fueling our sales success.
First quarter of 2022, our field sales team conducted over 40000 separate in person meetings.
With a great first quarter to start the year in apartments Dot Com I believe the combination of our leading brand position improving market environment, better pricing and a growing productive salesforce puts apartments dot com in great shape delivered double digit revenue growth in the second half of this year.
And the fact that we have Paige Forrest makes it a slam dunk.
Loopnet first quarter revenue was $54 million up 11% over the prior year.
We saw record traffic in the quarter with more than 11 million average monthly unique visitors to Loopnet network March was our highest traffic month ever with $11 8 million unique visitors.
User engagement on Loopnet is also increasing with users reading more than 250000 articles on Loopnet in January .
Other new high watermark, the continued increase in users and engagement in Loopnet demonstrates the value of the marketplace the quality of our content and the effectiveness of our marketing programs.
Our loopnet marketing activities produced inbound sales leads up 76% in the first quarter compared to the fourth quarter 'twenty one the space for dreams marketing campaign that we developed in 'twenty one continues uninterrupted into 'twenty two.
First quarter 'twenty to the campaign delivered an estimated 93 million impressions across linear TV, social media and direct digital channels.
Base for Dreams campaign runs through the end of September and is expected to deliver more than 400 million impressions.
I am confident our marketing program. This year will keep loopnet top of mind with tenants and investors when they search for space, which underpins our substantial competitive.
Traffic advantage.
We continue to increase our our dedicated Loopnet sales force and we added 25, new sales professionals. So far this year.
<unk> revenue was up 42% year over year in the first quarter seasonally the first quarter tends to be lower in terms of property transactions. However, this year the value of properties brought to the platform was up over 90%.
<unk> sold approximately $575 million in assets in the first quarter 'twenty to the best first quarter performance in over five years.
For the fifth quarter in a row, the critical trade rate, which is total assets sold as a percentage of total assets brought to the platform came in at an impressive 70%.
Sure.
One of them of the successful strategy is contributing to the sales growth is the new pricing structure. We structure, we introduced a little over a year ago, the new tiered pricing model lowered the transaction fee on asset sales as the value of assets increased.
But preserve strong margins as a result in the first quarter of this year. The average size of assets sold on the platform increased 32%.
With the value of the properties sold at $10 million or more increasing four times to the prior year level.
In addition, the volume of assets sold on the platform increased 37% in the first quarter of 'twenty two.
Together, the property size and volume improvements account for almost 70% of the traffic of the revenue growth.
We continue to build out the <unk> sales team with a number of sales reps increasing by 20% since the end of last year.
Our goal is to grow the team by another 50% by the end of 'twenty two.
We launched our Tenex marketing program for 'twenty, two called Battle the bids in the first quarter battle of bids the gamification of the Tenex bidding process in which people can get the price at which a real estate profit will be sold on the platform with a chance to win millions of dollars in cash prizes. Our goal is to drive broad.
<unk> brand awareness and platform participation.
The first round of competition was played during our April 11th to 13th Tenex auction with 6800 registered players participating.
Since we launched marketing for the first round active web sessions on 10 X are up 22%. The promotional campaign generated $7 3 million impressions, a little over a month's new tenex accounts are up 32% year over year in the first quarter with around two starting tomorrow registered participants are already 30% higher than around.
<unk>.
Overall, we are well on our way to building a highly effective digital transaction capability with Tenex that I believe will become the preeminent global digital trading platform.
This year, we are on track to grow revenue by 20%.
And we believe.
By the end of next quarter, we will have fully integrated the 10 X platform into the Costar environment, giving us additional scalability.
Our residential business is performing very well to start the year, we're successfully growing subscription sales and revenue and building out the residential products vision, we shared with you earlier.
First quarter revenue in residential was $18 million, an increase of 63% compared to the first quarter of 2021 to a small number but you have to start somewhere and we see growth in the future.
Revenue from our pro plus product increased approximately 60% year over year, while our concierge pro plus product was approximately four times higher this year versus the first quarter of last year.
The direct sales teams selling <unk> pro plus product is delivering excellent results as our first quarter net new sales bookings for pro plus subscription is up 120% over the first quarter 'twenty one.
We intend to continue growing our pro plus sales team to approximately 100 sales reps by the end of the year in order to increase our agent penetration and engagement on the home snap platform.
