CoStar Group (CSGP) Q3 2026 earnings review
CoStar doubles its operating profit, but new bookings drop
CoStar Group, the owner of Apartments.com, Homes.com, and commercial property databases, doubled its operating profit by cutting marketing spend, but its new subscription sales dropped in half. Third-quarter revenue rose 14% to $952 million, while Adjusted EBITDA — operating profit before one-offs — doubled to $229 million. Chief executive Andy Florance raised the full-year profit outlook and identified at least $200 million in future cost cuts, while agreeing to buy aerial imagery firm Vexcel for $730 million.
| Revenue | $952M +14% from a year ago |
|---|---|
| Adjusted EBITDA | $229M doubled from a year ago |
| Net new bookings | $37M -56% from a year ago |
| Full-year profit outlook | Raised $30M middle of the range: $830M |
⚖️ Verdict: 🔴 Bearish
The story got worse because the drop in new subscription bookings shows the cost cuts are now hurting future revenue growth. Beating the third-quarter profit plan and setting a 29% margin target for the fourth quarter removed the near-term margin risk, yet new bookings fell from $69 million last quarter to $37 million and fourth-quarter revenue growth is set to slow to 10%.
The question now is whether CoStar can cut another $200 million in expenses without pushing underlying revenue growth into the single digits next year. If higher prices and premium ads on its housing portals offset the smaller sales team, revenue growth holds near 10%; if the $37 million bookings pace persists, growth slows further in 2027. Fourth-quarter bookings and the 2027 revenue outlook will settle it.
🐂 Bull Case
Marketing Cuts Doubled Operating Profit
“CoStar Group generated outstanding profitability growth in the third quarter, delivering on our commitment to expand margins as we exit a period of investment,” chief executive Andy Florance said. Adjusted EBITDA — earnings before interest, taxes, depreciation, amortization, and one-off items — doubled from a year ago to $229 million. That lifted the margin by 10.4 percentage points to 24.1% of revenue, beating the top of the company's plan by $19 million.
- Selling and marketing expense: $366 million, down 11.7 percentage points of revenue from a year ago to 38.4%
- General and administrative overhead: $138 million, down 4.3 percentage points of revenue to 14.5%
- Stock-based compensation: $32 million, cut by more than half from $71 million a year ago
The profit jump happened because the property data provider shrank its operating expenses by $56 million from a year ago while adding $118 million in sales. Florance said the group has now found $150 million of cost savings this year compared to its original plan, up from the $100 million it had identified three months ago.
What to watch: fourth-quarter selling and marketing expense in the full-year report. A second straight quarter below $370 million would show that the lower cost base is permanent rather than a seasonal pause in advertising.
Residential Profit Beat Solved the Q4 Hurdle
Three months ago, CoStar held its full-year profit outlook while cutting its sales forecast. That left an unbridged jump for the fourth quarter and raised the risk of a late-year miss. This quarter's beat and the new fourth-quarter plan have settled that concern.
Residential Real Estate, the division that runs Apartments.com and Homes.com, generated $49 million in Adjusted EBITDA, beating the $28–38 million plan. Because third-quarter profit ran $29 million ahead of the middle of its range, the company raised its full-year target by $30 million and set an explicit fourth-quarter outlook of $275–295 million, a 29% margin.
What to watch: Residential Adjusted EBITDA against its $98–108 million fourth-quarter outlook. Hitting that range will prove the housing portals can earn roughly 20% margins after the peak moving season ends.
Positives this quarter didn't test
Three product and international growth drivers from earlier in the year got no new numbers in the earnings release.
- AI search tools on Apartments.com and Homes.com: Florance said scale lets the group run AI tools at lower cost than rivals, and the conference call will show whether user engagement kept rising.
- Homes.com platinum advertising tier: the premium listing product was scheduled to begin selling in the third quarter, and the call or quarterly filing will show initial agent uptake.
- European and Australian expansion: CoStar launched in France last quarter and staffed 124 researchers in Australia for a second-half launch; the call will update their progress.
