CoStar Group, Inc. (NASDAQ:CSGP) Q3 2023 Earnings Call Transcript

CoStar Group, Inc. (NASDAQ:CSGP) Q3 2023 Earnings Call Transcript October 24, 2023

CoStar Group, Inc. reports earnings inline with expectations. Reported EPS is $0.3 EPS, expectations were $0.3.

Operator: Good day, everyone. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the CoStar Group Third Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Now Cyndi Eakin, Head of Investor Relations will read the Safe Harbor statement. Cyndi, you may begin.

Cyndi Eakin: Thank you, Lisa. Good evening. And thank you all for joining us to discuss the third quarter 2023 results of the CoStar Group. Before I turn the call over to Andy Florance, CoStar’s CEO and Founder; and Scott Wheeler, our CFO, I would like to review our Safe Harbor statement. Certain portions of the discussion today may contain forward-looking statements, including the company’s outlook and expectations for the fourth quarter and the full-year of 2023, based on current beliefs and assumptions. Forward-looking statements involve many risks, uncertainties, assumptions, estimates and other factors that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in CoStar Group’s press release issued earlier today and in our filings with the SEC, including our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q under the heading Risk Factors.

All forward-looking statements are based on the information available to CoStar on the date of this call. CoStar assumes no obligation to update these statements whether as a result of new information, future events or otherwise. Reconciliation to the most directly comparable GAAP measure of any non-GAAP financial measures as discussed on this call are shown in detail in our press release issued today, along with the definitions for those terms. The press release is available on our Web site, located at costargroup.com under Press Room. As a reminder, today’s conference call is being webcast and the link is also available on our Web site under Investors. Please refer to today’s press release on how to access the replay of this call. And with that, I would like to turn the call over to our Founder and CEO, Andy Florance.

Andy Florance: Good evening, everyone, and thank you for joining us for CoStar Group’s third quarter 2023 earnings call. Revenue for the third quarter of 2023 was $625 million or 12% growth year-over-year. Our commercial real estate information and marketplace businesses grew revenue at an impressive 14% this quarter compared to the same quarter a year ago. We also delivered strong net new bookings of $65 million in the third quarter, with CoStar sales improving sequentially, and Apartments.com coming off the seasonally strong sales record they set in the second quarter. We’ve now reported 50 straight quarters of double-digit revenue growth, stretching all the way back to the first quarter of 2011, as we came out of the Great Financial Crisis.

This is a remarkable achievement. Over the past 12-plus years, we’ve generated 21% compound annual revenue growth, increasing revenue tenfold, from $230 million to over $2.3 billion on a trailing 12-month basis. As we move into the fourth quarter, we are generating almost $1 billion of adjusted EBITDA annualized from our commercial real estate business. We have diversified our revenue across countercyclical marketplaces, such as LoopNet and Apartments.com, while diversifying CoStar product revenue into broader vertical markets such as owners and lenders. Alongside our diversification efforts, we remain committed to building a subscription-only revenue portfolio across the business. The result we see today is an extremely resilient and steady growth business, even during a time when the property markets are in a hard down cycle as they are now.

To produce these exceptional results, we made big investment bets on expanding our geographical footprint or entering new adjacent segments. These investments, for example, such as expanding CoStar into all the U.S. cities, Canada, and the U.K., or entering the apartment marketplace business, though clear to us, were not universally popular at the time when we were in the investment phase they acquired. We pursue growth investments regardless because we are singularly focused on the enormous value creation we see in meeting the demand for digital information, analytics and marketing of the $300 trillion real estate asset class globally. Digitizing real estate is unlocking major value, and we are absolutely in the earliest innings of this opportunity.

I believe that CoStar Group’s revenue will grow tenfold again over the next 12 years because of the careful, significant calculated investments we’re making that optimize our competitive advantages and capabilities. We firmly believe that Homes.com can compete and win in the residential opportunity, just as we lead today in all the prior asset class we have entered in the past, including office, industrial, retail, hospitality, multifamily, land, et cetera. Homes.com delivered over 100 million unique visitors in the month of September according to Google Analytics. That’s an increase of 1,290% over the same period a year ago, making Homes.com the fastest growing residential marketplace in the United States. Our residential network traffic, which consists of homes and apartments, reached over 140 million monthly unique visitors, in September, which is more than Realtor and Redfin combined based on the traffic reported in their most recent earnings announcements.

