CoStar Group, Inc. (CSGP) Earnings Call Transcript & Summary

All right. We're going to go and get started here. We're thrilled to be hosting CoStar Group again. I think most of you guys know the name. It's been one of our favorite for a long time. It's ticker CSGP. But we are back here at the Stephens Annual Investment Conference here in Nashville. We've done this last couple of years. It's been a successful venture for us. We love the city of Nashville. It's been kind to us. We love that the corporates who have been here. We've heard good feedback from you guys in the audience. We've heard good feedback from the corporates as far as the venue here. So we're excited to be here. I am John Campbell. I'm the Real Estate Services analyst here at Stephens. In the front row is Brett Huff, he used to cover CoStar back in the day, and he keeps shaking his head because I keep calling him out because some of this coverage he used to cover, but it's great to see him out there in the audience, too. I'm sure he's got some really good DC questions for you guys. But no, we -- I covered as an associate at CoStar many, many months ago when I was under Brett. He covered it after that, after I was promoted. The bittersweet moment for me was when Brett left and I actually finally got to cover CoStar, I had to sell it out of my PA, which I do not recommend any of you guys doing. And so that was a bittersweet moment for me. But here on the stage with CoStar representing the team is CFO, Chris Lown, he joined not too long ago and then the new/old Rich Simonelli, who was -- it's something old/new, something like that, right? I think we're going to kick off every fireside with that these days, but he is back in the mix now. He was there a long, long time prior to that. But I think you guys know the drill here. We're going to run through some kind of Q&A fireside chat up here with the team, and then we'll kick you guys in the audience for questions. But with that, thanks for joining us team. We've got a lot to cover. So we're going to jump around to kind of the most -- what I deem to be the most impactful questions first, and then we'll kind of unpack each of the business segments. But big investor focus area right now is obviously residential. So let's talk about the strategy.

What brought you to the resi universe, what you're up to now and what you see as a long-term opportunity?

Yes. So I'll start. So I think that one of the things that we've always done at CoStar is always look to expand the reach of the company and not just focus on one specific vertical but go across the board. And so you saw us move from CoStar to LoopNet to Apartments.com and then eventually to Homes.com. And so we view the whole ecosystem as one big ecosystem. I know folks would love to think of it as very different. But I give examples along the way. Like when we bought LoopNet, yes, we built out and raised prices and got better pricing and margins on that business, but we also sold a lot of CoStar Suite into that customer base. Apartments.com, a lot of that data that comes out from Apartments goes into our platform for CoStar Suite. And our top customers today are, believe it or not, not commercial real estate brokerages, but property managers from Apartments.com. And so as you've seen us move, there's always some kind of intertwining that goes on. And so resi was always a space that we were always talking about. I was -- I joined CoStar in 2011. Andy and I were talking about it back then, and we hadn't even bought LoopNet. And so we've been big followers of the industry. And so I think that at this time, we felt like this was a good time to get into the business because we saw some opportunities. One is that the incumbents have basically focused on buyers' agent leads. And when we bought Homes.com, that was also a buyer's agent lead system. What we saw instead was that instead of focusing on buyers' agents, why don't we focus back on the seller's agent, not only to help them get access to those leads, but more important to help them market their businesses. And today, agents are spending between $12 billion and $15 billion to market business. And so you'll see our pitch today when we go to these agents is to talk about the ability to not only get leads, but also to market. So some of the BS that I hear out on the street about this industry is that, oh, sellers' agents don't want leads. They'd rather have the buyers' agents come in, not true. Being married to an agent, I know. So when you are an agent and you run an open house, you are actually doing 2 things. One, you'd love for somebody to come in and buy that house from you. But more importantly, there's always a book there that says, please sign here and tell us your name and e-mail and phone number. It's called the lead because they want the leads. And they're hoping for, if an unrepresented buyer comes in, that if they don't like this house that they can actually then represent them on the next house. And so that's really -- the lead-gen is important for us. And so that's part of the pitch is to say, look, you can get both sides of the deal. You can -- if you can't do both sides of the deal, you can refer that lead to someone else. And the final thing would be, I'm going to help you find a place on your own. And so agents like the traffic. So it's taken a while for us to educate the Street. It's a totally different offering, and -- but we see a very bright future going forward.

I'd also say that, obviously, CoStar at its core is a data company and do not believe that the data in residential is as, if not more valuable and persuasive or pervasive throughout the industry, it would be a misnomer. So from my view, it is completing the circle, residential, commercial. If you actually look at most successful enterprises around the world who have residential businesses, whether, look at Australia, look at Germany, look at the U.K., they also do commercial too, residential, commercial, and there's this kind of finishing of the circle. So I think inevitably, our move into residential makes sense. There is this broader thesis. I think what Rich said is it wasn't super clear when we bought Apartments.com, how that data would fit into the platform. But that data now feeds CoStar and makes CoStar a more valuable enterprise. So I think inevitably, our move there makes sense. And we're not trying to compete with Zillow or realtor.com. We're as apples and oranges. We have a very different value proposition and different business model, and that's what we're pursuing.

