Executive Summary / Key Takeaways

• CoStar Group is a leading global provider of real estate information, analytics, and online marketplaces, leveraging a deep proprietary database and differentiated technology to serve commercial and increasingly residential markets.
• The company is executing a multi-faceted growth strategy, balancing strong profitability in its core commercial segments with significant investments in high-potential areas like Homes.com and recent transformative acquisitions such as Matterport (MTTR) and Domain (DIL.AX).
• Recent financial performance in Q1 2025 demonstrates continued double-digit revenue growth (12% YoY) and expanding margins in core commercial businesses (43%), despite a net loss driven by acquisition costs and ongoing investments.
• Key growth drivers include accelerating momentum in Homes.com (rapid traffic/awareness growth, improving agent ROI), integration of Matterport's 3D/AI technology across platforms, expansion of high-growth products like CoStar for Lenders, and strategic international acquisitions.
• Outlook for 2025 projects continued strong revenue growth (14-15% YoY) and improving consolidated adjusted EBITDA margins, supported by sales force expansion and operational leverage, while managing risks like market volatility and integration challenges.

The Foundation: Data, Dominance, and a Shifting Landscape

CoStar Group stands as a formidable presence in the global real estate technology sector, built over decades on a foundation of meticulous data collection, rigorous research, and strategic market expansion. Its core business revolves around providing comprehensive information, sophisticated analytics, and highly trafficked online marketplaces across diverse property types, from towering office buildings and sprawling industrial parks to multifamily complexes and residential homes. The company's business model is predominantly subscription-based, characterized by high renewal rates and a history of consistent double-digit revenue growth, a testament to the mission-critical nature of its services for real estate professionals and related industries.

The company's journey has been marked by pivotal acquisitions, including LoopNet and Apartments.com, which significantly expanded its reach and solidified its leadership in key segments. More recently, strategic moves like the acquisitions of STR (hospitality data), Visual Lease (lease management), and Matterport (3D digital twins) underscore a continued drive to broaden its service offerings and integrate complementary technologies. This history of growth through both organic development and targeted M&A has shaped CoStar Group into a diversified platform, uniquely positioned within the real estate ecosystem.

The broader real estate industry, however, is in flux. The commercial real estate market has navigated a challenging period marked by elevated vacancies, particularly in office, and cautious transaction volumes, although recent signs suggest a potential bottoming and early stages of recovery. The multifamily sector continues to see significant new supply, influencing vacancy rates and rent growth dynamics. Meanwhile, the residential market is undergoing rapid transformation, influenced by factors like interest rates, affordability, and significant shifts in brokerage practices and online lead generation models following recent legal settlements. These macroeconomic and industry-specific trends create both headwinds and opportunities that directly influence CoStar Group's performance and strategic direction.

Within this landscape, CoStar Group competes with a diverse set of players. In commercial real estate data and analytics, while direct quantitative market share figures for all niche competitors are not publicly detailed, CoStar's extensive proprietary database and research organization position it as a leader, often compared to firms like CBRE (CBRE)'s data services. In online marketplaces, it faces established rivals like Zillow Group (ZG) and Redfin (RDFN) in the residential space, and various regional or specialized platforms in commercial and other segments. CoStar Group's strategic positioning emphasizes depth of data, analytical tools, and a B2B focus in its core commercial offerings, contrasting with the more consumer-oriented approach of some residential competitors. The company's ability to maintain premium pricing and high renewal rates in its core segments, even during downturns, highlights the value and competitive moat derived from its comprehensive, verified data and integrated platforms.

Technological Edge and Innovation Engine

At the heart of CoStar Group's competitive advantage lies its differentiated technology, particularly its vast, proprietary database and the sophisticated platforms built upon it. This database, meticulously compiled and updated by a large research organization, provides granular, building-specific information across millions of properties globally. This depth and accuracy of data are tangible benefits, enabling users to access real-time market intelligence, conduct detailed analyses, and make informed decisions. While precise, directly comparable performance metrics for all competitor databases are challenging to ascertain, management commentary suggests CoStar's data processing speeds and accuracy are competitive advantages. This technological foundation supports higher pricing power and contributes significantly to recurring subscription revenue.

