CoStar Group, Inc. (CSGP) Earnings

Management highlights

### Financial & Profitability Milestones - Marked a profitability inflection point, with adjusted EBITDA more than doubling YoY, and operating cost growth held to just 2% YoY while continuing long-term investment - 61st consecutive quarter of double-digit revenue growth; on track to deliver the highest full-year adjusted EBITDA in company history in 2026 - Completed the new consolidated Richmond, Virginia headquarters on schedule and under budget, enabling scaling to 4,000 employees from 2,500 with limited additional capital; expected to achieve net zero carbon emissions via 100% renewable energy, with a future potential sale-leaseback that could unlock hundreds of millions in liquid capital ### Product & Expansion Initiatives - Launched four major core platform initiatives in Q2: CoStar Rent Benchmark (built from 4 million AI-abstracted actual leases), CoStar full platform launch in France (covering over 290,000 properties), public record search for the UK, and AI-powered lease abstraction for CoStar Real Estate Manager - Preparing to launch CoStar in Australia in H2 2026, with 124 on-the-ground researchers and photographers already deployed - For Matterport: Deploying a new pricing model that shifts more revenue to SaaS; fully released E57 import for unified 3D spatial data management; launched an enhanced Gaussian splat digital twin experience; produced first prototypes of the next-generation Matterport 4 camera, expected to launch in late 2027 - For LoopNet: Expanded the sales force to 225 reps from 191 a year prior; added Italian coverage via the Wikicasa partnership; shifted Australian LoopNet launch to late 2027 to prioritize residential integration for faster margin enhancements - For Apartments.com: Launched Apartments.com AI conversational search, which has delivered 500,000 early user sessions with 3x longer site duration and 256% higher lead conversion; expanded a ChatGPT partnership to 500 US markets - For Homes.com: Preparing to launch the Platinum Marketing Tier depth advertising offering in Q3 2026, which management expects to become the primary source of long-term revenue for the platform; optimized the sales force by cutting lower-productivity inside sales reps from 660 to ~400, while expanding a higher-productivity field sales team focused on 5 major US metros - Announced a definitive agreement to acquire Zonda, a leading new home construction data and marketplace provider, expected to close in H2 2026 ### Strategic & Operational Updates - Completed CFO transition: Robin Rossman promoted to CFO following Christopher Lown's departure to Allstate - Repurchased $587 million in shares year-to-date 2026, on track to reach $700 million in full-year 2026 repurchases - Ongoing legal actions against Zillow: Regulators are challenging an alleged unlawful anti-competitive agreement, and CoStar has a separate copyright infringement suit over unauthorized use of CoStar property photos

Guidance

- Full year 2026 revenue guidance was revised downward to $3.715–$3.755 billion, representing 15% YoY growth at the midpoint. The downward revision reflects strategic choices: 10X business restructuring, Homes.com sales force productivity optimization, and Apartments.com's commitment to maintaining price integrity. - Full year 2026 adjusted EBITDA guidance is maintained at $780–$820 million, which is $30 million higher at the midpoint than February 2026 guidance, driven by aggressive cost management. Full year adjusted EPS guidance of $1.32–$1.39 is also affirmed, 6% higher than February guidance. - Q3 2026 guidance calls for revenue of $935–$945 million (13% YoY growth at midpoint), with commercial revenue of $489–$494 million (7% YoY growth at midpoint) and residential revenue of $446–$451 million (20% YoY growth at midpoint). Adjusted EBITDA is expected to be $190–$210 (21% margin at midpoint), with adjusted EPS of $0.31–$0.34. - No financial impact from the pending Zonda acquisition is included in 2026 guidance. - Management reaffirmed commitment to long-term 2026–2030 adjusted EBITDA targets, with 2026 projected expenses reduced by ~$100 million year-to-date, creating a head start on long-term goals.

