Why CoStar Group's Stock Tanked 10%: A Deep Dive into the Earnings Miss and Matterport Headaches

On Wednesday, April 30, 2025, CoStar Group (NASDAQ: CSGP) saw its stock plummet 10.31%, closing at $74.17—a stark reaction to its first-quarter 2025 earnings report. The decline was fueled by a combination of disappointing financial results, concerns over costly acquisitions, and investor skepticism about the company’s ability to navigate a challenging commercial real estate market. Here’s what went wrong—and why it matters for investors.

The Earnings Miss That Shook the Market

CoStar’s Q1 2025 results revealed a net loss of $14.8 million, a dramatic reversal from the $6.7 million net income reported in the same quarter the prior year. The miss was amplified by a -133% earnings surprise, as reported EPS came in at -$0.04, far below the expected $0.12. While non-GAAP earnings of $0.14 beat estimates, the GAAP shortfall dominated headlines, triggering a sharp sell-off.

The Matterport Acquisition: A Double-Edged Sword

The $1.6 billion acquisition of Matterport, finalized in February 2025, is central to CoStar’s struggles. While Matterport added $15.9 million in revenue during Q1, integration costs and amortization expenses contributed a $31 million drag on profitability. This underscores a recurring theme: CoStar’s aggressive acquisitions—such as Domain Holdings and Homes.com—are boosting revenue but straining margins.

Revenue Growth, But at What Cost?

CoStar’s revenue rose 11% year-over-year to $732.2 million, slightly exceeding expectations. Key segments like Apartments.com (up 11% to $282 million) and Matterport’s contribution highlighted operational resilience. However, soaring expenses—particularly selling and marketing costs ($368.9 million, or 50.4% of revenue)—eclipsed these gains. Adjusted EBITDA surged 429% to $66 million, but this still failed to offset the net loss.

Guidance and the Cloudy Outlook

CEO Andy Florence acknowledged the “worst commercial real estate environment in decades,” citing high vacancy rates and stagnant rental prices. While CoStar reaffirmed its full-year revenue guidance of $3.115–$3.155 billion (14–15% growth), the immediate focus remains on near-term profitability. Investors appear unconvinced that the company can balance growth investments with margin discipline.

Broader Market Context

The decline coincided with broader sector jitters. The Nasdaq dipped 0.09% as recession fears mounted, with the U.S. economy reporting a first-quarter contraction. CoStar’s tech-heavy listing (NASDAQ: CSGP) left it exposed to these macro headwinds, while its 243x earnings valuation—a stark multiple compared to peers—raised red flags about overvaluation.

The Silver Linings (and Why They’re Not Enough)

Despite the negatives, CoStar boasts several strengths:
- Strong Residential Portal Growth: Homes.com achieved 36% unaided brand awareness among home shoppers, up from 4% pre-launch.
- International Momentum: International operations saw 56% year-over-year net new bookings growth.
- Adjusted EBITDA Surge: The $66 million figure reflects operational efficiency, even if it’s overshadowed by GAAP losses.

Yet these positives were drowned out by the Q1 net loss and Matterport’s ongoing integration challenges.

Conclusion: A Crossroads for CoStar

The 10.31% drop on April 30 underscores a critical juncture for CoStar. While its core businesses—like Apartments.com and LoopNet—remain robust, the costs of its acquisitions and margin pressures have spooked investors. The stock now trades at 243x earnings, a valuation that demands flawless execution of its integration strategies.

Crucially, CoStar’s future hinges on two factors:
1. Matterport’s Profitability: Can the company turn its $1.6 billion bet into a margin-positive asset?
2. Market Recovery: Will commercial real estate headwinds morph into “tailwinds,” as CEO Florence predicts?

For now, investors are voting with their wallets: the stock’s 10.31% decline reflects skepticism about both the timing and likelihood of these outcomes. Until CoStar delivers clearer signs of margin stabilization and acquisition payoffs, the sell-off may continue—a stark reminder that growth, without profitability, is a risky bet.