Q2 2023 CoStar Group Inc Earnings Call
All lines have been placed on mute to prevent to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Now <unk> head of Investor Relations will lead the Safe Harbor statement Cindy you may begin.
Thank you J P. Good evening and thank you all for joining us to discuss our second quarter 2023 results of the Costar group before I turn the call over to Andy Florance, Costar, CEO and founder and Scott Wheeler, Our CFO I would like to review our Safe Harbor statement.
Certain portions of the discussion today may contain forward looking statements, including the company's outlook and expectations for the third quarter and full year 2023 based on current beliefs and assumptions forward looking statements involve many risks uncertainties assumptions estimates and other factors that could cause actual results to differ materially from such statements.
<unk> 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 SEC, including our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q under the head heading risk factors.
All forward looking statements are based on information available to Costar at 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 any non-GAAP financial measures discussed on this call are shown in detail in our press release issued today, along with definitions for those terms the <unk>.
This 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. Please refer today's 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 Cindy.
It reminds me of summer camp gather around the campfire kids Cindy is going to read the safe Harbor statement again.
Yes.
Alright.
Just curious good evening, everyone and thank you for joining us for Costar group's second quarter 2023 earnings call.
Revenue for the second quarter of 2023 was $606 million or 13% growth year over year revenue growth in our commercial information and marketplace business was an impressive 15% year over year.
We continue to deliver strong double digit revenue growth, which in this case is particularly impressive during one of the most difficult property markets in decades.
I'm pleased to see our portfolio was strong across the board with apartments Dot Com Costar Loopnet real estate manager STR Landstar common business is for sale, all delivering double digit revenue growth.
We continue to deliver outstanding sales results with $82 million of net new bookings in the second quarter, our second highest sales quarter ever.
I believe we crossed a monumental milestone in June when our residential portal network continuous phenomenal growth and became the second most heavily trafficked residential marketplace in the U S. Overall.
Overall traffic to Costar group's websites reached a high of 105 million monthly unique visitors in June according to Google analytics.
Earlier this year, we moved into third place when we surpassed redfin first quarter self report home and estimated rental site traffic.
Then in the second quarter, we moved up again to second place as we had 84 million average monthly unique visitors to our residential portal network, surpassing realtor dot com self reported traffic of 72 million monthly unique visitors from the earnings release on May 11, 2023.
Costar group's residential network combines residential rental site in homes traffic for sales site traffic as others do.
<unk> Dot com is the fastest growing residential portal with network traffic growing 130% year over year in June to 38 million monthly unique visitors.
Okay.
That's an accomplishment one year after we relaunched homes dot com.
Or within the first year, it wont be launching homes dotcom, Congrats Jerry Livia and the whole team and Todd.
Departments Dot com once again delivered an outstanding quarter apartments Dot Com revenue was 224 million in the second quarter accelerating to 23% year over year growth the.
The apartments Dot com sales team delivered a record net new sales quarter with net sales bookings, increasing 84% compared to the same quarter last year. The month of June was our highest sales month ever.
We continue to add new customers to our marketplace at a rapid pace and now have over 66000 paying communities on our network, representing an increase of 12% over the second quarter of last year.
Our mid market efforts are contributing thousands of new properties growing paid subscribers by almost 40% in the second quarter.
New construction is also contributing to subscriber growth, 65% of all new 100, plus unit communities are advertising with apartments Dot com and.
Of those advertising, 80% are at the platinum level or higher.
Our sales team continues to deliver exceptional results and high productivity or sales productivity is up 24% over the second quarter of last year, the number of quality meetings with customers increased by 13% to 155000 <unk>.
Paired to the first quarter.
Our net promoter score rose to a very impressive 95, the highest since the quarter first quarter I'm sorry, that's the highest since the third quarter of 2020.
Really impressive number.
I am proud to say our team delivered strong performance the National apartment Association annual conference in Atlanta last month, they were motivated by a surprise appearance by an always entertaining Jeff Goldblum, our team delivered almost double the sales level of last year's conference.
I'd like to extend a special thanks to Paige Forrest Fred's St. In the wholesales team at apartments Dot com for Kensington Ewing to produce exceptional results quarter after quarter month after month.
In June monthly unique visitors for apartments Dot com grew 9% year over year significantly outperforming the market, which is down approximately 9% year over year. According to Google.
Our 2023 apartments Dot Com marketing campaign is in full swing, we are reaching renters across all media channels during peak rental season, and generating over $2 8 billion media impressions up 11% over last year.
Since the launch of this year's campaign, we're already seeing phenomenal results with unaided awareness for apartments dot com, reaching a very impressive 49%.
That's the highest level ever our data indicates that this level of unaided awareness has never been achieved by anyone in the online rental marketplace category.
Economic conditions in the apartment industry continue to create a favorable advertising environment apartment vacancy rates on three four and five star properties continued to rise increasing 220 basis points over prior year to seven 9%.
