CoStar Group Inc. Q1 2023 Earnings Call
CEO Andy Florance.
Good afternoon, and thank you for joining us for Costar group's first quarter 2023 earnings call.
Revenue for the first quarter of 2023 was $584 million or 13% growth year over year coming in at the high end of our guidance range and above consensus estimates.
I'm very pleased with the growth of our commercial information and nonresidential marketplace businesses, which delivered 15% year over year revenue growth in the first quarter.
I'm also very pleased with the progress we're making in building the new homes Dot Com, which I believe will become the best online residential marketplace in the world bar none.
We started the year strong with net new sales of $80 million, our second highest sales quarter ever and a 17% increase over the first quarter of the prior year.
<unk> Dot com achieved the highest net new sales quarter for the second quarter in a row.
<unk> achieved outstanding results in the quarter with a 100% increase in net new sales over the first quarter of last year.
We hit a new high watermark in traffic to our marketplaces in March monthly unique visitors totaled $94 million for the month with apartments Dot com homes Dot com Loopnet lands Biz buy sell bell box peer local businesses and all of our marketplaces contributing up to tens of millions of unique visit.
<unk>.
Apartments Dot com continued its impressive run with another outstanding quarter.
Apartments Dot com revenue was $211 million in the first quarter climbing to 20% year over year for the first time since the first quarter of 'twenty one.
Net new sales bookings were at an all time high breaking the record set just last quarter with an increase of 110% over the first quarter of 'twenty two.
Apartments Dot com, while very successful has millions of apartments that do not yet advertise on the site. We are focused on continuing to grow our sales force to reach this huge potential untapped audience, our attention to attracting the best talent and excellent Onboarding and training of new hires is paying good.
Dividends.
Our sales team productivity is up over 40% compared to last year for hires who have been with us less than a year.
We are committed to excellent customer service and that's a big contributor to our success.
The apartment sales team conducted close to 140000 quality meetings this quarter.
Which is 24% higher than the same quarter last year.
Of those 140000 quality meetings over 50000 were in person a 45% increase over the first quarter of 'twenty two.
This attention to servicing continues to be well received by our clients as evidenced by our industry, leading net promoter score of 94.
The number of properties advertising on our platform continues to expand and is now at a record 64000 properties. Our customers are selecting higher AD package levels to obtain more leads as evidenced by our average revenue per property increase of 14% over the prior year.
The economic fundamentals of the apartment industry continued to move in our favor.
The vacancy rate for three four and five star properties Rose another 30 basis points to seven 7% in the first quarter.
And net deliveries continued to outpace net absorption in the quarter with twice the units delivered as absorbed.
Deliveries in 'twenty three are expected to be the highest in over 40 years and vacancy rates are forecast to increase for the remainder of the year.
There are currently over 1 million units under construction.
With approximately 750000 of them being at the top end of the market.
Pressure on these assets will be intense throughout 2023 as rent levels moderate we expect vacancy rates to remain elevated by historical standards.
All of this could create a jet stream like tailwind for advertising demand.
March marked the official rollout of the new 2023 apartments Dot com marketing campaign with new television commercials streaming videos and streaming audio commercials, Jeff Goldbloom as Brad Bellflower was featured during March madness, and all month across top networks like.
Cvs Bravo TBS TNT and more we launched a new social media campaign are streaming audio and podcast campaigns have hit the airwaves and engagements are at an all time high we anticipate that our 2023 campaign will yield 12 billion media impressions.
The early results of this campaign are strong with our first quarter unaided brand awareness for apartments dot com jumping to our highest score ever.
Apartments Com continues to attract qualified renters to our platform with an average of over 43 million monthly unique visitors in the quarter. According to Google analytics.
Apartments Dot Com is also benefiting from the addition of homes dot com rental area to its network.
And the tremendous growth in traffic to homes Dot com.
Visitors to the homes rental area up 83% since the fourth quarter of 2022 and those visitors delivered approximately 200000 leads to our paying apartments dot com customers, that's up 124% from just last quarter.
With more content than ever before on our network, including unit level details in torreon capabilities. Our lead quality continues to outperform our competitors are mobile sessions were an all time high in the first quarter with 75% of apartments Dot com user sessions conducted on a mobile device.
Just five keywords now account for 33% of unbranded search activity on these devices.
When the top 376 cities in the United States are examined apartments dot com ranks number one for all five of these terms 99% of the time.
The combination of the kickoff of our 2023 marketing campaign market conditions, and our larger and more seasoned sales teams helped continue to drive strong results and some <unk>.
I'm very pleased to report that we expect apartments dot com to deliver 22% to 23% revenue growth in 2023.
I'm very excited about the progress we've made on many homes dotcom initiatives in the short period of time.
Last year, we laid out the key milestones for homes Dot com grow monetize and scale the.
The growth phase focused on increasing traffic engaging buyers and sellers on our platform or.
Our initial goal in the growth phase was to achieve 25 million unique visitors while our goal in the scale phase was to reach 50 million unique visitors.
Traffic to our homes Dot Com network grew dramatically, we reached 27 million unique visitors in March according to Google analytics.
