CoStar Group's Q3 2025: Contradictions Emerge on Pricing Strategies, Seasonality, and AI Spending

Date of Call: October 28, 2025

Financials Results

• Revenue: $834M in Q3 2025, up 20% YOY ( $808M excluding Domain's $25M contribution )
• Gross Margin: 47% for Commercial Information & Marketplaces in Q3 2025, up from 43% in Q3 '24

Guidance:

• Q4 revenue expected $885M–$895M; Q4 adjusted EBITDA $150M–$160M.
• Full-year revenue expected $3.23B–$3.24B; full-year adjusted EBITDA $415M–$425M.
• Residential Q4 revenue expected $100M–$105M (Domain ≈ $67M); full-year residential $210M–$215M.
• Apartments.com Q4 growth 11%–12% (FY 11%–12%); LoopNet Q4 growth 15%–17% (FY 10%–11%).
• Information services FY growth 18%–20%; Other revenue Q4 expected $70M–$72M.

Business Commentary:

* Revenue Growth and Division Performance: - CoStar Group reported revenue of $834 million for Q3 2025, marking a 20% year-over-year increase, with adjusted EBITDA rising to $115 million, up 51% over Q3 '24. - This growth was driven by strong performance in the Commercial Information and Marketplace businesses, which increased their profit margin to 47%, and healthy contributions from residential portals like Apartments.com and Homes.com.

• Residential Portal Expansion:
• Residential portals combined revenue reached $411 million in Q3, or $1.644 billion annualized, marking a 31.3% year-over-year increase.

• The growth was attributed to increased market share and synergies across portals, with Apartments.com achieving a 11% year-over-year increase in revenue.

• AI Integration and Market Strategy:

• CoStar Group is investing 50% of its Homes.com software development efforts in AI-enhancing features, with AI Smart Search improving user engagement by 69%.

• The strategic move aims to leverage AI for better personalization and engagement in real estate search, aligning with CoStar's broader strategy to capitalize on AI revolutions in the real estate sector.

• Domain Acquisition Impact:

• The acquisition of Domain contributed $25 million in revenue for the quarter, with expectations for residential revenue to more than double to $210 million to $215 million for the full year.
• The integration of Domain's residential marketplace is expected to enhance CoStar's presence in Australia and expand market share, driven by strategic investments in marketing and product improvements.

Sentiment Analysis:

Overall Tone: Positive

• Management noted the "58th consecutive quarter of double‑digit revenue growth": Q3 revenue $834M (+20% YOY); adjusted EBITDA $115M (14% margin, +51% YOY); net new bookings $84M (+92% YOY). CFO raised FY adjusted EBITDA guidance to $415M–$425M and reaffirmed strong product-level momentum.

Q&A:

• Question from Peter Christiansen (Citigroup Inc.): You asked about seasonal behaviors—are agents canceling or returning, and how does seasonality compare across Apartments and residential?
  Response: Homes.com bookings are progressing linearly with minimal seasonality so far; Apartments.com shows normal seasonality (Q2 NAA spike) and only limited holiday impact expected.

• Question from Stephen Sheldon (William Blair & Company): Can you detail sequential booking trends across Suite, Apartments.com and LoopNet and bookings trajectory into Q4 given the larger sales force?
  Response: Bookings are accelerating across products, salesforce expansion is ramping (productivity takes time), and Q4 bookings are expected in line with guidance underpinning the raised full‑year outlook.

• Question from Ryan Tomasello (Keefe, Bruyette, & Woods): How did Apartments.com bookings perform sequentially versus Q2, and why is Q4 growth guidance (~11%–12%) unchanged despite salesforce ramp?
  Response: Demand is solid with rooftop expansion and more reps; new hires take time to fully ramp, so Q4 growth is modeled around ~11%–12% consistent with current ramp assumptions.

• Question from Curtis Nagle (BofA Securities): You're allocating 50% of Homes.com software development to AI—where are you redirecting expenses and what's the implication for Homes.com spend in 2026?
  Response: The 50% allocation is a reallocation of existing development resources (no incremental total spend); Homes.com investment is expected to be flat or lower in 2026 aside from already baked‑in salesforce costs.

