Executive Summary / Key Takeaways

• CoStar Group is strategically expanding its digital dominance in real estate through aggressive sales force growth and transformative acquisitions like Matterport (MTTR) and Domain (DHG), aiming to capitalize on vast untapped markets.
• The company delivered robust Q2 2025 financial results, with 15% year-over-year revenue growth to $781.3 million and a record $93 million in net new bookings, demonstrating strong operational momentum.
• Homes.com is rapidly gaining traction, challenging traditional residential portals with its "your listing, your lead" model, evidenced by surging Net Promoter Scores and significant traffic gains.
• Technological differentiation, particularly through Matterport's 3D digital twin capabilities, is being deeply integrated across CoStar's platforms to enhance user engagement and drive future monetization.
• While near-term investments impact profitability, CoStar's core commercial businesses maintain strong 43% profit margins, underpinning the long-term vision for sustained double-digit growth and market leadership.

The Architect of Digital Real Estate

CoStar Group, Inc. has long been the preeminent provider of information, analytics, and online marketplaces for the commercial real estate (CRE) sector. Founded in 1987, the company has systematically built a formidable competitive moat through extensive proprietary data networks and strategic acquisitions. This foundational strength, characterized by deep data insights and a robust B2B focus, has enabled CoStar to maintain a dominant position, even amidst challenging market cycles.

The company's evolution from a data provider to a comprehensive marketplace operator is best exemplified by its transformative acquisitions of LoopNet in 2011 and Apartments.com in 2014. These moves, initially met with investor skepticism, propelled CoStar into clear leadership in their respective segments. Apartments.com, for instance, has seen its revenue surge approximately 1,200% since its acquisition, reaching a $1.1 billion run rate in 2024. This history of successful integration and market leadership underpins CoStar's current ambitious expansion into new frontiers, particularly in the residential real estate market.

A core tenet of CoStar's strategy is the relentless pursuit of technological differentiation. The recent acquisition of Matterport in February 2025 is a testament to this commitment. Matterport, a leader in 3D digital twin technology, transforms physical spaces into dimensionally accurate, digital images. This technology offers immersive capabilities that far surpass traditional 2D images, providing a virtual experience second only to physically being in a space. For investors, this means enhanced competitive moats, as Matterport's technology directly translates into tangible benefits: listings with 3D tours on Apartments.com, for example, receive 23 times more leads.

CoStar plans to deeply integrate Matterport's AI, computer vision, and machine learning across all its platforms, from Apartments.com and Homes.com to LoopNet and CoStar Real Estate Manager. This integration aims to enhance user experience, improve property analytics, and optimize operational efficiency. The company is also investing in future Matterport camera development, with plans for a "Pro 4" and "Pro 4 Ultra" to make high-end capture more accessible. This technological roadmap is designed to drive higher engagement, accelerate leasing processes, and ultimately contribute to CoStar's long-term revenue growth and market positioning by digitizing the world's real estate.

Forging a New Residential Empire

CoStar's strategic pivot into the residential market, spearheaded by the relaunch of Homes.com in February 2024 and the acquisition of OnTheMarket in the U.K., represents a significant long-term growth driver. This initiative is built on a "your listing, your lead" business model, which directly contrasts with the "lead diversion" models prevalent among legacy U.S. residential portals like Zillow (ZG) and Realtor.com. This agent-friendly approach, where leads go directly to the listing agent, aligns Homes.com with the highly profitable, vendor-paid advertising models seen in successful international markets.

The initial launch of Homes.com faced challenges, including a small dedicated sales force and early misunderstandings of its value proposition, leading to a Net Promoter Score (NPS) of negative 42 in May 2024. However, through aggressive sales force expansion and continuous refinement of its messaging, Homes.com's NPS surged to 38 by Q2 2025, a remarkable 340% quarter-over-quarter increase. This rapid improvement in agent satisfaction, coupled with a plummeting early cancellation rate, signals strong product-market fit.

Homes.com is rapidly gaining audience share. Its network attracted an average of 111 million unique monthly visitors in Q2 2025, placing it well ahead of third and fourth-ranked competitors. Unaided awareness has grown dramatically from 4% at launch to over 36%, with unaided intent rising to 25%. These metrics indicate a successful brand-building campaign that is closing the gap with entrenched competitors. The company is tripling its Homes.com sales force from 230 at the end of 2024 to approximately 750 by the end of 2025, a key assumption for driving future revenue acceleration.

The competitive landscape in residential real estate is intensifying. Zillow's recent policy of forcing agents to market listings on its platform within 24 hours or face a permanent ban is viewed by CoStar as an aggressive, potentially anti-competitive tactic. CoStar has responded by offering free "Boost" promotions on Homes.com for any listings Zillow bans, positioning itself as a direct, agent-friendly alternative. This strategic positioning, coupled with the planned launch of a robust new home section in August 2025 (targeting the 60% of homebuyers who prefer new construction), underscores Homes.com's ambition to become a dominant force in the residential market.