<unk> to date in April traffic to homes Dot Com grew 53% over the same period March to date.
As of this morning for the partial month to date, we have already seen 28 million unique visitors to home, which dot Com network.
Unique visitors for our homes Dot Com network is 88% of above March of last year and traffic to our homes Dot com site is up 183%.
Compared to last year.
We are now four times the traffic levels from when we purchased homes dot com almost two years ago.
By comparison two years after we purchased departments dot com, we'd only double the traffic.
As we continue to build homes dotcom and combined single family residential rental content from apartments Dot com, we can now aggregate our traffic across both property marketplaces.
In total monthly unique visitors in March for our apartments Dot com and homes Dot Com network was $72 million. According to Google analytics for the fourth quarter of 2022, Realtor Dot Com reported 66 million monthly unique visitors, while redfin reported 40.
4 million average monthly unique visitors.
According to Comscore homes Dot com unique visitors were up 153% year over year in March realtor Dot Coms monthly unique visitors decreased by 20% villas unique visitors were down 5% and retrofits traffic increased 5% compared to March of last year.
Alongside our increase in consumer traffic engagement agent engagement continues to improve we now have approximately $1 1 million agents registered in homes Dot Com network up 37% for the first quarter of 'twenty two.
Active users or those who visit the site monthly have increased 64% versus last year.
I believe the engagement will continue to improve as we're providing millions of free leads to agents that could generate billions of commission dollars for them under our your listing your lead business model.
In the months ahead, we are intensely focused on product development generating proprietary content and building consumer traffic. Our team is extremely talented and singularly focused on winning I wish I could share more detail on some of the great success stories, but I cannot for competitive reasons with a pre.
Yes, we've made to date I remain confident that we're on track to begin monetizing homes dot com advertising product in the later part of this year.
Loopnet was 63 revenue was 63 million for the first quarter up 16% year over year and accelerating from 12% growth rate in the fourth quarter of 'twenty two or.
Our investment in building a direct sales force for Loopnet is paying off.
Net new bookings are up 100% year over year, which is directly attributable to our larger and more effective sales teams.
The productivity for sellers in their first year has increased in each of the last four quarters as new reps ramp and become more productive sales of new signature ads are up 27% year over year.
Loopnet captured record traffic in the quarter with $14 million.
Average monthly unique visitors to our network of marketplaces up 12% year over year. According to SCM Rush Loopnet has eight times the traffic of our nearest competitor in March.
We're also seeing traffic gains in Canada is our unique visitors for Loopnet, Canada in the first quarter are over five times the unique visitors of our nearest competitor there.
These accomplishments.
<unk> and investments reinforce our position as the most popular place to find a space and give me confidence in our ability to achieve our target of 18% to 19% revenue growth in 2023.
As we continue to focus on international expansion with our revenues the revenues they are expected to exceed $80 million in 2023.
By revenue our international business now ranks number four behind departments Dotcom Costar and Loopnet. We now have over 500 international employees, including 200, researchers and 130 sales representatives in.
In Europe , we currently operate in more than a dozen cities in five countries with aspirations to expand our costar and loopnet products into most of these major markets.
Currently Costar and Loopnet are only offered in the U S, Canada and the United Kingdom.
We believe there is a $30 billion European market for real estate information services, and marketplaces, which is roughly the same size as our north American market.
A key step to capturing a significant share of that market is building and selling costar and loopnet on a pan European basis.
One of the core unique competencies of our research operations is.
On the ground field research operations.
Our goal over the next few years is to photograph map and document all of the commercial properties 10000 square feet or larger.
Roughly 1000 square meters in 15 European countries and approximately 36 cities, we will divide each city into one kilometer grids and capture all of the relevant building inventory in each area.
We anticipate capturing information on more than $1 5 million properties with a combined value in the trillions of euros.
We have done this before in the U S, Canada, and the U K and in each instance, these massive efforts have resulted in a profitable and very valuable information asset.
Costar revenue increased $225 million in the first quarter up 13% for each month of the quarter. We saw a record number of distinct users in costar and in March exceeded 140000 distinct users.
Usage of Costar and product engagement continues to grow as evidenced by nearly $6 5 million logins in the first quarter.
26% increase over the last year.
During those user sessions property searches exceeded $20 million each month and property detail views averaged 15 million a month.
Whilst costar continues to be the premier product for real estate professionals.
Brokers significant opportunities exist for selling to new customers, we have a 75% plus penetration rate amongst brokerages with five or more brokers and continue the prospects smaller firms with an annual revenue potential of $96 million.
In addition, our sales teams are focused on owners lenders incorporations, where we have a significant addressable market. We believe we have over 51000 owner prospects 10000 lender prospects in almost 4000 corporations were 50 or more locations for a total of one.
$4 billion in potential revenue.
For the first time this quarter product demonstrations to these aforementioned prospects exceeded those to the broker customers and broker prospects.
Overall, we're seeing slightly lower than slightly lower net new bookings for costar, but still expect double digit revenue growth in 2023.
