CoStar Group Introduces AI-Powered Smart Search Amidst Strong Q2 Performance

Homes.com Unveils AI-Powered Smart Search

Homes.com, a subsidiary of CoStar Group (CSGP), has officially launched its Smart Search feature, an artificial intelligence-driven tool designed to transform the home search experience. This innovation leverages natural language processing, allowing users to articulate their housing preferences conversationally, thereby personalizing and accelerating the discovery process.

According to Andy Florance, Founder and Chief Executive Officer of CoStar Group, "Smart Search represents a new chapter in how people discover homes. We intentionally built Smart Search to remove those barriers - to allow people to simply ask for what they want, in their own words, and see accurate, personalized results instantly." The platform aims to bypass traditional, restrictive filters, providing immediate, relevant results for buying, renting, or exploring properties.

CoStar Group Reports Robust Second Quarter Results

The introduction of Smart Search follows a strong financial performance by CoStar Group in the second quarter of 2025. The company reported revenue of $781 million, a 15% increase year-over-year, surpassing analyst estimates of $772.19 million. Adjusted earnings per share reached $0.17, exceeding the consensus estimate of $0.14. Shares of CSGP advanced by 2% following the announcement.

Key financial highlights from Q2 2025 include an adjusted EBITDA of $85 million, marking a substantial 108% increase compared to the same period last year. CoStar achieved an all-time high in net new bookings, totaling $93 million, representing a 65% increase from the previous quarter. The company's commercial information and marketplace brands recorded a 43% profit margin for the quarter.

Homes.com demonstrated significant traction, adding 6,300 new members in Q2, a 56% increase from Q1 2025. The Homes.com Network also reached an audience of 111 million average monthly unique visitors in Q2, with consumer brand awareness surging from 4% to 42% in just over a year due to an extensive marketing campaign.

Market Reaction and Strategic Implications

The launch of Smart Search positions CoStar Group to potentially solidify its leadership within the real estate technology sector. The market has reacted with optimism regarding the potential for enhanced user engagement and top-line growth, stemming from such product innovation. However, this positive sentiment is tempered by considerations around elevated operating expenses associated with aggressive growth investments, particularly in Homes.com, and the timeline for achieving sustained profitability.

CoStar's strategy emphasizes scaling high-engagement platforms and reinforcing its role in the digital transformation of real estate. While the Smart Search feature is expected to bolster user adoption and potentially attract advertisers, investors are closely monitoring whether these heavy investments will translate into the anticipated adoption rates and improved margin performance. A failure to deliver could impact profitability in the short term.

Broader Context and Future Outlook

CoStar Group has raised its full-year 2025 revenue guidance to a range of $3.135 billion to $3.155 billion, up from previous forecasts, reflecting approximately 15% year-over-year growth at the midpoint. Concurrently, adjusted EBITDA guidance for the full year was increased to $370 million to $390 million. These revised forecasts underscore management's confidence in the company's strategic direction and investment returns.

Looking further ahead, CoStar Group's narrative projects substantial long-term growth, aiming for $4.7 billion in revenue and $866.2 million in earnings by 2028. Achieving this target necessitates a robust 16.9% annual revenue growth. Valuation estimates for CoStar Group (CSGP) vary, with Simply Wall St Community members providing fair value estimates ranging from US$57.89 to US$139.70, reflecting diverse market perspectives on the stock's potential given current profitability pressures.

The broader technology landscape continues to see significant investment in AI capabilities. While not directly comparable, the overall trend of large tech firms increasing AI infrastructure spending, sometimes financed by debt, highlights the competitive and capital-intensive nature of leading in digital innovation. CoStar's investment in Smart Search aligns with this industry-wide push to leverage AI for competitive advantage.

Expert Commentary

Andy Florance emphasized the customer-centric approach behind Smart Search, stating, "At CoStar Group, every innovation we create starts with our customers in mind. Smart Search is designed to save people time, reduce frustration, and make home discovery intuitive and even fun." He also highlighted the success of the company's Q2, noting, "We had an outstanding Q2 2025 as we delivered our 57th consecutive quarter of double-digit revenue growth with a 15% year-over-year increase in revenue."

Looking Ahead

Investors will be closely watching CoStar Group's upcoming Q3 earnings report for further indicators on the success of Smart Search adoption and the trajectory of operating expenses. The ability of Homes.com to maintain its strong momentum in member growth and translate increased engagement into sustainable revenue will be a critical factor. The market will also assess whether the company can effectively manage its aggressive growth investments to deliver on its ambitious long-term revenue and earnings projections while improving profitability.