Ladies and gentlemen, thank you for standing by. Welcome to the 4th Quarter and 2018 Earnings Call. As a reminder, the conference is being recorded. And I'll now turn the meeting over to our host, Rich Simonelli. Please go ahead.
Thank you, operator, and welcome to CoStar Group's 4th quarter year end 2018 conference call. Before I turn the call over to Andy Florance, CoStar's CEO and Founder and Scott Wheeler, our CFO, I have some very interesting and important items for you. Certain portions of our discussion today may contain forward looking statements, which involve many risks and uncertainties that can cause actual results to differ materially from such statements. Important factors that can cause actual results to differ include, but are not limited to, those stated in our press release today on February 26 for our Q4 year end earnings as well as the company's outlook and in CoStar's filings with the SEC, including our most recent annual report on Form 10 ks and our subsequent quarterly reports on Form 10 Q under the heading Risk Factors. All forward looking statements are based on information available to CoStar at the time of this call.
CoStar assumes no obligation to update these statements whether as a result of new information, future events or otherwise. Reconciliations to the most directly comparable GAAP measure to the non GAAP financial measures discussed on this call, including but not limited to non GAAP net income, EBITDA, adjusted EBITDA and forward looking GAAP guidance are shown in detail in our press release issued today, along with definitions for those terms. The press release is available in the press room section of our website located at costargroup.com. As a reminder, today's conference call is being broadcast live and in color on our website, where you can also find CoStar's Investor Relations page. Please refer to our press release on how to access the replay.
Remember, one question, so make it a good one. And I'll now turn the call over to Andy. Andy?
Rich, that was authentic and moving. Thank you. You're welcome. Thank you all for joining us for CoStar Group's Q4 2018 year end earnings call. The first number I want to focus on is our adjusted EBITDA margin in the 4th quarter, which was 44%.
By achieving that strong margin, we have successfully accomplished an important financial goal. 5 years ago in 2014, we set 2 key long range financial goals for 2018. One was to achieve $1,000,000,000 in annual revenue and the second was to reach 40% adjusted EBITDA margin for the Q4 of 2018. Today, 5 years later, with $1,200,000,000 in revenue for the full year 2018 and a forty 4% adjusted EBITDA margin in the 4th quarter, our team is pleased to have solidly delivered on both of those goals. Delivering this sort of consistent growth is on target with our long range record of good growth.
Since 2011, we've achieved a 25% compound annual revenue growth rate, which is in line with our 20 year compound annual growth rate of 25%. For the full year of 2018, our adjusted EBITDA margin was 35 percent, over 600 basis points of improvement over 2017. EBITDA in 2018 was $351,000,000 an increase of 48% compared to $237,000,000 for 20 17. Net income was $238,000,000 in 20 18 compared to $123,000,000 in 20 17, a 94% increase. The past 5 years have proven that we can grow the top line, expand margins and still make significant growth investments into the business.
Some of those recent investments include the Richmond Research Center, expanding and marketing the Apartments dotcom network, growing our sales team, integrating the CoStar and LoopNet databases and expanding our Canadian and European businesses. Our most significant growing investments are products and software development. Those investments have allowed us to build powerful profitable businesses with strong leadership positions with CoStar Suite, The Apartments Network, CoStar Real Estate Manager, LoopNet and many others. Because of our exceptional technology, deep understanding of real estate and the value of our connected commercial real estate communities, we have created transformative value for our clients. We are now attracting 42,000,000 people to our websites monthly and have earned the business of 150,000 CoStar subscribers.
This has enabled us to balance investing back into our business while still significantly expanding our margins. CoStar Group holds a leadership position in the exciting transformation of a multi 1,000,000,000,000 dollar real estate industry moving from offline to online. We have positioned the company well for the enormous long term opportunity that lies ahead of us by building an exceptionally strong balance sheet. We have $1,100,000,000 in cash, no debt and $351,000,000 of growing EBITDA to leverage. CoStar Group has acquired dozens of companies and expects to continue acquiring companies that will bring value to our shareholders.
CoStar Suite revenue grew 18% in 2018 over 2017. Commercial property and land, which includes loopnet dotcom as well as our land and business sites grew 16% year over year in the Q4 of 2018. For the full year of 2018, multifamily revenue grew 45% versus 2017 as our multifamily revenue increased to $406,000,000 CoStar Real Estate Manager grew an astounding 124 percent year over year and is already off to a strong start this year. That's right, 124%. We now have more than $1,000,000,000 of visible high margin reoccurring or subscription revenue.
Company wide net new bookings of $50,000,000 in the Q4 of 2018 were the best we've ever achieved. That is an increase of 15% year over year and 26% over the Q3 of 2018. Remember that the Q4 2017 was an exceptional quarter for us as one of our long term competitors filed bankruptcy. For the full year of 2018, we turned in another top performance with $169,000,000 in net new bookings. In a sense, even that number is understated because it does not include all the work our sales team did in signing tens of 1,000,000 of dollars of ForRent revenue into Apartments dotcom contracts.
