Executive Summary / Key Takeaways

• CoStar Group ($CSGP) continues its impressive growth trajectory, marking its 58th consecutive quarter of double-digit revenue growth in Q3 2025, driven by strategic acquisitions and robust organic performance across its commercial and residential segments.
• The company is aggressively investing in technological differentiation, particularly in AI-powered features for Homes.com and the integration of Matterport's 3D digital twin technology, which significantly enhances user engagement and property marketing.
• CSGP's residential expansion, spearheaded by Homes.com and the recent Domain acquisition, is rapidly gaining market share with a "Your Listing, Your Lead" model, positioning it as a strong alternative to competitors' lead-diversion strategies.
• Despite a challenging commercial real estate market, core commercial segments like CoStar and LoopNet are showing resilience and renewed growth momentum, supported by strategic pricing and sales force expansion.
• The company faces ongoing competitive and legal challenges, particularly against Zillow Group , but its differentiated business model, strong financial health, and strategic investments are expected to drive long-term value creation.

The Digital Architect of Real Estate's Future

CoStar Group, Inc. ($CSGP) stands as a global leader in real estate information, analytics, online marketplaces, and 3D digital twin technology. Founded in 1987, CoStar's journey began with a pioneering vision to digitize real estate information, mapping, and photography, becoming one of the first to leverage the internet for real estate. This foundational commitment to technology and data has shaped its current strategy: to digitize the world's real estate, expand its total addressable market (TAM), and leverage its proprietary data and technological prowess across both commercial and residential sectors.

The real estate industry is undergoing a profound digital transformation, with artificial intelligence (AI) emerging as a transformative force. CoStar Group is strategically positioned to capitalize on this trend, distinguishing itself from competitors through its deep data reservoirs, specialized AI models, and a business model that aligns with real estate professionals. This approach contrasts sharply with general-purpose technology innovations that have historically struggled to dominate the specialized real estate vertical.

Technological Moat and Innovation Driving Engagement

CoStar Group's competitive advantage is deeply rooted in its differentiated technology and extensive proprietary databases. The company has invested decades in building and refining its data collection and analytical capabilities, which form the bedrock of its offerings. This commitment to data accuracy and depth provides a significant barrier to entry for potential competitors.

A cornerstone of CoStar's technological differentiation is its integration of Matterport's 3D digital twin technology. Acquired in February 2025, Matterport's platform transforms physical spaces into dimensionally accurate, digital images, offering an immersive experience that is second only to physical presence. This technology provides tangible benefits across CoStar's platforms. For instance, member listings on Homes.com featuring Matterports captured nearly 40 times more listing detail views than non-member listings without them. Furthermore, subscribers with a Matterport on a listing showed a 37% higher renewal rate, demonstrating the direct impact on customer retention and value. Matterport is being developed on two fronts: as a standalone solution for industries like insurance and construction, representing a multi-billion-dollar revenue opportunity, and as an integrated solution within CoStar's existing marketplaces, expected to generate over $1 billion in incremental value. CoStar plans to expand the Matterport sales force by 200 by the end of 2026 and is investing in developing more advanced cameras, such as the Matterport Pro 4 and Pro 4 Ultra, to make high-end capture more accessible.

Another significant technological leap is the launch of AI Smart Search on Homes.com, developed in partnership with Microsoft (MSFT). This groundbreaking feature allows consumers to use natural language for complex property queries, eliminating the limitations of traditional filters. Early results are compelling: users of AI Smart Search utilize 69% more search filters, view 37% more listing pages per session, are five times more likely to return to the site within the following week, and submit 51% more leads after viewing a listing page. CoStar is dedicating 50% of Homes.com's software development efforts in Q4 2025 and beyond to building a range of AI-empowered features, underscoring its belief in AI's transformative potential for real estate.

Beyond residential, CoStar is developing lease benchmarking capabilities by aggregating anonymized data from its CoStar Real Estate Manager and Visual Lease platforms. This initiative aims to create a trusted source of pricing and occupancy information for commercial real estate, providing unprecedented transparency for investors, brokers, corporates, and lenders. These technological advancements collectively strengthen CoStar's competitive moat, enhance user engagement, improve operational efficiency, and unlock new revenue streams, directly contributing to its long-term growth strategy and financial performance.

Strategic Expansion and Operational Excellence

CoStar Group's strategy is characterized by aggressive investment in growth opportunities, both organically and through strategic acquisitions, while maintaining operational discipline. This is evident across its diverse portfolio.

