Why CoStar Group Inc (NASDAQ: CSGP) stock is crashing

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CoStar Group Inc (NASDAQ: CSGP) stock fell over 7.5% on 23rd October, 2019 (as of 9:48 am GMT-4; Source: Google finance) post disappointing third quarter of FY 19. The company had reported the adjusted revenue growth of 15 percent to $352.8 million in the third quarter of FY 19, missing the analysts’ estimates for revenue of $353.2 million.

Net income for the third quarter 2019 rose 34% to $79 million over net income of $59 million for the third quarter of 2018. EBITDA was very strong for the third quarter of 2019, as it posted an increase of 24% to $113 million. The balance sheet remains strong, and the company expect to have over $1 billion in cash at year-end and no debt, even after the closing of the STR acquisition. The company has generated $50 million in companywide net bookings, and grew 27% year-over-year in the third quarter. The company’s average net new sales of $52.5 million per quarter year-to-date in 2019 is 32% higher than the comparable period in 2018 when the average net new sales per quarter was $39.8 million.

For the fourth quarter ending in December, CoStar expects its per-share earnings to be in the range of $2.52 to $2.64. The company expects revenue to be in the range of $360 million to $366 million for the fiscal fourth quarter.

CoStar expects full-year 2019 earnings to be in the range of $9.90 to $10.02 per share, with revenue is expected to be $1.39 billion.

The company expects to increase the investment in marketing from approximately $150 million in 2019 to $250 million in 2020. That’s a $100 million incremental increase in the marketing spend. This will bring the 2020 margin down, but in the future, this investment is expected to boost the company’s revenue and margin of well beyond the investment the company will be doing in 2020. The $250 million 2020 Apartments.com marketing budget is expected to consists of much more aggressive search engine marketing, more aggressive TV and digital video marketing with the goal of moving the unaided awareness for the 26% to 33% range to the 50% plus unaided awareness range. The company also plan to invest in marketing programs to support the digital leasing initiatives.

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