Financial Strength and Strategic Investments

CoStar Group's financial performance in Q2 2025 underscores its underlying strength and the impact of its strategic investments. Revenues reached $781.3 million, a robust 15% increase year-over-year, marking the company's 57th consecutive quarter of double-digit revenue growth. This growth was broad-based, with significant contributions from the Matterport acquisition (driving a 139% increase in "Other Revenues"), an 11% rise in Multifamily revenue, and solid single-digit growth across CoStar and LoopNet.

Despite aggressive investments in growth initiatives, particularly Homes.com and Matterport, CoStar's core commercial information and marketplace businesses maintained an impressive 43% profit margin in Q2 2025. Consolidated adjusted EBITDA rose significantly to $85 million, an impressive 108% increase compared to Q2 2024, exceeding guidance. This outperformance was partly due to higher revenue and favorable timing of investment spend.

Net new bookings hit a record $93 million in Q2 2025, a 65% sequential increase, reflecting strong sales force productivity across all segments. Apartments.com achieved $45 million in net new bookings, its fourth-highest quarter ever, and maintains a 99% monthly renewal rate with a 94% NPS. LoopNet delivered more net new business in the first half of 2025 than all of 2024, with net new bookings surging 345% year-over-year, driven by a successful shift to asset-based pricing and broader subscription packages.

CoStar's balance sheet remains a fortress, with $3.7 billion in cash, cash equivalents, and restricted cash as of June 30, 2025.

While net cash used in investing activities totaled $1.06 billion in the first half of 2025 (primarily due to Matterport and Domain equity purchases), operating cash flow remained positive at $200 million.

The company is committed to returning value to shareholders, anticipating repurchasing at least $150 million in shares in 2025 under its $500 million stock repurchase program.

Looking ahead, CoStar has increased its 2025 revenue guidance midpoint to $3.135 billion to $3.155 billion, implying 15% annual growth. Adjusted EBITDA guidance for 2025 is now $370 million to $390 million. For Q3 2025, revenue is projected to be $800 million to $805 million, with adjusted EBITDA between $75 million and $85 million. These figures reflect the strategic decision to discontinue certain noncore, unprofitable Matterport revenue streams, which will impact Q3 revenue by approximately $10 million for the full year.

Risks and the Path Forward

While CoStar's strategic vision is compelling, investors should be mindful of several key risks. The integration of large acquisitions like Matterport and Visual Lease carries execution risk, though management has a strong track record. Matterport, while technologically advanced, has not yet achieved profitability, and its reliance on a limited number of hardware suppliers poses potential supply chain risks. The pending Domain acquisition, a significant international expansion, is subject to regulatory and shareholder approvals, with no guarantee of completion.

The aggressive expansion of the sales force, while crucial for growth, presents operational challenges in hiring, training, and maintaining productivity. The initial Homes.com launch highlighted these challenges, with a temporary impact on core sales force productivity. However, the rapid improvement in Homes.com's NPS and sales metrics from its dedicated team suggests effective mitigation. Furthermore, ongoing copyright infringement lawsuits against competitors like Zillow and CREXi underscore the competitive intensity and the need for robust intellectual property defense.

Despite these challenges, CoStar's long-term outlook remains highly optimistic. Management expects its core CoStar Suite and LoopNet businesses to return to double-digit growth as the commercial real estate market recovers from its multi-year malaise. The multifamily segment, led by Apartments.com, is projected to sustain low to mid-double-digit growth, leveraging its dominant market position and vast untapped TAM. Homes.com is poised to become one of CoStar's largest businesses, with revenue expected to increase in line with sales force growth through 2025, delivering strong double-digit growth from 2026 and beyond.

Conclusion

CoStar Group stands at a pivotal juncture, transforming from a commercial real estate data powerhouse into a diversified global real estate technology leader. The company's strategic acquisitions, particularly Matterport, are not merely about market share but about embedding a new generation of digital twin and AI technology that promises to redefine how properties are marketed, managed, and transacted. This technological edge, combined with a relentless focus on expanding its sales force and a differentiated, agent-friendly approach in the residential market, forms the bedrock of its long-term investment thesis.

While the path to fully realizing the potential of Homes.com and Matterport involves significant investment and execution, CoStar's consistent double-digit revenue growth, strong core commercial margins, and robust liquidity provide a solid foundation. The company's ability to adapt and innovate, even in challenging market conditions, positions it to capitalize on the multi-trillion-dollar global real estate market. For discerning investors, CoStar Group represents a compelling opportunity to participate in the ongoing digitization of real estate, driven by a clear vision and a proven track record of value creation.