We recently corporate information on 12600 real estate investment funds and 70000 commercial progress within those funds into Costar. The sub fund information helps clients understand who has capital available to invest in the commercial real estate and what sort of product types, they want to invest in and where.
They want to invest.
We continue to focus on our banking customers with our lender product last month marked the one year anniversary of releasing our fully integrated solution for lenders in Costar.
Sales continued to be strong in Q1, ending our first year by breaking the 150 total client milestone.
These clients spend many lender types, including banks life insurance companies credit unions, and private lenders, while ranging in size from $50 million CRE portfolios to over $50 billion CRE portfolios proving a large opportunity moving forward.
Our sales pipeline for lender is strong and we expect to build on that pipeline is the solution for lenders is uniquely positioned for continued growth in this uncertain environment.
The value proposition is unmatched no other company can connect a lender's portfolio to our rich property level information and provide a fully integrated credit model that assesses refinance risks as well as stress test the portfolio for an economic downturn.
We expect it we expect continued sales opportunities due to regulators, calling for increased portfolio surveillance by Siri focused lenders for multiple reasons, including the concern over office properties rising rates refinancing risks and the threat of a potential <unk>.
Economic downturn.
I remain confident in our ability to grow Costar revenue given our mission critical data ongoing product enhancements and the continued expansion and diversification of our customer base.
Although overall CRE transaction volume was down 51% year over year Tenex continues to outperform the market with a solid 60% trade rate up three times that of offline marketing up 51% in the fourth quarter of 'twenty two we also.
So saw the average number of bidders per auction on the platform increased over $3 two in the first quarter compared to two six in the fourth quarter of 'twenty two.
Q1, 'twenty three tenex saw the average asset value increased 18% over the last year from $3 3 million to $3 9 million average winning bid price increased 29% compared to the prior year from $3 1 million up to $4 million.
And the average buyer premium increased 35% over the last year from 71000 to 97000.
I believe this indicates that our expanded sales force is delivering higher quality assets that investors are seeking even in a price challenged market.
With roughly $1 five trillion of Siri debt maturing in the next 24 months and 700 billion maturing by year end. We expect the continued interest rate driven market shift to drive transaction volume up.
<unk> is already seeing an increase in momentum in the second quarter with $1 7 billion of inventory come into the platform a 44% increase from Q2 of 'twenty two.
<unk> remains the go to platform for accelerated asset transactions, which buyers sellers brokers lenders and special Servicers benefit from as the market continue to shift.
Our land business is focused on creating opportunities for our rural land clients to capture more leads for their priority properties for sale with signature AD opportunities. This business continues its consistent profitable growth with 14% year over year revenue growth.
STR has achieved a record sales quarter with the highest net new in its history and delivered 14% year over year revenue growth on a constant currency basis compared to the first quarter of 'twenty two.
We're on track to launch our new benchmarking product this month and execute our plan of migrating more than 175000 users to the Costar platform.
This release will open access to new clients, including owners hotel operators and brands that will enable execution of our integrated strategy.
Owners will have clearer visibility into asset performance market performance and competitive landscape.
This insight is invaluable for asset acquisition repositioning and disposition.
Operators will have access to data and tools to better forecast budget yield manage and identified demand drivers and supply implications hotel brands will have a full suite to support and develop teams franchise owners real.
<unk> chips and management contracts.
What's not to love of that all of that.
Overall higher interest rates and increased economic uncertainty have reduced transaction volumes in the market and impacted prices since the second half of 'twenty two.
As I mentioned earlier transaction volumes declined by over 50% year over year in the first quarter of 2023, and the commercial real estate markets.
In addition, we're now seeing asset price declines for seven consecutive months with valuations off by 8% over that time.
The office sector continues to show real weakness with vacancy rates.
<unk> almost 13% in the first quarter Phantom vacancy rates much higher than that and its matching the all time peak seen after the great.
The peak seen after the great financial crisis with continued weak demand negative net absorption and another 58 million square feet of deliveries expected in 2023, we expect vacancies to push higher for the foreseeable future.
Not surprisingly delinquency rates on commercial property loans have doubled in the past three months to two 8%.
And it's probably an actuality higher than that.
Overall sales prices for office buildings are down 26% from their peak in Q1 of 2022.
Fortunately, our Tenex platform is well positioned to assist with the recapitalization of those properties as they come to market.
The residential housing market remains constrained mortgage rates are down from their earlier highs at the end of last year, but affordability is still low by historical standards.
Sales of existing homes tipped higher earlier this year after 12 consecutive months of declines.
Sales of new homes have trended higher since reaching a bottom last year as billings builders are offering incentives like rate buy downs to clear inventories.
Inventories remain tight which should prevent values from declining rapidly.
The retail sector continues to benefit from reduced store closures steady demand and minimal new supply available retail space fell to a new all time low of four 7% during the first quarter, leaving it difficult to find space strong market.
Industrial net absorption has slowed in the first quarter. After two years of record high net absorption and tenant demand is beginning to moderate at four 3%. The U S. Industrial vacancy rate is half of the levels recorded 10 years ago and rents have climbed 10% over the last 12 months still a strong market.