Unit level deliveries are at all time highs in supply will continue to outweigh demand for the foreseeable future. We expect vacancy rates to continue to increase for the next four quarters, peaking at around 9% in mid 2024.
With favorable advertising conditions, a strong and growing sales force and industry, leading products, we expect to see apartments dot com revenue growth accelerated to 25% through the end of this year.
Yeah.
Over at home Satcom, we continue to make great progress in implementing our strategy traffic to our homes network reached a new high of 38 million unique visitors in June according to Google analytics growing 130% over the same period last year sequentially, our homes Dot Com average monthly unique visitors grew 70.
5%.
As we continue to grow traffic share towards our miles next milestone of 50 million unique visitors.
With returning users up 416% in June versus a year ago. I believe consumers are appreciating homes dot coms outstanding UX and the ability to contact the listing agents directly and clearly the ones who know more about the property than some other unrelated aging.
According to Comscore homes dotcom unique visitors are up 224% in the second quarter over the same quarter last year. While Zillow is traffic is down 5% realtor dot com is down 13% and redfin is up 4%.
I am pleased with our success growing site traffic on homes Dot com to date and I believe we have a lot of runway ahead as we continue to implement our content products and marketing plans.
This is a marathon and not a sprint we are clear that we have more and bigger traffic levers to pull to grow traffic over the quarters to come.
Our future growth and traffic will come in waves in a period, where traffic levels. It may just be the trough before a monster wave comes.
I am very confident in 18 months from now we will have very impressive rankings.
Alongside our increasing consumer traffic, we continue to focus on agent engagement. We've built an incredible committee of $1 1 million real estate agents on home snap pro with hundreds of thousands of active users. Each month, we have integrated the top feature set of our home snap pro product into the homes Dot com platform.
And if begun migrating agents over to homes pro our new agent facing set of tools.
Our new homes pro product will provide significant benefit to our current home snap users, including access to 15 times the consumer traffic millions of free leads and additional tools and feature upgrades.
With these tools filiate fully integrated agents for the first time, we'll be able to experience the full value of professional tools integrated with a heavily trafficked agent friendly you're listing your lead business model.
In June we lost Ark launched our first installment of proprietary content on homes Dot com with massive volumes of immersive neighborhood videos informative Writeups and photographs. We also released a comprehensive set of school profiles information ratings, all giving us what I believe to be the most complete coverage.
Schools on any residential property website.
We are still in the very early stages of our content strategy, but I'm encouraged by the consumer response to what we've built so far.
We recently conducted another round of focus groups in various cities with both consumers and agents and tested our product features and content.
I have attended hundreds of focus groups in dozens of cities over the past three decades.
The consumer and agent response, we received from these most recent focus groups is the best I've ever seen really encouraging responses I believe we're on the right track.
We have much more work ahead to build out the full new homes dot com product offering, but I believe that based upon the focus groups. There will be a very positive consumer response to what we deliver.
Costar revenue for the second quarter was $229 million, an 11% increase over the same period last year, that's coming in above our 10% revenue guidance, we're seeing higher levels of sales to new logo accounts and I'm encouraged by the strong sales results to owners lenders and corporate.
Users, which grew 134% over the first quarter of this year clearly our efforts to shift our sales team to focus on owner lender and tenant prospects is paying off sales activities to these customer types, where approximately 20% higher in the second quarter than the first quarter of this year and our.
Are expected to increase further in the second half of the year.
Another positive sign for Costar was our 92% renewal rate in the quarter, which increased from the 91% renewal rate in the first quarter.
Our costar lender product had its best sales quarter ever with net new sales nearly doubled the sales results from the first quarter of this year.
We've had success selling to financial institutions of all shapes and sizes with a product that is proving far superior to competitive offerings, our ability to match individual properties to loan portfolios alongside our credit default model are valuable differentiators of Costar lender that others simply cannot match.
Our clients continue to refer to our solution is the best in class and the gold standard.
We're still in the early stages of the $300 million market opportunity with 200 customers signed 5800 more potential customers ahead.
In April we released property investment fund data into Costar. The release includes 12600 investment funds, which we have linked to 70000 commercial properties in the Costar database.
This new information adds to costars unique datasets, providing the ability to search for funds based on their property portfolio characteristics transactions and listings.
The two months since we <unk>.
Introduced the product we've closed over 100, Costar sales, where the fund data was a critical part of the value proposition.
In May we released our new tenant application, which includes enhancements to our existing tenant location information as well as a new corporate user feature the new corporate user feature aggregates all the locations for the 32000 largest corporations that occupy five or more locations. This product allows users to <unk>.
<unk> query on a large corporate occupier for example, Walmart and see all of their locations or types of buildings. They occupy building detailed financial information on the company and credit risk brokers find this information very valuable as they quickly understand how large tests utilized space across their portfolios and identify opportunities.
To serve those companies.
I believe the strong pace of new product introductions alongside the sales team's focus on owners lenders and corporate users will continue to support strong revenue growth, even as we navigate one of the worst point of the current CRE cycle.