In the Q4 2018, we signed 2 large brokerage firms to new multiyear contracts. The contract we signed with CBRE was our first global contract. CBRE has been a great long time customer of CoStar and their users are spending more time in our products than ever before. 2018, CBRE users doubled their time spent working in CoStar over 2016. This is a testament to the growing utility of our products to top industry players.
Marcus and Millichap also signed a multiyear contract renewal with us and they pointed directly to improvements made in research, particularly our tenant data as a reason for going forward with us and expanding the volume of services they buy from us. They're also renewing and growing Canadian contracts with us. In 2018, our CoStar field sales force began focusing on selling LoopNet in addition to CoStar. We did this because it makes good sense and we feel that our customers prefer one point of contact. As a result, net new year over year bookings for loopnet.com increased by 74%.
With 2 products to sell, the sales force is selling a bit less CoStar, but it's selling much more of the combined services. Clearly, this is a good trade off. Our Apartments.com sales force is doing a great job. The Q4 of 2018 was our best sales quarter ever for Apartments.com. Our sales force has essentially completed converting ForRent customers to Apartments.com customers, so they now have more time available to focus on signing new business.
Hitting a record Apartments dotcom sales quarter in the 4th quarter is a remarkable achievement given the fact that historically apartment Internet listing services suffered from sharp seasonality and historically would contract in the Q4. So setting records in the Q4 is great. Our Apartments.com sales force knows the power of client service and how it leads to more sales. 2018, they conducted 309,000 client meetings and most of our reps average nearly 7 meetings per day. Some are averaging almost 10 client meetings a day.
An independent group within CoStar follows up many of these meetings by calling and asking the client a scale of 1 to 10, how likely they are to recommend Apartments.com to a friend. On average, our clients give us a 9.64. One of our best reps, Nicole Gagliardi, across 1,000 meetings scored an outstanding 9.94 an A plus plus I believe the sales team is the best in the industry and I'm looking forward to another excellent year with them. In 2018, according to Comscore, the Apartments dotcom network had 500,000,000 visits for the full year, up 33% over 2017. In 1 month, according to Google Analytics, we saw 57,000,000 visits across the Apartments.comnetwork.
We averaged 17,900,000 unique visitors per month over the course of the year according to Comscore, which is an increase of 35% compared to 2017. This is by far the most in the industry as we continue to pull away from RentPath, which only had 208,000,000 visits in 2018 and averaged less than 8,800,000 unique visitors per month. Even more impressively for the full year of 2018, Apartments.com leads were up 43%. With almost 300,000,000 more visits in RentPath and great lead flow, we believe the obvious choice for an advertiser has to be apartments.com. In 2018, 4,600 properties advertising with RentPath started advertising with Apartments.com.
We estimate that there are only 6000 to 8000 that still advertise on RentPath and do not yet advertise on Apartments dotcom and we are focused on capturing that business. In 2018, RentPath got a competitive rest or a little competitive holiday, while we focused on the for rent conversion. But in 2019, we'll dramatically increase the competitive intensity. We believe that RentPath may have a ticking time bomb of a pricing problem. We believe that similar apartment properties in the same city are paying wildly different prices for essentially the same advertising levels.
This may have happened because they used to have much better share of traffic and RentPath may be relying on long term clients to keep paying yesterday's higher prices that might have been justified years ago when their traffic was good, but now these prices may not make any sense. How will long term clients react if they find out that new clients are paying a fraction of the price from the same product. It used to make sense to pay $3 a minute to use a 10 pound mobile bag phone and you were cool. Today, a cellular provider would not be able to sustain that $3 a minute pricing for long in a highly competitive market. We now have over 50,000 properties advertised on our network, up from 18,000 when we purchased Apartments.com in 2014.
In just 10 months, we have successfully integrated ForRent, the largest acquisition we've ever made. We are increasing our 2019 apartments marketing budget by 11% year over year in an effort to gain more share. We expect to launch our new bigger 2019 marketing campaign shortly. The campaign will once again feature Jeff Goldblum as Brad Bellflower. The 2019 campaign is called Enter the Apartum Internet.
There will be a lot of futuristic technology and special effects that will make the ads fun and memorable. We hired Director Taika Waititi, famous for directing the recent blockbuster smash hit, Thor: Ragnarok to direct our spots so that the production value and quality will be truly first class. We just wrapped up film in these neat TV spots. In the series, we emphasize the vast array of alternative futures the renter can potentially have by choosing various apartment alternatives. Aggressive plan calls for over 8,000 television ads, 6,000,000,000 digital impressions, 300,000,000 streaming impressions to reach 95% of renters.
We expect that the net impact of this investment will be well over 600,000,000 renter visits in 2019 to the Apartments dotcom network. According to company estimates, there are 14,000,000 apartment units in larger apartment buildings with 100 units or more. That represents only 31% of the 45,000,000 rental units in the United States. Despite the fact that it represents only 31% of the market, the overwhelming majority of Apartments.com's revenues comes from this upper 31% of the market. 84% of the 540,000 apartment buildings in the U.
S. Are smaller and have 4 units to 100 units. In addition, there are 17,000,000 other units altogether that are in condos, townhouses or properties with less than 4 units. These smaller properties are owned by what we call independent owners of the IO market. The IO market does not have the scale and resources of larger players like Greystar, AvalonBay, Pinnacle and other large property managers.
We believe that without the benefits of scale, independent owners spend more time and money leasing each unit. We further believe that there is far more absolute revenue potential in the independent in done market will become our top priority. We have been and expect to continue to invest very aggressively in building out the software platforms and products that we believe will enable us to provide compelling online rental solutions that appeal to both renters and independent owners. We want to take many of the traditionally offline or disparate functions required to lease an apartment and move them into one seamless online easy to use solution. It's an exciting project to work on and we're motivated by the potential to have a very positive impact on tens of millions of renters and independent owners.
Part of that effort includes our November purchase of Cozy Services. They're a leader in the online rental property market and have nearly 60,000 landlords using their services. There are approximately 150 1,000 renters making lease payments through Cozy, totaling $1,700,000,000 in 2018. We believe that Cozy provides a best in class solution for one of the key components of the rental process, so we're integrating Cozy into the Apartments.com full rental cycle. We will control the cost associated with selling solutions to a much larger audience at lower price points by relying on e commerce sales to monetize the higher volume independent owner market rather than using our field sales force.
It's our goal that this new solution will form the foundation of our 2020 marketing campaign. We plan to share more details about our new products as we get closer to launching them. 2019 will be the 1st full year that LoopNet is positioned as a pure online marketplace like Apartments dotcom rather than a hybrid information solution and marketing platform. LoopNet has become a vital utility for tens of thousands of commercial real estate professionals seeking to market their properties to the millions of tenants and investors looking for commercial real estate online. LoopNet is the most heavily trafficked commercial real estate marketplace with approximately 5,000,000 unique visitors in a month.
LoopNet generates $127,000,000 of annual revenue on a very high margin. While we've more than tripled LoopNet's marketing revenue since CoStar acquired the company in 2012, we believe that we can further innovate and evolve the LoopNet solution and more than triple the revenue again with a focused effort and site relaunch. Early in LoopNet's evolution, it was best suited to marketing smaller properties, often for sale properties in suburban areas or tertiary cities. The economics on these smaller properties are a fraction of the economics involved in large office property leasing or industrial. While CoStar Group has years of experience marketing tens of thousands of major office properties for lease, LoopNet was not originally optimized for marketing and leasing prestigious brand conscious office buildings.
In 2019, we are investing aggressively to redevelop and relaunch the next generation of LoopNet so that it better meets the needs of a much broader cross section of the commercial real estate industry. This effort is very similar to the effort we successfully made to relaunch and reposition the Apartments.com site after we acquired it from Classified Ventures in 2014. This is a comprehensive project engaging much more than just our software development teams. Similar to the Apartments dotcom launch, we expect this will engage more than half our company. We're very excited about the opportunity to exploit the potential of a next generation online marketing platform for commercial real estate.
2018 ended with commercial vacancies near all time lows, prices and rents at all time highs and leasing and transaction volume setting new records for the year. The ongoing health of commercial real estate is the result of solid economic growth in 2018, which although slowing in the Q4 accelerated for the year as fiscal stimulus kicked in. Almost 2,700,000 jobs were created last year and the unemployment rate is hovering at or below 4%. All of that is great for commercial real estate. The industrial market continues to lead all property types in terms of rent growth, price appreciation, take up The industrial sector's outperformance results from the ongoing shift to online buying, which has produced strong demand for infill and regional bulk distribution centers across all markets.
E commerce has also affected the traditional retail sector. Retail rents have trailed the other property types and developers have delivered little new space. However, well located retail assets continue to show strong performance and demand for quality space mashed with very little new construction has kept overall retail vacancies at historic lows. In the office sector, vacancies fell into the single digits last year for the first time since the early 2000s, the result of healthy absorption and limited new supply. Rent growth at the national level stayed within a narrow band of around 2% over the last 8 quarters, but has weakened in some coastal markets, which are facing higher levels of supply.
Many secondary markets on the other hand have enjoyed stronger rent growth as new construction still remains low. For the multifamily sector, absorption reached a cyclical high as a strong labor market and rising mortgage rates resulted in high demand for rental units. Apartment rent growth accelerated, exceeding 3% for the first time since 2015, and transaction volume in unprecedented streak for commercial real estate. We see no reason that the slow and steady status quo that has defined this cycle won't continue for the foreseeable future. That said, the prospect of rising interest rates and narrowing spreads appear to have brought an end to nearly a decade of cap rate compression, but cap rates remain very low.
Still construction remains limited, leasing remains healthy across all property types and rising mortgage rates could safeguard apartment demand. We're proud to have delivered on the financial goals we set for CoStar back in 2014. We are now coming off our best year ever and we're moving into 2019 in a strong commercial real estate market with great products, great clients, great people, great research and a phenomenal sales team. We believe that 2019 will be another great year for CoStar Group and our clients. We told you that upon completing our last 5 year financial goal, we would set a new goal for 2023.
That goal will be to exit 2023 at a $3,000,000,000 revenue run rate with an adjusted EBITDA margin of 40% or more for the full year. While we anticipate acquisitions will contribute, we believe that most of our growth will be organic. At this point, I'm going to turn the call over to the accomplished mountaineer and our CFO, Scott Wheeler.
Thank you, Andy. It's a great introduction. Feeling very accomplished today. Let me raise my chair a little. I I feel better up here.
Great. Yes, 2018, what a great year we had for CoStar. Very strong growth. We acquired 3 businesses. We invested for our future and we expanded our margin over 600 basis points.
On top of that, I for one am happy we can put these old tired long term goals behind us and move on to multi billion land next. All right, let me start with some insights on our revenue results, which in the full year of 2018 increased 23% over 2017, while our growth rate in the Q4 of 2018 was 24% versus the prior year. Looking at our revenue performance by services, CoStar Suite revenue growth was 18% for the full year 2018 as expected and 16% in the Q4 of 2018 coming in slightly above our 15% guidance range. CoStar Suite sales were very good in the 4th quarter as we continued strong conversion of our LoopNet users to CoStar and we completed the long term contract renewals with both CBRE and Marcus and Millichap that Angie mentioned. As we head into 2019, we expect the CoStar Suite growth rates to moderate sequentially as they did in the Q4 of 2018 settle in, in the range of 11% to 13% for the year.
There are a couple of factors converging here to note. First, we fully lapped the very high revenue growth quarters that followed the LoopNet integration and the Exeligent bankruptcy. 2nd, we have a sales substitution effect here as our CoStar sales force is focused on selling more LoopNet to accelerate the growth of that marketplace. In total, the team is delivering more combined sales, in fact, 20% more in 2018 than in 2017. So we like this increased productivity.
We will see some shifting effect between CoStar and LoopNet. Revenue growth in information services was 11% in the Q4 of 2018. So our Q1 of positive growth in over 2 years when we stopped actively selling the LoopNet information products. Back then LoopNet information was over 50% of the revenue in information services. All that revenue is effectively gone and CoStar Real Estate Manager and CoStar Risk Analytics have made up the gap.
CoStar Real Estate Manager revenue continued its outstanding growth, increasing 165% in the Q4 of 2018 versus the Q4 2017. We expect total revenue from information services to increase at a rate of 11% to 13% on a year over year basis throughout 2019. It's great to finally put behind us that negative growth rate. We had a very strong quarter in the 4th quarter in multifamily as revenue increased 45% year over year, including the impact for the ForRent acquisition. For the full year 2018, the average number of properties that advertised on our network increased approximately 25%, while the average revenue per property improved 20%.
Looking forward, expect multifamily revenue growth of approximately 20% for the full year of 2019. We expect growth of approximately 30% in the Q1 of 2019 compared to the Q1 of 2018 as we lap the late February acquisition date of ForRent. Growth rates in the second and third quarter should be in the mid teens due to the negative effect of certain duplicative and discontinued revenues from ForRent that was in our 2018 results that won't be in our 2019 results. The growth rate exiting 2019 is expected to be in line with the 20% full year outlook for multifamily. Finally, in commercial property and land, revenue grew 17% year over year in Q4 of 2018.
This strong growth reflects the increased sales of LoopNet marketing products by our national CoStar field sales force. Our LoopNet tiered advertising products performed exceptionally well, growing approximately 50% for the year. For 2019, we expect revenue growth in commercial property and land in the 18% to 20% range. Our gross margin was 77% for the full year 2018, and it came in at 78% in the Q4 of 2018, up 200 basis points from the Q3 of 2018 and 130 basis points from the Q4 of 2017. We are certainly realizing the benefits of strong operating leverage in our research operations, which we expect to continue as our listing manager tools achieve greater adoption throughout 2019.
We expect overall gross margins of 78% for 2019 with margins improving throughout the year to between 79% to 80% by the end of 2019. 4th quarter adjusted EBITDA of $139,000,000 was approximately $12,000,000 above the midpoint of our guidance range due to revenue outperformance of approximately $6,000,000 and lower expenses, primarily personnel related. I know we've said it already, but it really never gets old. Our adjusted EBITDA margin for the Q4 came in at 44%, above our 41% margin guidance and that long term goal of 40%. Net income for the full year of 2018 was $238,000,000 94% ahead of the prior year, reflecting tremendous operating profit growth as well as the R and D tax credits we achieved in the Q2 of 2018.
Net income was $9,000,000 ahead of the net income expected in our guidance forecast for the Q4. Non GAAP net income for the full year of 2018 was $302,000,000 and includes adjustments for stock based compensation and acquisition related expenses. This represents growth of 96% compared to 2017. Now let's take a look at some performance metrics for the quarter. At the end of the year, our sales force totaled 7.41 people, a slight increase from the 733 salespeople we reported at the end of the Q3 of 2018.
