CoStar Group’s Struggles Amid Market Competition and Economic Changes
CoStar Group, Inc. (CSGP), based in Washington, D.C., is a key player in the real estate sector. The company has an impressive $33.6 billion market cap and provides vital tools for professionals across the Americas, Europe, and Asia. CoStar’s offerings, which include tenant insights, marketing solutions, and industry trends, are crucial for making informed decisions in today’s competitive market.
Lagging Behind: CoStar’s Stock Performance
In the past year, CoStar’s stock has not performed well compared to the broader market. Over the last 52 weeks, CSGP has declined 2.7%, while the S&P 500 Index ($SPX) returned 31.8%. In 2024, CSGP shares took a further hit, plummeting 6.2% year-to-date, contrasting sharply with SPX’s 25.8% increase.
Additionally, CSGP’s performance has fallen short of the US Real Estate iShares ETF (IYR), which has returned 24.2% over the past year and achieved a 12.5% gain thus far in 2024.
Challenges in 2024: Rate Hikes and Market Slowdown
This year has been tough for CoStar Group. The combination of rising interest rates and a slowing real estate market has put pressure on the company’s stock. As demand for commercial properties declined, investor confidence waned. Increased competition in digital property platforms has squeezed profit margins, and disappointing earnings reports have added to investor worries.
CoStar’s Q3 earnings report, released on Oct. 22, highlighted these challenges. After the report, shares of the commercial real estate listing leader slid 5.3%. Revenue growth of 11% to $692.6 million fell short of expectations, raising further concerns.
While adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped to $76 million from $112 million the previous year, increased sales and marketing costs were to blame. Although adjusted EPS of $0.22 exceeded forecasts of $0.18, it still represented a 26.7% annual decline. CoStar’s guidance for future growth indicated a slowdown, with Q4 revenue expected to rise just 9%, hinting at the end of its previous double-digit growth rates.
For the fiscal year ending in December, analysts predict a 51.4% decline year-over-year in CoStar’s EPS to $0.51. The company has consistently exceeded analysts’ expectations over the last four quarters, indicating strong performance overall.
Analyst Outlook: A Mixed Consensus
The consensus among analysts covering CSGP stock is a “Moderate Buy.” Of the 12 analysts, there are seven “Strong Buy” ratings, two “Moderate Buys,” and three “Holds.” This perspective is slightly more cautious than three months ago, when eight had categorized it as a “Strong Buy” and three as “Moderate Buy.”
Needham’s Positive Outlook
Needham maintains a positive view on CSGP, reiterating a “Buy” rating with a target price of $100. The firm expressed optimism following discussions with Richard Simonelli from Investor Relations. They noted CoStar’s updated sales strategies and a favorable commercial real estate market as growth drivers.
Expectations of declining interest rates are anticipated to boost bookings in fiscal 2025, while a consistent $1 billion investment in Homes.com aims to improve operational efficiency. Needham emphasizes CoStar’s strong market presence and ability to adapt to changes, projecting revenue growth and profitability improvements in the future. The average price target for CSGP stands at $90.91, suggesting a potential upside of 10.9%, while the highest target points to a possible 25.7% rally from current levels.
On the date of publication, Sristi Jayaswal did not hold any positions in the securities mentioned in this article. All data and insights are provided for informational purposes. Please click here for the Barchart Disclosure Policy.
The views expressed here are those of the author and do not necessarily reflect those of Nasdaq, Inc.