Loopnet revenue was $66 million for the quarter up 16% year over year.
And in line with revenue growth of 16% in the first quarter.
Loopnet continues to be the most highly trafficked commercial real estate marketplace, capturing 14 million average monthly unique visitors for the second consecutive quarter up 13% year over year. According to STM rush data for the month of June Loopnet, Loopnet, Canada have seven and eight times of traffic of our nearer.
Competitors, respectively.
Visitors to the Canadian network are up 51% year over year.
While the Loopnet marketplace remains strong and competitively advantage loopnet sales growth should have been stronger in the second quarter. We believe the lower sales resulted from a combination of factors and that most of these factors are correctable. These factors include a growing and relatively young sales team.
A training program, which has room for improvement a large number of account transitions.
And a poorly conceived commission plan that drove lower activity levels, and a weak customer service, which renew start reduced our renewal rates.
That sounds like a CEO , that's not happy with something that's true.
Countering that the climbing commercial real estate vacancy rates did create positive countercyclical demand for leasing solutions similar to the positive results environment, we're seeing in apartments Dot com.
In fact I was on the phone this morning with Mike Who's one of our more experienced loopnet sales reps and he said he's witnessing unprecedented demand for advertising for Loopnet in this severe downturn. He says that office owners, who in the past or industrial owners who've never considered advertising before on the Internet are now all.
In trying to drive leads to their troubled leasing assets.
We will increase service levels, while reinforcing customer retention as a priority and a revised incentive compensation plan.
Despite the near term disruption I remain very confident in the long term loopnet growth opportunity in our direct sales team and strategy. Our Loopnet network of international marketplace has delivered strong growth in the second quarter with revenue, increasing 35% year over year and net new sales up 24%.
Our international expansion efforts will continue in the second half of the year as we plan on launching Loopnet in France, and Spain, which will run alongside of our Bureau, loco business <unk> and <unk> marketplaces.
STR revenue was 11% compared to the second quarter of last year with subscription revenue growing an impressive 14%.
For the second quarter in a row STR achieved record sales results with more and more subscriptions.
When we purchased STR in 2019, approximately 60% of STR revenue was subscription based and 40% was one off transactional.
The STR team has done a great job of transitioning the business to 80% subscription revenue currently.
Renewal rates on STR subscriptions are at an amazing 97%.
In May we successfully launched our STR benchmarking product in Costar and the initial results are encouraging.
Our teams have migrated over 60 customers to the benchmarking product in Costar with another 250 customer migrations and progress.
The transition is anticipated to be completed in approximately one year.
Encompassing over 900, corporate accounts and 6000 independent hotels.
The release of the new benchmarking product represents a digital transformation of the beloved and 38 year old industry Standard Star report.
The feedback from clients on this integration and enhancement is astounding one customer referred to it as an ethical change.
I don't think I refer to anything as ethical changes, but owners and operators are thrilled with the new advanced analytics options data visualizations abundance of historical data and of course, the trusted STR report.
We anticipate this release will open access to new clients as the data is invaluable for asset acquisition operations and disposition.
Im looking forward to completing the migration to costar, which will accelerate our growth into what we see as a $300 million market opportunity.
Costar real estate manager signed a number of the world's largest companies to our lease administration and transaction management solutions in the second quarter.
Most of these names are confidential, but you'd recognize for example, the company behind the word processing software that I wrote this on.
Year over year subscription grew revenue grew 14% in the second quarter subscription revenue climbed to 92% of revenue in the first half of 'twenty three versus 87% in 2021, we enjoyed at 100% customer renewal rate in the second quarter today.
Seven out of 10 of the largest U S. Banks are using real estate manager lease accounting lease administration or transaction management solutions.
This buy sell continues to experience double digit growth and is expected to exceed $30 million revenue in 2023, an important milestone.
Traffic to the best buy sell network reached an all time high of $12 6 million sessions in Q2, which is 25% growth year over year and lead volume to advertisers was up 30% during the same quarter.
<unk> is the leading marketplace in the business for sale category.
Our land business is on track to increase revenue by double digits and to exceed a major milestone of $50 million in revenue when we acquired land and farm and lands of America. Those businesses had $4 million of revenue. So $50 million is an important growth milestone.
Implementing our land our playbook, we added Landwash combined sites into land Dot Com network greatly increased traffic and exposure for clients and recently added gold and platinum ads our investment in product and people continues later this year with the launch of Diamond ads, and adding sales head count, which increased 26% year over year and.
Our target is to increase at 50% year over year.
<unk> continues to perform well, while overall CRE market conditions remain challenging Q1, 'twenty three CRE transactions commercial real estate transactions were down 51% year over year in Q2 further declined to 63% year over year down.
The steepest just that's the steepest discount.
That is the steepest decline since the great recession.
Where transaction volumes have declined 66% year over year.