Segment performance

Total Company: Q2 2026 revenue was $925 million, an 18% year-over-year (YoY) increase. Adjusted EBITDA was $184 million, more than doubling YoY to the second highest quarterly level in company history, with a 20% adjusted EBITDA margin (up 900 basis points YoY). Commercial Segment: Q2 revenue was $481 million, up 8% YoY, contributing 52% of total company revenue. Adjusted EBITDA was $172 million, up 7% YoY, with a 36% adjusted EBITDA margin. Within the segment: - CoStar core: Revenue of $337 million, up 9% YoY; net new bookings up 24% YoY; 93% renewal rate; subscribers grew 19% YoY to 327,000 - CoStar Debt Solutions: Record quarter with $4 million in net new monthly bookings, up 96% YoY - LoopNet: Revenue of $87 million, up 14% YoY; US paid listings up 9% YoY, with 24% growth in Canada and 52% growth in the UK - 10X: Revenue declined $4 million YoY amid restructuring; $7 million in year-to-date cost savings - Matterport: Subscription revenue grew 16% YoY; achieved all-time best enterprise customer acquisition in June 2026 - SDR: 70% of net new revenue came from new logos; added 261 new global clients - BizBuySell: Revenue grew 5% YoY Residential Segment: Q2 revenue was $444 million, up 33% YoY, contributing 48% of total company revenue. Generated its first positive adjusted EBITDA of $12 million, up $41 million sequentially from Q1 2026. Within the segment: - Apartments.com: Revenue of $318 million, up 9% YoY; ended the quarter with ~93,000 paid properties, up 12% YoY; 99% monthly renewal rate - Homes.com: Revenue of $28.5 million, up 66% YoY; annualized run rate of $116 million at quarter end, up 78% YoY; over 36,000 agent subscribers, up 107% YoY - Domain (Australia): Pro forma revenue grew 9% YoY; average monthly visits up 35% YoY to 41 million - On the Market (UK): Total property inventory increased 12% YoY, becoming the second largest UK property portal by inventory; 26 consecutive months of positive net new bookings - Land.com: Revenue grew 9% YoY; first half net new bookings up 22% YoY; signature ad revenue up 55% YoY

Risks & headwinds

- Ongoing macro stress in the US multifamily market, with elevated supply, high price sensitivity among property owners, and widespread concessions, pressuring average revenue per property at Apartments.com - Intense price competition from Zillow in the multifamily rental advertising market, which has created near-term headwinds for revenue growth - 10X is a transactional commercial business that faces headwinds from lower transaction volumes, leading to near-term revenue declines - AI token pricing is an evolving dynamic, with some LLM providers shifting pricing models, though CoStar is currently below budget for token costs and benefiting from competitive provider pricing - Legal uncertainty from ongoing litigation against Zillow, though the company expects a favorable outcome that could create significant competitive advantages long-term

Analyst Q&A

• Q: What is driving the year-over-year decline in net new bookings, and why does management expect growth to improve? /

  A: The decline is primarily driven by two factors: strategic sales force optimization at Homes.com, where lower productivity reps were cut to improve profitability, and soft transaction volumes at 10X, which accounts for roughly 25% of the full year revenue guidance revision. Apartments.com performance remains strong despite competitive pressures. Management expects growth to accelerate as depth advertising rolls out for Homes.com, productivity improves with the shift to higher-performing field sales, and new commercial product launches drive uptake over the next 1-2 years. (262 characters)

• Q: How much of the $50 million downward revision to residential guidance comes from Homes.com versus multifamily? /

  A: Around 25% of the total full year revenue guidance reduction comes from 10X (commercial segment), with the remainder coming from the residential segment, primarily driven by the strategic sales force optimization at Homes.com. Q2 net new bookings for Homes.com were roughly flat sequentially from Q1, so the revision reflects a deliberate focus on productivity over near-term top-line growth rather than underlying demand weakness. (293 characters)

• Q: Is tier downgrade pressure at Apartments.com driven more by macro budget tightening or competition, and are there signs of pressure abating? /

  A: Tier downgrade pressure is a combination of both factors: elevated multifamily vacancy has increased owner price sensitivity, and competitors are using aggressive low pricing to gain market share. CoStar has maintained pricing integrity, with average ARPU only down 3.6% YoY, and paid property count up 12% YoY. Management notes that customers who leave for lower prices typically return over time due to Apartments.com's 2.5x higher lead-to-lease conversion than competitors, so the company retains a strong competitive position. (351 characters)

• Q: Does the Homes.com sales force optimization change long-term scaling timelines, and will higher field sales costs change the profitability outlook? /

  A: The fundamental long-term strategy and scaling timeline remain unchanged. Starting with an inside sales force to build scale quickly was always the plan, and the shift to field sales is a natural next step after two years of growth. There is no material cost difference between centralized inside sales and field sales, as CoStar already has existing field infrastructure. The shift prioritizes hitting EBITDA targets by focusing on higher productivity, and the company remains on track to meet long-term profitability goals. (347 characters)

• Q: How is CoStar balancing AI investment against mid-term EBITDA targets, and what is the outlook for AI token costs? /

  A: To date, cost savings from AI (particularly labor savings from automated processes like lease abstraction) have outpaced AI token costs, and CoStar is currently below 2026 budget for token consumption costs. Management notes that the same high-margin CoStar model (invest once in proprietary data, sell to a broad audience) applies to AI, keeping per-user costs low. Competitive pressure among LLM providers is also helping keep pricing favorable, and significant uncounted future cost savings from AI are not yet reflected in guidance. (352 characters)