CoStar Group's 2026 Plan: A Test of Capital Allocation Against a 38-Year Moat

CoStar Group has laid out a bold financial roadmap for 2026, setting ambitious targets that frame a high-stakes test of its capital allocation. The company projects revenue between $3.78 billion and $3.82 billion, implying roughly 18% year-over-year growth. More striking is the adjusted EBITDA guidance of $740 million to $800 million, which represents an 83% leap over the midpoint of its 2025 outlook and would mark the highest profit level in the company's history. This aggressive expansion is the centerpiece of a strategic pivot that demands discipline.

The pivot is clearest in the company's approach to its Homes.com platform. After investing heavily, CoStar now plans to reduce net investment by more than $300 million in 2026, a significant cut from the $850 million spent last year. The target is to continue trimming this investment by $100 million or more annually through 2030, with the goal of achieving positive adjusted EBITDA in 2030. This shift from heavy capital infusion to a focus on profitability is a classic value investor's signal: it acknowledges past spending and sets a clear, long-term horizon for a turnaround. The company's confidence in this path is underscored by its medium-term targets, which call for a 15% compound annual revenue growth rate from 2025 to 2028 and adjusted EBITDA of $1.25 billion by 2028.

This financial ambition is matched by a renewed commitment to returning capital to shareholders. The company completed a $500 million share repurchase program in 2025 and has now announced a new $1.5 billion authorization. This move, coupled with the strategic reduction in Homes.com spending, creates a clear tension. Management is signaling it can grow the core business profitably while also funding a major, long-term bet on Homes.com-and still buy back stock. The success of this plan hinges entirely on execution. The guidance is a promise of accelerated profitability, but the capital reallocation required to fund both growth and the Homes.com turnaround will be a rigorous test of the company's discipline.

The Moat: A 38-Year, $5B+ Investment in Data Dominance

The strategic pivot to Homes.com is a high-wire act, and its success depends entirely on the strength of the foundation CoStar is leaving behind. That foundation is a fortress built over decades. The company has spent over $5 billion and 38 years constructing an unparalleled data moat in commercial real estate. This isn't just a database; it's a network of over 1,500 researchers who continuously verify and update property information, creating a competitive advantage that is nearly impossible to replicate. The power of this moat is evident in the company's financial engine: its subscription-based data services boast an 82% gross margin, where each new customer is almost pure profit after the initial data collection cost.

This dominance translates into undeniable market leadership. CoStar's commercial platforms are so entrenched that they generate 56 consecutive quarters of double-digit revenue growth through the first quarter of 2025. This relentless expansion, powered by a predictable and recurring revenue model, has built a business with the financial muscle to fund ambitious new ventures. The company's reach extends beyond its core, evidenced by the over 243 million monthly unique visitors to the Homes.com Network, making it the second-largest residential network. This massive traffic is a powerful network effect, a valuable asset that CoStar is now attempting to leverage for its residential bet.

Yet, this formidable commercial moat stands in stark contrast to the capital-intensive, unproven nature of the Homes.com expansion. The $5 billion investment in data dominance was a long-term play for a defensible, high-margin business. The current strategy, however, involves redirecting capital to a segment where the company is a late entrant, facing entrenched competitors and a history of unprofitability. The network effects that benefit CoStar's commercial platforms are not automatically transferable to the residential market. The company's own guidance shows the tension: it is willing to sacrifice near-term profit from its core to fund a multi-year turnaround at Homes.com, a bet that will only pay off if it can replicate the data moat in a new, more competitive arena. The durability of the commercial moat provides the financial runway for this bet, but it does not guarantee its success.

Valuation and Capital Allocation: A High Multiple for a High-Stakes Bet

The valuation now asks investors to pay a steep premium for a complex and risky future. As of late November 2025, the stock trades at a trailing P/E ratio of approximately 136. That multiple is a staggering 273% higher than its own 12-month average and represents a significant premium to its historical average of 158.38 over the last five years. This price implies that the market is not just betting on the company's established commercial dominance, but on near-perfect execution of a multi-year, capital-intensive turnaround that is entirely new to its portfolio.

The company's own capital allocation plan underscores the high-stakes nature of this bet. Management is simultaneously funding aggressive growth, a major residential platform overhaul, and a substantial shareholder return program. The newly authorized $1.5 billion share repurchase program is a clear signal of confidence, but it also tightens the capital screws. The projected 2026 share count of 416 million shares means that the buyback will be a meaningful, ongoing use of cash. This discipline is admirable, but it leaves less financial slack for the Homes.com turnaround if it runs longer or costs more than planned. The valuation premium, therefore, is not just for growth-it is for the disciplined use of that growth to fund a costly, long-dated bet.

The bottom line is that this valuation leaves almost no room for error. It assumes the company will hit its ambitious 2026 profit targets, maintain its commercial moat's profitability, and successfully navigate the multi-year path to profitability for Homes.com-all while continuing to return capital to shareholders. Any stumble in the core growth trajectory, any delay or cost overrun in the residential bet, or any shift in the buyback cadence could quickly deflate this premium. The market is paying for a flawless execution of a high-wire act, and the price of admission is a multiple that demands perfection.

Catalysts, Risks, and What to Watch

The investment thesis now hinges on a series of forward-looking events that will confirm whether CoStar's capital allocation is masterful or misdirected. The primary catalyst is the successful reduction of Homes.com's cash burn. The company's plan to cut net investment by more than $300 million in 2026 and then by $100 million or more annually through 2030 is a clear, measurable path. The critical milestone is the target to achieve positive adjusted EBITDA in 2030. Hitting this will validate the strategic pivot and demonstrate that the capital redirected from the core can be profitably reinvested in a new arena. Any deviation from this timeline, or any sign that the required investment cuts are not translating to margin improvement, will be a major red flag.

Key risks surround the sustainability of the company's ambitious growth targets and the competitive landscape. First, the company projects a 15% compound annual revenue growth rate from 2025 to 2028. Maintaining this pace requires flawless execution across all its platforms, especially as it funds the Homes.com turnaround. Any deceleration would directly challenge the valuation premium investors are paying. Second, the residential market is fiercely competitive, with entrenched players. The company's massive investment in Homes.com, while showing subscriber growth, faces the risk of declining advertising efficiency and integration complexity, as noted in the broader analysis. The third, and perhaps most immediate, risk is the valuation's extreme sensitivity to any growth or margin disappointment. With a trailing P/E of 136, the stock offers no margin of safety for error.

Investors must monitor several specific metrics to gauge execution. The most immediate are quarterly revenue and adjusted EBITDA against the company's $3.78 billion to $3.82 billion revenue and $740 million to $800 million adjusted EBITDA guidance for 2026. Consistent beats here would signal strong core performance. Equally important is the pace of the Homes.com investment reduction. Tracking the reported net investment figure each quarter will show if the company is adhering to its plan to cut by more than $300 million this year. Finally, the execution of the $1.5 billion share repurchase program is a direct test of capital discipline. The company must fund this buyback while also funding growth and the residential turnaround, leaving little room for missteps. The bottom line is that the coming quarters will provide a real-time stress test for the entire strategy.