According to ComScore, we are clearly now the second most heavily-trafficked residential network by a wide margin, with monthly unique visitors 35% higher than Realtor.com and 90% higher than Redfin, in September. Looking at the trend lines, we are on a convergence path with the historically most traffic site. Two short years ago, when we acquired Homes.com, we set out to deliver an agent-friendly site that home buyers love. I believe that reaching over 100 million monthly unique visitors in September to Homes.com is evidence that we are achieving that goal. Our returning users have increased almost 900% over September of last year, which is a testament to our success of building rich content and providing a great consumer experience. The traffic generation plans for Homes.com are still in the early stages, and we have already delivered double the 50 million monthly unique visitors that we initially targeted.

In the Apple App Store, Homes.com has climbed from 136 under lifestyle, to now become number 19. Homes.com is now ranked about Realtor, Redfin, Trulia, and even Apartments.com in the App Store. When we announced that we were going to build Homes.com into a leading residential portal, the number one risk factor called out was skepticism that we could build the traffic required to compete. Earlier this year, media reports speculated that CoStar Group was in talks to acquire Realtor.com for approximately $3 billion. If that was true the primary objective in acquiring Realtor.com could have been to take the number two traffic position in the United States. Given that that speculation did not come to pass, we might have been good stewards of our shareholders’ $3 billion that we saved by building the traffic to Homes.com for a fraction of the cost of buying it.

Clearly, successfully building traffic is no longer Homes.com’s primary risk factor. At this point, shrewd investors seeking a new risk factor to replace the now reduced traffic risk factor will now need to turn to monetization as the next key risk factor. Unlike its competitors, Homes.com has never invested in any material brand marketing. Because of that Homes.com’s unaided awareness is in the low single digits, while our competitors’ unaided awareness is in the mid to high double digits. When we acquired Apartments.com, it similarly had a single-digit unaided awareness problem. But through persistent creative branding, we’ve grown Apartments.com unaided awareness to the industry leading unaided awareness of 53%. Achieving significant unaided awareness is important because it improves SEO, optimizes SEM investments, and facilitates sales of advertising products to prospects.

It is essential to build unaided awareness before we begin monetizing. We do not believe that building unaided awareness is our most significant risk factor. We anticipate selling Homes.com memberships in the second quarter of 2024. CoStar Group has created dozens of successful monetization strategies, and we believe that our planned monetization strategy for Homes.com will become a dozen-plus one of our successful monetization strategy. When we acquired HomeSnap, we quickly built a centralized sales team to sell their Facebook ads. While we did not believe in the long-term value of reselling low retention, low margin Facebook ads, we did very quickly scale a sales force and sold tens of millions of dollars worth of ads. We look forward to doing it again with Homes.com, which we will believe will be a much better product with higher margin and higher retention.

William Blair recently published a paper on October 20th titled Competition Intensifying Among Home Search Portals. There’s some interesting call-outs from their survey of residential agents that are worth noting. Combined spend and potential efficiency gain from agents marketing their properties and services is $15 billion to $20 billion in the United States. Most of the agents marketing spend today is not on our competing portals, it’s like print. Most agents do not spend marketing dollars with Zillow. Most agents do not spend marketing dollars with realtor.com. Most of Zillow’s clients feel that Zillow will become less important to their lead generation efforts in the next one to two years. 60% of Zillow’s premier agent client surveys stated that the value of the product is declining and 5% said it’s improving.

