CoStar shares tank on weak 2022 outlook, increased resi investment

UPDATED Feb. 23, 2022, 5:37 p.m.: CoStar Group’s stock cratered in Wednesday trading after the real estate data giant offered a lackluster outlook for 2022 and outlined significant investments in residential products. Its share price fell 15 percent on the day.

The company’s disappointing guidance overshadowed its strong fourth-quarter showing: 35 cents of adjusted earnings per share, which beat estimates by 6 cents, and revenue that climbed 14 percent year-over-year to $507 million, ahead of the $503 million consensus.

Net sales bookings during the quarter hit $67 million — an all-time high that represented a 37 percent gain over the same period in 2020.

But for 2022, the company expects adjusted earnings per share to hit a range of $0.95 to $1.02, far below analysts’ expectations of $1.35 per share.

As of midday Wednesday, CoStar’s stock was trading around $57 — a 10 percent decline from Tuesday. Shares in the company reached an all-time high of $101 last fall, but are down 28 percent this year.

CoStar, which was reported on Tuesday to be dealing with a mass staff exodus amid allegations of employee surveillance and an exacting work environment, said it would invest $300 million to $320 million in “residential products, content, sales and marketing” this year — a $200 million increase it said could potentially add billions in revenue over the medium-to-long term.

For years a dominant player in commercial real estate data, CoStar’s stepped-up investment in the residential sector will focus primarily on “breaking down the walls” that exist between homebuyers and agents, and fostering transparency and collaboration by bringing to market tools that allow them to share listings and feedback, CEO Andy Florance said on an earnings call Tuesday.

“Agents and buyers need to share information and feedback about home listings, but that’s difficult today because they operate in two separate, essentially closed and disconnected systems,” Florance said.

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The residential investments also will prioritize “powerful and professionally produced rich media and content” on neighborhoods for prospective homebuyers.

Florance called the residential market opportunity “huge” — a potential $72 billion business in the U.S. and a $210 billion one globally.

“We believe our residential revenue will one day eclipse the revenue that we generate in the commercial property sector,” he said.

The slowdown in revenue growth and sales bookings that CoStar subsidiary Apartments.com experienced earlier in the year amid historically low vacancy rates recovered substantially during the fourth quarter, due in part to “modest improvements in the macro backdrop,” Florance said. The company expects that segment to return to double-digit revenue growth in the second half of the year.

In prepared remarks, Florance downplayed criticisms from current and former employees who accused the company of engaging in authoritarian-style surveillance while they worked remotely and publicly humiliated them for poor performance. Insider reported this week that 37 percent of the firm’s 4,200 workers left the company last year — a figure Florance confirmed Tuesday.

The company has exacting standards that require use of performance measuring technology “like any organization should have,” Florance said.

“Like any company, we have people who decide the demands of our environment is not for them, and that’s fine,” he added.

This story has been updated to reflect the drop in CoStar stock’s share price Wednesday.