I am very pleased with the performance of our business in the first quarter Costar continues to grow and remained resilient despite industry headwinds elsewhere apartments dot com in Loopnet show accelerating countercyclical sales success.
I am very optimistic about the progress, we're making building traffic and value at homes Dot com.
We're very pleased to see our array of diverse platforms, drawing more than 94 million unique visitors in March and I look forward to reporting 100 million unique visitors before too long.
At this point I'm going to turn the call over to the very capable hands of our Chief Financial Officer, Scott Wheeler.
Thank you Andy.
It's a great way to start the year again.
Financially we are certainly on track if not slightly ahead, where we expect it to be this quarter and for the year.
With regards to revenue and our revenue growth outlook, which is 13% total revenue growth for 2023.
And one of our sell side analysts recently pointed out that we have logged 50 quarters in a row of double digit revenue growth.
Although we actually just completed 48 consecutive quarters of double digit revenue growth, but who's counting.
I actually use my favorite AI tool, which I call, an excel spreadsheet to go back and figure out how many actual quarters, we had double digit growth.
So it was back in 2011 so.
I am applying AI here at Costar to our financial results.
It might just be I.
The question of my eyes, sometimes.
So revenue by services Costar revenue grew 13% in the first quarter was in line with our guidance expectations.
Costar expansion into new customers remained strong with new business sales consistently or slightly above the levels. We've seen since mid 2021 after the pandemic.
The brokers are certainly facing a tough transactions and leasing environment, which dampen the new broker sales and renewal rates, primarily among the very small broker shops.
We expect that our revenue forecast will reflect the current market conditions, which would have costar revenue growing at 10% for the second quarter and for the full year of 2023.
For multifamily, we added more than $35 million in year over year revenue during the first quarter on our way to once again, achieving 20% revenue growth.
Our bigger sales team is giving us the capacity to reach more and more prospective customers that have never advertised with apartments dot com.
The number of paid properties increased by 8% in the first quarter of 2023 on a year over year basis.
This is the largest volume increase we have seen since the second quarter of 2021 and.
In addition, we're seeing more and more customers upgrading to higher level ads versus those that are downgrading to lower level ads.
This net revenue contribution from the positive add level mix is now back to the levels. We saw last during the pandemic surge, which was the second quarter of 2020, which we're certainly good strong high levels.
Looking ahead, we expect these trends to continue with rising vacancy rates and increased productivity from our recent sales force expansion classes.
So we're now forecasting revenue growth as Andy said of 23%.
For multifamily for the year and for the second quarter up from our prior guidance of 20% revenue growth for 2023.
Loopnet revenue grew 16% in the first quarter up from 12% revenue growth in the fourth quarter of 2022, thanks to the success of our dedicated Loopnet sales team.
We expect 18% revenue growth for Loopnet in the second quarter of 2023 with our full year revenue growth, but we now expect that the upper end of our 18% to 19% guidance range.
Revenue from information services increased 12% in the first quarter at the upper end of the guidance range with strong results from STR and revenue contributions from our growing European businesses.
We expect revenue growth for both the second quarter and the full year of 2023 to be 10% slightly above the 7% to 9% full year revenue growth guidance range that we provided in February .
Our first quarter residential revenue came in at $13 million as expected.
Estimated revenue for the second quarter is around $12 million with our full year 'twenty three revenue expectations remaining unchanged at $45 million as.
As a reminder, we've not assumed any revenues from homes dot com advertising products and our 2023 outlook.
Other marketplace revenue contracted 4% in the first quarter of 2023, which was actually an improvement from the 10% to 13% first quarter revenue decline, we expected a few months ago.
The trade rates for Tenex that improved sequentially in the first quarter, providing the extra revenue versus our forecast.
We now expect revenue from other marketplaces to grow in the mid to high single digits in the second quarter and we are increasing our full year revenue growth estimate to 11% to 12% based on the better than expected first quarter results.
Adjusted EBITDA was $123 million in the first quarter $7 million above the high end of our guidance range.
Outperformance was primarily attributable to our strong revenue performance and the timing of marketing spend in the quarter, which we expect to reverse as we move into our peak marketing season in the second and third quarters.
Our adjusted EBITDA margin was 21% in the first quarter, one percentage point higher than our guidance.
The size of the sales force in total remains largely unchanged from where we were at the end of 2022.
The apartments and Loopnet marketplace teams grew in the first quarter sequentially offset by modest attrition across the rest of the sales force.
Our focus for the rest of 2023 is to continue to increase our sales teams and the marketplace businesses, including apartments, Loopnet land and residential.
Our contract renewal rates remain in the 90% to 91% range, while the renewal rate in the first quarter for customers who've been subscribers for five years or longer remained strong at 95%.
Subscription revenue on annual contracts increased to 82% for the first quarter of <unk> 23 up from 81% at the end of 2022, and 80% a year ago.
Both Costar and apartments Dot com have our highest annual subscription concentration percentages and as these two products grow and relative size, we see our total subscription percentage increasing along with it.
With a strong start to the year, we are reconfirming, our revenue guidance and raising the midpoint of our guidance range.