So, 60% said the value was declining and 5% said it was improving. 94% of Zillow’s premier agent customers said that they’re very open or somewhat open to alternative sources for lead generation, sounds good to me. Even before we begin selling premium services, we’re creating real value for agents. As a result of our traffic growth and superior your listing, your lead business model, I believe we’re already generating millions of leads for agents that are converting to commissions for them. I’m encouraged by the [technical difficulty] with one agent saying that 85% of their total sales come from being able to build their brand and collaborate with sellers and buyers on the Homes.com network. From these leads, we estimate that Homes.com is helping agents generate billions and billions of dollars in annual commissions already while saving them billions in referral fees.

Last week, Sitzer/Burnett versus NAR lawsuit went to trial. We could be seeing the biggest change to the residential real estate industry in recent or even intermediate history or long-term history. Sitzer/Burnett and other class action lawsuits are challenging the legality of the buyer broker commission rule which requires the home seller to pay the home buyer’s agent fees. Plaintiffs are seeking damages of more than $40 billion, implying the nationwide damages of more than $400 billion. Several defendants have already agreed to collectively pay $138 million in settlements and to changes to the rule. The first generation real estate portals leveraged this threatened buyer broker commission rule to divert listing leads from all the agents in the market to a small handful of agents who were then required to split their commissions with the portal.

Often that’s the model. Many agents and brokers strongly resent that model. Now that Homes.com is one of the most heavily trafficked portals, there is a strong and viable alternative for lead generation available to agents that does not require usurious commission splits. Unlike the first generation portals, Homes.com business model is not negatively impacted by the potential end of the buyer broker commission rule. Momentum around our residential strategy is clearly building with the early successes of Homes.com and there is potential for dramatic change in the industry soon. Our confidence in the success of Homes.com and timing is increasing, the need to time the movement that we see happening. For these reasons, we have decided to slightly accelerate the pace and level of our investments into Homes.com.

Last week, we announced our offer to acquire OnTheMarket, the third most trafficked residential property portal in the U.K. for approximately £100 million, doesn’t seem like we thought that number out carefully. How could it just round out to £100 million? Okay, we did actually. OnTheMarket was founded by agents in 2013 to provide a competitive alternative to the existing U.K. portals, which they agents felt represented duopoly extracting economic rent from them. We believe that right moves are put is 21,000 while ours is less than 1,000. So, we feel confident that we can profitably deliver the U.K.’s most cost effective solution over the long-term. OnTheMarket has successfully developed a large network of agents and property listings by taking an agent-friendly approach.

Today, OnTheMarket has over 13,000 agent advertisers and attracts high-intent leads at a fraction of the cost of other U.K. portals. Our intention with the acquisition of OnTheMarket is to create the number one property portable by combining the strengths of our leading commercial U.K. commercial property site — I said U.K. twice there, CoStar and our technology platform driving Homes.com with OnTheMarket’s large network of agents. So, taking our two decades of experience with commercial property sites in the U.K., along with the technology driving the successes of Homes.com and combining it with OnTheMarket’s large share of agents in the United Kingdom to create a very valuable solution, we believe the acquisition of OnTheMarket represents an attractive and efficient entry point into the $8 trillion United Kingdom residential property market.

CoStar Group has a proven track record of acquiring strong performing property portals that are not the number one players and investing in building them into the most successful portals serving their market. We intend to apply a similar approach with OnTheMarket as we plan to invest £46.5 million into sales and marketing in the first full-year following the commencement of the integration of the portal into CoStar’s network of marketplaces. That amount represents six times OnTheMarket’s current annual media spend and more than three times the current annual media spend of Rightmove. The sales and marketing investments in the first stage of a multi-year investment program is to drive consumers to OnTheMarket portal with the goal of significantly increasing the quality of valuable leads to OnTheMarket agent clients at good prices.

We believe that real estate portals across Europe will soon be entering a period of consolidation. We did not want to approach that emerging opportunity by jumping into buying assets that are priced to perfection. Private equity firms are more likely to seek to acquire portals in the number one position at elevated multiples because they don’t have the same strategic value add with which to grow share. We believe that as a strategic with extensive proprietary technology and expertise, we can create more value for shareholders by acquiring good or great assets at excellent values that may benefit from our track record of acquiring and growing traffic share and revenue in high potential portals. We believe that Europe represents a $17 billion revenue opportunity.

