Apartmentscom And Matterport Integration Will Unlock Market Opportunity

Key Takeaways

• Strategic acquisitions and brand awareness growth are set to significantly enhance future revenue and market position.
  
• Expanding sales and product enhancements signal strong potential for capturing increased market share and revenue.
  
• Challenging commercial real estate conditions, integration risks, and insufficient sales coverage could hinder CoStar Group's revenue growth and profitability.

Catalysts

Provides information, analytics, and online marketplace services in the United States, Canada, Europe, the Asia Pacific, and Latin America.

• CoStar's integration of STR and its focus on sales to owner operators has driven significant revenue growth in net new bookings, suggesting potential for increased future revenue.
  
• The introduction of product enhancements to CoStar for lenders, with the potential to expand the total addressable market above $1 billion, is likely to boost future revenue streams.
  
• Expanding the sales force, particularly for Apartments.com, with plans to grow the team by 23% this year to capture significant market opportunity, indicates revenue growth potential.
  
• The growth in Homes.com's unaided brand awareness from 4% to 36% in just over a year and a strong marketing campaign indicates potential for significant future revenue growth.
  
• The acquisition and integration of Matterport into CoStar's platforms, along with expansion of R&D and sales teams, is poised to drive revenue and margin growth.

CoStar Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CoStar Group's revenue will grow by 12.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.1% today to 21.6% in 3 years time.
• Analysts expect earnings to reach $844.7 million (and earnings per share of $1.91) by about April 2028, up from $138.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $683.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 52.5x on those 2028 earnings, down from 244.5x today. This future PE is greater than the current PE for the US Real Estate industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

CoStar Group Future Earnings Per Share Growth

Risks

• The commercial real estate market is experiencing historically high vacancy rates and low asking rents and sales prices, which could impact CoStar Group's revenue growth in the short term.
  
• CoStar acknowledged a challenging market environment with significant headwinds, including low sales volumes and declining industrial and retail asking rents, which may affect net margins.
  
• Projected revenue growth from Matterport may not materialize as expected due to only small sales teams covering large geographical areas and the need for investment in R&D and sales, potentially impacting earnings.
  
• Homes.com experienced initial high cancellation rates and disappointing net promoter scores, indicating potential risks to expected revenue growth if these issues persist.
  
• The integration of acquisitions like Matterport and potential acquisition of Domain Group involves execution risks, such as achieving intended synergies and growth targets, which could impact net margins and profitability if not successfully realized.

Valuation

• The analysts have a consensus price target of $86.297 for CoStar Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $103.0, and the most bearish reporting a price target of just $63.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $844.7 million, and it would be trading on a PE ratio of 52.5x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $82.7, the analyst price target of $86.3 is 4.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.