Yes, makes sense. And I think one of your original visions or Andy's original visions was to digitize real estate. You didn't say commercial.[indiscernible] I think it's all grouped into one. So that makes a lot of sense. So I think for investors, like you're going to see -- it's hard not to see Homes.com marketing, right? You guys are everywhere. When they see that tagline, one of the battle cries, your listing your lead. I have a T-shirt at home that says, Homes.com, it's YLYL, "your listing, your lead."

Where did you get that?

Must stole it from us.

It was actually -- I think it was given to me last year when I was at your headquarters in Richmond, but -- so what exactly is your listing your lead? Why does that matter? Why is that a battle cry?

It's important because if you think about what happens at sale on realtor.com, basically, their business models, their $2-plus billion of revenue that they have on a combined basis is built off of their site, where if you press a button, you create a buyer lead that gets sold to the highest bidder of real estate agents and ZIP codes, right? That's sort of the business model. Well, our view is if you are a real estate agent and you've won a listing, which is a very difficult thing to do, like being a real estate agent and winning a listing when someone trust you to sell their house is a value proposition. It's your IP. It's what you've created. Our view is, that's your property. Therefore, any leads that get generated off that listing, you should be able to monetize. You should get to know those customers. You have the best information about the house. You're the best representative. You're the person that potential buyer should go to. And so inevitably -- it's also, by the way, the business model that exists everywhere else in the world, right? All the success that has happened in this industry around the world has happened really primarily off of that model. And so my perspective is like you've earned the right to have that lead and therefore, you should have it, and that's the value proposition.

Yes. Makes a lot of sense. So you've talked about the overseas models. Obviously, those are fantastic benchmarks. I mean, really high margins. I can't remember if it's right move, maybe 70-plus percent EBITDA margins, 50% or so for REA Group, recurring revenues. It's not this kind of lead-gen play, if you will, like a spreads model. What are the key kind of snacks? Like what are the roadblocks for making that a reality in the U.S. right now? Are there structural challenges in the industry that might make it hard?

Yes, I'll let you answer that. But before that, I think it's important to say that in its own right, the model we're trying to build has a pretty sizable TAM that exists today, right? There's -- as Rich said, there's $12 billion to $15 billion that real estate agents today are spending on marketing. And we all see that marketing, right? You get a postcard in the mail, you get 2 or 3 in the mail a week. And what do you do? You throw them away, right? Or they're putting a glossy ad in your local town's magazine or in the newspaper or the Church [indiscernible]. And so they're spending $12 billion to $15 billion today, and we're trying to say, hey, we don't need to spend more. We want to reallocate your resources to a much more valuable marketing platform. And second thing there is, like I mentioned, the -- between Zillow and Realtor.com, there's over $2 billion that real estate agents today are paying for buyer leads. Well, our view is what a listing agent can get from a listing lead is just as valuable and it's embedded within the subscription fee that they get. So inevitably, there are TAMs that exist for the model on its own to work, but then talking about the...

I think one of the things that you'll have to pushback on is since there's an MLS here in the States, this model will be challenged. First of all, nobody has really tried this model to any success on going after dealing with sellers' agents specifically. But right now, the rules are set so that you have to, within 24 hours of a listing, go in public as a broker or an agent, put that listing on the MLS. And then that feeds the whole buyer's side of the business, the buyer lease side of the business. And there are many of the brokerage firms out there, many of the largest, I think one of them is here, but they're saying, no, we shouldn't have to automatically put things on the MLS. And so the rules called Clear Cooperation. And what they'd love to see is a structural change where not within 24 hours of it going public, but perhaps 2 weeks or 3 weeks or 4 weeks longer. At one point, the DOJ proposed to NAR that there should be a 60-day window to allow brokerages to publicly market before it was required to go on the MLS. So I think what's important to realize is the climate and the regulatory view is that the MLS isn't this thing for transparency that again, some other folks are trying to promote. What it really is forcing agents to do is give up 50% of the commission and it supports the whole buyer side of the industry. And so the DOJ has said that this is something that is more of a monopoly than anything else. There should be competition with the MLS system. So I don't know that the MLS system goes away, and we don't need it too, as Chris said, we got -- we have a TAM anyway. But if these structural changes start to take place and the MLS system gets changed, not maybe go away, but just altered some, there's an opportunity then for us to deal directly with those specific individual brokerage firms. And while they're privately marketing on their site, they could also be exclusively marketing on our site. And the reason why they'll come to us is the leads will go to them. You click on the listing, it goes to your agent. If they advertise on the other guys, the other guys are going to have to create a new system because what the brokerage firms want is the leads that come to them. They don't want the leads to get thrown out to some other site. So I think that it's a very interesting regulatory environment right now that we should be really following closely. And I don't think this is 10 years away. I think this is imminent in our immediate lifetimes.

