CoStar (CSGP) Q3 2025 Analysis: Growth by Acquisition Costs Profitability

CoStar Group (CSGP), a powerhouse in online real estate marketplaces and property data, recently released its third-quarter financial results for 2025. The report, detailed in its latest 10-Q filing, reveals a company aggressively pursuing growth through major acquisitions, a strategy that has successfully boosted revenue but also significantly impacted its bottom line. Let's explore the numbers to see what they tell us.

Growth by Acquisition

CoStar's top line shows impressive momentum, with total revenue for the quarter climbing 20% year-over-year to $833.6 million. This growth wasn't just organic; it was supercharged by strategic acquisitions.

The "Residential" segment, which includes the popular Homes.com portal, saw revenues nearly double to $54.9 million, a 98% increase driven largely by the recent acquisition of Domain, a leading Australian property portal. Similarly, the "Other Revenues" category skyrocketed 142% to $78.1 million, which the company attributes primarily to its purchase of Matterport, a company known for its 3D virtual tour technology.

Even CoStar's established segments posted solid gains. Multifamily, a key revenue driver, grew 11% to $303.0 million, while the company's namesake CoStar information service increased 8% to $277.0 million.

The following flow diagram provides a visual breakdown of how CoStar's revenues from its various segments flowed through costs and expenses to the final net income for the quarter.

The Price of Expansion

This impressive top-line growth, however, came at a steep price. Operating expenses surged 35% to $712.5 million compared to the same period last year. The primary drivers of this increase were directly linked to the company's expansion efforts:

• Selling and Marketing: Expenses jumped 26% to $418.3 million, fueled by increased advertising and a larger sales force resulting from the Matterport and Domain acquisitions.
• General and Administrative: These costs rose 48% to $157.0 million, with the filing noting costs related to acquisition activities as a key factor.
• Cost of Revenues: This increased 22% to $172.2 million, partly due to the amortization of technology acquired from Matterport and Domain.

This heavy spending fundamentally shifted the company's profitability profile for the quarter.

From Black to Red Ink

The surge in expenses turned what was an operating profit of $23.7 million in Q3 2024 into an operating loss of $51.1 million in Q3 2025.

The pressure continued down the income statement. A lower cash balance, likely used to fund the acquisitions, caused net interest income to fall by more than half to $26.0 million. Furthermore, the company reported a $20.7 million hit in "Other expense, net," which it explained was primarily from a realized loss on foreign currency contracts used in the Australian dollar-denominated Domain acquisition.

The final result was a net loss of $30.9 million, or -$0.07 per share, a stark reversal from the $53.0 million in net income reported in the prior-year quarter.

The Path Forward

CoStar's Q3 2025 results paint a clear picture of a company in a full-scale investment phase. The acquisitions of Matterport and Domain have significantly expanded its technological capabilities and international reach, fueling strong revenue growth. However, the costs associated with integrating these large businesses and marketing their services have temporarily erased profitability.

This is a classic growth-versus-profitability story. The key challenge for CoStar will be to efficiently absorb its new assets, realize the expected synergies, and translate its larger market footprint into sustainable profits, all while navigating the competitive landscape of real estate technology. Investors will be watching closely to see how quickly this strategic spending can convert back into bottom-line earnings.