CoStar Group Reports 11% Revenue Growth, Challenges in Profitability in Q3 2024

CoStar Group, Inc. reported significant financial results for the three and nine months ended September 30, 2024, reflecting both revenue growth and challenges in profitability. Total revenues for the third quarter reached $692.6 million, an increase of 11% from $624.7 million in the same period of 2023. For the nine months, revenues rose to $2,026.8 million, up 12% from $1,814.9 million year-over-year. The growth was primarily driven by the North America segment, which generated $658.2 million in Q3 2024, up from $602.8 million in Q3 2023, and $1,925.3 million for the nine months, compared to $1,750.6 million in the prior year.

Gross profit for the third quarter was $552.0 million, a 10% increase from $501.0 million in Q3 2023, while gross profit for the nine months was $1,609.2 million, up from $1,459.7 million. However, the company faced a decline in operating income, reporting $23.7 million for Q3 2024, down 62% from $61.6 million in Q3 2023. For the nine months, CoStar recorded a loss from operations of $(35.3) million, compared to a profit of $213.0 million in the same period last year.

Net income for Q3 2024 was $53.0 million, a decrease of 42% from $90.6 million in Q3 2023. For the nine months, net income fell to $78.9 million from $278.2 million, reflecting a 72% decline. The effective tax rate increased to approximately 32% for Q3 2024, up from 25% in the prior year, primarily due to lower U.S. income and larger U.K. losses without tax benefits.

CoStar's operational expenses surged, with total operating expenses for the nine months rising to $1,644.5 million, a 32% increase from $1,246.7 million in 2023. This included a significant rise in selling and marketing expenses, which accounted for 52% of revenues, up from 41% in the previous year.

Strategically, CoStar completed the acquisition of OnTheMarket in December 2023, enhancing its residential real estate advertising capabilities. The company also announced a merger agreement with Matterport, expected to close in late 2024 or early 2025, with an estimated cash consideration of $940 million. Additionally, CoStar entered into a merger agreement to acquire Visual Lease for $272.5 million in cash, further expanding its portfolio.

As of September 30, 2024, CoStar had cash and cash equivalents of $4.9 billion, down from $5.2 billion at the end of 2023, primarily due to increased investing activities, including significant expenditures for new campuses. The company is also facing challenges from current economic conditions, including elevated interest rates, which may impact demand in the commercial real estate market.