🐻 Bear Case
New Subscription Bookings Dropped by Nearly Half
“Our ongoing deep expense review has identified potential additional savings of at least $200 million that we believe will improve efficiency without sacrificing revenue growth,” Florance said. Yet the company's own leading indicator of subscription revenue fell sharply in the first full quarter after it cut its residential inside sales team from 660 reps to about 400.
- Annualized net new bookings (the yearly value of new subscription contracts minus cancellations): $37 million, down 46% from $69 million last quarter
- Comparison with a year ago: down 56% from $84 million in the third quarter of 2025
- Fourth-quarter revenue outlook: $976–996 million, slowing to 10% growth from 14% this quarter and 18% in the second quarter
CoStar gets nearly 90% of its revenue from subscriptions, so today's bookings build next year's revenue. Five straight quarters of bookings below their year-ago level — and a drop to $37 million — show that pulling back on marketing and sales reps is already weighing on new contract wins. The company also kept segment bookings hidden, leaving investors unable to see how much of the drop came from Homes.com versus Apartments.com.
What to watch: fourth-quarter net new bookings and any segment breakdown on the call. A second reading near $40 million would point to single-digit underlying revenue growth in 2027.
Acquisitions Drain Cash Into a Debt Draw
CoStar has spent its cash pile on deals and share buybacks, and it just announced another large purchase. In the first nine months of 2026, the group paid $789 million in cash for acquisitions — including closing the Zonda housing data deal — and spent $668 million buying back its own stock, including $81 million in the third quarter by our math.
Those outflows cut total cash from $1.73 billion at the start of the year to $500 million on September 30, moving the balance sheet into a $494 million net debt position by our math. Alongside the results, CoStar announced an agreement to acquire Vexcel, an aerial imagery provider, for about $730 million in cash. Because $500 million of cash cannot cover a $730 million price tag, CoStar said it will fund the deal from cash on hand and its revolving credit facility, which will reduce net interest income further after it swung from a $26 million benefit a year ago to a $1 million expense this quarter.
What to watch: the amount drawn on the credit facility when the Vexcel deal closes in the first quarter of 2027. It will determine the new interest bill that eats into net profit.
Website Traffic Fell as AI Search Looms
CoStar's online marketplaces make money by drawing property shoppers and charging agents or landlords to reach them. Florance said the group's global scale lets it “deliver best-in-class consumer-facing AI functionality on our marketplaces at significantly lower costs than our competitors.”
However, traffic across CoStar's websites moved the other way. Average monthly unique visitors fell to 121 million in the third quarter, down 15% from 143 million a year ago by our math, and down from 131 million in the first quarter. While cutting marketing spend helped double profit, fewer visitors make it harder to sell higher-priced ads and leave the portals exposed if home shoppers start their searches in outside AI chat apps instead.
What to watch: average monthly unique visitors in the fourth quarter and management's call commentary on traffic sources. A further drop below 120 million would show that lower ad spending is shrinking the audience.
Risks this quarter didn't answer
Four standing concerns from last quarter cannot be read from the earnings release alone and await the conference call or the quarterly filing.
- Apartments.com pricing and property count: the release did not state whether paid properties kept growing by 1,000 a month or how much of the revenue per property drop came from landlords downgrading ad tiers.
- Homes.com revenue run rate and agent count: neither the annualized revenue figure ($116 million last quarter) nor the subscriber count (over 36,000 last quarter) appeared in the release.
- Underlying residential growth without acquisitions: Residential revenue rose 23% to $460 million, but the release did not separate how much Zonda and Domain added versus underlying growth.
- Finance chief transition: the release did not update the chief financial officer handover or name who presented the financial bridge.
👓 Other Themes
Expense Review Targets Another $200 Million
Beyond the $150 million of cost cuts already built into this year's outlook, Florance announced that a deeper expense review has found at least $200 million in potential additional savings. CoStar plans to capture those reductions over the next 12 to 18 months to stay on track for its 2028 target of $1.25 billion in Adjusted EBITDA. A plan is not a result, so the savings will be tested in 2027 margins.
