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CoStar Group: A Cheaper Zillow?

Jul. 10, 2017 3:41 PM ETCoStar Group, Inc. (CSGP)Z2 Comments


  • Zillow is basically a household name; CoStar Group is not.
  • While they do not compete directly, they do operate in very similar niches.
  • The short case relies on new market entrants disrupting the business. That hasn't happened, and some competitors have relied on copying CoStar data to compete.
  • CoStar is expensive, but with 40%+ incremental EBITDA margins and double-digit revenue growth, earnings will grow quickly.

Zillow (Z) has had a meteoric rise this year, but lesser-known CoStar Group (NASDAQ:CSGP) has had an even better start to 2017. Both companies are similarly sized, but Zillow remains the more known name, both among retail investors and on the street. While these two do not compete directly, they do operate in complementary spaces: Zillow dominates the residential real estate space, while CoStar Group leads the commercial real estate industry. While rumors have swirled that Zillow would enter the commercial space for years, it seems hesitant to do so. Both companies are similar-sized, and Zillow seems content to continue to grow in the much larger residential real estate market. This leaves CoStar free to continue its stranglehold in the much more fragmented commercial space. Does CoStar have a further runway of opportunity?

Business Overview

CoStar provides industry professionals and consumers of commercial real estate and apartments with data to smooth the transaction process between buyers and sellers. Data is delivered via an integrated suite of online service offerings, providing data like space available for lease, comparable sales information, tenant data, internet marketing services, analytics, while also offering online marketplaces for real estate listings and rentals. CoStar has five brands under its umbrella: CoStar, LoopNet, Apartments.com, BizBuySell, and LandsofAmerica. A large chunk of revenue is subscription-based, with data services provided primarily through the CoStar flagship brand.

Like in residential, the commercial real estate has a number of parties involved in the process – brokers, property owners/managers, bankers, appraisers – all of which require standardized data and analysis in order to perform their job well. CoStar simply does it better than peers. The short case on CoStar relies heavily on intrusion by competitors, as well as the position that CoStar gets its information in an inefficient manner (manual research versus data scraping). Competition comes

This article was written by

Michael Boyd profile picture
Compelling income and growth plays in the energy sector.

Author of Energy Investing Authority

Top 1% Analyst According to TipRanks

I have a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, I am a full-time investor and "independent analyst for hire" here on Seeking Alpha.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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