CoStar Plans To Expand With $250M Acquisition | Reviewing The Tech IPO Landscape

MarketBites Investment Newsletter for 11/23/2020

Your daily dose of stock market commentary and most important investment and business news. written by investment professionals at Taylor Hoffman Capital Management.

Today’s Top Investment Stories
  1. CoStar Plans To Expand With $250M Acquisition
  2. Reviewing The Tech IPO Landscape
What is driving the stock market today? – November 23rd, 2020

– All major indices fell last week. The S&P 500 fell 1.66%, but the index added Tesla. Expectation is that the addition of such a large, momentous firm has the capability to move the entire index, for better or worse.

– Poor news is expected to come this week from major economic indicators and governing bodies. U.S. unemployment applications ought to be in line or higher with previous weeks, as cases rise and states re-implement Covid-19 restrictions. Tuesday, we will hear from the U.S. consumer confidence survey, which many expect will have negative sentiment.

Coronavirus tracker: Per Johns Hopkins, the U.S. reported more than 200,000 new cases over the weekend, including 167,291 on Saturday alone. The 30-day trend continues to grow at a consistent rate. California, Illinois, and Texas reported the most new confirmed cases.

– By Jack Dunne


Top Story 1: CoStar Hopes to Buy Homesnap for $250M

What is Happening?
Commercial real estate giant CoStar Group, appears to be entering the residential space. They’ve bid on the prospective acquisition Homesnap Inc. for $250M.

Why does this Matter?
For a firm as large as CoStar, the $250M deal is not the major headline in this story. The big takeaway is that CoStar has now taken a strategic step to enter the residential real estate market, which dwarfs the commercial real estate side.

Homesnap is a rapidly growing residential real estate data collection firm. According to the Wall Street Journal, approximately 30,000 brokers use the platform over 30 times a month. CoStar could give Homesnap the experience and scale needed for it to become a household name.

News of the acquisition also comes at an interesting time, regarding rumors  around CoStar and CoreLogic. CoreLogic is another real estate data collection company. The residential real estate market has been booming; driven by an exodus from major urban centers, and incredibly low-interest rates. There are more buyers in suburban areas than homes available. CoreLogic confirmed that CoStar was one of the companies currently bidding to acquire them as well. Analysts expect CoreLogic to sell for approximately $6B. Should CoStar buy CoreLogic too, the path to high growth for the firm would be clearly stated.

The Takeaway:
CoStar already has revenues of over $1B, and operates in more than 120 countries worldwide in its commercial real estate unit. The shift towards residential real estate has the potential to make CoStar a true behemoth of a firm. They are worth keeping an eye on, moving forward.

– By Jack Dunne


Top Story 2: In Review: Tech IPO’s

What is Happening?

If you have been following MarketBites, you have seen how often we report on new public tech offerings. Due to the increasing volume of offerings (and rumors of offerings), we thought it would be beneficial to look at the broader trends that are pushing the firms to go public. Let’s see what can be learned from the reports.

Why does this Matter?

Doordash, Roblox, Airbnb, Affirm, and Wish are just some of the most popular names to headline the tech IPO extravaganza in the last few months. The timing is interesting for many, as some imply the necessity to raise funds, while others show the desire to cash out on favorable market conditions.

Airbnb:
Of the aforementioned names, Airbnb was the firm most negatively impacted by Covid-19. Travel and hospitality were brought to a halt, the firm had to take out $2B in high-interest loans, they underwent layoffs, and had a PR disaster with its host community. However, revenues have slightly recovered, and the firm has proven its resilience to investors. Now, Airbnb is hoping to capitalize on a revised valuation, and the tailwinds of a strong post-election market. Airbnb would like to remind investors that we are getting closer to returning to normal.

Doordash:
Doordash is on the opposite end of the spectrum from Airbnb. Doordash has seen revenue boom since the beginning of the virus. Order volumes have grown by nearly 237%, and Doordash is closing in on 50% market share for online food delivery. With analyst expectations that online meal order volumes will decline, Doordash wants to take advantage of the current times. The funds raised by offering stock while the firm is explosively growing can be used for the future development of new revenue streams.
The Takeaway:
The tech IPO frenzy has not all been done for the same reasons. If we went line by line and investigated why the timing is right for each firm, we would come up with a plethora of unique circumstances. Each reason is important to think about when considering investments.

– By Jack Dunne

Earnings Calendar:
EARNINGS TODAY:
NIU Technologies ($NIU), Baozun Inc. ($BZUN), Warner Music Group ($WMG), Daqo New Energy Corp ($DQ)
EARNINGS TOMORROW:
Best Buy Co. ($BBY), Dollar Tree Stores ($DLTR), Dick’s Sporting Goods ($DKS), J.M. Smucker ($SJM), Burlington Stores ($BURL), Hormel Foods Inc. ($HRL), Tiffany & Co. ($TIF)
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