We anticipate a modest increase in the size of our sales force in 2019, primarily focused on CoStar and LoopNet. The renewal rate on annual contracts for the Q4 was broadly in line with the rate achieved in the Q3 of 2018 at 90%, which was down slightly from the 91% we achieved in Q4 of 2017. The renewal rate for customers who have been subscribers for 5 years or longer was 96%, consistent with the Q3 of 2018 and down slightly from the 97% in the 4th quarter of 2017. Subscription revenue on annual contracts accounts for 80.9% of our revenue in the quarter, up from 79.7% this time last year. We're now 1 full year past the date we acquired ForRent, and we completed the integration.
When we announced the deal, we expected to add revenue of approximately $75,000,000 to $85,000,000 with adjusted EBITDA margins expected to be in a range of 45% to 55%. I'm happy to say we achieved our financial objectives after only 10 months. These results are highly accretive, as you can tell by our profit results, and indicate a post synergy acquisition price of less than 9 times EBITDA, certainly not a bad day's work. So now we'll discuss our outlook for the full year and the Q1 of 2019. We expect revenue in the range of 1.37 $1,000,000,000 to $1,380,000,000 for the full year of 2019.
This implies an annual growth rate of 15% to 16% over 2018. We expect revenue for the Q1 of 2019 in the range of $325,000,000 to $329,000,000 This represents approximately 19% to 20% growth compared to the Q1 of last year. As I noted earlier, we booked approximately 1 month of ForRent revenue in the Q1 of 2018, which is why our consolidated growth for the Q1 of 2019 is stepping down from 24% growth rate in the Q4 of 2018. As we pass the anniversary of the ForRent acquisition, we expect revenue growth in a range of 14% to 15% for the remaining quarters in 2019. We'll focus on a number of important growth investments in 2019, while at the same time growing our profit margins.
Our top investments for 2019 include the independent owner software platform and products that Andy talked about, along with the development and launch of the next generation of LoopNet. In addition, we're developing product capabilities within CoStar that we believe will take advantage of significant growth opportunities with both owners of commercial properties and lenders. We'll also continue to build our network of marketplace businesses, including our international operations in Europe and Canada. As a result, we expect total operating costs to increase between 9% and 11% against revenue growth of 14% to 15% in 2019. As in prior years, our advertising spend is expected to be more heavily weighted in the first half of the year, with the second quarter expected to be our largest marketing quarter.
As a result, we expect the 2nd quarter to be the low point for adjusted EBITDA margins for the year as was the case in 2017 2018. We expect adjusted EBITDA in a range of $495,000,000 to $505,000,000 that's $500,000,000 for the full year of 2019, which represents 20% growth at the midpoint compared to 2018. We expect adjusted EBITDA margin for the year of approximately 36% at the midpoint of our guidance range. For the Q1, we expect adjusted EBITDA in a range of $120,000,000 to 124,000,000 dollars up 45% compared to the Q1 of 2018. We expect 2019 non GAAP net income per diluted share in a range of $9.80 to $10 based on 36,600,000 shares.
For the Q1, we expect non GAAP net income per diluted share in a range of $2.38 to $2.47 based on 36,500,000 shares. These ranges include a revised non GAAP tax rate of 25%. Overall, I believe we're well positioned in 2019 to deliver strong growth and margin expansion, while at the same time making significant investments for the future. I'm excited about our long term goals of $3,000,000,000 in run rate revenue and 40% plus of adjusted EBITDA margins in 5 years. Now with regards to our margin improvements, keep in mind, we have a tendency to avoid doing things in a straight line.
Accordingly, our margin trajectory may vary considerably from year to year. I sound like Rich giving a disclaimer on this one. It is important that when we have attractive investment opportunities, we allow the flexibility in our expectations to pursue those opportunities vigorously. All right, that's enough of me talking. Let's open up the call for questions.
Our first question is from the line of Peter Christiansen with Citi. Please go ahead.
Good afternoon. Thanks for the question. Andy, there's been some deal activity in Europe recently, and I don't want to point to one deal specifically, but then and there's also some start up activity in Asia, similar models as CoStar, which gives a testament to your financial model. But do things like this, I'm not pointing to one deal specifically, change the calculus in terms of when and how CoStar is thinking about making international more of an investment priority?
Well, thank you, Peter. We are putting a significant amount of effort into our international operations. You'll see that when you look at our outlook, we have significant capital going into our European and Canadian operations. We think that some of the deals I believe you're referencing are interesting, but they're not direct parallels to what we're doing. So they don't really shift the competitive picture in any which way.
There we're watching that. And if something came up that was really interesting, we would participate in that. But we're going to continue to be aggressive but measured in our international operations. But to it, I'll be over there next week. So we're watching it and continuing to build the operations there.
We are I think at this point, we have 8 of the top 10 firms in Canada as clients now, and I think we are 9 or 10 of the top 10 in the United Kingdom. So we're doing well, and Germany is continuing to do well, France and Spain continue to build there. So we're watching it, but not dramatically shifting.
Thank you. And we have a question from Andrew Jeffrey with SunTrust. Please go ahead.