Yes. I think from an ILS Internet marketplace model, whatever you want to call it, like the value you bring is the inventory, right, the content on the site. And so as it stands right now, just to sum this up, it stands right now, if you're a member of MLS and AR, right, then you have access to the same listings that Zillow has, Remax.com has, Realtor.com has. So this would be potentially industry changes that what might change that landscape, right, where you could have unique content on your site relative to others.

That's right.

It makes a lot of sense. other industry changes, I get asked this question often, will Homes.com be successful if the industry doesn't move in its favor? And I think some of the viewpoints people take is, all right, there could be a rise of dual agency, right, where the seller's agents getting both sides of the transaction or at least keeping that lead and keeping it in-house at the brokerage. You mentioned the MLS and the change of listings. There are a couple of other things that I think the view is that maybe Andy skating to where the puck is going, the famous Gretzky saying, right? Is that the case? Is Homes.com success reliant on those industry changes?

Yes. I think, no, it's because of the TAM I talked about. The value proposition, it takes time for people to understand it, right, in the regard that. But if you're a listing agent, so the first thing let's talk about the marketing. We are the only site that if you're an agent, you get your face, your name, your contact details on the site. And why is that valuable? Well, actually, Rich's wife, it just happened that an agent like from 100 miles away called her -- different state called her, found her on Homes.com. I don't think he was a Homes.com subscriber just founder. I'm not sure. But found her and said, "Hey, I have a client who wants to sell their house in your town. They own a house in your town, the town that you work in. Would you work with me on it and give me the referral fee?" And of course, Richard's wife said, yes and made a great commission out of it because the house sold. So if you think the first building block is there's a registry of all the real estate agents and their contact details. We're the only platform that does that, right, in that capacity. So that's incredibly valuable. If you're a listing agent and you want to go pitch for listings, our site clearly has significantly better marketing capabilities, right? Your house will be retargeted, it will be reshown. It will show up everywhere. The views will be double digits more than other sites. And so you have the ability when you go to a listing pitch to actually show that and say, listen, this is how I'm going to market your house. This is what I'm going to do. This is the views you're going to get. This is why you want to hire me because I'm doing this. And the third thing is that the lead generation is really important, and it takes time to understand the value of lead generation in this regard. So if you're a seller listing agent and you've listed your house and on our site, and again, only our site, when you hit the button, say, contact an agent, you speak directly to the listing agent. If you're a buyer, that's really -- that's the agent you want to speak to. The one who knows everything about the house, knows the history, knows the seller, et cetera. But when that lead comes to you as a selling agent, there are three things that can happen, and they're all pretty good things that can happen. The first thing that happens is the buyer comes in, and by the way, you don't need a buyer agreement to come see the house. You just come see the house because it's the listing agent. You just come, set up the apartment, you see it. So the person comes, sees the house, they look at the house. They really like it. They say, "I want to buy it." The agent says, "great, do you have a buyer agent?" The person probably says, "no." Well, then the agent smartly says, "well, will you be comfortable with me dual [ agent-ing ] it? How about a dual agent, I represent you and I represent the seller." By the way, this happens a lot. If that happens, then that listing agent's fee goes up by like 50% to 60%, right? 3% goes to 5% plus, whatever that is. That is a massive increase in your asset. If you're a listing agent, you have to think of your listings as assets and the amount of what you can generate off of that asset. So the ability to exponentially earn more is a huge benefit. The second thing that can happen is the person comes in and says, "I want to buy this house. I love it." And the agent says, "well, how about a dual agent?" And the buyer says, "Well, I'm not so sure I'm comfortable with that." And the listing agent says, "That's great. Bill or Jane, who work in my office, who actually sit next to me and have known me for a long time, are -- should really represent you in this house. They know the town, they know the house, they know me, you should really want to talk to them. Do you mind if I refer them to you?" And the buyer may say, "Yes, sure, refer them. I'm happy to talk to them." Well, if those potential buyer agents get hired and they buy the house, the listing agent gets a referral fee. So their 3% goes to like 3.25%, 3.5%, again, a meaningful uptick in the yield on the asset you've generated a listing agent. The third thing that can happen is a buyer comes in and he looks at the house and says, "You know what, I really want a deck out back and I really need a fifth bedroom." Well, the listing agent quickly goes into buyer agent mode where they say, "Well, that's great. We spent a couple -- 15, 20 minutes together walking through this house. I understand what you want. There are actually 3 other houses in that town that are exactly what you're looking for. How about you let me show you them because I've been in this town forever. I know the ZIP code, I know the houses. I think these would be good ideal fits." And if that buyer ends up signing up that agent as a buyer agent, 2%, 2.5%, 3% fee gets generated if they win. So those are all very positive things that are happening out of that listing. But it takes time. It takes time for a subscriber to subscribe for them to see the deal flow to see this happen. But inevitably, that's the value proposition.

