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CoStar talks failed RentPath buy, the threat of Zillow

Real estate data firm also talks about $6.9 billion takeover bid for CoreLogic on earnings call

Fresh off the acquisitions of Homesnap, Emporis and Ten-X, real estate data behemoth CoStar Group beat Wall Street’s estimates in the fourth quarter. Just as interesting was what CoStar’s executives had to say about the $6.9 billion takeover bid for residential data firm CoreLogic, and why Zillow hasn’t really entered their orbit.

Let’s start with some of the numbers.

CoStar reported earning $35.8 million in profits ($3.11 a share) in the fourth quarter, well above the Wall Street estimate of $2.42 a share. It also pulled in $444.4 million in revenue during this period, above the Wall Street estimate of $433.8 million.

In all, CoStar reported a profit of $227.1 million, or $5.93 per share, for the full year of 2020. CoStar’s profits declined nearly 28% from the prior year, which executives on an earnings call attributed to a slowdown in the second quarter wrought by the COVID-19 pandemic. CoStar rebounded in the second half of the year, netting $49 million in net new sales during the fourth quarter.

Several business lines, including CoStar Suite and Apartments.com, fared well in the final two quarters. Sales of CoStar Suite increased 100% year-over-year in the fourth quarter, while marketing of Apartments.com helped the website achieve 170 million virtual tours in 2020, double that of 2019.

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Presented by: Apartments.com

CoStar is projecting about $50 million in revenue for HomeSnap, and expects to lose about $5 million in 2021 on the business line. CoStar is also forecasting about $50 million to $55 million in revenue for Ten-X in 2021 and has changed its fee structure to increase adoption of the product.

CoStar is projecting $1.925 billion to $1.945 billion in revenue in 2021, an annual growth rate of 17%. CEO Andy Florance also said that CoStar, which has $2.7 billion in debt and equity, will be hunting for more acquisitions, particularly “value” plays.

Florance spent a decent chunk of the call talking up the 11th-hour, $6.9 billion takeover bid they made for CoreLogic.

“CoStar Group provides commercial real estate solutions and CoreLogic provides residential solutions,” Florance said. “And while the solutions that CoStar Group and CoreLogic provide are completely different, both companies invest heavily in very similar underlying technology processes that collect and create real estate information including property data photographs, drone imagery, maps, aerials, market analytics and analytic models.

“The basic technology required to search for listings and display data and photos in a map are the same, whether the properties [are] office buildings [or] houses for sale. CoStar Group and CoreLogic combined will have nearly 10,000 personnel software developers, researchers and photographers all collecting similarly structured distinct but related real estate content,” Florance said.

Florance further noted that a takeover would boost shareholder value, and an integration of CoreLogic would allow for synergies and efficiencies beyond what any other competitor could offer.

But perhaps the most notable discussion came from a bid that failed, the acquisition attempt of RentPath, which ended up being sold to Redfin earlier this month for $608 million in cash.

Florance noted that the specter of an anti-trust lawsuit ultimately killed the deal. But he also said an unnamed internet giant and Zillow entered the picture.

“The fact the RentPath was bankrupt made the failing firm defense a possible viable path,” Florance said. “The inflection point for us came down to our learning of a non-public rumor that a household name Internet giant shared their plans to launch a marketing solution that would be more directly competitive with both us and RentPath. While the giant intended to partner with us, they would clearly provide a potential competitive alternative. We felt in the face of the giant entering this space, it was unlikely that the [FTC] would find that RentPath stand-alone represented any material or significant competitive impact, hence we felt the deal was likely to clear.”

Here’s where it gets really interesting.

Florance then told analysts and investors: “However, during the process, the giant drew significant antitrust scrutiny of their own. And we have reason to believe that in conversations with the government, the giant pledged not to enter our space. As a result, three things happened. One, the giant did not enter our space, which is really good news. Secondly, the antitrust analysis and acquisition of RentPath shifted out of our favor which was bad news. Third, in the [FTC’s] opinion, they stated that their investigation concluded that Zillow was not an effective competitor to Apartments.com which we enjoyed.”

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