The new revenue range of 2.465 billion to $2 four 8 billion implies revenue growth of 13% to 14% for the year.
Second quarter 2023 revenue is expected to range from 603 million to $608 million, representing revenue growth of approximately 13% at the midpoint.
We are also reconfirming, our adjusted EBIT guidance and raising the midpoint of our guidance range the.
The new adjusted EBITDA forecast range is now 505 million to $520 million.
Our investments in the homes dotcom residential marketplace are yielding excellent results in our investment plans remains unchanged from what we communicated in February .
For the second quarter of 2023, adjusted EBITDA is expected to be in the range of $118 million to $123 million.
Indicating our second quarter adjusted EBITDA margin of 20%.
Before we move to Q&A I want to reassure everyone that our cash and our investments are safe and sound with no adverse impacts from the failure of the Silicon Valley Bank and the other recent banking turmoil.
We also have nothing related to first Republic bank by the way.
We maintain a very conservative treasury strategy that keeps our cash with only the strongest financial institutions and in the safest short term investments.
We actively manage our deposits to maximize interest income within the confines of our low risk investment practices.
In the first quarter or $5 $1 billion of cash earned a net interest of approximately four 1% for the quarter producing approximately $44 million of net interest income after deducting the interest expense on our debt.
Projecting these results for the rest of the year is expected to yield net interest income of approximately $195 million, which is well above our prior estimates.
We're raising our outlook for non-GAAP net income per diluted share to include our latest estimate of net interest income.
Now expect non-GAAP net income per diluted share of $1 21 to $1 24, an increase from our prior guidance of around 15%.
Which is <unk> 15 per diluted share at the midpoint.
So that's about wraps it up for me and you can see we're in very strong financial position as we head into the second quarter.
Our growth our investment in our profit plans are all on track for another great year.
So with that I will now turn the call back over to our operator for a little bit of Q&A.
Hand, it back to you.
Great.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
I would like to withdraw your question. Please press the pound key.
You each analyst is permitted to ask one question.
The first question comes from the line of George Tong with Goldman Sachs. You May proceed.
Hi, Thanks. Good afternoon, you trimmed your Costar suite full year revenue growth guidance from 12% to 10%.
The risk is that outlook given the current state of the commercial real estate market.
And then related to that you mentioned smaller broker weakness can you comment on the performance of your other customer types of Costar suite as well as the latest pricing trends that you're realizing thank you.
Sure George Thanks for the question.
So we did take a quick close look at all of our different.
Customer sectors and how we're performing.
As I mentioned, the the sales that we're making into the growth sectors owners investors lenders are at if not slightly above the levels. We've been doing over the last four to six quarters and you just really see this one isolated sector that is the smallest broker shops that are being impacted by that.
The downturn in transactions and <unk>.
A reduction in effort and potential layoffs in the in that industry. So we've taken a close look at that we reflect those trends, we think that the second and third quarters are going to be rough in the industry. I think those are pretty well known economically and so we we are right along with that sort of expectation and would hope that it gets starts to get better in the latter part of the year.
We built all that into our forecast and we see that.
Reflected in the 10%.
With a number of sector is holding up as strong as we have and with the bigger sales force. We don't see this as being something that would be as disruptive as what happened in the pandemic or anything previous for us.
So we're we're pretty confident with what we've got built in so far.
And then in pricing question on pricing, Yeah, where we're following we follow our inflation level pricing. So our as inflation levels come down then we reduce the.
The increases that we put in for our renewals to just stay at the rate of inflation.
And that's all I've got it very helpful. Thank you.
Sure.
Thank you Mr Tang.
The next question is from the line of Peter Christiansen with Citi. You May proceed.
Okay.
Good afternoon, and thanks for the question.
Andy.
Can you can you.
Elaborating a little bit on how you're seeing the pipeline for 10 X.
The relationships that you've built I guess since acquiring the asset.
And how you see that pipeline evolving I guess.
Essentially we had more distress or they.
In the coming months years, how do you see that evolving versus.
Our tenex was prior to being acquired thank you.
So surprising a surprisingly.
Still today.
The vast majority of product that is trading on the platform is performing assets.
So we are at.
It takes quite some time for when market conditions become adverse to when you actually see.
Effectively capitulation and people begin to exit investments that have gone south.
So we're still a performing asset platform at this point, but we're seeing.
Less spread between buyer expectations and seller expectations. So there's there's the trade rates are coming up you can see the volume increasing this quarter as that happens and.
We would expect that to continue to climb up through the year, we have a much larger sales organization than we've had in the past to be able to capture that opportunity plus we've also completely integrated all of the systems of 10 X into the Costar and Loopnet platforms.
So we're dramatically more efficient as we want to take on new.
New assets, we also are.
More disciplined now on making sure that we do not bring on any assets that the seller does not have realistic expectations for so our commitment committee.
On the <unk> management team is very.
Very disciplined so.
You know, it's it's a.
Uh huh.
Somewhat awkward you don't want to see a flood of inventory coming into <unk> because it means that the market has gotten really south.
But.
With the federal government continuing to work from home.
