CoStar Group Q3 2026: Homes.com cuts swing it to a $74M profit, but bookings fell to $37M

CoStar Group's third quarter of 2026 (the three months to September 30) turned a $31 million loss a year earlier into a $74 million profit. Revenue rose 14% to $952 million, while sales and marketing spending fell $52 million and the residential business, which runs Homes.com and Apartments.com, swung to a profit. The weak spot is new business. Net new bookings, the annualized value of new subscription contracts minus cancellations and the best early sign of future subscription revenue, fell to $37 million from $69 million in the second quarter. These figures come from the earnings release (8-K Exhibit 99.1, October 27, 2026). The full 10-Q is not filed yet, so segment cost detail and management's discussion of the bookings drop are not available.

Results

Operating margin is the share of revenue left after running the business, before interest and tax. The year-ago percentage changes for net income and EPS are not meaningful because Q3 2025 was a loss, so the table shows the dollar swing instead.

Where the revenue came from

Part of the growth was bought rather than earned. Domain, the Australian property portal, was acquired in August 2025, so it was in only part of last year's third quarter. Zonda, a US new-home construction data business that CoStar agreed in May to buy for about $800 million, closed during this quarter: cash paid for acquisitions was zero in the first half and $789 million for the nine months. The release does not say how much revenue either business added, so the organic growth rate cannot be calculated from it.

The CoStar subscription product grew 8%, about the same as in Q2 (+9%). Other commercial shrank for a second straight quarter on a year-over-year basis.

Where the profit came from

Total operating expenses fell 8% to $657 million while revenue rose $118 million. Line by line from the income statement:

• Sales and marketing: $366M, down from $418M (-12%). The Q2 10-Q showed most of the residential segment's costs are brand advertising for Homes.com and Apartments.com. The release does not split this quarter's marketing by segment, but the timing matches residential turning profitable. Residential Adjusted EBITDA went from -$69M to +$49M, an Adjusted EBITDA margin of about 11% on $460M of revenue.
• General and administrative: $138M, down from $157M (-12%).
• Stock-based compensation: $32M, down from $71M. It sits inside the expense lines above. Q3 2025's $71M was the highest of the seven quarters shown, and the other six ranged from $30M to $52M, so part of this drop is last year being unusually high. The release gives no explanation.
• Cost of revenue: $211M, up from $172M (+23%). Amortization of acquired intangible assets within it rose to $29M from $19M as Domain and Zonda were added.
• Customer-base amortization: $44M, up from $32M, for the same reason.

Commercial is the part to watch on margins. Its Adjusted EBITDA was $180 million on $492 million of revenue, a 36.6% margin, down from $183 million on $461 million (39.7%) a year ago. Revenue grew $31 million and segment profit fell. The release does not explain why. The 10-Q should show which costs rose.

What the headline numbers hide

Cash conversion is strong. Operating cash flow was $455 million for nine months against $132 million of net income. Taking away the first half's $267 million, the third quarter brought in about $188 million of operating cash against $74 million of profit. The nine-month figure is also after clearing the $99 million Brown litigation accrual, which was paid in Q2.

The GAAP-to-adjusted gap is large, and most of it is real cost. Adjusted EPS of $0.38 is more than twice GAAP EPS of $0.18. To get there, CoStar adds back $73 million of amortization of acquired intangibles, $32 million of stock-based pay, $15 million of acquisition and integration costs and a $3 million settlement charge, then applies an assumed 26% tax rate. The amortization reflects the price paid for Domain, Matterport and Zonda. Stock-based pay is a recurring cost of employing people. A reader judging what shareholders earn should weight the GAAP figure.

One-offs in both years, but they do not explain the swing. Q3 2025 included a $23 million loss on investments and currency hedges tied to the Domain deal and $30 million of acquisition costs. This quarter had $15 million of acquisition costs and the $3 million settlement charge. Set those aside in both years and pre-tax income is still about $102 million against about $7 million.

Interest income has gone the other way. Net interest moved from $26 million of income to $1 million of expense. The cash pile that used to earn interest has been spent on Domain, Zonda and buybacks. Cash was $500 million at September 30, down from $1.63 billion at the start of the year, against $994 million of long-term debt. The $730 million Vexcel purchase announced the same day (below) will use cash on hand and the revolving credit line.

