November 29, 2020 - 5:55pm EST by
2020 2021
Price: 884.00 EPS 9.50 11.50
Shares Out. (in M): 37 P/E 94 77
Market Cap (in $M): 33,000 P/FCF 80 80
Net Debt (in $M): -1,000 EBIT 400 500
TEV ($): 32,000 TEV/EBIT 80 64
Borrow Cost: General Collateral

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  • classic heffer short
  • Widowmaker short


Short thesis:

  • Significant pricing actions taken, with widespread customer resentment, which are mostly behind them

  • Slight competitive incursions, including Moody’s and new entrants

  • Disconnect between nearing end of growth through pricing and record multiples

  • Regulatory risk/optionality, given the clear abuses of monopoly power

  • Weakening commercial real estate market, forcing attention on costs and a reduction in seats

    • Especially important, as CSGP has forced firms to pay for every single seat or risk getting sued

  • Insider selling and expansion into more difficult verticals indicates that the easy gains are behind them


Examples of outrageous price increases abound, including forcing LoopNet users to upgrade to CoStar

Earlier this month, however, I received an email from Costar Group announcing that my firm’s LoopNet membership fee was increasing by 385%.

Loopnet Changes Its Subscription Price from $658.80 to $2351.52 Per Year.

CoStar gave us a "deal" so they could buy us out of our lifetime LoopNet rate. Now it turns out that we are going to have to pay individually for our LoopNet listings on top of Costar (previously we had unlimited Loopnet at a flat rate.)

However raising my rate from $320 to $2,150 a month (an increase of 571% that doesn’t even cover all of our listings) is leading me to other solutions.

A year ago another company CoStar bought out Loopnet, a provider of commercial data. I had been a loyal customer of Loopnet for 20 years. This data source cost approximately $100 per month. When CoStar bought them out, they gutted the Loopnet service so there is no longer any real data or value. In order to get the same information that Loopnet provided, I must now join CoStar at a cost of over $1,000 per month. In the data industry, the largest companies tend to buy out the smaller companies and then control all sources of data and control the market and ultimately only the large companies can afford to remain in the market.


An abusive monopoly

Details aggressive legal tactics used by CSGP

“They’ve used litigation to suppress innovation in the space,” said Elie Finegold, the former head of global innovation and business intelligence at CBRE, the world’s largest commercial brokerage and one of CoStar’s biggest customers. “And over time, they have cultivated an adversarial approach to customers.”

These tensions boiled over in December 2011, when CBRE sent out a memo to its brokers to not share any data with CoStar. The memo prompted a sharp rebuke from Florance, who accused CBRE of “trying to corner all the data” and called for the company to be investigated for anti-competitive practices.

CBRE executives quietly met with their JLL and Cushman counterparts to discuss a not-for-profit data-sharing arrangement that would consolidate property data from the three companies and become an alternative to CoStar.

“There needed to be a better, more reliable solution,” said Johnson, the former JLL CIO, who was involved in the meetings. “But people were very nervous — especially Cushman — that CoStar was going to find out [about the plan] and stop our service. That was unbelievable to me.”


New acquisitions (STR and won't have the same pricing leverage

Growth in is coming from paying for ad words-- this is not true growth, as the revenues will reverse if the ad spend is reduced.  Before they ramped up the spending (and destroyed their profitability), apartments was barely growing:



Competition is coming, albeit slowly

Xcelligent CEO is launching a new competitor

Silicon Valley is getting in on the action

Moody’s has a legitimate shot

Moody’s moves, observers say, could challenge CoStar’s dominant position in the market, a near-monopolistic position solidified through two decades of acquisitions and what critics describe as aggressive litigation against competitors. Xceligent, backed by Britain’s Daily Mail Group, tried to challenge the behemoth, but went bankrupt last December. Moody’s, with a market cap more than twice CoStar’s, may face better odds.

In October 2017, Moody’s bought a minority stake in CompStak, a crowdsourced database for leasing and sales comps. A month later, it bought a stake in Rockport VAL, which sells software to appraise properties.


Commercial property owners have probably never been hurting as badly


Want to buy a hotel, office building, or retail space?  Neither do I.  Brokers are hurting, owners are hurting, tenants are hurting.  This will not only hurt the number of seats but also the ability to get any price whatsoever.  


Crazy multiples and insider selling


But, really, isn’t this true everywhere?  Yes, but the core business here is probably growing MSD (and may shrink), so 95x is particularly egregious!  CEO sold $20m in August.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Earnings misses due to seat losses in core Costar Suite product growth is seen as unsustainable

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