You'll probably see a lot of offices, that's good to know.
Okay.
Okay. Thank you.
Thank you Mr. Chris Jansen.
Yeah.
The next question is from Stephen Sheldon with William Blair You May proceed.
Thanks.
Net you know really strong booking trends there.
So do you think you're at full stride there with the expanded sales force or is there still a lot more to go I guess in terms of ramping productivity and then can you talk about the demand environment at Loopnet given the trend in office vacancy rates. It seems like a great environment right now, but do you also think that you could be a point where vacancy rates trend too high some prop.
Pretty onerous capitulate, and just assume they're not going to fine tune it and therefore reduced AD spend and I guess essentially is there an optimal range for office vacancy rates from your perspective to maximize demand that we've got in <unk>.
So what do you think that is.
Yes, I don't think there is an upper end.
What we've seen in the past you know so we've been selling advertising.
Solutions to commercial property owners for quite some time now from when it was in books to when it wasn't cdroms to when it's on the Internet.
And when when the market conditions get really awful at the upper end of high vacancy rates, what you find is that.
The assets recapitalize and new owner comes in at a much lower cost basis. The cost of our advertising is de minimis very relevant in the cost of the context of the cost of the building and they're actually very aggressive in advertising. So the biggest advertising spends have ever seen this from.
As from owners, who picked up bankrupt assets, new owners have picked up and they're basically coming in there with lower price points and then the remaining properties that hadn't yet gone under because they've got a lower cost basis. So I think there's no.
I don't believe that there's any upper end to vacancy rate and demand for.
Our asset Loopnet, obviously, right when someone's going bankrupt they stop but it's made up for by now the new owner coming in aggressively.
I actually think we have a lot of room to go I look at one or two other businesses overseas and I.
Look at what they're generating in revenue for commercial real estate advertising on the Internet and.
Just.
Interpolate that by GDP and it suggests we have.
A doubling tripling quadrupling of revenue to go.
So I'm looking forward to continuing to grow the Loopnet sales force and continue to optimize our pricing models.
And to increase the functionality and.
I also think that moving Loopnet Pan European will have a huge benefit I spend a lot of time listening to focus group interviews with corporate users and investors who move.
Across borders and as we provide a solution that crosses borders I think that will increase demand for assets marketed on loopnet, which would be another positive.
So if you had if you can't tell I'm bullish on Loopnet and remain bullish on Loopnet.
You should though it was once a competitor.
Yeah.
Great. Thank you.
Hmm.
Thank you Mr. Sheldon.
The next question is from John Campbell with Stephens You May proceed.
Hey, guys. Good afternoon, thanks for taking my questions. The first one.
I guess, a two part question here, so first off great job on the homes Dot com traffic ramp that was a really impressive early start for you guys, but so first on the on the roughly $53 million subsequent to year end.
Sales and marketing.
How much of that was tied to <unk>.
Yes, so we haven't indicated how much residential marketing spend.
I appreciate John So I think you'll see every sequential quarter will get more and more marketing come in in total as all of our marketplaces get into the more of the rental.
And high volume seasons in the second and third quarter, but we'll just keep keep the discussions the overall company at this stage.
Okay, and I guess, just broadly youre expecting that sales and marketing step up sequentially throughout the remainder of the year or even into <unk>.
Yeah. So I think what you'll see is our pattern will will step up in second quarter, we're going to step up even more in third.
As we get closer to our product launch in residential and then you'll see clearly we're preparing the market for that.
And then I think what we'll see is the fourth quarter will be higher than most of our fourth quarter as previously because we have an additional platform that we're doing brand marketing for now this year versus prior years. So you see a bit more of a of a.
Spend that carries in later in the year than we've had before because of the addition of the new platform. So hopefully that helps.
But if you see anyone.
Although we're spending all the money in Madrid.
[laughter] well too.
And then Andy back I guess Big picture question for Rajiv.
As you look out the next couple of quarters, what would you offer up as key milestones you you'd like to see the team here.
Well for the next.
There's a lot going on I mean, it is a very full plate of initiatives in there.
Well over a thousand people working on the initiative right now.
I think that the traffic numbers remain Ah.
A key metric that we're watching obviously.
As we mentioned we plan to.
Begin to monetize the platform at the very end of the year.
And.
The first 1000 customers on that platform, they're probably the most important customers that you may one day have hundreds of thousands.
Millions.
The first 1000 are the most important but I would stay with.
I would just say with the simple traffic numbers now I believe that Ah <unk>.
Critical traffic numbers or what we talked about before 25 million, which we've crossed 50 million which were moving towards.
Beyond that 50 million Mark.
<unk>.
You really have what you need to produce some compelling marketing solutions for your clients and you can really begin to monetize so.
At the.
I think the numbers correctly.
You correctly observed that.
I would say that one of the biggest risk factors for homes Dot com.
Just been reduced with these results today.
If you're watching.
Thank you Andy.
Hmm.
Thank you Mr Campbell.
The next question is from the line of Ashish.
So Amanda with RBC you May proceed.
