CoStar posts record Q3 but still faces sales force challenges
The company is adjusting recruitment strategies to address inside sales team churn. CoStar also announced its $730M acquisition of aerial image company Vexcel.
CoStar Group beat analyst expectations in the third quarter, but investors continue to have concerns about sales team churn.
The commercial real estate powerhouse, which also operates multiple residential websites including Homes.com and Apartments.com, reported a record $952 million in revenue during Q3. That's up 14% year-over-year and above the forecast of $945 million.
However, the company disclosed that attrition within its inside sales team has been higher than hoped, slowing progress on revenue growth. Founder and CEO Andy Florance acknowledged that many of the new sales hires were inexperienced and said some turnover is inevitable when developing a new team.
CoStar also announced the acquisition of Vexcel Group for $730 million in cash. Vexcel is one of the largest aerial imagery companies, capturing more than 60 million images a year, according to a news release.
In after-hours trading on Tuesday, CoStar shares were just under $30, down from $32 at market close.
What CoStar had to say
On sales team adjustments: During the earnings call, Florance admitted that CoStar's sales force growth "has not kept up with my expectations," but he was optimistic about upcoming changes, including moving some inside salespeople to an out-in-the-field sales force to better connect with clients.
"Now I don't want to diminish the accomplishments of a lot of the inside sales teams. There are a number of successful folks… who are growing and maturing," Florance said. "But it has been a process, and we are making changes to how we recruit and how we [incentivize] the managers to achieve their growth targets."
On Vexcel and AI: CoStar leaders were excited by how much artificial intelligence is helping the company lower costs and are projecting savings of $200 million next year, largely from improving efficiency.
"There's a trend here towards producing dramatically more content at higher quality, greater depth at dramatically lower cost," Florance said.
The Vexcel acquisition dovetails with that trend, Florance noted. "Combine those [Vexcel] images with the rapidly evolving ability of AI to recognize and extract information from them and we can now create a transformative, new ultra-low-cost proprietary data source," he told investors.
"With Vexel and AI, we believe we can observe and capture valuable data on hundreds of millions of properties in 24 months."
Key numbers
Revenue: $952 million in Q3, up 14% year-over-year.
Cash and cash equivalents: $500 million at the end of September, down from $1.63 billion at the end of 2025.
Gross profit: $741 million in Q3, up from $662 million a year ago.
Net income: $74 million in Q3, an improvement over a net loss of $31 million a year earlier. Adjusted net income rose to $153 million, up 59% year-over-year.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization): $229 million in Q3, up 100% year-over-year.
Website traffic: CoStar Group sites attracted 121 million average monthly unique visitors in Q3, up from 118 million in Q2, according to the company.
Full-year outlook: CoStar is raising its Adjusted EBITDA guidance for the full year to a range of $820 million to $840 million, an increase of $30 million compared to mid-year guidance. It is also increasing its full-year revenue guidance to around $3.75 billion.
Notable moves
CoStar closed on its $800 million acquisition of Zonda, a construction-focused housing data and analytics company, in August. The deal gave the company a foothold in the new home construction sector.
Also in the third quarter, CoStar appointed Felix Kusch president of Homes.com, filling a position that had been vacant for more than two years, and promoted Robin Rossmann to chief financial officer. Rossmann was previously the company's managing director in Europe.