Our product design and development teams are building the product capabilities that will for the first time directly connect home buyers and sellers of their agents, enabling great online collaboration.
Using the year listing your lead approach we are building tools that will directly connect interesting buyers to selling agents.
Along with complete agent directory for potential homebuyers to use in selecting the right agent for them.
Behind the scenes, we intend to relaunch the homes Dot Com website in June on top of a modern integrated technology platform.
Although not directly visible to homes Dot com users. This is an important step that brings the best technology for traffic scalability and speed to homes Dot com we.
We are leveraging the success from apartments Dot com and other high performance marketplaces to make this possible.
Our research team is busy building the proprietary content around neighborhood schools and parks and other features that consumers told us are important to them when they're shopping for the best place to lift.
So far we've produced hundreds and hundreds of videos with tens of thousands of more in the works. We believe this rich content will produce significant organic search results and will be highly informative engaging to consumers as they research the best place to live.
Traffic to homes dot com and prove prove significant.
<unk> in the first quarter 'twenty, two with monthly visitors growing 55% compared to the first quarter 'twenty one.
Even more encouraging site visits improved over 70% since we acquired homes dot com, increasing at a much faster rate than apartments Dot com did during the same post acquisition period.
Unique visitors to our overall residential network, including both homes Doc common home staff increased 125% from the first quarter of 2022 over the first quarter of 'twenty one.
We are preparing to rollout city snap at the end of this year as part of our arrangement with the real estate Board of New York.
City snap will provide consumers a powerful home search app and website customized for New York City, along with connectivity to our homes home snap suite of tools for property agents.
For the first time, New York Renters, and buyers and their brokers will have a single real time source for all available listings in this city.
We have partnered with a leading New York advertising agency to develop a marketing campaign for say snap with messaging that will reinforce the unique joys of living in Manhattan, and highlight how serious snap addresses the pain points of finding a place to live in New York.
You will soon see today's city snap all over New York City as we have designed our marketing plans to deliver hundreds of millions of media impressions across streaming video audio social and physical media, we anticipate millions of visits decision App site and App as a result of our media campaign.
Overall, I'm very happy with the progress of our residential initiatives and we remain on track for our full launch the new homes Dot com marketplace in 2003.
Winding up by a quick look at the economy. The Siri economy. The office market does continue to struggle with vacancy rates at all times highs anemic absorption rental rates at all time.
Real dollars lows sales volumes are low and cap rates are rising.
Okay.
It doesn't sound rosy, but our loopnet product is well positioned to help loan owners and brokers reach tenants and buyers in this tough market.
<unk> is well positioned to help owners and lenders exit the investments they must exit in this tough market.
And the new Costar lender product is an excellent tool to help lenders navigate the risks they may encounter in this tough market.
The apartment market is beginning to cool with demand moderating vacancies rising rent growth is still strong, but with new construction booming rent growth is going to slow into next year with further increases in vacancy rates, which sets a stage for a strong sales environment for apartments Dot com.
Retail leasing is rising or store openings or outpacing closures.
Vacancy rates to compress to lower and lower levels retail property owners have much reason to remain confident as net absorption.
Rent growth in investment activity or building on momentum from last year.
The national industrial vacancy rate fell to a record low in the first quarter fueled by strong leasing activity as tenants rapidly expand their distribution networks to accommodate increasing consumer demand for faster home delivery.
Construction continues to rise and competition for limited spaces driving record rent growth.
The hefty construction pipeline offers fertile ground for additional loopnet revenue as more developers seek to maximize their marketing exposure during lease up.
We set some of our highest price points ever for Loopnet marketing.
In 'twenty.
21, and 'twenty two for industrial speculative properties, the industrial market right now is white hot.
In the hospitality sector leisure and weekend demand continue to act as the main drivers for the U S Hotel sector recovery room rates are trending at an all time high as occupancy and Revpar recovering.
Business travel demand is gaining momentum.
So with that.
I'm going to turn the call over to our Chief Financial Officer.
The manual all respect and rely on Scott Wheeler.
Thank you Randy you won't want rendition of the scrip this evening.
So another really strong financial quarter key metrics net new bookings revenue adjusted EBITDA, all growing double digits, great start and our outlook is improving.
That's not bad considering that we're in a volatile economic environment.
So it's great to have a high renewing subscription model to rely on when the global economy becomes a little less predictable.