Hey, guys. This is Oscar Turner on for Andrew.
Hello. Hi, Oscar.
Hey, guys. My question is on the incremental investments. I was wondering if you can quantify the incremental investment towards a couple of the top initiatives you talked about. And then how should we think about the incremental revenue growth that those investments can drive and the timing of a growth acceleration in LoopNet and Apartments?
Yes. Let me cover a bit on the investment side, and then we can talk a little bit on the outlook for them. The bigger ones that we're going to be focused on this year, really the marketplace build outs, both for LoopNet in the U. S. And then the marketplace in the U.
K, which is on the backbone of our RAYALA business. We think we'll probably have between $20,000,000 $25,000,000 of investment that will go in to building those platforms out, which includes marketing and other capabilities. Then we have the independent owners investment that Andy mentioned, which you've already have a decent amount of investment going in currently and think we'll ramp that up by another $10,000,000 or so next year. And then the build out of the CoStar platform with owners, lenders, promoting some of the listing manager work we're doing in software with along with some more in CoStar, we think there's probably another $10,000,000 to $15,000,000 of costs and investments there. When you look at our cost growth, we figure that that a little bit less than half of our cost growth really has to do with investments we made in 2018 that annualized in 20 19 or labor increases, inflation, those types of things.
So a little less of the cost growth is for year over year and normal business operations and the rest really isn't going into new investments that really benefit future years and future revenue growth. I don't know, Andy, if you want to talk about the revenue outlook for some investments.
Yes, I think that the revenue return on LoopNet is a reasonably short cycle. There'll be a pretty aggressive focus on that product area investment, that product over 2019 2020, but we think we'll see results coming from that in the back half of 2019 2020 and then ongoing. And then with the IO market, that's probably the more meaningful results there are probably in 2020. And then for the increase in the Apartments dotcom budget, we think that while we are taking share and leading the market. We want to keep the pressure up and accelerate to keeping share to widen the moat and increase the lead.
So it's a range of different outlooks on these and we feel pretty solid about all of them.
Our next question is from the line of George Tong with Goldman Sachs. Please go ahead.
Hi, thanks. Good afternoon.
Hi, George. You've
outlined goals of reaching $3,000,000,000 in run rate revenues by the end of 2023, which implies at least mid teens annual revenue growth. Can you discuss how much pricing will contribute to these growth rates given your previously discussed plans to eliminate discounting in CoStar Suite and potentially increase rate cards in the multifamily segment?
Sure. I don't believe the majority, the substantial majority of this will be price increases. We think that across Europe and Canada and the United States, there are a lot of new revenue opportunities, new customers, additional modules to be purchased, increased purchasing. So we think a lot of this is share gain and share of wallet. The pricing increases on places like LoopNet, you're shifting your priority from selling a basic ad to a broker for $50 $60 to selling a something that looks more like an Apartments dotcomad with really impactful presentation sorted at the top with more features and you're selling it to an owner with a lot of economics at stake and often it's going to be different properties in that mix.
And the new price could go from $60 up to $6,000 a month. So there is sort of shifting the budget, shifting the priority or shifting the target audience, shifting the priority. We don't anticipate getting to $3,000,000,000 in revenue by simply increasing the same customers' price for the same product.
And we have a question from David Ridley Lane with Bank of America. Your line is open.
Sure. Good afternoon. Can you talk a little bit about the details of the LoopNet site relaunch and whether or not you considered launching a separate brand to differentiate between the up market and the down market there? Thank you.
That's a good question. And it will be a little challenging to go into too much detail on it. We have thought about that. We don't think we need to do that. We actually are going to initially go to market really focusing on the branding of CoStar Marketing Network, because if you own a, say, an expected new office building in Washington, D.
C, we're actually providing our customers with a whole range of marketing solutions. We enable that owner to reach the professional community by carrying these ads into the CoStar network. We're carrying them into City Feed and to Showcase into CoStar. We also power websites through Loop Link. We also have email marketing campaigns through CDX direct our direct email marketing product.
And then we've got tactical and analytical support where we can produce analysis on the amount of demand and supply for the particular kind of product you're producing and where you may want to position the product in pricing or how you may want to subdivide it or what terms you may want to consider. And then we're also uniquely providing the biggest end user audience through LoopNet. So we can and there's 2 or 3 other items. But as we put all this together, we're going to simplify it into a network sale the way we simplify Apartments dotcom into a network sale. And LoopNet is just one component of this whole range of very valuable marketing solutions for getting a property leased at the best price in the shortest timeframe and huge economics.
So, and then we think that over time as we shift the way LoopNet shift the way LoopNet looks and feels and it goes it becomes much more polished, has more breadth of data, has a lot of content articles that demystify some of the leasing process and investing process. As we shift it from industry jargon to more plain English, as we add in a lot more sort of exciting shopping characteristic stuff like where are the best places to eat lunch at this particular property, what's your commute going to look like, all that kind of stuff. We think the LoopNet brand itself will be a good brand to carry because it's already super well known. And what we're doing is just moving it more upmarket and targeting a slightly different audience, while continuing to target the original audience. So we think we're pretty happy with the CoStar marketing network at this point.