Hi, Thanks for taking my question I, just wanted to drill down a little bit on the Costar suite I was wondering if you can quantify what percentage of that revenue really comes from the smaller mid size brokers.
You might see.
Any kind of headwind and then just to follow up Andy on your comment around.
The prospects.
All noticed languages and cooperation.
The $1 $4 billion opportunity I was wondering how much percentage of the revenue comes from Duluth, right now and how should we think about that trajectory.
For the rest of the year, but also over the next few years. Thanks.
So let me take the first part of your question there She's when you look at our our broker mix.
Costar little over 35% of our Costar revenue is from the broker pool, and then about 25% of that.
Group is representative of small what we'd call the one or two brokers that so that gives you a 25% of 35% so it's roughly 8%.
Of that pool, so its pretty limited limited exposure for.
For now and in the small broker said.
And to be clear they don't all go away.
It's really.
Having watched this a few times.
Its the folks who are 67 years old who decided to step out at the.
At the.
At the cycle point, so it's a subset of the group and there is some obviously some other constituencies.
So the majority of our revenue today is the owners lenders.
And a smaller component is the corporate users obviously, we have government and there we have vendors we have a whole number of other sectors.
I believe that.
Those while the brokerage side of our business continues to grow I believe that those owner lender.
Corporate user sectors are going to be by far the biggest growth driver.
And coupled with international demand over the next three to four years, So I think.
I think this is a trend that's been going on for.
Two decades now so I think when we went public 80, 590% of our revenue was brokers.
So while that revenues continue to grow it's now only 35%. So it was it continues to grow I'd anticipate five years from now it'll only be 15% 10, 15% of our revenue something like that.
That's great that's very helpful. Thanks, Ed.
Thank you Mr. Ventura.
The next question is from the line of Miami, What Tandon with Needham You May proceed.
Thank you good evening, Andy of the 15 countries or was it the city that you mentioned.
The focal point in Europe .
Is that going to be an organic initiative or do you think you could buy assets in these regions.
Accelerate.
The traction there to be able to penetrate that 30 billion opportunity and when should we expect meaningful revenue contribution from this initiative.
Yes so.
There definitely are acquisition opportunities in Europe . There are very few companies that in Europe that none that do.
Exactly we are doing the costar information side, they're more on the marketplace side.
Similar to Loopnet or two homes dotcom theres not a lot of apartments dot com players over there, but on the Costar side, we really stand alone one of the key initiatives is to build the comprehensive information grid by doing the field research and proactive research that is a two to three year process.
So then you see meaningful monitors you see cigna.
Significant meaningful.
Our monetization on the Costar side really two to three years out.
On the Loopnet side or on the marketplace sides, I think it would be a little bit sooner.
Robley 18 months or so, but we have our head down doing what.
We've done many times before which is capturing the whole all the content the core content and the wonderful thing is we seem to be the only people in the world that like to go out and do something that.
At heart and Crazy and then it becomes very valuable once we go and do it and we were pretty good at and the wonderful thing is the technology has never been a better than it is today to do what we do and we build inventory.
So.
We can use machine vision now to look at aerial photographs compare them to the millions and millions of other properties and aerial photographs. We've got we can very precisely direct our field researchers.
And make them very very efficient as they move through these markets are so it'll be a good adventure and I think there'll be some great returns for it and I remain convinced that.
The market for the demand for 10 markets is 20 times of demand for.
Yep.
That's very helpful. Thank you.
Mhm thank.
Thank you.
Yeah.
Thank you Mr Tandon.
The next question is from the line of Jeff Silber with BMO you May proceed.
Yeah.
Thank you so much.
I guess a follow up from the prior question, you've obviously got a sizeable cash balance it's great to see that you're generating more interest income off of there, but when do you think you might put that cash balance to work and where would that cash balance to be working.
I think Uh huh.
<unk>.
I believe that our organic initiatives are not going to exceed our a.
Our EBITDA generation, our cash flow generation, we don't see anything like that at this point.
So it's really acquisition opportunities.
Where.
We have been very patient we believe that.
There's better value opportunities and as I listen to Scott described a.
$5 1 billion in cash.
I believe it's a wonderful time to have a great balance sheet as other companies may run into some troubles.
And so both in Europe , and the United States. We believe there are opportunities we continue to have conversations.
You probably have read in the media about a number of conversations we have had that were substantive.
We did take a four week holiday from.
After the latest round of.
Media reports, but theres still a lot out there.
And Oh I have meetings this week, but you wont nowhere.
[laughter].
Right fair enough thanks for the color.
Mhm.
Thank you Mr Silber.
The next question is from Heather Bosky, where the bank of America you May proceed.
Hi, Thank you I appreciate you taking my question.
I'd Love to ask you about the residential piece you talk about where you are on a traffic basis.
Risks going forward.
I know youre not.
Telling us specifically or you're sort of spending plans for this year and beyond this year, but if things continue to progress at the rate they they do and the team. They do you know kind of how do you how do you see things evolving at a high level can you can you just kind of help us kind of see our path between now and and <unk>.
27.
And are you specifically discussed.
Talking about investments or combination of investments in.