So revenue grew 13% in the first quarter versus the first quarter 2021 with four of our six service category is growing in the strong double digits.
Costar revenue grew 15% in the first quarter, continuing its growth acceleration and consistent with our guidance.
For context, Costar revenue grew 10% in the third quarter of last year, 13% in the fourth quarter of 2021, 15% in the first quarter of 2022, and we expect Costar revenue growth of 17% in the second quarter of 2022.
This is a trend I really like.
We now expect full year 2022 revenue growth of 16% for Costar up from our prior expectation of 15%.
Multifamily revenue for the first quarter increased 6% consistent with the fourth quarter of last year and in line with our guidance.
Revenue growth year over year is pretty much all price driven as advertised property counts have moderated since the middle of last year and add level mix is a bit lower from the downgrades over the past few quarters.
Although in the recent quarter.
Upgrades in the past the net downgrades, so that's a positive sign for our outlook.
We expect second quarter revenue growth to remain at 6% and our full year revenue estimates remain unchanged at 8% to 9% range with double digit growth expected in the second half of the year for multifamily.
Loopnet revenue grew 11% in the first quarter, which was consistent with the guidance we provided in our last call.
Second quarter revenue is expected to grow 10% and our full year 2020 outlook remains unchanged at 10% to 11%.
Revenue from information services grew 7% in the first quarter also in line with our guidance and for the second quarter, we expect revenue growth.
<unk>, 8% <unk>.
Hospitality market market conditions are improving.
Full year expectation for information services has provided revised up slightly to the high end of our previous range of 9%.
Residential revenue increased 63% over the first quarter of last year.
Revenue from products that are expected to be part of our long term strategy like pro plus subscriptions grew 62% in the first quarter on a like for like basis.
Additionally, first quarter subscription revenue doubled versus the year ago quarter.
Very good and positive momentum for our new sales force in the residential sector are.
Our full year 2022 revenue expectation remains unchanged at $70 million.
Other marketplace revenue grew 31% in the first quarter of 2022, driven by the strong growth from <unk> and we expect revenue from these marketplaces to grow 20% in 2022, as we had easier comps in the first quarter of this year.
On the profitability, our net income was $89 million in the first quarter, an increase of 20% from the first quarter of 2021.
Active tax rate was 26% for the first quarter.
Adjusted EBITDA was 178 million, a 12% year over year increase 18 million above the high end of our guidance.
Our adjusted EBITDA margin was 34% compared to 35% in last year's first quarter.
The outperformance in adjusted EBITDA compared to guidance was driven by lower personnel and marketing costs as well as a bit higher than projected revenue.
Roughly a third of the lower operating costs or timing related with the rest flowing through to our increased guidance for 2022.
We saw good productivity in our marketing costs, particularly as we leverage scale across our various platforms that are now marketing as we go into the new season.
Okay.
Our sales force totaled approximately 870 people on March 31, an increase of roughly 45 heads from the end of last year.
The largest sales force increases this quarter were in Loopnet, followed by multifamily and <unk>.
We're focused on expanding our sales resources in all of our businesses.
Doubled our number of sales recruiters since the beginning of this year.
Our contract renewal rate was 91% for the first quarter of 2022 up from the 90% rate in the first quarter of last year and down slightly from the fourth quarter renewal rate of 92%.
So this renewal rates fluctuated within this 90% to 92% range over really the last five quarters.
It changes slightly due to product mix and whether the growth rates of costar or apartments are moving in different directions.
The renewal rate for the first quarter of 2022 for customers who've been subscribers for five years or longer was a record 98%.
I love that.
Subscription revenue on annual contracts was 80% for the first quarter of 2022, which is the highest rate since the middle of 2020.
The improvement in subscription revenue concentration is primarily for more multifamily customers committing to annual agreements.
So for the outlook for 2022, we expect full year revenue in a range of $2, one 5 billion to $2 $1 7 billion in <unk>.
<unk> of approximately $5 million at the midpoint of the range, implying an annual growth rate of 11%.
Organic growth, excluding the revenue runoff from the legacy homes Dot com product is expected to be 12%.
Second quarter 2022 revenue is expected to range from 529 million to $534 million.
Presenting revenue growth of 11% year over year at the midpoint.
Full year adjusted EBITDA for 2022 is expected to range from 585 million to $615 million, which is an increase of $15 million from our prior guidance.