Bid ask spreads continued to grow wider due to higher interest rates and constricted debt loan to value ratios and all that has caused upward pressure on cap rates. The overall see MBS delinquency rate rose to three 9% in June the highest rate in 14 months and it's expected.
To grow in 2023 and 2024.
We appear to be seeing a very severe significant pretend and extend phase from lenders and distressed assets are coming but it's just a question of when not if.
<unk> supplied its proven principles of thinking value expectations with our seller broker customers to onboard assets with reserve pricing set to current market conditions for Q2, 10 axes tenex onboard at $1 5 billion of inventory, a 27% increase year over year.
<unk> and two times Q1, 'twenty three volume.
And we delivered a solid 52% trade rate and that compares very favorably to the offline worlds, 23% trade right.
Due to the ongoing bid ask misalignment tenex rejected over $2 9 billion of potential inventory that was deemed high risk for transaction success, because the seller had an unrealistic Lee high opinion of value. So we didn't take those properties on an order.
To avoid wasting money on underwriting them and lowering our trade rates.
We continue to build and improve our platform for the future.
The Tenex Salesforce grew 36% year over year and delivered higher quality high valued assets in Q2, the average asset value was up 33% year over year from three five to $4 $6 million. The average winning bid was up 11% year over year from three two to $3 7 million.
The average buyer premium was up 27% year over year from 72090, 2000, and there was a 53% year over year inventory growth in the $1 million to $10 million range, which is what we consider <unk> sweet spot.
We've made significant progress with our technology with the 10 X platform now fully integrated the Costar ecosystem customers can now fully manager transactions digitally through the marketing auction contracting and closing phases of a sale sellers and brokers cannot manage their listings in Leeds in marketing center and virus can interact with their.
Occurs and sellers via the Tenex Loopnet and Costar sites.
Finally, the lift everybody up I would thought I thought I would talk a little bit about the commercial real estate economy really pick things up.
Yeah.
Did you know tariff Xu means to lift up.
<unk>.
Yeah.
So.
The capital markets continue to see the impact of rising interest rates as I mentioned second quarter sales transaction volumes were down 63% compared to the same quarter of 2022.
Was down across all property types and the types and the commercial state markets prices are also falling but the lack of real deal activity makes price transparency difficult.
That market has not yet seen a wave of distress with delinquency is still very low by historical standards, but there has been some movement. The next couple of years will bring more clarity to that markets is more than a trillion and <unk> debt comes due.
The office sector continued to weaken in the second quarter and can now be characterized as the worst that's ever been vacant.
<unk> now stood at 13, what a horrible thing to have to say, but vague.
They can see rates now sit at 13, 1% their highest levels ever. However office space that is no longer occupied by a tenant or is underutilized by a tenant is not truly stably leased most lenders are not considering space leased.
<unk> space leased but not occupied to be leased there's got to be a tenant actually in this space before lenders consider at least based.
Based on that fact, the Phantom or true effective vacancy rate is close closer to 57%. If you assume a 50% tenant occupancy of lease space.
That is by far the worst vacancy rate in the history of the office industry.
Tenants gave back 40 million square feet in the first half of 2023 with another 100 million forecast to be given back to the remainder of the year net absorption was negative again in the second quarter now totals more than 150 million square feet negative since the pandemic began negative absorption was this was a third of that level in the <unk>.
<unk> 2008 financial crisis at negative 50 million square feet. So this is much worse than the OE and deterioration conditions will likely not improve anytime soon and we expect vacancy rates continue to arise overall sales prices for office believes are down five 9% and delinquency rates, while still low have tripled since the end.
Of last year to four 4% currently.
I believe the downward price pressure is much higher than a five 9% decline and that the quality of office loan collateral is weaker than many present it to be.
The hotel sector continues its recent trend of slow growth in the second quarter room rates rose at around the level of inflation, having limited potential for improved profitability resort destination shows signs of slowing growth as consumer spending cooled while hotels in urban markets reported improved growth supported by corporate group demand and transient.
Travelers higher interest rates that put a damper on construction in deal activity.
The industrial and retail sectors continued to be relatively healthy at four 7% industrial vacancy rate is historically low an annual growth rate growth for rent remains very strong retail vacancy reached another all time low with continued positive absorption announced store openings continue to exceed.
<unk> store closure. So that's good news the residential sector continues to face challenges with a 30 year mortgage rates around 7% monthly prices on the rise in the last three months and affordability is reaching a low not seen since 1986 creates challenging condition total home sales.
Fell 16% year over year with more than 60% of the existing mortgage rates below 4% and more than 80% below a 5% rate lock will keep inventory of existing homes low people are not going to be trading out of those low interest rates builders have responded though as single family housing starts moved higher.
Earlier this year, new homes account for 15% of all sales compared to only 10% a few years ago builders are offering incentives such as mortgage rate buy downs and price discounts to attract buyers.
Still affordability.
Remains a challenge so despite that difficult real estate market Costar delivered yet another quarter of strong double digit revenue growth, our second highest sales quarter ever.