And our next question from the line of Brett Huff with Stephens. Your line is open.
Good afternoon, guys. Hello, Brett.
Yes, you win.
My question is on the Suite mix in sales. I think one consequence of having Suite sales people also sell LoopNet was a little bit of extra juice for LoopNet and a little bit less growth in sales for Suite. We get some questions sometimes about penetration rates of Suite and are we getting to a point where those are starting to trickle off. Can you illuminate kind of how do we know that the mix of sales is a result of just kind of effort levels being different versus maybe reaching the harder to reach TAM areas of that market?
Well, when you ask has CoStar reached a saturation point, all I can say is, So, yes, I mean absolutely not. There are so many different ways that the CoStar product is growing and adding more value. Like in preparing for this earnings call last night, I was just curious about some of those apartment stats and what the mix of units are different. And I was and I'm like, well, going to CoStar and pull some of this data according to company estimates. And man, what a phenomenal product, the ability to like actually get really good data on the mix of apartment units at different size communities.
It didn't exist in the product a couple of years ago. It's invaluable. I can't imagine someone in the apartment sector without that information. I've been at this, as we mentioned, I guess this went public, we're approximately 25% compound annual growth rate. At the point we went public, there was a lot of discussion about the fact that CoStar was saturated.
And 5 years before that, there was discussion around CoStar Saturated. I spent my entire career hearing about CoStar Saturated pretty much from the literally the 1st or second year we launched CoStar. In my view, not a chance, not even a chance. Unfortunately, if I work another 20 years like my dad, I will not outlive the potential to saturate the CoStar market. But it's just one man's wishy washy opinion, but solidly no.
Our next question is from the line of Mayank Tandon with Needham and Company. Please go ahead.
Thank you. Andy or Scott, I just wanted to kind of dig in a little bit on the EBITDA trajectory for 2023. Maybe Scott, you said it won't be linear, which is obviously to be expected. But if you could just talk about the various levers that get you to that 40% target? And maybe you could talk about it by segment in terms of where you think the profitability will come from across the 3 different business lines?
Yes. So the margin accretion, clearly, you can throttle it pretty rapidly as we just showed this last year, we added 600 basis points. And then the year, for example, in 2017, when we did the research investments, we slowed it back down and had modest margin growth. It's not inconceivable to see 100 to 200 basis points margin growth a year pretty simply and still have room like we have in this plan for 2019 to make significant investments for future growth. So that's all pretty stable from an organic perspective and I can see us getting if nothing else changes and you keep driving this organic growth, you certainly can get over that 40% margin and the business can capably do that in the 5 years.
The real wild card in some of this is the amount of acquisition we're going to be doing, the margin profiles of acquisitions that we buy, how that dilutes over time. And so you heard us be a little bit cautious in saying, okay, it's 40% plus, and that really depends on what happens with the acquisition path, what those look like and the timing of them and then how long it takes to move the margins of the businesses we acquire up to our natural margins. When we look at the margins of the different product sectors that we're in, our marketplaces typically run the highest margins that are 50% plus margin profiles in the marketplaces. And then now with CoStar being in that historically 30% to 40% range depending on the investments we make, you're going to see both sides of the business grow pretty substantially. I think you'll see apartments, obviously, will outpace CoStar in a couple of years given our current growth trajectories.
And so I think you'll get that information and investment side of things coming in the 30%, 40% margins and you'll see marketplaces as they really continue to scale rapidly moving up in those 40%, 50% plus margins.
Furthermore, CoStar is not in any way saturated.
I will go to Bill Warmington with Wells Fargo. Please go ahead.
Good afternoon, everyone. Hello, William. So the history majors, so sometimes I need a little help with my math. So I wanted to run some math by you and you could tell me what I'm doing wrong. If you look at CoStar Suite and how that was up about 18% last year and if you look at if you kind of back out $15,000,000 to $20,000,000 of revenue from what you did this during the Q4, that would seem to which I know you don't specifically break out, but if you assume that and that would seem to imply something in the upper teens as the organic growth for the quarter.
And then if you look at the net bookings coming in about $50,000,000 in Q4 versus a tough comp and you average that out into 2019, that would be about $200,000,000 for the year, which versus $169,000,000 would be up about 18%. I guess what I'm getting at is that the leading indicators on the revenue side seem to be pointing to something closer to 18%, mid teens going to the upper teens. And I just wanted to run that math by you and see if that was the same math you guys are getting.
Billy, as I do that math, I start to think that Scott is somewhat conservative.
We have a lot of selling to do this year, people.
Always got a or the climbing has been doing has been on a mountain of sand, right?
Yes. Pick up the pace.
The better crystal ball on the quarterly sales numbers, Bill. I mean, you've watched this for so long. You see how they bounce up and down $5,000,000 swings quarter to quarter isn't unheard of depending on what we're focused on, what part of the business we're generating, timing of renewals on contracts. So we always want to make sure that we don't get too far ahead of ourselves when we have a lot of plans for the year and we'll continue to start the year that way and hopefully we'll get to the point where you can do our forecasting for us because your numbers will be a lot better than mine I'm sure as we keep going. But we did have a good quarter in the Q4, but those bounce around between quarters.
