CoStar's Residential Push Turns Profitable as Homes.com Revenue Jumps 66%

CoStar Breaks Through to Residential Profitability

CoStar Group reached a long-sought milestone in the second quarter, as its residential portfolio—anchored by Homes.com—turned adjusted EBITDA positive for the first time, delivering a $12 million profit. The $41 million swing from a year earlier capped an 18% rise in total company revenue to $925 million, the 61st consecutive quarter of double-digit growth.

Homes.com revenue surged 66% to $28.5 million, while the commercial business, which still generates the bulk of CoStar’s income, grew 8% to $481 million. CEO Andy Florance said the company will now begin offering depth advertising on the residential platform for the first time, a sign of confidence in its value proposition and client demand.

Artificial intelligence was a central driver of user engagement. Within weeks of launch, more than 500,000 AI sessions were logged on Apartments.com, with users spending an average of 20 minutes per session—almost triple the time of non-AI users—and viewing twice as many listings. The company also reported a 224% increase in 3D digital twin tour usage and a 256% jump in traffic-to-lead conversion rates.

Cost discipline played a critical role in the earnings outperformance. CFO Chris Lown attributed the 20% adjusted EBITDA margin—reached a quarter earlier than expected—to personnel expense reductions and ongoing operating efficiencies. That new baseline, he said, will continue to benefit results.

What the First Profitable Residential Quarter Means for CoStar

CoStar’s residential breakthrough is more than a financial first—it signals a shift in the competitive landscape and reveals how the company intends to monetize its data and platform investments.

Residential Market Share Is Consolidating

Management noted the competitive field has “shrunk down to basically two primary competitors,” a consolidation that likely places CoStar in a stronger negotiating position with agents and brokerages. The fact that one of the best sales months in company history occurred even in that environment suggests the remaining players are capturing a larger share of a demanding customer base. The residential segment’s profitability now gives CoStar breathing room to invest in product without the drag of a loss-making operation.

AI as a Moat and Marketing Tool

The dramatic jumps in session duration and listings viewed on Apartments.com point to a genuine product advantage. With AI sessions averaging 20 minutes, the platform is becoming stickier, which directly feeds the company’s lead-generation promise to advertisers. Extending those capabilities to LoopNet and international markets—starting with France, where CoStar just launched—could replicate the engagement effect globally and open new revenue streams. The rapid deployment of AI capabilities after just months of availability suggests an agile product-development engine that competitors must now match.

Profits Built on a Leaner Cost Structure

Lown’s emphasis on a “new baseline for expenses” should not be overlooked. The margin expansion ahead of plan implies that even modest revenue growth will disproportionately benefit earnings. Full-year EBITDA guidance has been raised, and while the midpoint of the revenue forecast—$3.735 billion—slightly softens near-term top-line expectations (about 15% year-over-year growth), the decision to prioritize long-term profitable growth over short-term revenue chasing is a deliberate recalibration. For a company long seen as investing heavily in the residential build-out, the pivot to margin expansion reshapes the investment thesis.

What CoStar’s Performance Means for Stakeholders

CoStar’s results and updated strategy clarify the immediate signals for various stakeholders:

• Investors: The residential profit milestone and raised EBITDA guidance argue for a rerating of the stock from a growth-at-any-cost model to a margin-expansion story. Watch whether Q3 revenue of $935M–$945M, representing 13% growth, is met with sustained margin gains, and monitor the take-up of depth advertising on Homes.com as a leading indicator of future listing revenue.
• Real estate agents and brokers: The consolidation to two dominant platforms means leverage is shifting. CoStar’s ability to demonstrate “very good renewal rates and very low cancellation rates” suggests its tools are now sticky enough that brokers may need to treat Homes.com and Apartments.com as near-essential marketing channels. AI features that boost lead conversion could become a competitive necessity.
• Competitors: The rapid adoption of AI-driven engagement and 3D tours sets a high bar. Any platform lacking comparable session-extension tools risks losing advertiser listings to the more data-rich environment CoStar is building. The international push, beginning with France, signals that this competitive dynamic will soon go global.
• Commercial real estate users: The expansion of AI features to LoopNet and the launch of CoStar Rent Benchmark—powered by 4 million actual leases—will put better market-pricing intelligence into brokers’ hands, potentially speeding up transaction cycles. Early adopters of these tools may gain an edge.