Beyond its core database, CoStar Group is actively investing in and integrating new technologies to enhance its offerings and expand its moat. The recent acquisition of Matterport brings leading 3D digital twin technology and AI capabilities into the fold. The strategic intent is to integrate Matterport's spatial data technology across CoStar's platforms – from commercial listings on LoopNet to residential rentals on Apartments.com and sales listings on Homes.com. The stated goals include enhancing user experience, driving engagement (Matterport tours on rental sites saw 59% YoY view growth and 71% more time on listing pages in Q1 2025), improving property analytics, optimizing operational efficiency, and broadening the use of digital twins in real estate. Matterport has already digitized 54 billion square feet of space, with a stated goal to reach a trillion square feet, requiring significant annual growth. This integration is expected to provide a competitive edge by offering richer, more immersive property experiences that are currently less prevalent or integrated on competitor platforms.

Furthermore, CoStar Group is leveraging technology to develop new products and enhance existing ones. The CoStar for Lenders product, which reached an $80 million annual revenue run rate in under three years and saw 116% YoY net new bookings growth in Q1 2025, utilizes the core data and analytical engine to provide risk management capabilities for CRE debt, positioning itself as a superior product to competitors in this niche. The integration of STR's hospitality benchmarking data and the planned lease benchmarking product from the Visual Lease acquisition demonstrate the company's ability to apply its data aggregation and analytical expertise to new verticals and data sets, creating trusted sources of market information where transparency was previously limited. These R&D initiatives and technological integrations are not just about new features; they are strategically aimed at increasing the value proposition for existing subscribers, attracting new customer segments, and reinforcing the competitive moat, ultimately driving long-term revenue growth and profitability.

Performance, Investment, and Strategic Execution

CoStar Group's financial performance in the first quarter of 2025 reflects a company executing a dynamic strategy of investing for future growth while maintaining strength in its established businesses. Total revenue grew 12% year-over-year to $732.2 million, marking the 56th consecutive quarter of double-digit growth. This growth was broad-based, with Multifamily revenue up 11%, CoStar up 6%, LoopNet up 5%, Information Services up 21%, Residential up 46%, and Other Revenues up 46%. The significant increases in Residential and Other Revenues were primarily driven by the Homes.com membership ramp and the Matterport acquisition, respectively.

Despite strong revenue growth, the company reported a net loss of $14.8 million in Q1 2025, compared to net income of $6.7 million in Q1 2024. This shift was primarily attributable to one-time costs associated with closing the Matterport acquisition and increased operating expenses related to strategic investments. Adjusted EBITDA, a metric management uses to evaluate operating performance excluding certain items like acquisition costs and stock-based compensation, was $66 million, a substantial increase from $12.7 million in Q1 2024, exceeding guidance. This reflects the underlying profitability of the core commercial businesses, which maintained a robust 43% profit margin in Q1 2025, while absorbing investments in newer initiatives.

Operational metrics highlight the momentum in key areas. Company net new bookings were $56 million in Q1 2025, up sequentially. Commercial net new bookings were particularly strong, increasing 14% YoY and 19% sequentially, reaching their highest level in over a year. LoopNet saw annualized net new bookings skyrocket 200% YoY, driven by a successful shift in sales strategy towards broader property packages and asset-based pricing, where renewal rates remain high (97%). Apartments.com added 4,300 new communities, the most in nearly a decade, benefiting from competitive shifts and increased sales force activity, maintaining an exceptional 94 NPS. Homes.com demonstrated rapid progress, with unaided awareness reaching 36% in 14 months (up 9x) and unaided intention at 26%, driving significant traffic growth (Q1 2024 audience of 104 million unique visitors). Early data suggests Homes.com member agents are winning 61% more listings, a compelling ROI that is contributing to rapidly improving NPS (soaring from negative 42 to 43 in 14 months) and plummeting early cancellation rates.

