CoStar (CSGP)

Real estate data provider CoStar Group (NASDAQ:CSGP) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 20.4% year on year to $833.6 million. On top of that, next quarter’s revenue guidance ($890 million at the midpoint) was surprisingly good and 3.3% above what analysts were expecting. Its non-GAAP profit of $0.23 per share was 21.8% above analysts’ consensus estimates.

Company Overview

With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ:CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.

A combination of increasing reliance on data and analytics across various industries and the desire for cost efficiency through outsourcing could mean that companies in this space gain. As functions such as payroll, HR, and credit risk assessment rely on more digitization, key players in the data & business process services industry could be increased demand. On the other hand, the sector faces headwinds from growing regulatory scrutiny on data privacy and security, with laws like GDPR and evolving U.S. regulations potentially limiting data collection and monetization strategies. Additionally, rising cyber threats pose risks to firms handling sensitive personal and financial information, creating outsized headline risk when things go wrong in this area.

CoStar Group competes with various specialized real estate data providers like Reed Business Information's Estates Gazette, Altus Group, and Moody's REIS Network in commercial real estate data. In the apartment listing space, it faces competition from Zillow Rentals, Trulia Rentals, and RentCafe. For residential listings, competitors include Zillow, Redfin, and Realtor.com, while Ten-X competes with commercial real estate auction platforms like CREXi.

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.

With $3.06 billion in revenue over the past 12 months, CoStar is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, CoStar’s sales grew at an exceptional 14% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. CoStar’s annualized revenue growth of 13.1% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, CoStar reported robust year-on-year revenue growth of 20.4%, and its $833.6 million of revenue topped Wall Street estimates by 2.4%. Company management is currently guiding for a 25.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 16.9% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will fuel better top-line performance.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

CoStar was profitable over the last five years but held back by its large cost base. Its average operating margin of 9.1% was weak for a business services business.

Looking at the trend in its profitability, CoStar’s operating margin decreased by 21.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. CoStar’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, CoStar generated an operating margin profit margin of negative 6.1%, down 9.6 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for CoStar, its EPS declined by 2.8% annually over the last five years while its revenue grew by 14%. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of CoStar’s earnings can give us a better understanding of its performance. As we mentioned earlier, CoStar’s operating margin declined by 21.1 percentage points over the last five years. Its share count also grew by 6.6%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For CoStar, its two-year annual EPS declines of 18.3% show it’s continued to underperform. These results were bad no matter how you slice the data, but given it was successful in other measures of financial health, we’re hopeful CoStar can generate earnings growth in the future.

In Q3, CoStar reported adjusted EPS of $0.23, up from $0.22 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects CoStar’s full-year EPS of $0.85 to grow 46.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

CoStar has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.3% over the last five years, quite impressive for a business services business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that CoStar’s margin dropped by 9.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

CoStar’s free cash flow clocked in at $222.6 million in Q3, equivalent to a 26.7% margin. This result was good as its margin was 24.7 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

CoStar historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.6%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CoStar’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

CoStar is a well-capitalized company with $1.94 billion of cash and $1.18 billion of debt on its balance sheet. This $757.3 million net cash position is 2.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see CoStar beat analysts’ revenue, EPS, and EBITDA expectations this quarter as its sales growth accelerated. We were also glad its revenue and EBITDA guidance for next quarter trumped Wall Street’s estimates. On the other hand, its quarterly EPS guidance missed. Still, we think this was a solid quarter with some key areas of upside. Investors were likely hoping for more given the stock's premium valuation, and shares traded down 2.8% to $76.07 immediately following the results.

Updated: December 4, 2025 at 11:14 PM EST

Before making an investment decision, investors should account for CoStar’s business fundamentals and valuation in addition to what happened in the latest quarter.

CoStar isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months, its diminishing returns show management's prior bets haven't worked out. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets.

CoStar’s P/E ratio based on the next 12 months is 57.2x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $91.94 on the company (compared to the current share price of $68.16).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.