With five months of improvement from revenue and the rest from cost efficiencies, primarily from leveraging our scale across the marketing spend as I mentioned earlier.
For the second quarter of 2022, adjusted EBITDA is expected to be in the range of $123 million to $128 million, indicating a margin of 24% at the midpoint during the typical high point of our marketing spend for the quarters.
Regarding our longer term goals with a great start to 2022, and our new residential investments progressing as plan, we remain confident in our <unk>.
To reach both the 2022 as well as the 2027, our long term financial goals.
Announced in our last earnings call in February .
So before I turn the call back over to our operator for this much anticipated Q&A session.
I would like to remind everyone. Our question asking audience that Youll get one question and one question only so I know that you've been thinking about it long and hard and you're going to make this question Kal.
So with that I will now turn the call back over to our operator to begin the questions.
Thank you as a reminder to ask a question you will need the breadth number one on your telephone again that is star one to ask a question can we draw a question just press the Bankey piece.
Please limit yourself to one question.
Please standby, while we compile the Q&A roster.
Your first question comes from Lance George Tong from Goldman Sachs. Your line is now open.
Hi, Thanks, good afternoon.
Diving into multifamily it looks like you're starting to see stabilization in topline growth in the mid single digit range.
Could you talk a little bit about your latest expectations for growth in the back half of the year and then for 2023 as you approach run rate and then what apartment market conditions are necessary to achieve these targets.
Sure George how are you doing thanks for the question so.
So yes, we were encouraged with where we're going with multifamily we.
We expect in the second half that will be in double digit growth rates, that's going to range between 10% to 14% as we as we move through the second half of the year.
2023, we haven't set any rates off into 2023, but as you can see the quarterly trend is moving upward that should.
Set expectations that 2023 will be ahead of 2022.
Some of the things that we're seeing are.
<unk> properties now advertising on the platform.
In March so there was more properties being added than property is being.
Taken away from the platform and that's probably for the first time in the last six or seven months, so that trend is encouraging.
And the productivity of the sales force in the growth of the sales force are also.
Encouraging advanced indicators on what we see in the second half.
The price execution has been very good building every month as that sales force gets.
More and more comfortable with that that program.
We think that we're we're on a good track with confirm that in the first quarter and looking forward to the seasonally high typically seasonally high second quarter really give us.
More firm indicator on the second half of the year.
Also at that.
I was in Atlanta last week, and there were 25 people in the sales training class.
So we are successfully adding a lot of additional incremental salespeople and theres plenty for them to do because there are.
<unk> of prospects that we have.
Yet to reach out to.
I.
I think that there are clear indications in.
The outlook for in the apartment market and Youre going to see that.
Sort of ultra low vacancy rates moderating and I would be surprised if that's not what happened so.
Hi deliveries of inventory and moderating vacancy rates are normalizing vacancy rates are or slightly more than one standard deviation ranges.
Really what we expect and what we would want to have as an environment.
Your next question comes from the line of Pete Christiansen from Citi. Your line is now open.
Thank you and good afternoon, everyone.
With me on the call.
Andy can you can you recall Scott can you.
Quantify at least on the multifamily side the mix between.
The different AD level packages, I guess platinum versus gold all that kind of stuff just generally where we are right now in that in that mix and mercy is perhaps where normalized levels are just trying to get a sense of.
Where we need to go to get there.
Back towards that normalized mixed level.
Sure glad to help you with that are our mix of AD platform levels have.
<unk>.
Gold level platform as is our largest.
Mix and it's been at about 40% since really the beginning of 2020 it remains roughly about there.
Youll see diamonds have drifted down a couple percentage points there just below 20%.
Hasnt moved a whole lot the platinum is around 20% that hasnt moved a whole lot.
And you've got a little bit more on the silvers, which has moved up a couple of points. So really the platforms have stayed relatively stable since the beginning of 2020 with just a slight shift.
Between Diamond and silvers.
As you know we've addressed with the adjustment in our rate card.
If you do plan to move down the level, then, especially if youre a large platform player then youre going to pay a lot higher price at lower levels now for moving off of those diamond platforms. So that's about where we're seeing the mix right now.
Okay.
I would also point out that another part of the story is the size of the AD sales force we've had.
Is really working with our existing customer base as we add 50 or more incremental salespeople that are going to begin to be putting more focus on reaching out to.