Currently, we estimate that publicly traded and large private portals in Europe have a market cap of about 30 billion or so. We also believe that those declined about 10% when we announced the acquisition of OnTheMarket or since we don’t know that it’s related, but there has been a decline since we announced the acquisition of OnTheMarket. Apartments.com continues to deliver impressive quarterly results with revenue of $235 million in the third quarter, a 24% increase over the third quarter of last year. Apartments.com is now our largest business by revenue and is on track to reach a billion dollars in revenue run rate in the first quarter of 2024. Net new bookings increased year-over-year for the seventh consecutive quarter while communities advertising their spaces on Apartments.com grew to more than 69,000 in the third quarter, the highest tally ever and 15% above the third quarter of 2022.

Apartments.com achieved an all-time high in unaided brand awareness in the third quarter of 53%, proving the strength of our brand and the value of our long-term commitment to marketing investments. Apartments.com attracts the highest quality potential renters with average monthly unique visitors of 45 million in the third quarter according to Google Analytics, outperforming the market on a year-over-year basis. Visitors spend twice 2x more time on our site per visit and our leads convert to leases 3.4x more than our closest competitor according to Rent Dynamics. Our sales team continues to deliver strong results conducting the highest number of quality meetings ever at 163,000 meetings in the quarter. There’s an increase of 36% over the same quarter last year, all while maintaining a net promoter score of 95.

Our expansion of the mid-market sales team continues to deliver productive results. We have more sellers, increasing levels of productivity, and new flexible listing plans, all which result in a 48% increase in properties under 50 units advertising on Apartments.com. The size and strength of our sales team continues to differentiate us from the competition. As we hear about competitors shrinking their sales teams, we continue to add and train new sales reps each month to capitalize on the large opportunity we see clearly in front of us. We continue to see favorable overall economic conditions for rental property advertising. Vacancy rates continue to go up with 3 to 5 star property vacancy rates increasing 200 basis points over prior year to 8.1%.

New unit deliveries are expected to continue at all-time highs through the end of the year. For these reasons, we expect to see Apartments.com revenue growth to continue at 24% in the fourth quarter of 2023. CoStar revenue for the second quarter was $233 million, or a 10% increase over the same period last year and in line with our expectations. Our focus on selling to owners, lenders, investors, and corporates continues to yield great returns, and most of our sales activities are now focused on these high-value customers. Even though the property markets remain as some of the worst in decades, we still see high levels of engagement and usage of CoStar by our customers. Our subscriber count remains well above 180,000 this year, and our renewal rates increased sequentially in the third quarter and are now above 93%.

There were 140,000 distinct logins to CoStar in September, our second highest month of logins this year. Property searches were up 13% compared to the same period last year. Our sales force remains strong and very active, and our attrition rates are at an all-time low. Demand for our new lender product continues to be strong. We now have 230 customers on the CoStar lender platform, which is more than double what we had this time last year. Our year-to-date net new bookings have increased 45% versus last year. CoStar lender is now helping clients manage over $620 billion of debt, or 14% of the outstanding $4.4 trillion in non-securitized commercial property debt. And still, we have significant opportunity to expand into the market further. I’m encouraged by continued strong customer engagement on CoStar and the success of these new product capabilities.

Our ability to continue to generate solid revenue growth and sell through the current downturn is a testament to the value of CoStar at all points in the property cycle. LoopNet revenue was $68 million for the quarter, up 15% year-over-year, and slightly ahead of our guidance forecast. LoopNet international revenue for the third quarter was up 38% compared to the same quarter last year, as we continue to work towards the launch of LoopNet in France and Spain. Office vacancy rates increased again in the third quarter, now over 13%, and in phantom vacancy rates are dramatically higher, creating counter-cyclical momentum with the need to advertise empty commercial property space. Signature ad listings in the third quarter are up 16% compared to last year, and we see more customers move up from the basic silver level ads to the higher performing LoopNet signature ads, which deliver more traffic and lead flow to their properties.

LoopNet generated 14 million monthly unique average visitors for the third quarter in a row, an increase of 10% year-over-year. We have a new sales leader in place for LoopNet, Brandon Liu, who has extensive experience leading both CoStar and LoopNet teams and has experience with Ten-X as well. We also changed the LoopNet dedicated sales team commission plan to now focus on both sales and service, which will be backed up by our activity metrics and net promoter score tracking capabilities. Since making these changes, sales activities, including customer service meetings, have almost doubled from the prior quarter. We continue to expand our dedicated LoopNet sales team while shifting more and more of the direct customer account responsibilities over to LoopNet from the CoStar sales team.

I’m confident in the long-term opportunity for continued strong revenue growth in LoopNet. STR revenue growth was 12% compared to the third quarter of last year, with subscription revenue growth accelerating to 22%. STR had another incredible sales quarter with their second highest sales ever growing 156% in the third quarter versus the same quarter last year. We have now reached a record 78,000 Host Hotels participating with historical data. And over 100 — I’m sorry over 16,000 hotels providing forward-looking data. The more hotels we have contributing the better data we’re able to provide to the industry, which is evidenced by our impressive 97% renewal rate. We’ve now migrated over 300 customers to the new CoStar hospitality benchmarking product up from 60 last quarter with another 200 underway.

One customer referred to the new benchmarking product as a game-changer saying I grew up with the old STR report and watched its evolution over 30 years. And by far, this is the best thing that could have happened with a tool. In total, our plan is to migrate over 900 corporate accounts and 6,000 independent hotels into the CoStar platform. And we expect that process will be completed by the end of the second quarter next year. I expect strong double-digit revenue growth to continue for STR for the foreseeable future as more and more hospitality customers see the enhanced value that CoStar information analytics brings to their subscription. Ten-X brought $1.1 billion assets to the platform in the third quarter and achieved a 51% trade rate more than double the trade rate we are currently seeing in the offline transaction space.

We continue to see tremendous transaction interest in the platform in the third quarter, as we reviewed $4.8 billion in potential assets for sale in the quarter. Unfortunately, bid ask spreads remain at high levels, leading to only 35% of these potential assets moving through to auctions on Ten-X in the quarter. The Siri market continues to face significant headwinds with transaction volumes down 47% in the third quarter, as compared to the same quarter a year ago. Historically, low levels of transaction volumes are continued, expected to continue for the remainder of ’23 and ’24 or at least the first-half of ’24. It’s still early to see an increase in distressed assets on Ten-X at this point. We continue to see the long-term value in digital transaction platforms for both commercial and residential real estate regardless of any current market conditions.

We’re focused on continuing to improve our technology tools as part of our CoStar integration, and believe there are additional performance synergies to be gained by aligning our Ten-X sales and marketing activities closer with LoopNet. Turning to the real estate economy, the capital markets continue to be stressed as I mentioned with transaction volumes significantly lower. Values are also down with both office and multifamily prices falling by 16% year-over-year, multifamily and office prices down 30% from their peak. Banks are not lending and now they’re shedding CRE loans from their balance sheet. CMBS delinquencies are also trending higher with office delinquencies of 6%, up more than 600% where they were at the end of 2022 and rapidly approaching the 10.5% peak last seen after the last recession.

We expect this trend to continue as it took more than three years after the conclusion of the great financial crisis for the delinquencies to peak. The office sector already experiencing its worst market conditions ever continued to weaken in the third quarter. Total negative absorption for the year is now 50 million square feet. Since the pandemic begin, there has been over 170 million square feet of negative absorption in the office sector, which represents about 30% of all of the positive absorption that occurred in the 10-year recovery period after the last recession. Absorption will likely continue to be negative for some time as most indicators point to continued weaknesses. Measures of workers coming back to the office have largely been flat and only slightly up over the past year.

Lease renewal activity is well below pre-pandemic levels and new leases now average about 20% less than floor space than pre-pandemic levels. The U.S. hotel sector continues to approach pre-2020 levels in the third quarter. Mid-week occupancies rose fueled by group and corporate customers, room rates and occupancy rates are also improved and RevPAR is expected to grow at about 4.5% for the year, even with a potential recession. The industrial and retail sectors continue to perform well. The industrial vacancy rate remains low at 5.3% in the third quarter, and rent growth remained strong as well at 7.5% over the past 12 months. Retail vacancy reached in another all-time low at 4.1% with steady demand, fewer store closures and minimal new supply.

The residential sector continues to face challenges from still rising mortgage rates and associated declining home sales down 15% year-over-year in September, more than 90% of the in-place loans are now below 6%, with more than 60% below 4%, leading to very low levels of inventory. In combination of rising prices and mortgage rising mortgage rates has pushed affordability to its lowest level since July of 1985. In conclusion, for my part, CoStar Group continues to deliver both double-digit revenue growth and accelerate our performance against our Homes.com residential strategy. I’m very proud of our residential team for hitting a record milestone of 100 million monthly unique visitors to Homes.com in September, achieving the number two position in the residential marketplaces in the United States and climbing coming off of our 1,290% year-over-year growth rate.

I’m also very proud of the success of our commercial real estate teams have had increasing our revenue tenfold over the past 10 years — 12 years and generating 14% year-over-year revenue growth in a downturn while growing our commercial property adjusted EBITDA to approaching $1 billion annualized as we move into the fourth quarter. At this point, I’m going to turn the call over to our Chief Financial Officer, Scott Wheeler, Scott, the floor is yours.

Scott Wheeler:

Operator: Thank you. [Operator Instructions] Your first question comes from the line of George Tong with Goldman Sachs.

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Q&A Session

George Tong: You mentioned commercial real estate transaction volumes are seeing significant declines. Can you elaborate on how different customer types within CoStar’s suite are responding to these trends? So, large brokers, small brokers, and non-brokers, how are basically net bookings growing year-over-year across these different types of customers?

Andy Florance: Well, most of the brokerage firms are going to be doing both leasing, valuation, and investment sales or property sales. The folks doing property sales are certainly seeing lower revenue. But I would not call out any particular big difference from one firm to another. Owners, I think the bigger difference is that our sales force is investing more effort right now against owners and corporations and lenders than they’re focusing on brokers. So, we’re seeing an increase of bookings with owners, corporates, and lenders because that’s where the sales force has placed their strategy. And that’s based on new product offerings, and the fact that those have been historically under-penetrated areas for us. So, the actual reduction in year-over-year sales volume is only really impacting Ten-X as far as I’m aware.

George Tong: Very helpful. Thank you.

Operator: Your next question comes from the line of Pete Christiansen with Citi.

Peter Christiansen: Thank you. Good evening.

Andy Florance: Good evening.

Peter Christiansen: Good evening. I was hoping we could dig into the bookings performance this quarter a little bit. I know we have the pivot in Suite, which I think was really [topping out] (ph) Q4 of last year. Then you have the commission change in LoopNet and the new leadership change in LoopNet. Do you think of the bookings growth that we saw this quarter really as an inflection point or bottom or do you think this is more the level kind of production amount that we should expect for the next few quarters given the economic backdrop? Thank you.

Andy Florance: Yes, thanks for the question, Pete. As you know, and you’ve watched our patterns over the year, quarter-to-quarter changes in our net bookings numbers don’t create trends. You have to obviously look for more quarters in a row to actually determine what that looks like. We come off of Q2, which is seasonally a high quarter for Apartments, which was also fueled by the NAA conference in some of those things. And so that’s where you see most of the variation between the two quarters. As I mentioned, CoStar’s solid is mildly improving, LoopNet’s, not changed much since the last quarter. So, I think we see everyone as holding on well with good strong growth. The new sales teams we’ve added are performing well. And we don’t attempt to predict forward guidance on the bookings, again because of that quarter-to-quarter volatility, but hopefully that helps you get an understanding of where the changes were in the quarter.

Peter Christiansen: Thank you. That’s helpful.

Operator: Our next question comes from Heather Balsky with Bank of America. Please go ahead.

Heather Balsky: Hi, thank you. I was hoping you could — well, thank you for the explanation on the market and what you plan to do. I was hoping you could dig in a little bit more on the spending and help us just understand when — you talked about, after the first year of integration, you were going to spend the $46 million. Is that the right way to think about? And what that spending means for your 2027 target in this acquisition just given that you’re going to be investing behind it? Thanks.

Andy Florance: Yes, thank you, Heather. So, the integration after the pending transaction would begin, of course, when the transaction close, if it gets approval of the vote from the shareholders. We expect that to be at the end of the year, in December. So, obviously there’s people, technology, and other things you’d start to work on immediately, as we’ve outlined in our 2.7 announcements. So, we can’t say much more beyond what those integration activities are, but we do expect those synergies and the advertising to begin with in the six months following the closing of the acquisition. And so, we don’t include any of that yet in our longer-term outlooks. We’ll wait until we see what the shareholder vote and the transaction with [site first] (ph) and then we can provide more updates on the effects into next year, and beyond.

Scott Wheeler: And I would just, outside of commenting on anything specific to OnTheMarket, I would say that something at that scale would not be likely a material — materially change our 2027 outlook.

Heather Balsky: That’s helpful, thank you.

Operator: Our next question comes from the line of Alexei Gogolev with JPMorgan.

Ella Smith: Hi, this is Ella Smith on behalf of Alexei Gogolev from JPMorgan. So, my question —

Andy Florance: Good afternoon, Ella.

Ella Smith: Hi, good to hear you, Andy. Can you help us understand the organic investments into the residential business over the next year? Could this be north of $400 million in ’24 and ’25, respectively, and then taper off and then?

Andy Florance: So, thanks for the question. We have yet to set out investment plans for 2024 for the residential investments. So, I won’t be able to give you any specific guidance out into 2024. As we talked about today, we’ve seen such strong response, both in traffic and in the capability of the site, reaction from customers and from agents, that we felt it was the right thing to do to keep moving as fast as we can. Also knowing that there’s been some cracks possibly in the industry business model, and we want to be as prepared as we possibly can with the site if changes happen in the industry. So, it wasn’t a significant move in the 2023 time period. I think it was roughly around $30 million when you look at the change in the guidance. But certainly, we expect to continue to invest in residential into next year through when we monetize. Things are going well. And now is the time you keep going and you don’t back off on the spend levels, for sure.

Ella Smith: Understood, thank you. And my follow-up question is around the market dynamics in the U.K. So, Rightmove has maintained a market dominant position in the U.K. for quite some time. And as we understand that many players have sought to disrupt Rightmove with marketing and digital investments, and they’ve largely failed. What do you think CoStar can do differently to disrupt the market despite the company’s minimal presence in Europe currently?

Andy Florance: Well, I tend not to assign god-like characteristics to mere companies. And when I see a 72%-74% margin in a company with none of the major players actually materially investing, in my view, into significant marketing in the market, I think that the power of the technology we’ve developed with Homes.com and our experience in building traffic often against companies that have more traffic than we have when we begin, feel very comfortable we have something to bring to the table in the United Kingdom, and that we can offer some real value in the market. I would flatly reject any concept that any company is impervious to competition, with the exception of a couple of the [FAANGs] (ph).

Ella Smith: Great, thank you both so much.

Andy Florance: Yes.

Operator: Your next question comes from the line of Ryan Tomasello with KBW. Please go ahead.

Ryan Tomasello: Hi, everyone. Thanks for taking the questions. I guess following up on the U.K. deal, Andy, obviously OnTheMarket gives us a solid foothold in the U.K. specifically. But you also called out the optionality that that infrastructure brings you to expand the Homes brand across the European market more broadly. So just curious if you could elaborate on the strategic rationale of what a trans-European type residential portal brand, what synergies that could provide, what the strategy can look like from here in terms of perhaps participating in that consolidation wave that you’re expecting across other portals, perhaps in other countries? Just a finer point around what that could look like over the next several years. Thanks.