John Campbell: Thanks, Andy.
Operator: Thank you. One moment for questions. Our next question comes from Heather Balsky with Bank of America. You may proceed.
Heather Balsky: Hi. Thank you for letting me back in. I guess I got scared away by the baby crying.
Andrew Florance: Heather, if you’re confused, I think many people in the listening audience today are confused. There was a — our last CFO, who is an outstanding CFO, and he’s listening right now. I got a little [indiscernible] at the emotional overload of leaving CoStar and we haven’t let them live it down. In another 10 years, we’ll stop talking about it.
Heather Balsky: Appreciate it. I appreciate you have to play it again. So on Matterport, I’m just curious a little bit to hear how you’re thinking about that business being part of CoStar going forward? There’s been some headlines around Homes.com, but curious about the broader business strategy and its existing sort of standalone business. Like how are you going to integrate it? How do you plan to use it more? And do you think you can do something to kind of jump start the existing sort of revenue growth strategy?
Andrew Florance: Yes. So in terms of — let’s start with the existing growth strategy. I am highly confident by — through pulling levers on pricing, on switching between upfront purchase equipment, subscription models, relying more heavily on capture networks. I feel — and then also by the virtue of the fact that we aggressively adopt the digital twins more broadly. That all those things together will allow us to significantly accelerate the sales or revenue of Matterport outside of it being used inside of anything in CoStar. In other words, outside of being used as part of Homes.com Apartments.com, LoopNet, so on and so forth. But — and I think Matterport penetration will have some slight different numbers on that. I’m confident sub 5% in the United States.
I’m confident sub 1% in Europe. And at that — at those levels, I am a big believer in the value of a Matterport when you’re trying to sell a $500,000 or $1 million property. And then I think those adoption rates will ultimately go up 50% or more for digital twins with people moving real estate. There was a time when only 5% of the real estate listings had a photo. So the digital twins is going to be — I think. And there are a number of different players out there, and our goal will be to try to capture a leading share of the digital twin. So there are different solutions at different quality levels. When you look at how we integrate it into our product, we are going to — first of all, we believe that just — the overall goal of what we’re doing is helping people lease and sell their real estate or to analyze real estate.
These three dimensional, these 3D, three spatial twins are transformative, really important tools, and we are going to make them ubiquitous across our sites. So we’ve been an aggressive adopter to date, we’re going grow it dramatically. And virtually everything we are doing. So even think about something like our CoStar Real Estate Manager, a significant percentage of the Fortune 500 use CoStar Real Estate Manager to manage their leases, critical dates, their facility strategies, giving their real estate people the ability to look at a 3D representation, a walk through one of their facilities is super valuable. Even if it’s something is as small as a — the equipment room on a cellular antenna, being able to go into that Matterport and seeing what the RAC configuration is and see how much room there is, is there room for more RACs, that kind of stuff.
The stuff is ubiquitous and super valuable. So being aggressively adopting it, we think will fuel growth and differentiate us from other folks. But the other thing is I think there’s an enormous amount of data here. So if you think of the failure of AVMs, automated valuation models, to deliver real value, my belief is that one of the big failures of AVMs to date has been the fact that they are taking tabular data, a handful of tabular data fields around one point on a map is really fails to capture the real characteristic of the real estate asset. When you have a Matterport, you’re able to recognize infinitely more information about the space you’re in, you can determine quality, you can determine build out, you determine just things like sensing the fact that there’s really [indiscernible].There’s a — the nature of the layout, looking at the views out the windows, are you looking at another building 5 feet away or do you have a view of the Hudson River, which one is it?
So I think this will also — there’s an enormous data advantage here that you can use to inform automated valuation models and understand market statistics better. And that’s certainly true with certainly residential, but also commercial real estate. So if I’m trying to understand where lease rates are, and I can ascertain that this space was raw, which machine vision can do. Artificial intelligence can determine whether it was unfinished space versus polished space, that’s going to impact how you calculate the economics of what the lease deal was. And then with — right now, Matterport is really beautiful at being able to move through a space in a semi-natural format. But with the work that Apple, the commitment that Apple has and Meta has to building headsets, I believe that you will, in the next 3 years or so have smooth walk-through capabilities through these digital twins, which will be super powerful.
The ability to also take the twin outside of the structure and actually capture the exterior of the structure and possibly moving the capture equipment to a drone as well. So in my spare time, I have been putting expensive Matterport’s on top of expensive drones and trying to capture it externally. But it’s hard to do that with a weekend research projects, really need professionals to do that.
Scott Wheeler: Leading to extensive write-offs and expensive drones.
Andrew Florance: No, no big crashes yet. No big crashes. But the odd looks from the neighbors. But the — so I think the technology is going to be — is going to go through a real exponential acceleration. I think the data is super valuable. I think it’s table stakes going forward for marketing space. I think it moves the AVMs. And I think as the rest of the world figures out that it’s really silly. To me, today, to mark an office building or a warehouse building or a hotel event space or a home without a digital twin is thoughtless. It’s sort of inadequate. Do I sound passionate about that?
Heather Balsky: Yes. I appreciate the answer. Thank you very much.
Operator: Thank you. I would now like to turn the conference back to Andy for any closing remarks.
Andrew Florance: Well, I’d like to thank you all for joining us again for our first quarter 2024 earnings call. I’m glad we were able to report good results, initial results on the Homes.com monetization. And again, thank you, Scott, for all the outstanding work you’ve done. And Brian, I apologize for Scott, poking the bear on the last CFO. Bye, everyone.
A – Scott Wheeler: Goodbye, everyone.
Operator: Thank you. This concludes today’s conference call. Thank you for your participating. You may now disconnect.