Liquidity remains strong, although cash and equivalents decreased to $3.8 billion as of March 31, 2025, from $4.7 billion at year-end 2024, primarily due to cash used in investing activities, including the Matterport acquisition ($750.1 million cash paid) and the purchase of equity securities (Domain shares for $285 million).

Net cash provided by operating activities was $53.2 million in Q1 2025. The company has significant capital commitments, including $360 million remaining for the Richmond campus expansion ($266 million expected in 2025) and an expected $1.5 billion for the remaining 83% of Domain shares upon transaction consummation. A $500 million stock repurchase program was approved in February 2025, with $18.5 million repurchased in Q1, and at least $150 million anticipated for the full year. This capital allocation strategy reflects a commitment to reinvesting in growth initiatives and returning capital to shareholders while maintaining financial flexibility.

Outlook, Risks, and the Path Forward

Management's outlook for 2025 signals continued strong top-line growth and improving profitability. Full-year 2025 revenue is guided to be between $3.115 billion and $3.155 billion, implying a 14% to 15% annual growth rate, including a 4 to 5 percentage point contribution from Matterport. Second quarter 2025 revenue is expected in the range of $770 million to $775 million, representing 14% YoY growth at the midpoint. Adjusted EBITDA for the full year is projected between $355 million and $385 million, reflecting an approximate 12% margin. The inclusion of Matterport is expected to reduce the adjusted EBITDA forecast by approximately $30 million, indicating that excluding the acquisition impact, the core business and other investments are performing in line with or slightly above original guidance. Second quarter 2025 adjusted EBITDA is guided between $50 million and $60 million, reflecting a margin of around 7%, influenced by the timing of investments.

The guidance is underpinned by expectations of continued momentum in Homes.com sales as the dedicated sales force scales (goal of 500 reps with 4+ months experience by Q4), acceleration in LoopNet growth driven by strategic pricing and listing increases, sustained performance in Apartments.com despite a moderation from prior peak growth rates, and the integration and monetization of recent acquisitions like Matterport and Visual Lease. Management anticipates increased selling and marketing expenses in 2025 due to sales force expansion but expects commercial margins to continue improving by 1-2 percentage points annually due to the fixed-cost nature of these businesses.

However, several risks could impact the realization of this outlook. The successful integration of large acquisitions like Matterport and Visual Lease, particularly integrating their technologies and achieving expected synergies, is crucial. The Domain transaction, while a significant opportunity, remains subject to conditions and carries execution risk. The reliance on limited suppliers for Matterport hardware components poses a supply chain risk. The investment in publicly traded equity (Domain shares) introduces variability to earnings due to market price and foreign currency fluctuations. Litigation, particularly the ongoing Matterport-related matters, could result in material financial impacts beyond the currently accrued $95 million. The pace of recovery in the commercial real estate market remains a factor influencing growth in core CRE products and transaction-based revenues (Ten-X). Finally, the competitive landscape, particularly in the residential market, remains intense, requiring sustained investment and successful execution of the differentiated business model to gain and maintain market share.

Conclusion

CoStar Group is a dynamic real estate technology leader leveraging its foundational data and analytical strengths to pursue ambitious growth opportunities. The company's strategy of investing heavily in high-potential areas like Homes.com and integrating transformative technologies through acquisitions like Matterport positions it to capture significant new total addressable markets. While these investments impact near-term consolidated profitability and require careful execution, the underlying core commercial businesses continue to demonstrate robust growth and strong, expanding margins. The positive early indicators from Homes.com, the strategic rationale behind the Matterport and Domain acquisitions, and the planned expansion of the sales force across segments provide a compelling narrative for future revenue acceleration and value creation. Investors should monitor the successful integration of recent acquisitions, the continued ramp-up and monetization of Homes.com, the pace of recovery in the commercial real estate market, and the company's ability to navigate competitive pressures and execute on its strategic initiatives as key indicators of its long-term potential.