Folks that are not buying anything from us today, so as we as we grow share and I do think.
Firms like.
Theres a lot of folks who are.
Advertising on smaller platforms like software that we can offer a lot of fans and they would take a lot of share away from them.
Your next question comes from the line of Jeff Mueller from Baird. Your line is now open.
I think we are considering that last line of thinking but can you just give us a fuller update on kind of the Downmarket apartments initiative I guess you were kicking it off into the pandemic and then you had a tough environment for a while but it seems like we're maybe coming out of that so just any update on how the downmarket initiatives performing.
What's the.
Any sort of strategic updates since obviously run dotcom is not going to be utilized and you have some thoughts.
<unk> strategy.
Yes.
I would just go back to.
Going into the pandemic.
We going into the pandemic, we were just building that mid market team to go after that down market opportunity I E.
<unk> 'twenty.
25% or less units down to single unit rentals.
The price points, we were getting were fantastic.
And on a per unit basis, and we're successfully selling.
But when the pandemic building an inside large inside sales team got much more difficult.
Again last week.
Dropping in on the sales training in Atlanta, 25 people sitting in there and the sales training.
Now have.
700 recruiters go into 10, I believe we're going to see a lot of growth there that's an unlimited.
Effectively unlimited opportunity, so I'd expect for us be able to start reporting.
Some good progress there and it's a very motivated group of salespeople.
Chance to spend a fair amount of time with so pretty pretty optimistic there.
Yes, when you look at the growth in advertised properties that took a pause.
<unk> in the middle.
Last year they started growing.
Pretty significantly in the first quarter of this year and our mid market sales team had their highest productivity level ever in the first quarter of 2022. So so.
We stabilized a bit in the mid <unk> mid 2021, as the market adjusted and now we're seeing growth pick up again in the <unk>.
100 unit section.
Your next question comes from the line of Andrew Jeffrey from tourists Securities. Your line is now open.
Hi, its Scott stepping on for Andrew.
I'm looking at it.
Hi, guys.
Looking at <unk>, you guys are able to ramp it faster than like internally planning are you willing to spend more behind that this year.
I think that.
I think that it's going to be pretty predictable along the plan the existing plan.
We are engaged in a very ambitious.
Scale software development effort.
And.
That is not likely to go dramatically faster or slower than we anticipate.
As well as we're engaged in.
Our scale collection of content.
No.
There's well over 1000 people working on the project right now so.
So it's going to be pretty predictable and in 2022 I think.
Where you begin to get optional variability, where you would respond to <unk>.
Successes in the market and potentially accelerate would be later 2023, and that's where you're just playing with acceleration around number of salespeople or SCM or marketing and.
In response to success. So I think it can be very predictable in 2022 and <unk>.
Through Q1 of 2023, and possibly Q2 of 2023.
But if theres a change in later 2023, it will be done with a lot of communication with our investors as to why we think it's.
Our high IRR.
Okay.
Okay.
Your next question comes from the line of Stephen Sheldon from William Blair.
Hey, Thanks on the maybe just a follow up on the residential content investments in kind of two questions there.
One how is the cost efficiency for developing that content then relative to your expectations and then and then two I guess how far along are you now relative to what you plan for 2022 in terms of content breadth that theres a way to frame that.
Yes, it's a good question I think that we are.
And our plans for 'twenty two because we were.
Trying to go from zero to 100 miles an hour.
We pre planned a very aggressive compensation program for the folks we're bringing in to do it so.
So you already planned.
We didn't expect to be able to accelerate super rapidly at Super high efficiency, we could achieve efficiency in out years. So we're sort of right in the line of as expected.
And.
The initial efforts a lot of the initial efforts are around building the systems to manage collecting the content efficiently and we're on track with that.
So.
No.
Unpleasant surprises that we're aware of where we're just tracking along.
Expectations.
And was there a second part of that question.
Okay, that's against the rules against the rules are well understood.
And the last compound questions all the time.
Yes.
In for Steven.
Go ahead.
Your next question comes from the line of Ryan Tomasello from <unk>. Your line is now open.
Hi, everyone. Thanks for taking the questions.
Absolutely.
Following up on on the residential strategy can you give us your thoughts around the various lawsuits that are going on in the residential market focused on industry practices around commissions and the role of real insurance agents in the MLS.
