Now in business for more than 30 years, CoStar Group (NASDAQ: CSGP) is a pioneer in third-party research services for commercial real estate (CRE) companies that itself has grown into a major provider of information, analytics, and online marketplaces that include such highly visible brands as Apartments.com and LoopNet.
Based in Washington, D.C., CoStar Group was founded in 1987 by Andrew Florance, who continues as its president and CEO and has led the company's growth into what it calls the industry's largest professional research organization, proprietor of what it also calls the largest CRE database in existence, and an employer of more than 4,300 people in offices across the U.S. and in Canada, Europe, and Asia.
CoStar Group said its diverse portfolio of consumer-facing and more-specialized websites attracted an average of approximately 69 million unique monthly visitors in the third quarter of 2020. "Our suite of online services enables clients to analyze, interpret, and gain unmatched insight on commercial property values, market conditions, and current availabilities," the company says.
A portfolio of industry-leading online listing and research brands
Here's how CoStar describes itself: "Our standardized platform includes the most comprehensive proprietary database in the industry; the largest research department in the industry; proprietary data collection, information management, and quality control systems; a large in-house product development team; a broad suite of web-based information, analytics, and online marketplace services; a large team of analysts and economists; and a large, diverse base of clients."
Integration and cross-sell help drive the business, including companies that pay to play on its marketplace site and through its CoStar Suite, a set of tools to help:
- Guide the buying, selling, or leasing of a property.
- Represent tenants or analyze lease proposals.
- Value assets, underwrite loans, or manage diverse portfolios.
Along with CoStar itself, the company's brands include:
- LoopNet: LoopNet launched in 1995 and garners more than 7 million unique visitors a month, making it the most heavily trafficked mobile and online CRE marketplace, CoStar Group says. Along with connecting tenants and investors to leasers and sellers, LoopNet offers industry news and information about space requirements, neighborhoods, and other housing intel relevant to businesses considering new locations. The LoopNet family also includes Showcase.com, CityFeet.com, and ShopProperty.co.uk.
- Apartments.com: CoStar describes it like this: "Apartments.com is the premier rental home resource for renters, property managers, and owners, offering the most advanced search tools and neighborhood-level data for renters, with maximum customer exposure for its advertisers." Other brands within that network offer marketplaces for apartment buildings, single-family homes, condos, and townhomes. Those related sites include ApartmentFinder, Apartment Home Living, ForRent.com, and the company's Move.com sites: Realtor.com, Doorsteps.com, Moving.com, and several others geared toward consumers or real estate professionals.
- BizBuySell.com: CoStar Group says BizBuySell.com and its affiliate BizQuest.com comprise the largest and most heavily trafficked business-for-sale marketplace on the internet, as well as a leading database of sale comparables and a directory of franchises. More than 52,000 businesses were listed as of this writing, the company says, and more than 2.2 million visits are recorded each month.
- Lands of America: CoStar Group calls LandsofAmerica.com and LandandFarm.com the largest rural real estate marketplace in the country. (The latter says it was currently offering more than 10 million acres of farms, ranches, residential, commercial, and other types of land for sale.) The company says those and a group of partner network sites it supports generate 4.5 million unique visitors per month and 7 million monthly visits, which it says is more than seven times larger than the number of visitors to all competitors combined.
- STR.com: Founded in 1985 as Smith Travel Research, STR.com now aggregates data from more than 65,000 hotels, representing nearly 9 million guest rooms in more than 180 countries. Its dSTAR service provides hotel brands, owners, and management companies with performance benchmark information to the tune of more than 1.2 million reports a month.
Other brands include Realla, described as "the UK's most comprehensive commercial property digital marketplace," as well as Westside Rentals, AFTER55.com, CorporateHousing.com, ForRentUniversity.com, and Apartamentos.com.
Also among its specialized offerings for CRE investors and managers is Ten-X, a platform for conducting commercial real estate online auctions and negotiating bids, especially for distressed property sales.
Growing organically and through acquisitions
CoStar Group has grown organically and through acquisitions in the past three decades. The former has been driven by more than $2.5 billion invested in research and technology, allowing the company to shatter "barriers in the technology space from tools that harvest big data and power research operations to shaping marketplaces that serve tens of millions of people each month."
Significant acquisitions, meanwhile, include LoopNet in 2012, Apartments.com in 2014, Spain's Belbex in 2015, Realla (the U.K.'s largest commercial property platform) in 2018, STR in 2019, and in 2020 both Ten-X and RentPath.
CoStar Group joined the stock exchanges in a 1998 IPO that raised $22.5 million. It now has a market cap of about $35 billion. That growth has seen the company move up to 29th on Fortune magazine's annual list of the 100 Fastest-Growing Companies after first making the list in 2016.
How CoStar Group makes its money, and how much it makes
"Our strategy is to provide industry professionals and consumers of commercial real estate and apartments with critical knowledge to explore and complete transactions by offering the most comprehensive, timely, and standardized information on commercial real estate and apartments and the right tools to be able to effectively utilize that information," the company says in its 2019 Form 10-K.
That strategy has been generating income. In 2019, CoStar Group reported $1.4 billion in revenue and $314.9 million in net income. In its third-quarter 2020 report, the company said it took in $426 million, up 21% from the year-ago quarter, despite the pandemic, with record traffic on its websites and all-time-high sales from its LoopNet operation.
No single client accounted for more than 5% of its revenues in 2017, 2018, or 2019, the company says. Customers for its subscription revenue business model include commercial real estate brokers, owners, developers, landlords, property managers, financial institutions, retailers, vendors, appraisers, investment banks, government agencies, and other parties involved in commercial real estate.
The Millionacres bottom line on CoStar Group
That reliance on a subscription revenue business model bolstered by cross-selling and integration of its broad offerings has helped the company grow clients' reliance on its services as key revenue drivers for their business.
It's also helped investors capitalize on the company's growth. Through the end of 2019, CoStar Group had outperformed both the S&P 500 Index and S&P 500 Internet Services & Infrastructure Index in five-year cumulative return. The company said $100 invested in its stock, the broader index, and its segment would have returned $325.82, $173.86, and $242.93, respectively.
More recently, after dipping to about $500 a share in the spring, CoStar Group stock again is trading at about $900 a share, not far from its 52-week high of $939.00. This is not a dividend-paying stock, so investors in CoStar Group are banking on its continued ability to grow its stock price by providing brokers and all those other stakeholders access to research, buyers, sellers, and tenants that they're willing to pay for through the company's subscription model. It's worked so far.