CoStar Stock Drops 10% After Reporting Decline In Bookings
Commercial real estate data giant CoStar Group saw its stock price plunge to its lowest level this year after its quarterly earnings report led one analyst to downgrade the company.
CoStar reported net new bookings of $44M in the third quarter, down 34% from the second quarter's $67M in bookings and 32% from Q3 2023. This drop led RBC Capital Markets to downgrade CoStar from outperform to sector perform and reduce its price target from $96 to $83.
The company's stock price stood at $69.90 as of 12 p.m. ET Wednesday, down 9% on the day following the earnings release. It had fallen as low as 10% earlier in the morning.
On its Tuesday evening earnings call, CoStar CEO Andy Florance said the drop in bookings was a result of a temporary reallocation of much of its sales team. After launching its monetization of Homes.com in the first quarter — it acquired the company in 2021 — CoStar asked all of its sales team to help sell the product, Florance said. He said they sold "a significant volume" of Homes.com bookings, but it came at the expense of their core products.
"The reality of pivoting the entire sales force to new product is that they are all rookies in selling the new product," Florance said on the earnings call. "This means lower productivity, lower service skills and suboptimal command and value propositions. That causes lower overall productivity and renewal rates in the early sales process. But it's worth it for launching a major new product with long-term potential."
He said much of the sales team has now gone back to selling their core products, and he expects an improvement in net new bookings in the fourth quarter and next year.
"We are already seeing an upturn," Florance said, adding that September was the strongest month in the last year for its core CoStar product.
The company's overall revenue last quarter totaled $693M, an 11% year-over-year increase but $3.1M below the consensus estimate, according to Seeking Alpha. Its net income of $53M was down from $91M in the same quarter last year.
Along with the earnings release, CoStar announced it reached an agreement to acquire Visual Lease, a 28-year-old software company that helps companies manage their leased and owned real estate assets. It said the acquisition will enhance its CoStar Real Estate Manager product. It didn't disclose the purchase price.
CoStar made a big spending push earlier this year, putting more than $1B into advertising, including Super Bowl commercials for residential listing platforms Homes.com and Apartments.com. It also paid $339M to acquire an office building in Arlington, Virginia, for its new headquarters.
