Summary
- Strong performance during the pandemic with Q2 2020 YoY revenue growth of 16% and adjusted EBITDA growth of 17%.
- This leader in online commercial real estate analytics, marketplace and auction services has $3.5 billion in cash and is seeking company acquisitions.
- The company has business components that are counter-cyclical to the economy.
- CoStar Group scores well on the Rule of 40, given the strong free cash flow margin.
- While the stock is overvalued on a relative basis, I am still bullish based on the positive fundamentals.
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CoStar Group, Inc. (CSGP) is the self-proclaimed “number one provider of information, analytics and online marketplaces to the commercial real estate industry in the United States and the United Kingdom.” Indeed, it has a leading commercial real estate database, research department and operates several online marketplaces for commercial real estate and apartment listings. The company has several brands including “CoStar, LoopNet, Apartments.com, STR, Ten-X, BizBuySell and Lands of America.”
What I really like about this company is that it has performed exceptionally well through the pandemic, with Q2 2020 YoY revenue growth of 16% and adjusted EBITDA growth of 17%, similar to pre-pandemic growth. In fact, the company is doing so well that the management has reinstated guidance for the remainder of the year.
We currently expect revenue for the full year in a range of $1.63 billion to $1.64 billion, which represents a growth rate of 17% at the midpoint of the range compared to 2019. This estimate includes approximately $25 million to $30 million in revenue from Ten-X in the second half of the year.
We expect revenue for the third quarter of 2020 in the range of $415 million to $420 million, representing topline growth of around 18% at the midpoint compared to the third quarter of 2019. This estimate includes approximately $12 million to $13 million in revenue from Ten-X.”
Countercyclical Business
In some respects, CoStar Group’s business is countercyclical to the general economy. Real estate activities are still a necessity in real estate, even in a bad economy. Many of CoStar Group’s areas of business experienced record levels of traffic as the quarter progressed after a slow start.
Traffic to our Apartments.com and LoopNet marketplaces rose to new record levels exceeding pre-pandemic levels. We had 62 million monthly unique visitors in our platforms in the second quarter an increase of 13% of our record traffic levels of 55 million monthly unique visitors reached in the first quarter of 2020. I hope you can agree with me that these results indicate that our business is not only resilient, but is in fact countercyclical.”
In addition, the acquisition of auction site Ten-X in late June should be a big plus financially. Ten-X facilitates online auctions of distressed properties which are on the rise in this economy, and the company should be a nice fit strategically:
