Watch out Zillow, here comes CoStar

Data giant has spent $2B on resi platforms since 2014

National /
Nov.November 25, 2020 09:00 AM
Zillow's Rich Barton and CoStar's Andy Florance (JD Lasica via Flickr; Getty)

Zillow’s Rich Barton and CoStar’s Andy Florance (JD Lasica via Flickr; Getty)

UPDATED: Nov. 29, 12:15. p.m.: Having cornered commercial real estate, CoStar has a new target.

The data giant’s $250 million purchase of Homesnap, announced Sunday, gives it a foothold in residential sales, where it will go head-to-head with Zillow, Realtor.com and others. Until now, CoStar’s focus was limited to rentals.

The deal brings CoStar’s bet on the residential sector to more than $2 billion, and represents a huge expansion opportunity for the data giant.

As CoStar CEO Andy Florance put it: “The estimated value of commercial real estate assets in the U.S. is $16 trillion.” By comparison, the residential sector has $27 trillion in assets. “With the new addition of clients and information … we are almost tripling the size of our addressable markets,” he said in a statement.

Homesnap is a national search portal that serves 240 multiple-listing services nationwide. It gets listing data from those platforms and 500 other data sources. It currently has 1.3 million active listings on its platform, which is free. And it claims 300,000 agents use it regularly, including 50,000 who pay extra for a “pro” version.

Guy Wolcott, John Mazur and Steve Barnes launched Homesnap in Bethesda, Maryland, in 2008. The company, which raised a total of $32 million from investors, started off as an app that let consumers access MLS and public data just by snapping a picture of a home. In 2017, it partnered with listings services around the country to create a consumer-facing listings portal.

“In some ways, Homesnap’s public residential real estate portal … has essentially become the front-end solution for many MLS providers,” Stephen Sheldon, an analyst at William Blair, wrote in a Nov. 22 research note.

The purchase price works out to more than six times Homesnap’s projected revenue of $40 million this year. But Wall Street analysts noted the startup has been growing hand over fist. In 2019, Homesnap generated $28 million in revenue, a 55 percent year-over-year jump. The company’s $18 million in 2018 revenue was double the prior year.

Sterling Auty, an analyst at J.P. Morgan, said Homesnap doubles the number of listings available across CoStar’s brands, from 1.35 million to over 2.6 million. He also said the deal appeared to be one where CoStar identified good technology in a business that is “suboptimal in its monetization,” he wrote in a recent research note.

CoStar has been circling the residential space over the last six years. In 2014, it shelled out $585 million for Apartments.com, followed by ApartmentFinder ($170 million in 2015), ForRent ($385 million in 2017) and Cozy Services ($68 million in 2018). In February, it shelled out $588 million to buy RentPath, the parent company of ApartmentGuide.com, Rentals.com and Rent.com.

It also recently emerged as one of the bidders interested in taking over CoreLogic, one of the country’s biggest residential real estate data companies. Talks were said to stall in late October.

With Homesnap, however, CoStar is going after the for-sale market or the so-called “meat of the residential market,” said Brett Huff, an analyst at Stephens. In a Nov. 22 research note, Huff emphasized Florance’s point: The residential housing market — with $27 trillion in assets — is significantly larger than the commercial sector, with $16 trillion.

To industry observers, the deal left little doubt that CoStar was going after Zillow.

“You’ve got three or four big residential data companies that all want to find a way to monetize residential real estate information and customer information,” said Steve Murray, founder of research firm Real Trends, referring to Zillow, Realtor.com and Redfin.

With a market cap of $34.5 billion (compared to Zillow’s $25 billion), CoStar is a formidable competitor. But Zillow has the consumer eyeballs. During the third quarter, it reported 2.8 billion visits to its website and mobile app, compared to CoStar’s 300 million visits.

There’s another key difference. Despite its push into iBuying, Zillow generates nearly $1 billion in annual revenue from agent advertising. Homesnap’s revenue comes from MLSs that display listings on its site.

In Sunday’s statement, Florance took a thinly veiled dig at its chief rival. “We will continue to differentiate our residential real estate portal and solutions by working solely to help agents market their listings and their brands, which is in sharp contrast to other portals that increasingly advertise on top of agent listings and offer brokerage services directly,” he said.

During an Oct. 28 earnings call, Florance said the U.S. is an “oddly underdeveloped country” when it comes to residential marketplaces. A company like Australia’s REA Group, which is majority owned by News Corp., could be a $200 billion company in the U.S., he said. “You’d create $1 billion-plus of EBITDA in that area and yet no one’s really doing a good job.” (News Corp. also owns Realtor.com, which in recent years has moved to compete with StreetEasy, Zillow’s New York City-focused subsidiary.)

Murray said the Homesnap deal alone isn’t enough to shake Zillow. In fact, Murray, who has close ties in the brokerage world, speculated that CoStar would be hard-pressed to retain Homesnap’s clients. CoStar charges steep membership fees, whereas Homesnap is free for many brokers.

“There are any number of entities in the industry that do not see this as a positive development,” he said.
But if CoStar also buys CoreLogic, Murray said the combination of CoreLogic’s data and Homesnap’s search tool would be serious competition.

“If they get that done and I’m Zillow, now I start to get worried,” Murray said. “Now they’d have a formidable competitor with access to as much data as Zillow has.”






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