💲 Other KPIs
Up 6.7% from a year ago, slowing from 7.8% growth in the second quarter and 15.4% in the first. Flagship CoStar data subscriptions rose 8.2% to $344 million and the LoopNet marketplace grew 12.7% to $89 million, but other commercial revenue — which includes the Ten-X auction platform — fell 7.8% to $59 million.
By our math, cash left after capital spending reached $106 million in the third quarter (11.1% of revenue), swinging from a $23.6 million cash burn a year ago. Nine-month free cash flow hit $261 million as higher operating profit met a $129 million drop in capital spending after the Richmond headquarters campus opened in June.
Deferred revenue — cash customers have paid upfront for services not yet delivered — rose 24.0% from a year ago and 7.3% from last quarter to $250 million. While cash inflows added $30 million over the first nine months, the balance also includes contracts brought in from recent acquisitions.
Down 4.3% from 419.9 million shares a year ago and down 0.6% from the second quarter. The lower share count reflects $668 million of stock buybacks over the first nine months of 2026, which lifted per-share profit growth 6 percentage points above net profit growth.
🔮 Guidance
Raised. The middle of the full-year profit plan moved up by $30 million, pointing to 88% growth from last year. Across four updates this year, the middle of the range has moved +$30M, $0M, and +$30M, driven by $150 million in annual cost cuts.
New. The fourth-quarter plan calls for 61% growth at the middle of the range and a 29% margin, up from 24.1% in the third quarter. Commercial real estate is set to provide $177–187 million and residential $98–108 million as seasonal marketing spend drops.
Raised. The middle of the range rose by $25 million, or about 16% growth for the year, recovering part of last quarter's $65 million cut after the Zonda acquisition closed. Across the year, the midpoint moves read $0M, -$65M, and +$25M.
New. Management expects fourth-quarter sales to grow about 10% from a year ago at the middle of the range. That marks a further slowdown from 14% in the third quarter and 18% in the second as last year's Domain acquisition enters the comparison base.
Raised. Profit per share excluding one-offs moved up 4 cents at the middle of the range to 60% growth for the year, assuming 405 million shares and a 26% tax rate.
New. The plan points to 55% per-share profit growth from a year ago at the middle of the range, based on 400 million diluted shares and a 26% tax rate.
Raised. The company narrowed the range and lifted the middle by $1 million, with higher operating profit offsetting higher acquisition amortization and lower interest income.
New. Reported net profit is set to more than double from $47 million in the fourth quarter of 2025, with diluted earnings per share of $0.24–0.27.
❓ Key Questions
Why did net new bookings drop 46% from last quarter?
Annualized net new bookings fell from $69 million in the second quarter to $37 million in the third. Investors need to know how much of the drop came from the smaller Homes.com sales team versus commercial real estate or Apartments.com.
How much revenue did Zonda add in the third quarter?
CoStar paid $789 million for acquisitions in the first nine months and cited Zonda as closed, while raising the full-year revenue outlook by $25 million. Without Zonda's contribution, it is impossible to tell whether underlying sales beat or missed the old plan.
What are the latest Homes.com and Apartments.com unit numbers?
The release omitted Homes.com run-rate revenue ($116 million last quarter), agent subscribers (over 36,000), and Apartments.com paid properties (nearly 93,000). Those figures show whether price increases and property additions are holding up.
Where will the next $200 million of cost cuts fall?
Florance announced at least $200 million in potential new savings over the next 12 to 18 months and claimed they will not hurt revenue growth. Because bookings just fell to $37 million, the split between sales reps, marketing, and overhead matters.
How much debt will CoStar draw to buy Vexcel?
CoStar ended September with $500 million in cash and agreed to buy Vexcel for $730 million using cash and its revolving credit line. The size and interest rate of the borrowing will set next year's interest expense.