COSTAR GROUP, INC. Q3 FY2026 earnings call

• Financial Excellence: Delivered record quarterly adjusted EBITDA of $229 million, doubling the prior year, driven by strong cost control and operating expense reductions.
• Cost Efficiency Initiatives: Identified an additional $200 million in efficiency opportunities across procurement, organizational design, and technology, on top of previously guided $150 million savings. These savings are expected to be realized over the next 12-18 months.
• Sales Force Restructuring: Shifted focus from inside sales to field sales professionals for Homes.com and Apartments.com due to higher productivity and better conversion rates. Decentralized recruiting to major city hubs to improve hiring quality and retention.
• Product & AI Innovation: Launched AI-driven research for CoStar Tenet to update tenant data annually with high accuracy. Introduced Platinum Advertising on Homes.com to drive higher average selling prices. Integrated ChatGPT with Apartments.com to capture direct transaction flows.
• Strategic Acquisitions: Completed acquisition of Zonda (B2B home builder platform) and announced definitive agreement to acquire Vexel (aerial imagery provider). Vexel is expected to provide ultra-low-cost proprietary data via computer vision, significantly expanding CoStar's data coverage.

CoStar Group reported total revenue of $952 million, a 14% year-over-year increase. The Commercial segment generated $492 million in revenue (7% YoY growth), representing approximately 52% of total revenue, with adjusted EBITDA of $180 million. Key drivers included CoStar ($344 million, up 8%) and LoopNet ($89 million, up 13%). The Residential segment generated $460 million in revenue (23% YoY growth, including Zonda from August), representing approximately 48% of total revenue, with record adjusted EBITDA of $49 million. Major contributors were Apartments.com ($320 million, up 6%) and Homes.com ($31 million, up 50%).

• Raised full-year 2026 adjusted EBITDA guidance to $820-$840 million (midpoint $830 million), representing a 22% margin and a significant upward revision from previous records.
• Raised full-year 2026 adjusted EPS guidance to $1.38-$1.41.
• Updated full-year revenue guidance to $3.75-$3.77 billion; this includes ~$60 million from Zonda, while organic revenue is slightly below prior guidance due to lower transaction volumes in Domain and subscription softness in Apartments.com.
• Maintained long-term target of $1.25 billion adjusted EBITDA by 2028, citing confidence from identified cost synergies.

• Macroeconomic Headwinds: Rising interest rates have negatively impacted residential transaction volumes, particularly in Australia (Sydney/Melbourne) and the US multifamily sector, leading to higher vacancies and rent concessions.
• Sales Capacity Constraints: Insufficient sales headcount, particularly in Apartments.com and Homes.com, limited the ability to address the large prospect universe, impacting net new bookings.
• Attrition and Hiring Challenges: High attrition rates among newly hired inside sales representatives at Homes.com, who lacked prior experience, necessitated a strategic pivot to experienced field sales teams.
• Competitive Pressure: Continued competition in the rental market, though CoStar maintains strong brand awareness and unique audience metrics.

Q: Analyst asked about the balance between existing unaddressed demand vs. need for more sales capacity to drive bookings. / A: Management stated they can clearly see hundreds of thousands of unreachable prospects across their platforms. They do not need macroeconomic demand drivers to return to grow revenue; rather, they need to scale the Salesforce to reach these existing prospects. Growth in LoopNet’s Salesforce directly correlated with revenue acceleration, confirming that capacity is the primary constraint.