Yes. I can give you like the real time line based upon my sample size of one, my wife. So coming into CoStar, I said, you need to be a CoStar member before I show up on Monday because Andy is going to ask because I don't have any listings right now. I said, I'm not asking like really. You need to do -- you need to do this. And she was spending $500 a month on Facebook advertising. 0 for 5 years she's been doing it, never got a lead off of it that she knows of. So I just slide that over and just do it. So for 5 weeks, not only were investors going, "why are you guys doing this and when you're getting out of this crazy business." My wife was like, "I'm not getting anything from this." So like Chris described, she -- because she was a member, she got the sort to the top of the searches and somebody clicked on her, and that's how she got that listing. The second thing that happened after that -- by the way, instant conversion of, "oh, I really like this." Then after that, she had 4 more listings of her own that she got. And what she was able to demonstrate to people is that, look, I'm getting way more views for your property than you are. Let's look at your property on Zillow and on Realtor because it's on the MLS, it goes on all of them. I'm getting 15,000 views of your property, you're getting 1,500 on one and 1,000 on the other -- and the people, as she's going through the listing and while the listing is live, are going, "That's good. That thing is really working well." And then 2 of the 4 listings actually sold pretty quickly. And she says, "Oh, that's because of Homes.com." And I'm like, "Well, maybe did you just price it right?" She goes, "no," I'm sure it was because we got a lot of views. And so in the 3 months from August 5 to November 5, she went from, "what is this thing? You're forcing me to do this," to "I really like this." And now she's telling all the agents of compass that she knows in the D.C. area that this thing is really valuable. So I think that when I hear investors say, I've done a channel check and I called somebody, they didn't really like it. It didn't work for them. Part of it is it needs a little bit of time to season, first of all. And then second of all, our pitch has gotten much stronger and much better over time. So I think we probably made the mistake of going out a little bit strongly on trying to sign up anybody thinking that they would all benefit from either of the marketing or the listing. And I think some of the buyers' agents were like, I'm not getting any leads like I was getting at the other guys, I don't know about this. So now today, if you were talking to one of our sales reps, we'll ask you, do you have any listings before you -- before he would engage. Because if you don't, we're going to say either you probably shouldn't buy with us or realize what you're getting is a marketing platform, not a lead gen platform for you. And so one of the things I've seen with Andy that over the years of a long experience -- and keep in mind, I was there before LoopNet. This was just CoStar Suite. It wasn't even called Suite back then. It was 3 separate products, Brett will tell you. The guy pivots and changes all of the time. There are million adjustments that are going on in every business that we do. It's not like I put it down and it goes. So even on Homes.com, we came out, a couple of months went by, we went out and hired a dedicated salesperson, big time inside sales guy from Capital One, Andy Stearns came in. He brought in not only sales managers from CapOne, but also trainers. Second of all, they redid the pitch, they redid the deck, they talked about value props and they talked about how do you overcome objectives. The second thing he did is he went out and got Chris Mumford from The Martin Agency. Chris is amazing in the sense that you see The Martin Agency. I don't know them. But if you've seen a GEICO commercial, that's Martin Agency. So we bought one of the best guys in the country from one of the best ad campaigns over the last 20 years to run our ad campaign. And right away, he says, look, I could get you better, more efficient on what you're spending or to help you bring your spend down. But either way, I guarantee I can help you. And we need to change to the strategy of the pitch. So what went from being Homes.com, Homes.com over and over has now become -- your listing agent is always in the advertisement. And keep in mind, most of the people that go to one of the other sites when they click on that picture of the property, they think they're getting the listing agent 9 out of 10 times. And so when they get somebody else that says, hi, I'm the buyer, I'm your agent, that's nice. And in the old days, before August 17, it didn't much matter. I needed to just get in the house and okay, you're my agent, you know the lockbox, let's go in the house. But now as of August 17, the NAR is very specific for all of the MLSs, you have to have a buyer's agreement before you walk in that house. And the buyer's agreement has to say, one, I'm representing you maybe even if it's exclusively for this property. Two, how much the commission is going to be to the buyer's agent. Three, a line in there that says if the seller doesn't pay, you have to pay me as the buyer. So think about if I want to go see a house across the street, it's a $1 million house, not my neighborhood -- much higher. Anyway, so $1 million house. That's a $30,000 commitment you're making with somebody that you just met on the telephone. Chris mentioned in his comments, the nice thing about the CoStar site on Homes.com is you don't need a buyer's agreement to go see a listing. And so I think the fact that we've been able to pivot and get a new Head of Sales, new Head of Trading, new Head of Marketing and did it very quickly is actually a very, very much of an Andy thing that happens. And so the people are saying, well, why didn't it come out of the box? Well, I just point back to Apartments.com in 2015. We did the same thing. We put the entire CoStar sales force on the Apartments.com as we're trying to figure out what was the right sales team that we wanted at Apartments. It took us a long time, 7 quarters, not 3 months, or 2 months, 7 quarters. And the reason it took long is Andy's view on Apartments.com was one of, sell and serve. And the people that we bought and the various companies that we attracted to the Apartments.com fold were used to be -- it was a leisure job, a lifestyle job. Drop my kids off 9:00, went and visited a couple of apartments, brought the doughnuts, pick my kids up at 3. Andy is like, well, that's crazy. We're going to do 7 meetings a day in field every single day. We're going to track your time. And there was massive turnover in the Apartments.com sales force until we got people that wanted to do that. And so what's the strongest part of Apartments.com today? It's the sales force. And we got a 94 NPS score as a result of the strength of that vision. But it took a while. It wasn't like we came out of the box and have this great vision for how it was going to work. We had to get into the business, start selling and then go and build the same.