Residential Revolution: Homes.com, Domain, and OnTheMarket

The residential segment is a key growth driver, with Homes.com leading the charge. Relaunched in February 2024, Homes.com operates on a "Your Listing, Your Lead" business model, which management believes is superior to competitors' lead-diversion strategies. This model allows CoStar to serve a much larger number of agents, potentially over 50%, compared to the approximately 5% served by lead-diversion models. Homes.com has rapidly built its audience, becoming the second-largest U.S. residential portal based on traffic within 14 months of its relaunch. Unaided brand awareness reached 42% in August 2025, a significant increase from 4% at launch. The Net Promoter Score (NPS) for Homes.com subscribers surged to 36 in Q3 2025, reaching 43 by October, reflecting strong client satisfaction. The dedicated Homes.com sales force has grown nearly six-fold to 277 salespeople by Q4 2024, with a target of 500 by year-end 2025 and 750 by the end of 2025, driving significant increases in annualized net new bookings. The "Boost" product, a marketing option for single listings, has seen sales rise 136% quarter-over-quarter in Q3 2025 to $617,000, and serves as a lead pipeline for full memberships.

The Domain Acquisition, completed on August 27, 2025, marks a significant entry into the Australian market. Domain's residential marketplace is highly successful, generating over 50% direct contribution margin. CoStar plans to integrate its technology and platforms, including Homes.com, CoStar, and LoopNet, into the Australian market within 18 months, aiming to expand market share and improve profitability by rationalizing Domain's product portfolio. In the U.K., OnTheMarket, CoStar's residential portal, has also shown strong performance, with leads up 21% year-over-year in Q3 2025 and 17 consecutive months of net new bookings growth, delivering nearly $11 million in annualized revenue since its acquisition. The combined residential portals (Apartments.com, Homes.com, OnTheMarket, and Domain) generated $411 million in Q3 2025 revenue, or $1.644 billion annualized, with management projecting long-term adjusted EBITDA margins of over 40%.

Commercial Core: CoStar, LoopNet, and Information Services

CoStar's core commercial information and marketplace businesses continue to demonstrate resilience. The CoStar product generated $277 million in Q3 2025 revenue, an 8% year-over-year increase, with net new bookings reaching their highest level since Q3 2023. The subscriber count rose to 284,000, up 20% year-over-year. The "CoStar for Lenders" product achieved a record quarter in Q3 2025, closing $4.3 million in annual net new bookings and approaching $100 million in revenue with over 450 clients. Despite a challenging commercial real estate market, CoStar sees signs of recovery, with demand for office space turning positive and transaction volumes picking up.

LoopNet, the world's largest commercial real estate marketplace, achieved 12% revenue growth in Q3 2025. The company is shifting its strategy to asset-based pricing and focusing on selling broader subscription packages, which has resulted in a 98% renewal rate for the first cohort of contracts with price increases. International expansion is a key focus, with French listings integrated in Q3 2025, bringing total European listings to 100,000 across France, Spain, and the U.K. Australia will also join the LoopNet network through the Domain acquisition.

The Information Services segment, including CoStar Real Estate Manager and Visual Lease, saw Q3 2025 revenue climb 63% year-over-year to $30.6 million. The integration of these platforms is progressing, with lease benchmarking capabilities expected to launch in mid-2026.

Financial Performance and Liquidity

CoStar Group's financial performance in Q3 2025 reflects its strategic investments and operational effectiveness. The company reported revenue of $834 million, a 20% increase year-over-year, marking its 58th consecutive quarter of double-digit revenue growth. Adjusted EBITDA for the quarter rose 51% year-over-year to $115 million. The profit margin in its Commercial Information and Marketplace businesses reached a strong 47% in Q3 2025. Net new bookings for the quarter were $84 million, a substantial 92% increase year-over-year, indicating strong sales momentum.

However, the company's aggressive acquisition strategy has impacted its cash position. Cash, cash equivalents, and restricted cash decreased to $2 billion as of September 30, 2025, from $4.7 billion at the end of 2024, primarily due to $2.7 billion in net cash used for investing activities related to the Matterport and Domain acquisitions. Despite this, management believes its current cash balance, combined with cash generated from operations and access to capital markets, will be sufficient to meet its cash requirements for the foreseeable future. The company also has $188 million in construction commitments for its Richmond campus expansion, with $73 million expected in the remainder of 2025. A $500 million stock repurchase program was approved in February 2025, with $115 million repurchased year-to-date and $385 million remaining.

From a profitability perspective, the latest trailing twelve-month (TTM) figures show a Gross Profit Margin of 79.25%, an Operating Profit Margin of -2.65%, a Net Profit Margin of 0.66%, and an EBITDA Margin of 4.96%. While the operating and net profit margins reflect the significant investments and acquisition-related costs, the high gross profit margin underscores the inherent profitability of CoStar's subscription-based, data-driven business model.

