We came across a bullish thesis on CoStar Group, Inc. (CSGP) on Substack by Douglas Ott. In this article, we will summarize the bulls’ thesis on CSGP. CoStar Group, Inc. (CSGP)'s share was trading at $77.60 as of Feb 25^th. CSGP’s trailing and forward P/E were 228.24 and 70.92 respectively according to Yahoo Finance.

A quantitative analyst studying the data in a virtual simulation of the real estate markets.

CoStar, led by its tenacious founder and CEO Andy Florance, has a history of defying expectations and reshaping real estate data markets. From revolutionizing commercial real estate listings in the late 1980s to transforming Apartments.com into a dominant force, Florance has consistently played the long game. Now, with its aggressive push into residential real estate via Homes.com, the company is facing another defining moment. While some investors question whether CoStar can successfully challenge Zillow’s entrenched position, the company’s superior service offering, massive brand investment, and deep financial resources suggest otherwise. Unlike Zillow, CoStar benefits from its highly profitable commercial real estate businesses, which boast 40%+ EBITDA margins, allowing it to fund aggressive expansion without straining its balance sheet.

The February 18, 2025, earnings release confirmed solid progress. Full-year revenue increased 11% year-over-year, with Q4 net income up 13% and EBITDA climbing 43% sequentially. Most notably, Homes.com has cemented itself as the second-largest residential real estate marketplace in the U.S., surpassing Realtor.com in web traffic in just one year. The board’s approval of a $500 million stock repurchase program marks a significant shift in capital allocation strategy, signaling management’s confidence in the company’s long-term value. Historically, CoStar’s buybacks merely offset stock-based compensation, but this program goes beyond that, reflecting a belief that shares are undervalued.

Financially, CoStar remains a powerhouse, with high-margin, recurring revenue streams and a robust cash flow profile. With a global real estate market worth $300 trillion, CoStar’s influence, while relatively small, is highly strategic. The company’s past playbook—invest heavily in a promising segment before reaping the rewards—is playing out once again. When CoStar acquired Apartments.com, margins initially collapsed as it ramped up investment, but the payoff was enormous. Today, Apartments.com generates over $250 million in quarterly revenue, up from less than $50 million at the start. A similar trajectory is unfolding with Homes.com, with significant investment in branding, sales, and platform enhancements leading to rapid market share gains. If history repeats, CoStar’s EBITDA margins could return to the 20%-30% range over the next two years as Homes.com matures.

Beyond brand awareness, CoStar is now scaling its sales efforts. In 2024, Homes.com lacked a dedicated sales force; in 2025, it will have a specialized team focused solely on selling its residential platform. This shift is expected to drive stronger monetization and customer retention, further solidifying its competitive position. Looking ahead, the possibility of acquiring Realtor.com remains on the table. A more business-friendly regulatory environment increases the likelihood of approval, and such a deal would immediately position Homes.com as a true rival to Zillow, narrowing the traffic gap from 110 million monthly unique visitors to 172 million.

CoStar’s M&A ambitions don’t stop there. The company could also revisit a bid for CoreLogic, a key player in property data and analytics. Florance previously withdrew an offer for CoreLogic in 2021, citing concerns over rising interest rates. However, with CoreLogic now facing debt maturities and a weakened mortgage market, its private equity owners might be open to a sale at a more favorable price. With $4.7 billion in cash on hand, CoStar is well-positioned to make opportunistic acquisitions.

Meanwhile, CoStar’s international expansion continues to yield results. Its operations in the U.K., France, and Spain have seen revenues triple over the past seven years, growing from $30.8 million in 2017 to $94.7 million in 2024. The company plans to maintain disciplined growth while continuing to expand its global footprint.

CoStar’s ability to execute transformative acquisitions, maintain financial discipline, and strategically invest in growth has consistently created long-term shareholder value. The current investment in Homes.com is nearing an inflection point, and as margins improve, investor skepticism may give way to renewed confidence. With multiple catalysts on the horizon—including continued market share gains, potential M&A, and further operational efficiencies—CoStar presents a compelling investment opportunity with significant upside.

CoStar Group, Inc. (CSGP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held CSGP at the end of the third quarter which was 43 in the previous quarter. While we acknowledge the risk and potential of CSGP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CSGP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.