I'd also talk about the consumer experience, which we don't talk enough about in the regard that like put aside content videos, all the things that we think are special sauces to Homes.com, but just put them in a separate box. Just the fact that when you contact the agent on our site, you speak to the listing agent, you speak to someone who's knowledgeable, understand what they're doing, but also isn't trying to sell you, right, versus the other sites. If you haven't pressed the button to contact the agent on other sites, I suggest you do it, just understand the consumer experience. They're doing exactly what you'd expect they do and that -- within actually minutes, you have a multitude of agents calling you to try to sign you up to be their agent or for you to be their agent for a buy-side opportunity. And it goes on for 4 to 6 weeks, right? It takes about 6 weeks to burn that off. So from a consumer experience perspective, just on that alone, I think over time, the business model wins. And that's obviously part of the equation.

Okay. So on resi, just to sum this up, I mean, potential for industry changes that could absolutely play in the favor of you guys. You've had a couple of changes, early stages. You've made a couple of pivots already with resi, but you like where you're at. You're still very convicted in the long-term opportunity. It's a very differentiated model to Zillow, particularly. So let's maybe start there. I mean, you -- it is such a different model that it requires education with agents. It requires education with consumers, for sure. What is the all-in resi investment spend right now, kind of where that's been over time? And then if you could maybe put that in the buckets?

What? $1.5 billion including the acquisitions on the platform?

Yes, probably.

Somewhere in the...

Maybe just this year -- that's probably not fair. It's not all...

Yes. So Homes.com is about $900 million for '24.

And then in the past, you guys kind of talked to putting that to 3 kind of distinct buckets. You had marketing, you got content and you had the software spend. So maybe if you can kind of roughly size up where that is now?

Yes, it's 60-40, roughly 60% marketing, which is all the marketing. Obviously, TV is a part of it, but SEM, SEO is a big part of it, digital advertising. The other 40% is building out content, technology, salespeople. And that will move around a little bit, but that's the construct generally.

And then the content cost, that's mostly caught in COGS, and you'll be able to leverage that as you grow the revenue?

That's right. And it's also we're being shared across platforms. We're using it in Apartments.com now. So -- so again, I think CoStar is always trying to think about the entire company and where there are opportunities to use content or cross-sell content across platforms to enrich other platforms, you see us always thinking about that.

And that was a big part. We started Homes.com. We already had an advantage in that we brought a lot of the apartments, neighborhood information into the platform. So that was really important for Homes.com. And then obviously, there are homes that are further out and not within the sphere of where Apartments would typically show up. And so those are the neighborhoods that we've been filling in with content. And so we've covered thousands of neighborhoods and probably hundreds more cities that we'll cover in the course of the next year or so. But the content, it is better. Like it's interesting as time -- every time we talk to people down as months progress, you're hearing more and more positives on I see the difference on the site, where I think when we both came back in August and July when Chris started, it was a little bit -- it's okay, but there's been a lot of progress. And I think we're hearing it from investors more and more that are doing their own channel checks.

Yes. Makes sense. So on the marketing side, you mentioned 60% or so is tied to marketing as far as the overall investment this year. You did bring a new CMO, right, and I think you brought -- I think he started maybe in July, the start of 3Q, materially beat 3Q results. I think it was almost all on SEM, right, on probably marketing. Kind of similarly did that in 2Q. I'm not trying to ask one of those Q questions when I'm kind of back into 4Q, right? But just broadly, just broadly speaking, has your thought process on the requirement, how much is needed in marketing this year when you started off January 1, has that changed as you progress throughout the year?

No, I don't think it's changed. I think we're on track to spend $900 million, and that's what the number has been.

Yes. And I think it's typically in all of our -- even on the commercial side, what we call commercial now, which is Apartments and LoopNet as well as CoStar, you'll see this margin expansion typically in the third and fourth quarters, and a lot has to do with timing of when marketing spend is going to happen. And so I would -- and this is why I think it was important for us to announce for next year that it's going to be a $900 million spend on Homes again because that was something that people were really questioning about what -- where is it going to be? Is it going to be $600 million? Is it going to be $1.2 billion? And we wanted to put a firm line in the ground and say this is where we expect the spend to be.

There was also a $1 billion number that was floated. And just to clarify, that $1 billion was all residential. So when you isolate just Homes.com, it's $900 million.