Traffic.
I got I guess, the investment side and.
And how it's tied to your thoughts around how sales progressed.
Uh huh.
Yeah. So.
I think the remainder of this year I believe is fairly predictable people have a good idea of what we're doing the remainder of this year.
The wonderful thing is is that.
We have pulled just a small percentage of the levers we have to grow traffic. So some of the things that I think are.
I think there's more traffic.
Rapid generation opportunities ahead of us this year.
That we then than those that are behind us. So it makes me feel pretty good about our ability to hit our second traffic goal.
As the year comes to a close or just slightly thereafter, which would be where that schedule.
I'm very excited about our.
Simple.
Monetization strategy at the tail end of this year I think it's straightforward I think its compelling.
And.
I think we can spin up a sales operation to support it.
Pretty quickly.
As we my hope is that as we can begin to show up.
Ah <unk>.
Proof of concept.
Against that sales initiatives later part of the year going into 'twenty. Four then we can do what we did with apartments dot com, where we are showing a proof of concept in our results and invest against that proof of concept and result into what is a huge market. So it's too early to say.
You know what we're doing in 'twenty four 'twenty five 'twenty six 'twenty seven.
For investments it'll be a balance between what we're showing and revenue results versus.
You know, what we're willing to invest into the business so but.
Uh huh.
It's probably.
60%, 70% of my time right now.
And I am pleased with.
I'm pleased with where it's going and it's a lot of work, but we have a great team and.
Feel pretty good about it but obviously we are the underdog as we were in the early days of apartments Dot com and so you have to be coming up with some unique ideas and different strategies.
Feel pretty good about that what we've got going on.
I appreciate the color. Thank you.
Yeah.
Thank you Ms Pawlowski.
The next question is from Ryan Thomas L O with stifle. Please proceed.
Hi, good morning, Thanks for taking the question.
Just two part one here clearly a lot of confidence in the resiliency of the business, but just given the uncertainty that's out there around macro in theory would just be helpful to us.
Here your thoughts around your willingness to pull expense levers under this scenario that the sales environment does we can more than youre, hoping and as a follow up on the homes dot com traffic trends.
Maybe you could elaborate a bit more andy on what levers you've leaned on so far to drive that traffic growth in terms of I guess <unk>.
Synergies with apartments, and what remaining levers you have to pool that you just alluded to.
Yes, I don't think we want to go into too much detail on our traffic strategies right now.
Just for competitive reasons.
Sure.
I would.
Point out that we have the greenest residential real estate portal around.
Because our load time of the homepage is.
Mm ranges from four milliseconds to something like 30 24 milliseconds.
So that gives us a b E on Google analytics for performance time, which means you consume less electricity and generate less carbon and we only generate.
0.22 grams per 10000 loads so super efficient.
Fish and high performance is a key piece that we've done.
And I hope that office skates, what we're doing as a strategy for traffic but.
I think we've talked about some of those traffic strategy and some of it self evident like what we haven't yet done, which we're gonna be doing and the things that we've done at apartments that are in the past.
Access fully that we've talked about today that have not yet been done with homes that are self evident.
So.
So yeah. There's more ahead than there is in the rearview mirror on the traffic performance, but congrats Jerry Rogers and his team for such a great performance in that that benefits your SCO growth, so and our willingness to if the if the market continues to degrade.
Significantly sure we're always.
There are always responsive to any need to sort of pull back on.
<unk> initiatives were.
We're not seeing a market perform because of severe economic conditions.
We are prepared to do cost containment efforts.
But realistically you know in the very worst markets over the last 35 years.
We've rarely seen.
I think the worst we ever saw was a 2% 3% decline when we were.
Uh huh only selling costar to brokers that we are so much more diverse now and we have so many what I believe are counter cyclical drivers, whether it be lender or 10 X or marketing.
For high asset value.
<unk> items.
I think it's unlikely that we'd be in a situation, where you have to really pulled back because of the economy, though I'm quite impressed by this.
Downcycle.
And the potential yeah, well you noticed I mean, we look very closely at the last disruptions that happened the pandemic in 'twenty in the great financial crisis more than a decade ago and as you proceed through each of those you noticed.
And the last down cycle that our revenue growth didn't slow at all and we see nothing even as disruptive of that this time when you just look what's happening with apartments and Loopnet.
Moving to Overbalance counter cyclical that are our revenue growth is not.
Going to slow with this balance in a down cycle and we don't see that coming.
At all and we do see a lot of clear data underneath as you might suspect on what's going on so our portfolio is much stronger as even three years ago and I think we saw that in the results that we announced today.
Thank you Mister Thomas Stella.
There are no additional questions waiting at this time, so I will turn the call over to Andy to wrap it up wrap the call up.
Wow, we finished seven minutes early.
Well I'd like to thank everyone for joining us for our first quarter 23 earnings call. We look forward to speaking with you again, our second quarter call in July 25th 10, 2023 at <unk>.
<unk> P M. Eastern standard time, so thank you very much for participating today and have a good evening or good day, if you're in Asia Bye bye.
This concludes today's conference call you may now disconnect.