Exceed 100 million monthly unique visitors for the first time in June which was an incredible milestone and demonstrates our ability to deliver successful leading property marketplaces occur.
Cross multiple sectors and across multiple countries, our marketplace networks continue to grow and provide value to our advertising customers at a time when vacancies are on the rise.
Although the composition of our revenue growth continues to shift with the market dynamics I am very confident in our ability to deliver our financial projections for 2023.
At this point I'm going to turn the call over to young Chief Financial Officer, Scott Wheeler.
Thank you old CEO Andy.
Now that is true.
I believe I'm, one digit younger than you still for another month or two.
Great quarter financially.
Got to cover so let me jump right into the revenue by our service areas. So Costar revenue grew 11% as Andy mentioned slightly above our guidance of 10% with the strength of our net.
New sales exceeding our forecast.
We saw stronger new customer sales in the quarter, particularly to owners investors and lenders.
And even though our broker sales stabilized in the second quarter.
We signed almost 800, new broker agreements this quarter a vast majority of them are in the 1% to two broker size category.
Definitely an improved trend from the last couple of quarters.
We expect costar revenue growth to be 10% in the third quarter and now between 10% to 11% for the full year, a modest increase from our previous outlook.
Apartments Dot com second quarter revenue growth of 23% was in line with our expectations. We had another record sales level for page and the team.
The new property volumes increased 12% year over year and volumes in the mid market category growing much more rapidly at 40% growth year over year.
We are seeing more and more customers now upgrading to the higher tier ads, particularly the 100 unit and above unit.
Properties are doing that quite a bit more now our net add level upgrades are now at or above the levels that were operating at before the 2021 disruption in the apartment market, we expect that trend to continue with.
With continued strong sales results, we now expect third and fourth quarter revenue growth of 25% for apartments Dot com, which is up from 24% assumed in our last outlook.
So our full year revenue growth outlook is slightly up in the range of 23% 24% for apartments.
Loopnet revenue grew 16% in the second quarter consistent with the first quarter of the year slightly below our guidance of 18% whats the shortfall of about $1 million.
As Andy mentioned, the Loopnet sales in the second quarter fell short of our expectations and we are adjusting our full year revenue outlook for loopnet to approximately 15% year over year revenue growth.
Loopnet third quarter revenue growth is expected to be around 14%.
Revenue from information services grew 9% in the second quarter.
And real estate manager continued to post strong double digit revenue growth, particularly in their subscription parts of the business, which we expect to continue through the end of the year, it's really impressive to look at the renewal rates and STR at 97% and real estate manager of 100% those are very critical products for our customers.
We're starting to see more and more of our banking customers move to our new Costar lender product, which just a small amount of info information services revenue up to the Costar category.
Accordingly, we expect revenue growth in the upper single digits for the third quarter, approximately 9% for the full year and information services.
Our residential revenue came in at $13 million in line with our expectations.
We expect third quarter revenue of around $11 million in line with our last forecast and full year 2020 fee revenue of $45 million.
Other marketplaces revenue was $32 million in the second quarter up slightly from the first quarter revenue and effectively flat to prior year.
<unk> revenue was lower than expected in the second quarter as the <unk>.
Low transaction volumes in deal uncertainty weighed on the results.
Tenex aside our lands and businesses for sale marketplaces revenue were up 11% year over year in the second quarter.
For the second half of the year, we're moderating our revenue outlook for <unk> and assuming a continued low transaction level environment. If for some reason it improves in the later part of the year, we'll take the upside.
We now expect full year revenue for other marketplaces in a range of $130 million to $135 million for the full year, a reduction of approximately $20 million from our prior outlook.
Adjusted EBITDA for the second quarter was $127 million above the high end of our second quarter guidance range of $123 million.
Favorable performance relates primarily to the timing of our investment spend.
Our adjusted EBITDA margin was 21% one percentage point above guidance.
Our sales force totaled approximately 1160 people in June 30, an increase of 17, 17% from June of last year and approximately 40 sellers from the end of the first quarter the majority of.
The increase in the second quarter is in our marketplace businesses.
Our contract renewal rate was 90% for the second quarter of 2023 with the renewal rate for customers who've been subscribers for five years or longer at 94%.
Subscription revenue on annual contracts was 81% for the second quarter compared to 80% in the second quarter of 2022.
We have a rock solid balance sheet with $5 2 billion in cash.
We now earn around four 8% interest on our cash versus paying $2 eight interest percent interest on our debt.
Positive net interest income was $52 million in the second quarter.
123 outlook, our full year outlook is now in the range of 2.45 billion to $2 $4 6 billion for revenue.
Collecting our adjusted transaction revenue forecast for <unk> in the second half of the year.
Our subscription based businesses are expected to continue to deliver strong sales and double digit revenue growth in the second half and we expect full year revenue growth of 13% at the midpoint of the range for the year.