Okay. Makes sense. There's been a moment where it's -- I haven't necessarily asked for investor patience, but you guys understand the other side of the table, where there's a heavy level of spend, the P&L is disrupted from a margin standpoint and then you're awaiting kind of a recovery or like a buildup process in resi revenue. It just might be me, but it seems like you guys are kind of starting to say, okay, well, give us until next year, maybe a year after that, whatever it is, for a fully ramped sales force for the time for our marketing message to resonate, for our spend to resonate and generate returns. Has that been a notable shift? And like if resi bookings remain low, at what point do you reach a pivot point in the row where you say either I'm going to deemphasize this to a certain degree or I'm going to continue on maybe double down, right?

Yes. I don't think there's been a pivot. I think it's been the evolution of the spend. And so if you ask Andy, what allows him to sleep at night, he'd say, well, we've obviously put a lot of steel in the ground. And so we spend a lot of money building the brand, building a reputation. And he would say, there are data points that make me feel good about that spend, i.e., unaided brand awareness going from 4% to 33% in 8 months, right. That's a pretty heroic amount of time and effort to get that sort of results. So that's great. And you may say, well, what does that do for me? Well, when you get those numbers up in the 50% plus range, you get organic search. And therefore, your SEM and SEO costs can start coming down because you get organic search. So that's really important. In addition, there are surveys that suggest that our brand awareness with real estate agents is increasing a lot and who they'll recommend versus others coming down. Our unique monthly visitors continue to -- mean we're the second most visited residential site. And so that initial wave or spend to build the brand, to build the foundation and to start delivering the messages there. But now you move to the point where, okay, well, people say now it's time to show results to show revenue. And I think importantly, Andy put a pretty firm stake in the ground in the last earnings call where he said he expects tenured agent, dedicated agents, who are 4-plus months at the company to generate a gross and net new number of x, and therefore, it's given people an ability to model out off of those numbers, what sort of the revenue profile looks like out of the gate. And I think by the second quarter of next year, you'll have a cohort that's of significance. You'll have that data, and we will have -- we will be discussing that information and either moving in the right direction or people will ask questions. But I think that's the evolution of time. And by the way, I mean, that is 15 months from launching, right? And so I understand there's an air pocket and a lack of information. I get the market's concern. However, it is 15 months and after 15 months, we will clearly have to address where we are.

Yes. I think it's fair. I mean, for better or worse, you came out of the gates really hot, right? The bookings number in 1Q was phenomenal where I think...

Which tells you how strong of our sales force is, right? So we took 1,200 salespeople, and we said, go sell homes. And they did exactly what we asked them to do, right? They went out and they sold homes. Now the issue was that we hadn't refined the sales pitch, and we probably hadn't refined who we were selling to. As Rich said, we actually now know we're selling to the right people. We're managing that. So we reduced churn. But that just tells you how strong they are and what they did and that they can achieve it.

Got it. That's fair. I did not mean to spend this much time already, so I apologize out there. Let's shift to the core. Net new bookings obviously slowed down for Homes.com, but the core seems like it's in a position where it could reinflect back higher again. I think Andy was pretty clear in kind of putting a stake in the ground, as you might say, that things should accelerate into next year. So maybe give us this commentary and what you guys feel about overall for the health of the core?

Yes. So a couple of things should clearly accelerate the outlook for the core sales revenues or for net new really because net new is going to be the important driver, I think, in the first and second quarter. But let's kind of separate them. If you look at the Apartments.com business, their leadership would say to you the distraction that their sales force had clearly had an impact on their ability to generate net new. And that sales management team would say with that distraction now gone, that they'll be able to focus and they can get back to growth rates that the market is more used to. And on CoStar Suite, it's a -- it's 2 things. Well, it's probably more than that, but the 2 big things are there clearly was sales force distraction, right? These sales forces up until beginning of September had numbers they had to hit, had cancellation numbers they're concerned about, had servicing numbers they had hit. So that distraction has now gone away. So they can now refocus and are out really trying to move the needle with attacking TAMs, which are still pretty underpenetrated. But as important is the commercial real estate market, right? The commercial real estate market still is under a fair bit of pressure. There do -- there are signs that we're sort of at the bottom that we -- I don't know if we bounced it down there for a while, but you see signs around the commercial real estate brokers seeing activity up, revenue changing their guidance, et cetera. You see some capital destruction in the commercial real estate market, which I think is healthy, right, because it allows the systems to start flowing again, results in brokerage hires, capital being put to work, new customers who need our CoStar Suite to think about how they value properties, et cetera. So commercial real estate has those tailwinds, but that commercial real estate headwind today clearly has to subside or turn into a tailwind to get the full effect of CoStar Suite really going back to the growth rates that I think the market historically used to.

Yes. And I think the idea that there's some kind of premature death of CoStar and it's oversold and the penetration is over and this thing is dead is just really shortsighted for anybody. This has been the worst market we've seen in really probably our lifetime.

Worse than '08.

