Q3 2026 CoStar Group Earnings Conference Call - COSTAR GROUP INC

Explicit Guidance:

• FY2026 Revenue: Updated to $3.75–3.77 billion (midpoint up $25M from prior guidance; includes ~$60M from Zonda, ~$35M lower than July guidance excluding Zonda).
• FY2026 Adjusted EBITDA: Raised to $820–840 million (midpoint $830M, +$30M from prior guidance; 22% margin).
• FY2026 Adjusted EPS: Raised to $1.38–1.41 (405M weighted shares).
• Q4 2026 Revenue: $976–996 million (midpoint +10% YoY).
• Q4 2026 Adjusted EBITDA: $275–295 million (29% margin at midpoint).
• FY2028 Adjusted EBITDA Target: Reaffirmed $1.25 billion.
• FY2027 Outlook: Management expects salesforce growth to re-accelerate and bookings to improve sequentially from Q3 2026 low point.

Business-Segment Outlook:

• Commercial Real Estate: Expects 10X turnaround to show revenue improvement starting Q1 2027.
• CoStar: Launching AI-driven tenant research process in late 2027 to update 6.7M tenant locations annually with single-digit error rates.
• CoStar Debt Solutions: Benchmark launched; loan origination capabilities expected to add next year.
• LoopNet: Salesforce expansion continues; cross-selling with CoStar rolling out in US later in 2026 following UK success.
• Matterport: Expected to achieve profitability by end of 2027; subscription revenue growth ongoing.
• Homes.com: Transitioning from inside sales to field sales; adding "Platinum Premium Advertising" (avg price $429, +58% since launch); revenue grew 50% YoY in Q3.
• Domain: Pro forma revenue flat; anticipated revenue decline continues due to transaction volume sensitivity in Australia.
• Apartments.com: Sales team expansion priority for 2027; net new bookings expected to rebound in Q4 2026 with mid-single digit revenue growth rate.
• Zonda: Contributing ~$60M revenue and $10M EBITDA to FY2026; expected to accelerate new home builder demand similar to Apartments.com trajectory.
• Global Expansion: Australia launch imminent with proprietary data; France migration/upselling successful; UK subscriber participation at 80% of transactions.
• Platform Integration: Combined Domain and Homes.com platform planned for release in 2027; UK platform integration to follow.

Market and Competitive Outlook:

• Salesforce Efficiency: Shifting growth focus from Richmond inside sales to experienced field sales professionals in top 20 cities to increase productivity and close rates.
• Lead Generation: Apartments.com AI and Homes.com integration driving lead flow; Homes.com leads to Apartments.com grew 462% YoY in Q3.
• Data Proprietary Advantage: CoStar aims to differentiate via high-resolution aerial imagery (Vexel) combined with tenant intelligence; targeting hundreds of billions of properties in 24 months.
• Competitive Positioning: Apartments.com maintains 63% unaided awareness; 74% of visitors never visit Zillow Rentals; 90% never visit Rent.com.
• Pricing Power: Holding ASPs steady despite macro headwinds; Homes.com Platinum product introduced to increase revenue per user.

Macro / Industry Outlook:

• US Housing Market: Interest rate environment driving pending home sales to record lows; multifamily vacancy at 8% with negative real rent growth.
• Australia Market: Rising interest rates and tax shifts causing Sydney home sales to fall 27% and prices to drop across all cities (first decline in 15 years).
• Interest Rate Impact: CoStar seeing softness in investment sales volume but increased demand from banks for portfolio risk analysis; residential transaction volume sensitive to rates.
• AI & LLMs: Managing LLM scraping risks via US copyright law; positive trend of LLMs directing traffic to CoStar/Apartments.com for transaction capabilities.

Strategic Initiatives:

• Vexel Acquisition: Definitive agreement to acquire Vexel (~$730M purchase price) for high-resolution aerial imagery; funding via $500M cash on hand and $1.1B revolver; expected to add 300M+ data points annually; synergy expected to be 4x accretive vs. buyback by Year 3.
• Cost Efficiency Program: Identified ~$200M incremental cost savings over next 12–18 months across procurement, org design, and marketing; combined with $150M 2026 savings, targeting total $750M efficiency (25% of cost structure) similar to Europe experience.
• Salesforce Restructuring: Decentralizing recruiting to major city hubs; appointing new CHRO within two weeks; targeting 30% field sales growth in 180 days across 20 key cities.
• Capital Allocation: FY2026 share repurchase program at $700M (16.5M shares bought YTD); expecting program completion in Q4.

Risks and Headwinds to Outlook:

• Transaction Volume: Residential and Domain revenue sensitive to swings in US/AU transaction volumes driven by interest rates.
• Salesforce Capacity: Past reliance on inexperienced inside sales led to churn and insufficient scale to reach prospects; need to rebuild field sales force to capture demand.
• Competitive Pricing: Competitors offering aggressive pricing and incentives for property managers to test alternative SEM strategies.
• Regulatory/Market Shifts: Australia residential tax treatment changes acting as a significant headwind for Domain.
• Integration Risks: Combined platform release timeline and integration of Zonda/Matterport/Vexel data require execution.
• Macro Volatility: Potential for further interest rate increases impacting leasing and investment sales cycles.

Management Tone on the Future:

• Confidence: High confidence in margin expansion (targeting 22% EBITDA margin in FY2026) and ability to reinvest efficiency savings into revenue growth.
• Strategic Pivot: Shift from inside sales to field sales described as necessary for "high ROI" growth; optimism regarding the re-acceleration of bookings in 2027.
• AI Sentiment: Strong belief in AI's ability to lower data capture costs and increase proprietary data depth (e.g., Vexel acquisition, tenant AI agents).
• Long-term View: Reaffirmation of $1.25B EBITDA 2028 target despite short-term market headwinds; focus on "multi-year increases" in profitability.
• Operational Discipline: Emphasis on "cost control" and "revenue reinvestment" as dual drivers, citing successful Europe model as a blueprint.

Miscellaneous:

• Vexel Synergies: Vexel to sell standalone bulk contracts while leveraging CoStar's 2,000-person sales force for cross-selling to utilities/governments.
• Data Extraction: Plan to identify up to 1,000 data fields per building from aerial imagery; incremental CapEx estimated at ~$20M over two years.
• Homes.com Losses: Losses on track to be within $550M cap for the year; Q3 losses were "slightly better" than prior expectations.
• Attribution: Launch of "Attribution Challenge" with Highlight.ai to demonstrate Apartments.com delivers double the credited leads vs. last-touch models.
• Matterport: Pro 3 shipments up 52% YoY following rebalancing of Pro 3 commercial model toward subscription.