CoStar Group may be the big winner from Friday's news that the National Association of Realtors reached a $418 million settlement that opens the door for secondary players to reshape the residential real estate industry.
Both the timing and the nature of the settlement couldn't be better for CoStar. The company began a huge spending spree — starting with four Super Bowl ads — to boost its Homes.com property.
NAR Settlement
In the settlement, which still needs court approval, the NAR agreed to unwind the requirement that properties listed on its multiple listing service (MLS) specify buyer broker commissions. That has assured a central role for the MLS service and helped to keep those commissions artificially high. It also led to antitrust class action suits against NAR. The risk for sellers has been that if they didn't play by NAR rules, real estate brokers might shun their property in making recommendations to clients.
In a Friday note, William Blair analysts wrote that the settlement raises questions about the future role of the MLS system. "If agents are no longer required to subscribe to the MLS to distribute listings or accept commissions, then we could see some agents bypassing the system."
Door Opens For CoStar
The potential need for a new national home listing service "could be an opportunity for players like CoStar Group and Zillow," William Blair analysts wrote. They added that "We would give a leg up to CoStar."
The analysts cited CoStar's track record in building dominant listing services for multifamily (Apartments.com) and commercial real estate (LoopNet).
On top of that, terms of the NAR settlement could make seller agents even more important in the home transaction, William Blair analysts wrote. That's a positive for CoStar Group, which caters to seller agents, while Zillow caters more to buyers' agents, the analysts say.
CoStar Group Target Hikes
On Monday, JMP Securities raised its price target for CSGP stock to 110 from 85, keeping an outperform rating. The NAR settlement is conducive to CoStar's Homes.com monetization model, though the revenue impact is unclear, the research firm said.
BofA hiked its target for CoStar Group to 111 from 97, keeping a buy rating. The firm sees the settlement as a tailwind for Homes.com and validation of CoStar's residential strategy.
CoStar, which acquired Homes.com in 2021, said in a March 14 news release that the site attracted 149 million unique visitors last month, as traffic increased 567% from a year ago.
CoStar Group just began selling memberships to agents in February. Blair analysts wrote on Feb. 21 that CoStar expects those memberships to generate $50 million to $60 million this year.
Meanwhile, Benchmark defended Zillow, calling it "the tech backbone for the real estate industry." Benchmark says Zillow gets most of its revenue from the top 20% of agents, which should insulate it from any fallout from the NAR settlement.
CSGP
CoStar Group stock rose 2.9% early Monday, after surging 8.3% to 95.18 on Friday. That move upon announcement of the NAR settlement lifted CSGP well clear of an 89.11 cup-with-handle buy point.
Zillow dived 3.8% early Monday, after swooning 13% to 46.22 on Friday.
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