CEO Andy Florence continued to defend the Homes.com strategy despite the investor backlash, saying subscribers had achieved an 11x return on investment.
CoStar is preparing to raise the cost of membership in response to what company executives say is a strong return on investment for agents who pay for the service.
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Chief Executive Officer Andy Florence said on a conference call with investors Tuesday that the company looked at Homes.com’s first 11,400 members and their fee income before and after joining.
“The results of the study were surprising,” Florance said. “On average, Homes.com subscribers earn $36,400 more in fees in their first year of membership. That’s an 11x return on investment, compared to an average annual subscription fee of just $3,400.”
As a result, CoStar will increase subscription prices for new customers starting this Friday, Florence said. We similarly evaluate the “likelihood of measured update growth.”
The company did not immediately provide details about the impending price increase for new members.
The increase comes as Florence has championed CoStar’s previous significant investment in establishing its fourth major real estate search and lead generation platform.
CoStar stock has fallen about 60% in the five years since the company acquired Homes.com and began expanding beyond its commercial real estate core into the residential real estate market.
In response to this stock performance, two investment firms attempted to shake up CoStar’s board of directors and move the company away from its focus on Homes.com and back toward its core commercial products.
Florence strongly objected to the move, and one of them, Third Point, abandoned the campaign earlier this month and sold all of its CoStar shares.
CoStar touts Homes.com’s success
CoStar earned $897 million in the first three months of this year, up 23% year over year.
Homes.com members continued to be added, reaching 35,175 paid members in the quarter. This number is up over 200% year over year.
Last month, the company signed a deal with eXp Realty to allow agents to display pre-sale properties on Homes.com. EXp also reached agreements with Realtor.com and ComeHome.com.
The partnership comes as Zillow, Redfin and Realtor.com move toward similar agreements with brokers amid major changes in the way properties are brought to market.
Florence announced Tuesday that Homes.com’s revenue for the quarter rose 58% from a year earlier to $26 million.
A portion of this revenue came from members paying to promote 260,000 active listings in the quarter, which Florence noted represented 8.7 percent of the 3 million homes for sale in the U.S. at the time. This success came despite Homes.com having what Florence calls a “very new sales force.”
“So, given the fact that we actually just launched that group about a year ago, it’s unprecedented to have this many salespeople in such a short tenure,” he said. “I personally have a little bit more free time, so I’m spending a lot more time with the sales force.”
“I am very happy to be back in the field and working on improving the productivity of our sales department,” he said.
Florence said the company added AI search earlier this year, which immediately increased the amount of time consumers spend on the site. He said consumers using AI spent about four times as much time on the platform as non-AI users.
Activist Investor Impact on Homes.com
Florence did mention what he called “the elephant in the room.”
He said the campaign is having a “significant impact” on Homes.com’s sales and potential partnerships due to the “constant negative press.”
“With that distraction removed, we can now focus our energies even more intensely on accelerating Homes.com’s revenues and the revenues of all other businesses in our portfolio,” he said.
An investor on the conference call asked whether Florence should wait a year before increasing the price of new Homes.com memberships.
“We can expand our user base and capture more value,” Florence said. “There is scope to realize more value and at the same time maintain the same growth and perhaps accelerate membership growth.”
“In the largest group of agents, we are leaving too much on the table,” he added. “We offer a lot of value, and I think we can continue to drive prices up, grow our employee count, and continue to grow our membership.”
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