CoStar Margin Strain? Bank Of America Flags Residential Spending

Bank of America Securities analyst Curtis Nagle reinstated coverage on CoStar Group, Inc. CSGP with a Neutral rating and price forecast of $79.

The analyst writes that under CEO Andy Florance’s leadership, the company has consistently achieved double-digit revenue growth and robust margin expansion.

Nonetheless, significant investments in residential portals (exceeding $900 million across 2024 and 2025) have weighed on EBITDA margins, which declined from the mid-30s to the low teens by 2025, adds the analyst.

The analyst sees challenges in scaling the residential segment profitably as the primary risk to an otherwise strong growth narrative.

Nagle believes that CoStar could face shareholder pressure, especially after the appointment of three activist-proposed board members, to scale back these residential investments.

A material reduction in losses from this segment could serve as a significant catalyst for the shares, adds the analyst.

Citing the positives, the analyst says that CoStar operates a resilient and predictable model within its non-residential segment, which boasts high core margins—specifically, a robust ~40% EBITDA margin—driven by 80% subscription revenue and a high ~89% renewal rate.

Also, the commercial business is highly scalable, possessing durable competitive advantages due to the depth and proprietary nature of its data, adds the analyst.

Nagle further says that new products and the strategic redeployment of its salesforce should support the company’s growth outlook into 2026.

The company’s Apartments.com leads the U.S. rental market, and CoStar sees significant long-term growth in this segment by expanding into under-penetrated single-family and smaller regional markets.

Price Action: CSGP shares are down 2.71% at $72.06 at the last check on Friday.

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