3Q25 Business Recap.
CoStar reported 3Q25 and revenues were +20% y/y. This figure includes the acquisition of Domain. Backing out Domain’s revenue contribution for the quarter, revenue growth was +16.5% y/y, still an acceleration from last quarter and higher than in recent quarters.
Growth was broad based with their two biggest segments, CoStar and Apartments.com +8% y/y and +11%/y/y, respectively. On the call they noted that Homes.com increased 20% y/y. Andy Florance seemed optimistic that the business was gaining momentum, noting the salesforce additions and that net bookings grew the most since 2022.
Still, S&M was elevated at 50% of revenues. EBITA was negative again for the third consecutive quarter (CoStar hasn’t put up a notable operating profit since 2023, before they invested heavily into Homes.com). Generally speaking, there is nothing in this quarter that changes the thesis or contradicts anything we said prior on CoStar. Apartments.com continues to dominant, CoStar continues to chug along, and Homes.com is still up in the air, but is generally trending in the right direction. The real question comes less down to what is changing in the business and more to valuation and the returns an investor is looking for under conservative assumptions.
While their growth has been solid, the question of what mature margin growth would look like still lingers as they have expanded their sales force in order to capture more opportunity. Most of these salespeople are required to maintain existing client relationships and so their expense base will be elevated as a result.
While CoStar still has a very high retention rate (suggesting that if you cut sales people the clients will not need to be replaced to maintain revenue), they still require the sales force to help new users and educate clients on new products. There is certainly a fair amount of expenses that could be cut if CoStar ever did enter “harvest mode”, but even when margins peaked in 2018 at 23% they were still running S&M at 30% of sales.
[We updated the below valuation section after the stock sold off the following day]
The stock dropped -17% in response to earnings. The extent of the drop is surprising given that the results seemed fine. Perhaps investors didn’t like the comment that Homes.com spend will continue to be elevated in 2026 or that they will be tied down by the ongoing Zillow lawsuits (Florance took several minutes to explain why he believed Zillow was doing many things that are illegal, but such soliloquies aren’t uncommon for him). It is also possible that the buyside “whisper numbers” were higher.
No matter, LTM revenues of $3.05bn are against a market cap of $28.3bn at a $65 stock price Despite a 47% profit margin for their core commercial information and marketplace businesses, which is up +400bps, a 30% mature margin may be a fair assumption for the total company’s steady-state profitability. This puts their valuation around 38x mature margins. Despite the sell off, an investor would likely want to see at least low to mid double digit growth for several more years in order to rationalize the valuation because at just 10% growth, it would take about 5 years for CoStar to trade at the current (historically elevated) market multiple. If an investor is looking for a 10% return (and isn’t hoping for a high multiple when they sell), the company would need to compound for about a decade to amortize their current premium. Which to be fair is not out of the realm of possibility and also their profitability could be higher than we are assuming. It is also worth noting that they have always tended to trade at a premium valuation and so perhaps some investors believe that will continue to stretch into the future.
Call Notes.
Residential
- Residential portals revenues grew 22% q/q and 31% y/y.
- Expect synergies across these residential portals will continue to drive improvement in our margin profile and believe that long-term margins can operate at more than 40% adjusted EBITDA margins.
Apartments.com
- 99% Monthly renewal rate
- Net new bookings rose 37% year-over-year in Q3
- Added 4,200 new apartment communities in Q3.
- Sales force grew to over 500
- Multifamily property count grew 12k so far this year to 87k
- Single home rentals grew 51% y/y to 1.4mn (showing synergies with Homes.com)
Homes.com
- >26k subscribing agents now
- “Competing portals in the United States business models of lead diversion limits them to selling to about roughly 5% of agents because they need to take leads from the other 95% of agents who are not clients so that they have something to sell to the 5% that our clients. In contrast, we can sell to well more than 50% of agents because we’re not taking away leads from any agent.”
- 500 sales reps with another 150 in preproduction
CoStar
- Per rep productivity in Q3 was at its highest since Q3 ’23
- Cancellation rates have declined over the past 2 quarters, and our renewal rate reached 93.3%, the highest since ’23.
AI Smart Search
- Users of AI Smart Search use 69% more search filters, viewed 37% more listing pages per session are 5x more likely return to the site within the following week.
Matterport
- 2 pillars of Matterport: 1) stand-alone solution for insurance, construction, and public safety, and 2) integrated solution within the Costar marketplace and information solutions that could add $1bn in incremental value.
For more on CoStar Group, check out our Extensive Research Report.
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*At the time of this writing, one or more contributors to this report has a position in CoStar Group. Furthermore, accounts one or more contributors advise on may also have a position in CoStar Group. This may change without notice.
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