The company expects revenue for the third quarter of 2023 in the range of $622 million to $627 million, representing revenue growth of approximately 12% year over year at the midpoint of the range.
We're reconfirming, our adjusted EBITDA guidance for the year and raising the midpoint of our guidance range our.
Our revised adjusted EBITDA guidance range is 510 million to $520 million.
For the third quarter of 2023, adjusted EBITDA is expected to be in a range of $115 million to $120 million.
Well that does it for me and the financial facts, let's go back over to our operator, and we can begin the quarterly ritual of question and answers back to you operator.
I think at this time I would like to welcome everyone to the question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
If you would like to withdraw your question. Please press star two.
Be reminded to limit the one question. Thank you.
Your first question comes from the line of George Tong from Goldman Sachs. Your line is now open.
Okay.
Residential network grew significantly in the quarters and is now the second largest in the U S. Can you discuss how the strong performance and rosy traffic influences your residential spending intentions in the second half of the year and heading into 2024.
Sure. Thank you for pointing out George that our residential platform is now the second most heavily trafficked platform in the United States I appreciate that.
So.
Uh huh.
I think we have a pretty clear.
Plan or strategy for how we plan to continue to grow that traffic and the value of the platform to consumers I don't think that the success. We're having to date is going to take us off of that plan. So we're largely on track with what we've been intending.
We want to continue to grow the traffic even more dramatically.
In order to make sure that we have the best platform for monetizing at the point that we decided to do that.
Got it thank you.
Thank you George.
Your next question comes from the line of Heather Buskey from Bank of America. Your line is now open.
Hi, Thank you for taking my question.
I wanted to ask about Loopnet and the.
Execution challenges and I hope I hope that wording.
For the business and kind of what youre looking to do to improve that trajectory.
And how quickly you think you can reaccelerate the business and see the results from the investments you've made in.
The sales force thanks.
Sure.
Thought youre going to ask about our residential portal being number two and moving quickly from number four or 5% number two but I'll take the question you asked so.
I'm sorry, so I was thinking that we would begin to turnaround the execution performance on Loopnet on Wednesday, and Thursday hidden Friday.
So if you if you look at.
If you look at.
Apartments Dot com I think a little over about a year or so ago. It was growing at 6% year over year now, it's moving towards 24, 25% year over year growth.
So these things are when they when they emerge there pretty straightforward to troubleshoot and to put them on track I don't believe this is an issue of demand I believe this is a simple one.
Relatively simple problem to solve we actually have a.
A decent sized sales force now.
But I think we're just incentivizing the wrong activities and I think we can.
Move it back on track now keep in mind Big picture.
It wasn't that long ago that we acquired Loopnet and the revenue was less than our land business and now I think it's up about <unk> 1 billion or something so it's doing quite well, 16% growth is not bad but I just think it can do better and they will do better.
So.
Nearly immediately.
Yeah.
That's helpful. Thank you.
Okay.
Your next question comes from the line of Pete.
These jensen from <unk>. Your line is now open.
Good evening, Thanks for the question.
Sure.
I'm not sure if I heard that right you guys are number two.
That's right. It's shocking that we've moved up that quickly to become now commented a player, but yes, that's actually right Pete.
Okay Alright.
I just wasn't sure.
[laughter].
Wanted to dig a little bit only thing a little bit more into loopnet like.
What youre seeing on both the broker ads and the signature ads.
And whether or not you feel the value proposition for some of the signature ads.
It is really compelling enough.
I'm just wondering if you can draw that distinction help us understand.
The differences between the two price level, then and how you see that.
Hopefully improving in the near future.
Yes, so again.
It's not that it is terrible 16% year over year growth is pretty strong obviously in it and a bad CRE market, which actually should be helping it more.
I think it's really.
I remain convinced that it's a no brainer when I talked to our experienced.
When I talk to our experienced successful sales reps.
<unk> is clear.
Are there some selling contracts that are reaching new high points for those premier signature ads.
And if you think about it if you think about somebody who owns a $1 billion of building that has a major leasing risk and has as part of the massive.
Loans coming due in the next couple of years spending a couple of thousand dollars a month in order to try to.
Raise your profile when the vast majority of tenants are looking for their commercial real estate on Loopnet and Costar. It's a no brainer, so I feel very comfortable with that value proposition.
But it's just a question of <unk>.
Continuing to.
Improve the trying to go for from 16 to 18% to 20% is still sort of being satisfied with something in the lower teens.
And Pete when we when you look at the growth in the signature ads.
The biggest growing category and <unk> is the diamond listings and those are the biggest most expensive ones. They are up over 50% year over year by AD count. So that tells us that the demand is clearly there.
The large owners and property.
Managers really need those those higher performing ads and so it's just a matter of getting our sales force back on track to cover the market more effectively and Pete towards building. The other day that was.
Distressed brand new building beautiful building.
The owner stood to stand if they couldnt lease it they stood to stand.
They were going to lose.
Perhaps $80 million.