So we'll give ourselves time to sell out from under those in the 1st two quarters of this year.
And Sterling Auty with JPMorgan.
I was just wondering if CoStar's opportunity is saturated.
Oh, man, that's insightful. Would you like to have a different question?
Yes, actually, I would. I wondered actually, I think the comment in the call around the investment in sales headcount increases that they'd be modest in 2019. So I'm curious where the focus of those added heads will go? And when you think about you talked about some of the other increases in budgets and investment, what's going to be the focus of it? I imagine multifamily talked about the marketing campaign, but just to wrap our heads around the structure of the investments in 2019.
Yes. They run broadly in line with the numbers I gave a bit earlier on. I think someone asked one of the other questions of how much we're spending in the different investments. And those are broadly people driven. The marketing side will be concentrated clearly more on the apartments in the LoopNet side, that's where the marketplaces sit.
But we are adding a decent amount of resourcing into LoopNet, into technology. And then when we say modest for sales, I consider that's less than 10%, which is still could be 50 to 75 people easily for a sales force of that size. So our big area of research, we're finding that they're getting so much good productivity. One area we don't need to add a lot of people as our listing manager products are freeing up resources that we then deploy on to owner and lender products and into helping support LoopNet. So it's not going to be in the research world, it's going to be mostly in technology and the resources going into the building those investments in the international marketplaces and the independent owner space.
I have to say that if I were to look at my wish list from the beginning of 2018 on sort of structural improvements we would like to complete on our sales force. We have I feel that we've accomplished a lot of those goals. We have 1 or 2 things to do in terms of go to market strategy on major accounts in CoStar. But over the years, I don't think I've been in a place where I feel like our sales force is more stable than it is now. We've got a good apartments.com sales team led by Paige Forrest, who's a very experienced sales professional.
We've got Max Lamington doing a fantastic job. What's happening now is really tweaking a strong group and we're still probably a year out from anything that would be a major structural change driven by a change in our an acquisition or some other significant change. So we're in a pretty stable place.
And we have a question from Stephen Sheldon with William Blair. Please go ahead.
Hi, good evening. So you talked about building out software platforms to integrate more in the rental leasing process and moving past leads with Apartments.com to more of the execution side, which appears to include Cozy. It makes a lot of sense, but I also wanted to ask about how this could impact your ability to extract data from the rental cycle? So beyond just alleviating pain points, is this also about getting and integrating more and better data into your core database?
That's one of the nice things that we love about the marketplaces. The fact that you're in the data business helps you to perform much more effectively in the marketplace and the fact that you then do well in the marketplace feature data business with some really exciting and valuable data. And it keeps your costs lower overall than if you were in just one or the other of the markets. So we're able to afford to get data and content that we otherwise probably couldn't afford. We can provide consumers with information in marketplaces that we normally would never pay for if we didn't have an offsetting revenue stream and information.
So yes, success in the IO market will generate a massive amount of real time and accounting grade data. It also gives you really interesting data where you can understand pricing in relationship to credit and risk. And you also will be it also could have the potential of generating new sorts of credit information that's very valuable to independent owners. And the independent owner data, the data that you generate from the independent owner side is equally valuable to the institutional players, because the renters move back and forth between the different markets. And so it's all very interesting to both those groups.
And certainly a Greystar property, though it offers a lot in a given market, it also its pricing is driven by what's happening in the IO market all around in the neighborhood. There is high substitution between those two segments. So yes, if you're a data nerd, pretty exciting data coming out of the project on success.
We have a question from Scott Buck with B. Riley FBR. Please go ahead.
Hi, guys. I was curious of
the $1,000,000,000 plus you have in cash on the balance sheet, what do you actually need to run the day to day operations? And to the extent that you're carrying a fair amount above that, would that suggest an appetite for doing a larger transaction within the next couple of years? Thanks.
So I'll let I'll take that and flip it around. I'll say that, highly likely that we would do continue to do smaller deals and midsize deals, but we keep gradually escalating the scale of some of the deals we do. So we believe it's quite likely that we'll use that buying power to do transactions in a reasonably short timeframe. In terms of how much we
on the cash side, we're going to get about $400,000,000 of free cash coming out this next year. So we'll be adding to our cash piles unless we're doing larger acquisitions. We need new carpet. New carpet, okay, with $399,000,000 $10,500,000 we'll generate this year. Fresh growth.
We'll do a little of that. But yes, I think we had $300,000,000 of free cash flow in 2018. It will go to $400,000,000 next year. So we definitely don't need all that to run the business. We need to get out and keep adding new capabilities and bigger ones too.
Well, I think with that, we are done with the Q and A period. And thank you all for joining us. And don't forget CoStar is not saturated. I am excited about the many tens of thousands, if not hundreds of thousands of additional future clients we have ahead of us. Thank you for joining us.
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