Zillow's Path to Profitability Amid CoStar's Ascendancy: Strategic Execution and Market Dynamics

The real estate technology sector is undergoing a seismic shift as players like Zillow Group (Z) and CoStar Group (CSGP) vie for dominance in an increasingly digital marketplace. While Zillow has long been a household name, its profitability and market position face mounting pressure from CoStar's aggressive growth and strategic innovations. This article examines whether Zillow can sustain its trajectory to profitability and maintain relevance amid CoStar's ascendancy, focusing on strategic execution, traffic dynamics, and financial health.

Strategic Execution: Zillow's “Housing Super App” vs. CoStar's Diversified Portfolio

Zillow's core strategy revolves around its “housing super app,” a platform that unites buyers, sellers, renters, and real estate professionals under a single ecosystem. In Q1 2025, this approach delivered strong results:
- Revenue Growth: Total revenue rose 13% year-over-year to $598 million, driven by a 32% surge in mortgages revenue (to $791 million in origination volume) and a 33% jump in rentals revenue (multifamily listings grew 47%).
- Profitability: Net income turned positive at $8 million (1% margin), while Adjusted EBITDA hit $153 million (26% of revenue), reflecting cost discipline.
- Market Expansion: Enhanced Markets, regions where Zillow integrates its tools (e.g., Follow Up Boss for agent efficiency), now account for 24% of connections—a 3% increase from Q4 2024. The goal is to hit 35% by year-end, underscoring confidence in this model.

Meanwhile, CoStar is diversifying aggressively:
- Portfolio Strength: CoStar's Q1 revenue grew 12% to $732 million, with its commercial platforms (CoStar and LoopNet) and residential upstart Homes.com leading the charge. Homes.com's salesforce expanded to 370 agents (targeting 500 by June 2025), and its Net Promoter Score jumped to 43.
- Tech Edge: The $31 million Matterport acquisition (Feb 2025) provides 3D digital twin capabilities, enhancing spatial data offerings—a potential differentiator in the battle for real estate analytics dominance.

Traffic Dynamics: Zillow's Lead, but CoStar's Momentum

Zillow's traffic remains robust, with 227 million average monthly unique users in Q1 2025 (+5% year-over-year), far outpacing CoStar's Homes.com (104 million) and Realtor.com (62 million). However, CoStar's Homes.com is closing the gap rapidly:
- Awareness Surge: Unaided consumer awareness for Homes.com hit 36% by Q1 2025, up from 4% at launch in Feb -2024.
- Agent Engagement: Homes.com members secured 61% more listings than non-members, highlighting its growing influence among real estate professionals.

While Zillow's scale is undeniable, CoStar's ability to convert traffic into high-value agent partnerships poses a threat. Zillow's challenge is to leverage its traffic to drive deeper engagement and monetization, particularly in its Enhanced Markets.

Financial Health: Profitability Gains, but Risks Linger

Zillow's Q1 results marked a turning point:
- Profitability: The first quarterly net profit since 2022 signals progress, but margins remain thin. Zillow's Adjusted EBITDA margin (26%) trails CoStar's 9% margin expansion (to $66 million in Q1).
- Cash Position: Cash and investments fell to $1.6 billion after $250 million in share repurchases. This underscores confidence in Zillow's long-term prospects but leaves less buffer for unexpected downturns.

CoStar, meanwhile, is capitalizing on operational leverage:
- EBITDA Surge: Adjusted EBITDA jumped 429% year-over-year to $66 million, aided by cost controls and the Homes.com expansion.
- Growth Ambitions: CoStar's 2025 revenue guidance ($3.115B–$3.155B) implies 15% growth, with Matterport's integration expected to fuel innovation in spatial data—a sector Zillow has yet to address.

Investment Considerations: Z or CSGP?

Zillow's path to profitability is clear but fraught with risks:
- Upside: If Enhanced Markets meet their 35% connection target and mortgages/rentals continue growing, Zillow could solidify its super app model. Its $8 million net profit and user base suggest a durable foundation.
- Downside: CoStar's 3D tech and agent-centric platforms threaten Zillow's dominance in professional services. A slowdown in mortgage origination (which grew only 32% YoY against flat industry volumes) could strain margins.

CoStar, while more profitable, carries its own risks:
- Integration Costs: Matterport's $31 million drag on EBITDA highlights the trade-off between innovation and short-term profits.
- Competition: Realtor.com's 44.86% share in the services sector and Zillow's traffic scale mean CoStar must sustain aggressive growth to maintain momentum.

Final Verdict: Monitor Z, but Watch CSGP's Innovations

Investors should take a balanced view:
- Zillow: Hold for now. Its super app strategy and user base provide a moat, but profitability must improve beyond 1% margins. Track Enhanced Markets adoption and mortgage volume trends closely.
- CoStar: A buy for growth investors. Its diversified portfolio and tech edge position it to capitalize on real estate's digital transformation, though integration risks remain.

The real estate tech race is far from over. Zillow's path to sustained profitability hinges on executing its “super app” vision while fending off CoStar's innovations. For now, Z's stock (Z) offers a cautiously optimistic stance, but investors should remain vigilant to CoStar's (CSGP) relentless advance.

Data as of June 19, 2025. Past performance does not guarantee future results.