The tax rate was low. Tax expense was $10 million on $84 million of pre-tax income, about 12%. At the 26% rate CoStar uses for its adjusted figures, net income would have been about $62 million. The release does not explain the low rate.

Buybacks help adjusted EPS. CoStar repurchased about $81 million of stock in the quarter ($668 million for nine months less $587 million in the first half). Diluted weighted-average shares fell 4.3% to 401.9 million, and the adjusted share count fell about 5%. Adjusted net income rose 59%. Adjusted EPS rose 65%, so the smaller share count added about 5 to 6 points of that growth.

Receivables grew with the business. Gross accounts receivable were $316 million against $263 million at year-end (+20%). Nine-month revenue grew 18% and the September balance includes Zonda, so this does not point to slower collections.

Guidance went up again. Full-year Adjusted EBITDA guidance rose to $820–840 million. That is $30 million higher at the midpoint than in July and $60 million higher than in February. Management now puts 2026 cost savings against its original plan at about $150 million (it said roughly $100 million in July), and says it has found at least $200 million more to realize over the next 12–18 months.

On balance the quarter is clean. The $105 million profit swing comes from operations: Adjusted EBITDA rose $115 million, nearly all of it from residential, as marketing spending fell. A 12% tax rate and an unusually high year-ago stock-pay charge add a little to the comparison. Shareholders should weigh the large adjusted-versus-GAAP gap and the falling bookings against that.

Did last time's read hold up?

Our Q2 2026 report noted that full-year guidance needed a much stronger second half. Residential had to earn roughly $127–147 million of Adjusted EBITDA in the second half after a $17 million first-half loss. It flagged the risk that cutting spending could slow subscription growth, with net new bookings already down to $69 million from $93 million.

The profit side came in better than expected. Q3 beat the top of every range management gave in July: revenue of $952 million against $935–945 million, Adjusted EBITDA of $229 million against $190–210 million, Adjusted EPS of $0.38 against $0.31–0.34, and GAAP net income of $74 million against $51–65 million. Residential earned $49 million in Q3. Its full-year Adjusted EBITDA guidance is now $130–140 million, so Q4 needs about $98–108 million.

The growth risk we flagged got worse. Net new bookings roughly halved again, to $37 million. Some of the revenue beat may come from Zonda closing during the quarter. The release does not say whether July's guidance included it.

Takeaway: CoStar has shown it can make Homes.com and Apartments.com profitable by spending less to market them: residential Adjusted EBITDA swung $118 million in a year and drove the entire profit gain. The cost is showing in bookings. New subscription business fell to $37 million from $69 million in one quarter, and Q4 revenue is guided to grow only about 10% with Zonda included. Rising profit and slowing sales can coexist for a few quarters. If they continue past that, the 2028 target of $1.25 billion in Adjusted EBITDA will rest on further cost cuts rather than revenue growth.

Vexcel acquisition

CoStar agreed on October 27 to buy Vexcel, an aerial-imagery company that makes its own UltraCam cameras and flies survey aircraft over more than 45 countries, for $730 million in cash. Per CoStar's press release (Exhibit 99.2), Vexcel had more than $140 million of revenue over the last twelve months, up over 30%, at an Adjusted EBITDA margin of about 20%. That puts the price at about 5 times revenue and no more than about 26 times Vexcel's Adjusted EBITDA. CoStar expects it to add to Adjusted EPS in the first full year and to close in Q1 2027, subject to regulatory approval. After Zonda (about $800 million) this quarter and Vexcel, the large cash balance CoStar held a year ago will be mostly gone. Further buybacks or deals would then depend more on operating cash flow and borrowing.

Outlook

From the October 27 earnings release:

Q4 is guided as another big step up in profit: Adjusted EBITDA of $275–295 million against $229 million in Q3 and $177 million in Q4 2025. On revenue, the roughly 10% growth guided for Q4 compares with 14% in Q3, even with Zonda in the numbers for a full quarter. Residential is expected to earn about $98–108 million of Adjusted EBITDA in Q4, up from $49 million in Q3. The guidance depends on marketing spending staying low.

Our view: the cost cuts are delivering profit. The next quarter's bookings figure matters more than its EBITDA. Another quarter well below the $69 million of Q2 would suggest the lower spending is costing future subscription revenue, and the 10-Q's account of what drove the Q3 drop is the first thing to read when it is filed.