Competitive Dynamics and Strategic Positioning

CoStar Group operates in a highly competitive landscape, but its strategic positioning and differentiated business model provide a distinct advantage, particularly against residential real estate portals like Zillow Group and Redfin Corporation .

CoStar's "Your Listing, Your Lead" model for Homes.com directly contrasts with the lead-diversion models employed by Zillow and Realtor.com. This difference is a core competitive battleground, as agents express a strong preference for platforms that do not divert potential homebuyers away from the listing agent. Homes.com already boasts five times the number of listings marketed or boosted on its site compared to Zillow's showcase listings, indicating a strong lead in what CoStar believes is the primary sustainable revenue driver for residential portals. Furthermore, unique visitor traffic to Homes.com rose 8.3% in Q3 2025, while Zillow saw a 6.5% decline and Realtor.com a 0.7% decline, according to comScore.

In the multifamily sector, Apartments.com maintains a dominant position, delivering 4.8 times more leases than other rental networks and nearly twice as many leads as its two closest competitors combined. Its 99% monthly renewal rate and 93 NPS score highlight strong customer loyalty and product effectiveness. LoopNet also stands as the world's largest and most active commercial real estate marketplace, capturing 8.5 times more searches than its nearest competitor.

CoStar Group is actively engaged in legal battles against Zillow , including five federal lawsuits filed since June 2025, alleging antitrust violations, widespread copyright theft, and consumer deception. These lawsuits, including one from Compass (COMP) and actions by the FTC and state Attorney Generals, target Zillow's core operations and business model, particularly its "Zillow ban" policy and alleged illegal agreements to suppress competition in multifamily rental advertising. CoStar views these actions as critical to ensuring fair competition and protecting intellectual property.

While Zillow Group (ZG) reported Q3 2025 revenue of $676 million, up 16% year-over-year, with rentals revenue up 41% and residential revenue up 7%, CoStar's residential portals (excluding Matterport) are demonstrating faster growth rates and a fundamentally different, agent-aligned business model. Redfin Corporation and Anywhere Real Estate Inc. also operate in the residential space, but CoStar's focus on comprehensive data, analytics, and a "market the property" approach differentiates it from Redfin's (RDFN) brokerage-centric model and Anywhere's (HOUS) franchise network.

Risks and Outlook

Despite its strong performance and strategic initiatives, CoStar Group faces several risks. The Matterport acquisition comes with a litigation accrual of $98.8 million related to the Brown Judgment, with a revised ruling expected by mid-2026. Matterport's reliance on a limited number of third-party suppliers for hardware components also presents supply chain risks. The integration of Domain in Australia carries risks of employee loss, higher-than-expected costs, and operational disruption. Furthermore, the commercial real estate market, particularly the office segment, continues to experience high vacancy rates, although signs of stabilization are emerging.

Looking ahead, CoStar Group's outlook is optimistic. The company expects full-year 2025 revenue to be between $3.23 billion and $3.24 billion, with Q4 2025 revenue projected at $885 million to $895 million. Full-year 2025 adjusted EBITDA is anticipated to range from $415 million to $425 million, with Q4 2025 adjusted EBITDA between $150 million and $160 million. This guidance reflects the contributions from recent acquisitions and continued organic growth.

Management anticipates CoStar's core commercial product to return to double-digit growth as market conditions improve. Apartments.com is expected to maintain low to mid-double-digit growth, while LoopNet is projected to return to double-digit growth, driven by its expanded footprint and revised pricing strategy. Homes.com is expected to see revenue increase in line with sales force growth through 2025, delivering strong double-digit growth from 2026 and beyond, with management believing it could become one of CoStar's largest businesses. The company has withdrawn its previous five-year revenue and EBITDA targets due to unforeseen market conditions, signaling a more dynamic and responsive approach to its long-term strategy.

Conclusion

CoStar Group is executing a bold and transformative strategy to solidify its position as the preeminent digital real estate company globally. Its relentless pursuit of technological innovation, particularly in AI and 3D digital twins, coupled with strategic acquisitions like Matterport and Domain, is expanding its market reach and deepening its competitive moat. The aggressive investment in Homes.com, with its agent-friendly "Your Listing, Your Lead" model, represents a significant pivot into the residential market, challenging established players and offering substantial long-term growth potential.

Despite a challenging commercial real estate environment and ongoing competitive and legal battles, CoStar Group's consistent revenue growth, improving profitability in its core segments, and robust liquidity underscore its operational strength. The company's commitment to expanding its sales force and leveraging its vast data resources positions it to capture significant untapped market opportunities. For investors, CoStar Group presents a compelling thesis centered on its unique blend of data dominance, technological leadership, and a clear vision for digitizing the world's largest asset class, promising sustained value creation in an evolving real estate landscape.