• Question from Brett Huff (Stephens Inc.): Can you unpack the Homes.com bookings—rep productivity, new hires ramp, pricing and other drivers?
  Response: Rapid hiring is driving bookings; new reps lower initial per‑rep productivity but deliver positive incremental ROI; hiring pace has been moderated to allow better onboarding and training.

• Question from Faiza Alwy (Deutsche Bank): You stated residential can reach ~40% adjusted EBITDA—what's the timeframe and what must happen to get there?
  Response: Target is >40% adjusted EBITDA for combined residential over the intermediate to long term driven by scale and margin precedent (e.g., Rightmove/REA), but no specific timeline was provided.

Contradiction Point 1

Apartments.com Pricing Strategy and Competitive Dynamics

It involves the company's pricing strategy and competitive dynamics, which are critical aspects for market positioning and revenue generation.

Are there seasonal trends in residential bookings, and how do agent activities impact this segment? - Peter Christiansen (Citigroup Inc., Research Division)

2025Q3: Apartments.com does have seasonality, with sales peaking around the annual National Apartment Association (NAA) event. Limited seasonality is expected from residential agents during year-end holidays. However, the current sales production line for Homes.com is linear without significant seasonality except for weekends. - Andrew Florance(CEO)

Have you observed any wallet share loss or pricing pressure from Zillow's rental package? - Ryan Tomasello (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q2: We have not seen any loss of share or ability to capture price value at Apartments.com. The product is strong with high NPS and renewal rates, and the ASP remains above competitors. The competitive dynamics are not affecting our pricing strategy. - Andrew Florance(CEO)

Contradiction Point 2

Homes.com Pricing Strategy and Productivity

It involves the company's pricing strategy and productivity, which are crucial for the growth and profitability of a new business segment.

Can you provide an update on Homes.com's bookings and productivity trends? - Brett Huff (Stephens Inc., Research Division)

2025Q3: We are experiencing consistent growth in bookings despite rapid headcount expansion. Productivity is showing positive ROI, but there is an impact from the large number of new people coming in. We are adjusting pricing for better penetration. - Andrew Florance(CEO)

Can you elaborate on pricing strategies across business segments, particularly for multifamily properties and LoopNet? - Peter Christiansen (Citi)

2025Q2: CoStar pricing is stable, while new Homes is optimizing for penetration. For Homes.com, pricing varies based on listing volume and portfolio size, with a focus on profitable growth. - Andrew Florance(CEO)

Contradiction Point 3

Residential Bookings Seasonality

It involves differing statements regarding the seasonality of residential bookings, which impacts expectations regarding the consistency of revenue throughout the year.

Are there seasonal trends in residential bookings, and how are agents affecting this segment? - Peter Christiansen (Citigroup Inc., Research Division)

2025Q3: Apartments.com does have seasonality, with sales peaking around the annual National Apartment Association (NAA) event. Limited seasonality is expected from residential agents during year-end holidays. - Andrew Florance(CEO)

Can you discuss Q1 residential savings and this year's investment spending? - George Tong (Goldman Sachs)

2025Q1: the Homes business experienced strong sequential growth in December driven by a successful holiday campaign. - Christian Lown(CFO)

Contradiction Point 4

Investment Spend on AI

It involves discrepancies in the allocation and impact of AI investment on expenses, which is crucial for understanding the company's strategic focus and financial management.

How are AI investments affecting expenses, and what is the 2026 expense outlook? - Curtis Nagle (BofA Securities, Research Division)

2025Q3: The 50% allocation to AI does not reflect an increase in total spend, but rather a reallocation of existing resources. We expect Homes.com investment spend to be the same or lower in '26. - Andrew Florance(CEO)

Could you provide an update on Q1 residential savings and your outlook for investment spending this year? - George Tong (Goldman Sachs)

2025Q1: Our $900 million investment is unchanged, and we remain on plan. - Christian Lown(CFO)