Right. It was worse than '08. And so as a result, somebody coming in and flying in and said, oh, I see your CoStar go from double digits to 6% and then oh, my God, what's going on Apartments.com it's dying. It's only going at 15% growth rate or 18% growth rate, what a terrible $1 billion business. So when you get those people out of the room and talk to the serious folks, the reality is one day, the commercial real estate market will be back to normal. And in that case, the sales force will have grown from 350 reps that it is today to 450 reps. We're doing a bang-up business at the institutional side of the industry right now. Today, it represents 2/3 of our CoStar revenue. And when you think about it, back in the days of 10, 15 years ago, we sold exclusively to brokers. And so in a very short period of time, we've turned 2/3 of the revenue to institutional. And I think that trend will continue to be the case at the institutional side. I'm not saying we lose brokers and that we don't stop growing brokers, the institutional side is just that much bigger.

Yes. And the beauty of CoStar Suite is this. I mean, over the last 5 years, we've also increased our TAMs, right? We've created new TAMs with the lender product, with the owner product modules, like those are new TAMs that didn't exist before. And so it's not a static business. The business is always expanding. It's always growing and new modules are being created. And that in its own right is a, I don't know, $1 billion revenue TAM, high 700s. In addition, as Rich said, all of our other TAMs that we sell into as well besides those 2 modules are still underpenetrated. So there's plenty of growth opportunity for both businesses, but you clearly need some tailwinds. I think it's pretty -- I don't know how you couldn't step back and say, it's fairly heroic in the worst commercial real estate market that CoStar Suite not only increased pricing every year, except for the 1 year that there was -- given the crisis, there was sort of a pause, but also increased customers. In the worst commercial real estate market, any of us will...

And launch new products.

And launch new products at the same time. And so I think that should give you a lot of comfort.

And it give you the strength to CoStar, there's already been a lot of institutional investors, banks, owners, retailers, corporations, even governments buying our data. But what we have found is that it start to customize the product specifically for the lenders. There's an immediate vein that opens up new business activity. And so today, we have 20 reps selling that product. And the 100 reps that we're adding going forward, the idea is to add 20 more to that number. It's such a valuable and fast-growing part of the business.

We think that TAM is under 10% penetrated.

Under 10%.

So there's massive runway.

And same thing with the owner's product. And I think what you'll find over time is that we'll develop products for all of the various folks and institutions. It's just the more customized that you can. And I always like what you talked about when you talk about DFAST and CECL.

Yes. So I was the CFO of Freddie Mac before I came here, and I ran a CECL process every quarter and a DFAST process annually. And I can tell you, it's very time-consuming, very angst-ridden process. Well our lender product now actually does that all automatically on the platform. You load your portfolio and it will give you a CECL number, so you can track your CECL number. And it gives you -- the DFAST models are put into the platform, and it gives you DFAST results. And banks are using this either as challenging models or as submissions to the regulators which to me is incredible, right? 3, 5, 10 years ago, you would have never thought that's possible, but today, it's possible. But having gone through these processes and having a platform deliver that in a package that is trustworthy, has real-time data. That's where the apartments data comes to play, but all the other information comes to play. It's just an incredible asset. And so that will grow.

Yes. Going back to my days, as an associate covering this, there was a debate on the penetration of suite that things would slow down, right? And that was the debate then. It's been the debate midterm there and up to this point. So I hear you guys there. When we were in Richmond last year and we hosted an investor event there, one of the last questions I had for Andy in the group session was like in 10 years, what are we going to be talking about? What will you be up here talking about in 10 years? And he said, international, that we think we could potentially double suite over that time frame. How -- what does your appetite look like? It seems like you might need to get your -- a good foothold and get the foundation built for resi. But at what point does that become a reality for you guys?

Well, it's becoming a reality today. I mean we've moved into Canada. We moved into the U.K. and on the commercial side and apartments in Canada. The beauty of this business is CoStar doesn't exist really anywhere else in the world that exists here. And people say, well, why is that? Because it's a very complex business to build that is, I call it a shoe leather business. You need to hire people to go out and walk the streets and go into buildings and take pictures, call brokers, find out who's leasing, specs, et cetera. And that's a very time-consuming, also capital-intensive business that if you think about it, you can't leverage. Private equity can't do it, what are they going to leverage? It's just CapEx for a couple of years before they could even turn it into something. And so we're at the beginning of actually that international cycle and that, obviously, we expanded now in North. We've expanded in the U.K. But we've also bought some small properties in Germany and Spain, in France that are either information businesses or news businesses. And we're in the process now of taking those businesses and putting them into our 2 brands, which is LoopNet and CoStar Suite. And when we get that organized and get the technology in the right place, we'll then launch there, and we'll hire researchers and set them loose on the streets in Europe. And so we're only at the beginning. I mean this clearly is a global opportunity. If you're a multinational corporation and you run real estate, you need to be comparing office space in Hungary versus Ireland, or you're making decisions like that all the time today, and you need a platform that can help you do that. Inevitably, I think, as you said, Andy talks about the digitalization of real estate, but that's kind of part of the broader dream in that there will be unified platforms that provide those capabilities. And we're in like the first or second inning. I talk a lot about this, but I was -- before I became a CFO, I was an investment banker. I ran financial technology at Morgan Stanley. And I watched -- a lot of the success I had was in the digitalization of the capital markets, taking exchange public -- taking information companies public, merging them, et cetera, and doing that on a global basis. Well, that was an incredibly valuable time frame, right, there's a huge amount of wealth created in that time frame. Those companies grew massively organically and inorganically. And today, if you look at the capital markets in that world, it's kind of like in the seventh or eighth inning of that development. So they're now in a different phase of their life. Real estate is in like the second inning. I mean we've just barely begun this trend, and there's going to be fits and starts and CapEx cycles, but it's just so incredible, the opportunity that lies in front of a company like ours.

