CoStar Group (CSGP) Q3 2025: Residential Portals Revenue Jumps 31%, AI Spend Reallocated for Acceleration
CoStar Group’s Q3 saw residential portal revenue surge and AI-driven innovation become a core investment focus, as the company leverages scale, data, and technology to outpace legacy and new rivals. Sales force ramp and targeted M&A are fueling record bookings, while management’s aggressive legal and competitive posture signals a high-conviction push for digital real estate leadership. Guidance was raised as operational leverage and margin expansion remain central to the long-term thesis.
Summary
- Residential Momentum Accelerates: Homes.com and Apartments.com drive outperformance as cross-platform synergies build.
- AI Investment Shift: Half of software development now targets AI features without increasing total spend.
- Strategic M&A Integration: Domain and Matterport integration unlocks new margin and global TAM expansion.
Performance Analysis
CoStar delivered its 58th consecutive quarter of double-digit revenue growth, with Q3 revenue reaching $834 million, up 20% year-over-year, and adjusted EBIT up 51%. Residential portals, including Apartments.com, Homes.com, On The Market, and Domain, contributed meaningfully, with residential portal revenue up 31% year-over-year and 22.7% sequentially (assuming full-quarter Domain ownership). Apartments.com surpassed $1.2 billion in annual run-rate revenue, growing 11% year-over-year, while Homes.com net new bookings soared 1,225% year-over-year, reflecting accelerating adoption and product-market fit.
Net new bookings totaled $84 million, up 92% year-over-year, with every major product contributing. Commercial information and marketplace margins climbed to 47%, and the company continues to demonstrate strong operational leverage as investments in sales force and technology scale. International expansion, particularly with Domain in Australia and On The Market in the UK, is showing early signs of audience and revenue traction. Matterport, now fully owned, outperformed expectations, with Q3 revenue 12% above plan and bookings up 194% year-over-year.
- Sales Force Expansion: Over 500 Apartments.com and 500 Homes.com reps in production, supporting rapid bookings growth and market coverage.
- Margin Expansion: Commercial and marketplace business margins reached 47%, with residential margins targeted above 40% long-term.
- Bookings Surge: Net new bookings up 92% YoY, led by residential and international momentum.
Cash flow remains robust, with $2 billion on the balance sheet and continued share repurchases. Guidance for Q4 and full-year 2025 was raised, reflecting confidence in underlying trends and recent acquisitions.
Executive Commentary
"We achieved another excellent quarter for CoStar Group with third quarter 2025 revenue reaching $834 million, a 20% year-over-year increase. This is our 58th consecutive quarter of double-digit revenue growth, and we're one quarter closer to potentially 100 sequential quarters of revenue, double-digit revenue growth. Stay tuned."
Andy Florance, Founder & Chief Executive Officer
"Net new bookings for the third quarter were $84 million, representing a 92% increase year-over-year. Every major product contributed to this record as our growing dedicated sales force of over 2,000 people is delivering for CoStar."
Chris Lown, Chief Financial Officer
Strategic Positioning
1. Residential Portal Scale and Differentiation
CoStar’s residential portals—Homes.com, Apartments.com, On The Market, and Domain—are now a $1.6 billion annualized revenue engine, with Homes.com accelerating faster than any prior product in the company’s history. The “your listing, your lead” model, where agents retain control of their leads, enables broad agent participation (over 26,000 subscribing agents) and goodwill, directly contrasting with lead diversion models of competitors.
2. AI as a Core Product Lever
AI investment now represents 50% of Homes.com software development resources, without any increase in total spend. Smart Search, the new AI-powered feature, is already driving deeper engagement: users apply 69% more filters, view 37% more listings, and submit 51% more leads. Management is clear that AI will be rolled out across all platforms, aiming to capture future top-of-funnel traffic as generative engine optimization (GEO) grows in importance.
3. M&A-Driven Global Expansion
Domain (Australia) and Matterport (3D digital twins) are being rapidly integrated, with Domain’s residential platform achieving record user engagement and Matterport exceeding sales goals. International markets are now a central pillar, with LoopNet, CoStar, and Homes.com all planned for Australia within 18 months, and European expansion accelerating through localized content and product adaptation.
