Real estate data and marketing platform CoStar (CSGP, Financial) increased 11.0% in the quarter and helped performance by 55 bps. CoStar’s share price increase was due to strong new bookings with continued strength in retention rates despite implementing price increases across its suite of products. CoStar continues to invest in its residential platform and is starting to benefit. We believe this investment should meaningfully accelerate CoStar’s revenue growth through the expansion of its addressable market. We believe the stock market is attributing negative equity value to this growth opportunity. Over the next five years, this investment could add as much as $1 billion or more to annualized revenue at a significantly accretive margin. This would result in a 50% increase to today’s $2 billion of revenue and an approximate 75% increase in EBITDA. Longer term, we believe this investment opportunity is several multiples of $1 billion of revenue.
CoStar Group, Inc. is the leading provider of information and marketingservices to the commercial real estate industry. Shares increased on solid third quarter results and raised guidance. We think CoStar is well positioned to benefit from the migration of real estate market spend to online channels. CoStar is investing aggressively to build out its residential marketing platform, which offers dramatic upside potential, in our view. The company has over $4.7 billion of cash on its balance sheet, which we expect it to begin to deploy for opportunistic M&A.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
