CoStar Group's Q1 2024 earnings call was a whirlwind of exciting announcements. From the Matterport acquisition to the stratospheric success of Homes.com, CEO Andy Florance painted a picture of a company on the cusp of revolutionizing the real estate industry. But hidden amidst the buzzwords like 'Gaussian Splat' and pronouncements of billion-dollar businesses, there's a subtle clue that CoStar may be sitting on something truly extraordinary - a way to leverage 3D data to unlock the future potential of real estate assets.

Florance's enthusiasm for Matterport's 3D digital twin technology goes far beyond simply enhancing the visual appeal of listings. He envisions a future where 3D data, combined with the burgeoning power of AI, allows for a level of predictive analysis currently impossible with traditional real estate data. It's a future where the static snapshot of today's value is replaced by a dynamic understanding of an asset's potential, effectively a time machine peering into its future.

This is not mere hyperbole. Florance explicitly criticizes the limitations of current Automated Valuation Models (AVMs), highlighting their reliance on 'tabular data' - essentially a handful of data points like square footage and location - that fail to capture the true essence and future possibilities of a property. He argues that Matterport's technology, by capturing the full spatial context of a property, opens up a whole new realm of data points, allowing AI to assess quality, predict potential build-outs, and even analyze views from windows, all of which can dramatically impact future valuations.

Imagine an investor considering a dilapidated office building. With traditional data, they see only its current state - high vacancy, low rent, and a bleak future. But with Matterport and AI, they can see its potential: the spacious floorplan, the potential for high-end finishes, and even the possibility of converting it into luxury condos, all leading to a much higher future valuation. This ability to analyze not just 'what is' but 'what could be' fundamentally changes the game, allowing for more informed investment decisions and potentially unlocking previously hidden value in overlooked properties.

This hypothesis is further supported by the data points CoStar shared. Florance revealed that visitors who interacted with Matterport 3D tours on Apartments.com spent 134% more time on the site, generating 10 times more leads than properties without Matterport. This demonstrates the power of 3D data to captivate users and drive engagement. Applying this to Homes.com, it's not hard to see how this could translate to faster adoption and potentially even higher average membership prices for agents eager to leverage this technology to stand out in a crowded market.

Matterport 3D Tour Impact on Apartments.com

Furthermore, CoStar's 2023 acquisition of their Washington D.C. headquarters for a 'significant discount to both recent valuations and current replacement costs' suggests they are already putting this theory into practice. Florance likens this to their 2010 acquisition of a distressed office building during the financial crisis, which they later sold for more than double the price. While they plan to sell their current headquarters in a sale-leaseback arrangement, their willingness to invest in an asset widely perceived as risky suggests a level of confidence in their ability to unlock hidden potential, potentially through the lens of 3D data analysis.

The potential implications are staggering. Imagine a world where lenders, armed with AI-powered insights from 3D data, are more willing to finance projects that traditional models deem too risky. Imagine developers, guided by this technology, identifying and maximizing the potential of undervalued properties. Imagine homeowners, using 3D data and AI to plan renovations that will maximize their home's future value.

CoStar's Q1 earnings call was undeniably a showstopper, but the true spectacle may be yet to come. If their bet on 3D data and AI pays off, they may not just be digitizing the real estate industry, but unlocking the very future of real estate itself.

Revenue Growth: CoStar vs. Apartments.com

Both CoStar and Apartments.com achieved a $1 billion revenue run rate in Q1 2024. The chart below shows their impressive growth trajectory over the last five quarters.

"Fun Facts: - CoStar's CEO, Andy Florance, has participated in over 100 earnings calls, showcasing his long-term leadership and commitment to the company. - The CoStar CFO position seems to have an 8-year tenure tradition, with each of the last three CFOs serving for exactly eight years."