4. Commercial Business Resilience
Commercial information and marketplace businesses (CoStar, LoopNet) delivered steady growth despite sector volatility, with improved renewal rates and new product launches (e.g., CoStar for Lenders, lease benchmarking). LoopNet’s global audience and asset-based pricing position the platform for reacceleration toward 20%+ growth rates.
5. Legal and Competitive Posture
Management is aggressively pursuing legal action against Zillow, highlighting ongoing antitrust and copyright litigation as a potential disruptor to legacy competitor business models. This signals a willingness to challenge industry norms and defend proprietary data and platform value.
Key Considerations
Q3 2025 was defined by operational leverage, platform breadth, and a clear pivot to AI-enabled real estate marketplaces. CoStar’s approach is to scale differentiated products, defend its data moat, and expand internationally through targeted acquisitions and local adaptation.
Key Considerations:
- Sales Force Productivity Ramp: Rapid hiring in residential sales teams is being managed with a temporary cap to ensure onboarding and training keep pace with expansion.
- AI Feature Adoption: Early engagement metrics for Smart Search suggest significant user value, but monetization will depend on continued product iteration and agent adoption.
- Margin Trajectory: Long-term residential margins are targeted above 40%, benchmarking against global peers operating at 50-75% margins.
- M&A Integration Execution: Success in integrating Domain and Matterport is critical for unlocking new TAM and sustaining above-market growth rates.
- Legal Risk/Competitive Disruption: Ongoing lawsuits in the sector could reshape competitive dynamics, especially if regulatory or legal outcomes impact rivals’ business models.
Risks
Execution risk remains in scaling new sales teams and integrating M&A targets, particularly as Homes.com and Domain ramp globally. Legal and regulatory developments, especially those involving competitors like Zillow, could introduce market volatility or alter competitive positioning. AI investment is being reallocated from existing resources, but value capture is not guaranteed and will depend on user adoption and competitive response. Macroeconomic swings in real estate markets could pressure bookings and renewals, particularly in commercial segments.
Forward Outlook
For Q4 2025, CoStar Group guided to:
- Revenue of $885 to $895 million
- Adjusted EBITDA of $150 to $160 million
For full-year 2025, management raised guidance:
- Revenue of $3.23 to $3.24 billion
- Adjusted EBITDA of $415 to $425 million
Management highlighted several factors that support the outlook:
- Strong sales force ramp with productivity expected to increase as new hires mature
- Continued acceleration in residential and international bookings
- AI-driven product enhancements to drive deeper engagement and future monetization
Takeaways
CoStar’s Q3 results reinforce its position as a scaled, data-rich platform operator in digital real estate, with residential and AI investments emerging as the next leg of growth. Operational discipline and M&A integration are supporting margin expansion, while legal and competitive dynamics could accelerate structural shifts in the industry.
- Residential Outperformance: Homes.com and Apartments.com are outpacing legacy peers, with bookings and engagement metrics signaling sustainable momentum.
- AI as Differentiator: CoStar is reallocating software spend to AI, betting that proprietary data and user experience will drive future traffic and monetization.
- Watch for Integration and Legal Outcomes: The next quarters will hinge on successful Domain and Matterport integration and the evolving legal landscape, especially actions targeting industry competitors.
Conclusion
CoStar Group’s Q3 2025 showcased resilient growth, expanding margins, and a decisive pivot toward AI-driven innovation, setting the stage for continued outperformance in both residential and commercial real estate marketplaces. Execution on integration and product development will be key, as the company looks to leverage its data and scale advantages globally.
Industry Read-Through
CoStar’s Q3 results signal a broadening gap between scaled, data-rich digital real estate platforms and legacy or single-product peers. The shift to AI-powered user experiences and agent-friendly models is likely to pressure rivals dependent on lead diversion or less differentiated inventory. International expansion through M&A and local adaptation is now a proven playbook, and the legal environment is becoming more consequential for industry structure. Other marketplaces and property tech operators should expect heightened competition, faster product cycles, and a premium on proprietary data and AI integration.