How do you think that plays out does any of that work in your favor and what's the what's the bigger picture, where all of it or those lawsuits with respect to Costar as long term strategy in residential.
So.
I think it's an interesting question and for the first time in five years and prior General Counsel and I don't think he is going to even comment but.
The.
The thing I would say is that.
We have not designed this like we are not in the business. We specifically have not designed homes dot com with a dependency on either the sell side or the buy side.
There are a number of other.
U S.
Residential real estate portals, who work to monetize the buy side aggressively and they rely on that dictated buyers split that is being attacked with some of these lawsuits were taking a completely different tact, we're focusing on selling.
<unk> the house.
And trying to market the house as effectively as possible and there are no lawsuits.
Out there, saying that people cant sell their homes, so it doesn't really impact us.
I also wear.
Where we are looking at generating revenue from agents we are.
Lately.
Agnostic to whether or not buy side or sell side. So.
I think we can.
Sit back and watch these lawsuits developers just.
In academic interest it doesn't really impact us.
Your next question comes from the line of my Young Tandon from Needham. Your line is now open.
Thank you good evening, Andy or Scott.
I think one of you mentioned that the pricing impact was pretty much all the multifamily this quarter, but just maybe more broadly your expectations on how much leverage now you have to increase pricing across the different product lines and how we should think about that impact versus growth from volumes or transactions or users.
Pricing versus volume growth as we look out over the course of 2022.
While we operate in highly competitive markets and we have really no pricing leverage anywhere, but if we did.
We are.
We are focusing on making sure that all of our product managers and leads.
Sales leads understand that in a highly inflationary environment not to maintain price appreciation as to decrease your pricing.
So we are keeping that out there and we seem to be able to.
We see to be able to achieve pricing increases along those objectives of being mindful of inflation and perhaps a little bit more Scott you watch this pretty closely do you want to yes, I think thats been our primary focus this year is to make sure all of our platforms are keeping a close eye on our on the inflation numbers and then as.
Our products annualize their contracts that we move our.
Price up on the on the inflation curve, which is always part of the contracts that we entered into with customers.
In addition to that as we as we go into each of our platforms every year.
For example, where we're adding lender we've added hospitality, we've added see MBS data, we build out great value feature sets, we try and keep our annual renewals outside of inflation to a low modest a few percentage points.
Our customers I feel value ahead of where where prices move for us.
Certainly youll see.
Overall.
That are the percent from pricing will move up to more of about probably half of the revenue growth in general is in the past is typically about a third in general and the rest coming from volume and then people selecting to buy more and more products are increasing the mix of what they buy so that's just a rough estimate.
But I can give you some sense that it will play a little more important role, especially while we're in an inflationary environment.
Your next question comes from the line of Ashish Sibaja from RBC. Your line is now open.
Yes. Thanks for taking my question, so pretty good momentum on the <unk>, plus and <unk> group plus products, Okay, and I'm, just kind of a smaller base.
Good traction there I was wondering if you could comment on what's the feedback like where does the penetration for both the group lessen the <unk> plus product.
Also just the.
The slowing home market and.
The banking home market residential market, how does that affect your ability to sell in that market.
Thanks sure.
Thank you for the question.
One of the wonderful things about being at the very early stages of entering the market with sub 1% penetration is contraction of the market you can't feel it.
You're just you're moving into the market so.
So we're not feeling anything there.
In the in terms of pro plus and costs here.
The big factor there.
We believe it's a really solid product that the agents like and.
Regard highly and when we acquired homes snap.
The biggest limitation are challenge they face is they effectively had no salespeople.
By introducing salespeople on <unk>.
Reaching out to realtors and telling them about what we had to offer we were able to successfully sell the product. So the primary limiter is just the number of salespeople and bring in the market is massive and.
It could be a decade, and you wouldn't be able to penetrate the market poly so.
And there is a balance between pro plus and costs years, we're watching.
I personally like.
Both have advantages for us concierge is bigger dollars, but I think pro plus is more strategic value when it.
Customer goes in when a realtor buys pro plus they tend to use our platform dramatically more we want them engaged as we release.
Enhanced version of homes Dot com, they're already in our environment regularly and thereby theyre more likely to use our environment to collaborate with their buyers and their sellers. So it has pro plus has a smaller revenue impact per unit has got a huge opportunity because the units are massive but it has.
