Real estate data giant CoStar Group (NASDAQ: CSGP) has taken a systematic approach to real estate dominance, and its latest moves make it worth watching. While the brand is most famous for its commercial real estate news and information services, the brands that don't bear the CoStar name are starting to become major drivers for the company. This includes Apartments.com, which is part of a large multifamily arm of CoStar's business. In 2020, CoStar's multifamily sites, including Apartments.com, ForRent.com, and others, saw over one billion renter visits. CoStar's multifamily listing services brought in $155 million in revenue during the third quarter of 2020, making it nearly as valuable as its core CoStar Suite business, which had $158 million in revenue.
CoStar has learned the value of a good address, and that is one reason that the company announced at the end of 2020 that it was purchasing the URL Houses.com. As the press release mentioned, CoStar owns a variety of desirable web addresses, including Land.com and ApartmentFinder.com, and has turned them into powerful search services.
However, one address it won't be bringing under the CoStar umbrella is Rent.com. At the end of 2020, the Federal Trade Commission filed a lawsuit to block CoStar's acquisition of Rent.com's owner, RentPath. The FTC was concerned that the proposed sale would create a multifamily rental listing juggernaut that could end up eliminating price competition in the multifamily space. RentPath ended the sales agreement, and now CoStar is trying to avoid paying a nearly $60 million breakup fee for the termination of the $585 million deal. CoStar has filed a lawsuit alleging that its competitor attempted to undermine the deal and CoStar's strategy for dealing with the FTC lawsuit. RentPath is in the process of working through a Chapter 11 restructuring and is fighting off a lawsuit may further weaken it, which is likely CoStar's intention in filing the suit in the first place.
A plan to take on residential search
CoStar's success in the multifamily search space has emboldened it to expand its range. Among its many purchases in 2020, it picked up HomeSnap for $250 million. HomeSnap is a residential search platform that has agreements with over 240 multiple listing services and a variety of real estate brokerages. Its projected revenue for 2020 was around $40 million, but its the potential of the company that CoStar sees. In the press release for the acquisition of the Houses.com URL, it said it plans to create a "vibrant national marketplace for agents and owners to successfully sell homes without disenfranchising or disintermediating valuable real estate agents in the process."
This is similar to the terminology CoStar used in announcing the HomeSnap purchase when it referred to "portals that increasingly advertise on top of agent listings and offer brokerage services directly." It's clear that CEO Andy Florance is setting up a battle against the giant of residential real estate search, Zillow (NASDAQ: ZG) (NASDAQ: Z).
While CoStar has had admirable success in the multifamily space, taking on the more scattered world of residential real estate may be a bit more tricky. Zillow itself had to dethrone the previous leader in the space, Realtor.com. A memorable URL is not always a key to success. After all, Zillow itself tried to launch a millennial-friendly real estate site in 2017 using the RealEstate.com URL. That site quietly disappeared and now redirects to Zillow itself. One thing CoStar has on its side is a top-notch ad agency. RPA developed the Apartments.com ads starring Jeff Goldblum that increased the overall brand awareness. If CoStar taps RPA to create similar magic for Houses.com, things could get interesting.
The Millionacres bottom line
CoStar has seen strong revenue growth in the past year, and the steady increase of the share price shows that most investors look favorably on CoStar's aggressive acquisition strategy. With its foray into residential real estate, CoStar is likely facing its biggest challenge but also taking on the largest total addressable market. It happens to be entering the residential real estate arena at a time when real estate search is at an all-time high. The question is, will it be able to build a new platform quickly enough to capitalize on the current appetite for looking at homes. Even if it doesn't see strong success right off the bat, this appears to be a positive move for the company as a whole since it has already proven it can build very successful platforms.