Summary
- In uncertain times, CoStar resembles one of the surest real estate bets on the market.
- Its state-of-the-art software platform has become a consistent, cash-producing machine.
- Management has proven to be one of the best deal makers in the game, and their balance sheet supports further spending.
- Revenues continue to grow and margins are second to none.
- Although currently pricey, we remain bullish on the company due to its robust fundamentals, growth drivers, and countercyclical foundation.
Most 30-year-old companies have historically plateaued or become complacent. CoStar Group (CSGP), however, has actually improved its business fundamentals and continued to expand its footprint in the real estate sector.
Not resting on its laurels, it is has evolved from being a database and research company into a full-fledged online marketplace serving the rental and commercial real estate sectors.
CSGP combines a sophisticated software platform with a growing advertising business that has been consistently upgrade by a team of master capital allocators.
(Source: CoStar Group)
Product Suite
The company has four main revenue-generating verticals, with the first two falling under the "information and analytics" umbrella, while the latter two are classified under "online marketplaces":
- CoStar Suite: A subscription-based information data base that has been amassing information for over 30 years. The company provides comprehensive comparable commercial real estate sales transactions, market analytics, prospecting tools, and property attributes, among others. Much like the Bloomberg terminal, licenses are pricey, yet value-add it bequeaths has created a captive market for the company. The sheer breadth of data has created barriers to scale, and CSGP now enjoys the pricing power inherent to such a model.
- Information Services: This segment focuses on proving software solutions to property managers, hotel administrators, and other relevant stakeholders for properties that are already owned. It enables companies to streamline portfolio operations, concentrate their FP&A analysis, and benchmark themselves against the broader industry.
- Multifamily: The company's network of apartment marketing sites was turbocharged via its 2014 acquisition of Apartments.com. It enables property managers to showcase their communities, while also offering tools to facilitate the entire rental process.
- Commercial Property and Land: The Zillow (Z) of commercial real estate, LoopNet has been propelling this division since it was acquired in 2011. CSGP has also expanded into business-for-sale marketplaces, comprised of rural properties and extensive franchise directories.