As high strategic value concierge is fascinating.
Concierge is fascinating because.
It's higher dollars and it is a product where very often we are selling for hundreds of price point ASP of hundreds of dollars a month.
Marketing opportunities to the agents for marketing the properties.
As the products, we want to be focusing on down the road. So ultimately you're asking me, which of my children I like more I like them both the same.
Let me add format.
<unk> revenue.
From a revenue projected you may recall in the last fall we've talked about.
The new sellers, we're bringing on in the residential world are focused on pro plus.
And so we are consciously not trying to grow the <unk> revenue on a dollar basis, as we shift more and more sellers into pro plus because Andy said.
The stickiness of the pro plus the agent engagement is higher in the <unk> product and we are better off longer term doing that so that's why you don't see as dramatic of revenue growth in our annual outlook as Youll see a mixing down and concierge is a higher priced product as we build the salesforce, it's bringing in more.
<unk> on the pro plus so more about that as we go forward, but that's what will play out in the financial dynamics.
John major keeps on the cashier.
Yes.
It's hard not to the agents really like it.
Sure.
Your next question comes from the line of Joe Goodwin from JMP. Your line is now open.
Thank you for taking my question I just wanted to ask about.
The new modern integrated technology platform for homes.
Dot com.
I guess, just kind of what's going on there what that will what advantages that will lock you in then.
And then any plans to actually.
Connect the homes dot com data import that into.
Into the Costar backend, so that'll be available to your costar customers.
Yes, so it's a multi stage process. The first stages when you look at the.
The homes Dot Com, we acquired it wasn't the high performance environment, you needed to be scalable up to.
100 million uniques.
Speed performance.
Responsive mobile all of those things are essential to being able to build your traffic objectives and.
And to get the Seo rankings you want.
So what we're doing in phase one is we are using the home snap back end, which is pretty robust we are scaling that.
From.
Sales are at a multiple of the cloud base that you can scale it internally in AWS and then we are.
And then we're using the apartments dot com front end tools against the homes Nap back end tools and that is our fastest path to market with high performance scalability.
After we release that version, we're going to come back and we're going to migrate the home snap back ends.
Into the what we call our enterprise back ends which is the core Costar group back ends, which apartments dot com in Loopnet and the other systems work off of once we do that that data will all of them reside in the platform that is connected into costar and subject to the license agreements with the MLR.
As in the East provisions, we would then be able to make that.
Robust residential data or some of the home snap functionality available in the Costar product for the people that were properly licensed.
Three I think thats, a three step process, there, but it will keep our development teams.
Stable employed forever.
Yes.
Okay.
Your next question comes from the line of John Campbell from Stephens, Inc. Your line is open hey, guys. Good afternoon. Congrats on a great quarter. Thank you very much so on the incremental $100 million to $120 million of resi investment spend you guys had kind of planned for this year, how much of that hit in the quarter and then also if youre able to share just the breakdown of that spend.
Across content software and marketing and maybe how that is going to look for the balance of the year.
Here's Kevin sure so that the incremental incremental spend this year was 200 to $220, we'd called about 210.
110 of that was the content generation.
About 65, or so was for the marketing and the rest was from.
Technology.
Spend as well as product.
And some other infrastructure that went into that.
There wasn't a.
Major amount of that timed in the first quarter.
Somewhere in the $10 million to $15 million range, probably incremental maybe was a little higher than that but.
The ramp up really starts to come in the second quarter.
As we're adding the resources due to the content collection.
There is there is marketing that will pick up in the last quarter of the year third and fourth quarter of the year as we get closer to launching so it's heavily phased into the back half of the year. So really in the first quarter. It was really shifting resources. They are both product and product development resources over from our other businesses and some resource Reese.
Search folks so so not a whole lot in the first first part of the year, mostly coming in the last three quarters.
There are no further questions at this time I would now like to turn the conference back to Andrew Florance.
Well.
Thank you for joining us today gene as a special guest guest host.
And I'd like to thank everyone for joining us for our first quarter 'twenty two earnings call I would come out of the gate this year with a real strong momentum across our commercial property platforms, along our exciting new investment.
Opportunities in residential market and our European potential.
Look forward to speaking to you all again in the second quarter call on July 26 at the same time and the same medium until then stay safe and thank you very much for participating.
And thank you very much for any analyst, who said great quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
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