The building was completely vacant and the brokers had not marketed on Loopnet.
And it just blows your mind that someone an owner would potentially lose 80 million for a leasing problem.
Vast majority of tenants look for space on Loopnet and the brokers save themselves a couple of hundred Bucks. So I think it's a I think it's a pretty solid value proposition and it should be coming into it it should be.
Doing better than ever similar to apartments Dot com.
Thank you good commentary thank you.
Okay.
Your next question comes from the line of Ryan Tomasello from <unk>. Your line is now open.
Hi, everyone. Thanks for taking the questions.
I guess, Andy just reading between the lines on some of your comments around homes I mean, obviously the traffic growth continues to come in very strong I mean should we now be expecting perhaps a bit longer of a timeline in terms of when you intend to monetize that platform relative to I think the year end.
Commentary, you've given in the past.
On the traffic levers understanding there's some competitive sensitivity there, but any color you can provide around when we can expect these waves of growth to materialize.
And then finally on the content piece.
<unk>.
What inning would you say you are in that build out there. Thanks.
Okay.
So.
I would say from a monetization perspective, we anticipate.
We anticipate significant progress in our efforts.
And traffic.
In the first quarter of 'twenty 'twenty four.
<unk> first quarter 2024 second quarter 2024.
Clear significant additional progress.
We are the rationale for monetizing in the fourth quarter, even though we may be hitting very close to the $50 million monetization level would be too.
Demonstrate.
Proof of proof.
Proof of monetization ability to you the.
Investor Investor Representative.
But strategically.
It might be much wiser.
To begin to monetize when you expect a second stair step function of growth in.
'twenty 'twenty four for second Q so.
I always try to do the right thing for the investors in the intermediate time period, not the short time period, and maybe one day, we will do the right thing for investors in the long time period.
Intermediate time period is pretty important.
And then what inning are we in the content I would say we are in the second inning on content.
There is a lot.
I will tell you.
I'm really pleased with some of the work that's happening.
There are things, we could do better but the volume of what we're doing is.
Enormous.
And I think that what we'll be able to do in the next year or so with that content will be.
I think really quite impressive and I think will be a really compelling value proposition for our platform.
Did I forget one of the questions.
That's pretty good I think you've got a lot in there.
Yeah, So you're right trying not to disclose strategic things [laughter].
Yeah.
Anyone else, we're ready if there are any other questions.
Your next question comes from the line of Jeff Mueller from Baird. Your line is now open.
Yes. Thank you want to ask about homes Dot com traffic quality, you gave us a metric on return users I'm, assuming that including on a re advertises basis, where they're clicking back to run. Another AD can you just give us any other homesite com traffic quality metrics.
<unk> things like return rates or time spent on site et cetera.
Thus far in the markets, where you've loaded the proprietary content up in June . Thank you.
For sure so I won't have.
I will not have a significant digit data for you in front of me, but I will tell you that one of the most important things I look for is return traffic direct so people that typed in homes Dot com.
And that is up about 400% year over year. So so.
We are not I'm not focused on who's coming back in off of SCM on focused on who is coming in direct return and that number is up dramatically.
So.
Happy with that secondarily im looking at the lead flow and the lead flow is.
I believe very solid.
I believe and I am not going to disclose any specific numbers, but.
I believe that we are delivering.
Twice the lead flow of some of the well known residential platforms in the United States and I think there is I think that's dramatic I think that's important and I think the reason why were delayed delivering twice the lead flow of some of our competitors is really quite simple.
We are putting the name photo likeness contact information of the actual listing agent on the listing.
And.
So people can reach out and simply contact the person that knows the listing better than anyone else in the world.
Competing sites are.
Citing that lead into a call center and often syndicating the lead out to multiple unrelated agents had don't know that listing at all.
Consumers are reasonably smart, sometimes and I think they are onto that and we're getting super high quality traffic to the site.
And good lead floating I remember also we have a huge.
Engaged group of residential agents, who are in our platforms.
And they like our message.
They like.
The fact that we are your listing your lead so they're directing a lot of their clients I believe into our platform because they prefer what we're doing to alternatives and again that super high quality, So I'm very happy with the quality.
I would just like to double the overall traffic at some point soon.
And what impact are you seeing in the markets, where you've loaded the proprietary content, thus far and Tom Trust with those where you haven't yet.
The content is being loaded on a partial level in all markets. So it's not.
It is.
Yeah.
It's not like being loaded in Boston, not being loaded like X percent of Boston X percent of la being loaded.
I would tell you that at this point you have it I don't think there's been time enough to see any traffic impact of the content. That's been loaded I think thats out in the future.
And.
In terms of.
Reaction it would have to go more to the anecdotal.
Having focus groups interviewing consumers.
And that is very positive. So that's very very positive I couldnt be happier with that result.
Okay. Thanks, Andy.
<unk>.
Your next question comes from the line of Alexia <unk> from Jpmorgan. Your line is now open.
Hi, everyone and.
Hello.
Great to hear from you could I ask you to.
Data on your vision or the core Costar product.
I remember you talking about.
Yeah.
Brokerages.
By a broker.
How is that right.
Maybe.
Hey al.
Some of that prospect.
Wattenberg.
Okay.
Okay. So.
Ah was testing my hearing there a little bit but.
So.
One of the most.
And one of the most encouraging and exciting things about what's happening in Costar is the pace of delivery. So as you listen to what we're doing where we're bringing in the corporate user aggregation data. We're doing the fund data we're doing costar lender we're doing.
We're bringing into the stream of functionality. So Elizabeth Winkle is doing a good job with her product development team picking up the pace, adding.
Every time she adds in the STR integration every time, we add another modular element to the product we appeal to a broader audience, where we have more more relevance to a particular audience, we're trying to penetrate more deeply so.
I like this new era of Costar, where we're bringing modules out faster and faster and faster and that will also include adding more international markets to the coverage area and as we do that we create more demand I believe that our costar sales team has done a good job.
Responding and shifting to selling two lenders owners and.
Corporate users you see that number going way up so I think that.
While Paige Forrest and her team at apartments Dot Com is knocking on the first milestone of $1 billion I think Mark Schwartz and the Costar sales team won't be that far behind them and I think the fact that we are in.
Clearly hands down the toughest commercial real estate market ever and we're showing the kind of growth. We're showing is really a testament to the product quality the value of the research team and the sales org. So.
It's not an optimal office market.
Pretty darn well.
Thank you Anthony.
Your next question comes from the line of Stefan anymore from Jefferies. Your line is now open.
Hi, good afternoon. Thank you.
Good day.
Just touching on the residential side and again congrats on the great achievements, thus far particularly related to the traffic on the website.
But I kind of wanted to touch on maybe the level of investment spend expectations as we look out over the next 12 or 18 months I'm, just trying to kind of triangulate comment.
Maybe related to.
Your point on being in the second inning of content creation.
<unk>.
Plan to continue to spend on whether its personnel.
And then also the idea of kind of monetization Marcel <unk> 2024 event. So just wanted to get your thoughts on where we are from an investment standpoint. Thanks.
Sure.
Well Youre right as you point out that we achieved rapidly ascended to the second most heavily traffic sites in the United States.
So.
The.
In terms of the content, adding personnel around the content and what we're doing with that.
Yes, when we produce the product and we then tested in focus groups and we test it with consumers.
And it's not.
Mark up its not Powerpoint, it's like real product real data real content.
And they clearly respond very positively to what we're doing.
That leads us to feel very comfortable with the investment we're making in differentiating our products through a number of content strategy. So.
We would and to be clear what we're doing is massive.
One of the things you hear in focus groups is.
Is.
A I love, what they're doing and then the next comment they say it is are they really doing this for the whole United States of America.
Are they doing that.
And but.
But it's well worth it and if you look at Costar as a product or STR.
Sometimes our original content is all the differentiation to create a.
Out around a product in.
In the intermediate term that investment is a relatively modest percentage of revenue.
But it always looks much bigger when you are in the early phases of making the investment, but if you're concerned about us bringing.
Additional investment into the content area, the focus groups, where bad news feed because they loved what we're doing.
And then in terms of.
In terms of other investments you know nothing has really changed.
You can see youre not seeing any Jeff goldbloom is out there for homes Dot com at this point, there's no sort of broad.
Consumer marketing occurring.
But at some point, obviously that is a lever you pull.
It's an important lever to pull because it impacts SCO and SCM. It makes your SCO more effective and it also.
Makes you much more competitive and SCM, so the more likely people are to it.
Recognize the brand.
The more likely they are to click on the SCM and Google services up more frequently at a lower cost to us and you get a good good effect there but.
Our unaided awareness on apartments Dot com right now is 49%.
Margin and profitability of apartments Dot com is phenomenal.
The unaided awareness I got the first.
Read from our unaided awareness testing group on homes Dot com and I'm not going to share it with you because it's so embarrassing.
[laughter] one day in a couple of years from now I hope to be reporting a number higher than 50% for homes Dot com. So what right now we're doing is we're building a we're.
We're building a good loyal following of repeat users, but it's sort of all being earned one user experience at a time in the product.
Yeah and from a financial perspective, we are still confirming our investment levels for the year as we had announced I think in February we set them out we haven't changed those financial levels for the year. So all on track there.
Great. Thank you.
Youre welcome. Thank you.
There are no further questions at this time, we will turn it back to Andy to wrap up thank you.
Well, we really appreciate everyone joining us on the call I Hope you noticed that my script was about three minutes less than normal so that's an improvement.
But thank you very much for joining us for the second quarter 2023 earnings call and we look forward to speaking to you again in the third quarter call on October 24, 2023 at five PM on the same channel. Thank you very much for participating.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
This concludes today's conference call. Thank you for your participation you may now disconnect.