CoStar Earnings: Homes.com Traffic Momentum Remains Strong as Unaided Awareness Increases

Wide-moat CoStar reported strong second-quarter results with non-GAAP earnings per share of $0.15, down 52% on a year-over-year basis, compared with $0.31 per share in the second quarter of the previous year. The year-over-year decline was expected and was largely due to the company’s aggressive investments in the residential business. Excluding the strong investments in the residential business, the firm's core data and marketplace businesses delivered around 41% adjusted EBITDA margins in the second quarter. As per our calculations, this amounts to about $260 million in adjusted EBITDA during the quarter from the firm’s other businesses, excluding residential. CoStar reported consolidated adjusted EBITDA of $40.8 million in the second quarter, implying investments of around $220 million in its residential business. Management expects revenues to be around $2.74 billion for 2024, representing year-over-year growth of around 12%. We think that 2024 will mark the peak in the investment cycle for the residential business and earnings should rebound strongly in 2025 as residential-related marketing investments recede, and the firm starts to monetize Homes.com. We do not plan on materially changing our $80 per share fair value estimate for the firm as we fully incorporate second-quarter results.