Yes. I've got a friend of mine, who's a broker -- commercial real estate broker who really put this in perspective for me, found a property in like Idaho, a warehouse and he founded on LoopNet, did the homework with CoStar, transacted, bought it through Ten-X. Did virtual tour...

He wanted to do a commercial.

Yes, exactly. Exactly. So I'm like, well, there goes my buy rating -- the conviction of buy rating.

But I think as you said, that's the thing. I mean, obviously, you go through cycles. But what CoStar Suite does provide to like the commercial brokerage community be able to expand their territory, right? That broker was hundreds of miles, I don't know, thousands of miles away from Idaho, and he was able...

Not a lot happened there.

I don't know how many miles, a lot of miles away. But the ability to expand his reach and go, okay, I'm looking for x or my clients looking for x, I can go there I mean it's very similar to what happened in the financial markets like brokers, retail brokers, et cetera. We're about expanding opportunity for the community.

We got time for maybe a question or 2 in the audience. If you guys have anything, feel free to hop in here. Okay. I've got one last question. And this could be for either one of you guys. But Rich, you've done a lot, you've been on a [indiscernible] tour, you've reached out to a lot of investors. What is the one single thing that is being underestimated the most in the CoStar story right now?

Yes. I think that -- I think, first of all, I call it a tale of 2 quarters because even though I started in August, once they put the press release out, I was coming back and I knew most of the investors, I've been on the phone since July. And I think the July through September portion was not -- a lot of uncertainty about homes, why are you doing this? Why are you not getting out? And I think that for every reason, the time frame for actually doing this was not clearly articulated or understood by the Street. And as a result, this kind of idea that maybe the next time you do a call, you're getting out. And that's what I would characterize that first set. And then after the earnings call, you're right, we have done probably about 180 callbacks already all over the world, but with everyone. And I would say that most people, I think, are finally getting that this is how we're going to be rolling this out from a time perspective. And not saying I automatically think this is going to be successful or congratulations, but more of, okay, I now have a framework under which we're going to get some metrics and the best KPI known as net new sales as well as I know what your spend is going to be, and I realize that this is an investment. The second part, I think that people are finally getting is that the core business, because I think that was a misunderstanding is that people just thought the core was slowing. And what we're really kind of ignoring this thing called COVID and the fact that our business was commercial. And it has been a very, very tough market. And so those cries again of this is the slowing down in the end of this business, I think more and more people are now starting to get that and understanding that there will be an economic recovery. And we already have things in place that are helpful. So all the resets of the buildings that Chris talked about, that creates an opportunity for us to sell to institutional investors, banks, owners, lenders. They need the product right now, not in the reset. And then as the resets take place, that will create more transactions, which have been on the rise in the last year and more transactions that mean the brokerages will do better. So I think we have a lot going for us.

Yes. I think there are so many levers that are at disposal that you only need a couple of them to go the right way, right? Obviously, the commercial real estate market bottoming and turning positive clearly is a lever that will help the franchise. The international expansion, clearly a lever that will help the franchise. Attacking the TAM. And here's an amazing thing. You go back 2 years, our CoStar Suite and our Apartments.com sales forces were the same size they are today. So there's been no growth in the sales force, but yet they've grown pricing, grown users, grown customers in that time frame. So investing more in the sales force, which we announced in the last quarter, obviously, a lever that we're going to pull to help the franchise. So there's a multitude of layers when people say, oh, you're never going to get back to growth rates of double digit or whatever. And I say, well, tell which levers do you have to pull to get there because we have a bunch of them. Just pull 1 or 2 of them, you can get there. And I think people are starting to understand that. But listen, it's still a tough market out there. Commercial real estate is still dealing with a pretty meaningful downturn.

And that sales force growth is an important number because some people pointed out and said, well, I think your productivity levels are down on these numbers. And part of it is that we have a sale and service model. And so if I have 2 or 3 years in a row of no growth on the sales force and constant sales, by definition, I have less productivity on the sales side.

Yes. The sales force talks to me most about there's some technology we need to get in to make that servicing element easier for them. And so that productivity issue is a big one. And they're not selling. They're having to deal with that, and we need to make it better for them.

And more agents first is a good start.

Yes, right.

Which you've got planned, right. For sure, all right, well, thanks for the time, and thanks for the audience for joining. Appreciate it.

Thank you.

Thanks you.