CoStar Group Pricing Spineometer: 2 of 5 Vertebrae

CoStar Group, a North American and International commercial and residential information, analytics, and online marketplaces, had a challenging FY 2024. Revenue rose 11% to $2.7 billion, yet operating profits fell 98% to $5 million over last year, largely due to larger-than-normal sales and marketing expenses on Homes.com.

A review of CoStar Group’s 18 February 2025 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

LEARNINGS FROM EARNINGS CALL AND ANNUAL REPORT

CoStar offers a wide variety of software, data, and services in the real estate market. CoStar itself offers a commercial real estate trading platform. CoStar Real Estate Manager offers property management solutions. Apartments.com provides multifamily real estate marketing. LoopNet provides commercial real estate marketing. Home.com and others enable housing sales, land purchases, and more.

CoStar engages with many different market segments. Beyond brokers, property managers, developers, real estate agents, financial markets, service providers, and even government agencies purchase from CoStar.

CoStar’s industry is rapidly evolving as a result of technological advancements. This implies not only rapid shifts in the competitive environment but also rapid new product development (NPD).

Andrew Florance, CEO, mentioned the importance of price performance of CoStar in his opening statements, saying, “During the worst commercial real estate market in our lifetime, we have grown revenue, adjusted prices for inflation, and launched innovative, valuable new products and features like lender and hospitality benchmarking.”

And, in his opening remarks, he discussed a price structure change in LoopNet. Andrew Florance stated, “In 2025, one of our primary objectives is … move to asset-based pricing, where the price-to-market high-value properties is greater than the price-to-market lower-value properties. We have begun renewing contracts on this basis and for the first cohort of contracts that received price increases, 98% have renewed at the significant price list.” That is a significant achievement.

Christian Lown, CFO, made forward-looking statements regarding strategy and the tradeoff between price increase and quantity increases, stating, “[T]here’s been a pretty even mix between units and pricing over the last couple of years. I think you will see more of a push on unit, at least in 2025, but there’s so much opportunity that I’m not sure that once you get through it, that it will matter that much.”

IMPLIED PRICING CAPABILITY NEEDS

Out of CoStar’s 6,500 employees, industry benchmarks would suggest 5 to 30 are primarily engaged in pricing decisions. Given the complexity and rapid evolution of their industry, we would expect CoStar to be operating at the upper end of this benchmark range.

1. Given the rapid evolution of the industry and new product launches, a portion of the pricing team should be focused on price structure design. Pricing metrics and the price structure have a greater impact on the ability to profitably capture the market and drive market share than any other pricing decisions. Well-trained pricing experts would know when to use unit, versioning, price bundling, two-part tariffs, tying arrangements, consumption, yield management, and index-based pricing. Moreover, they would enable the company to switch between pricing models rapidly as it enters new market segments or different competitive environments. Building from competitive information and Economic Value to Customer, optimal price structures that align with value delivered and accommodate competitive dynamics can be identified.
2. Regulatory changes in the United States residential real estate agent industry created a larger opportunity for CoStar’s Homes.com line of business. In 2024, average monthly unique visitors grew to 110 million from 62 million in the year prior. Academic research has demonstrated that companies operating in a rapid growth market benefit from more, not less, pricing due diligence.
3. CoStar direct salesforce would benefit from using AI to provide segment and customer specific price negotiation guidance such as our SIGNY app. Using the company’s on sales history, AI can delineate the deal quality and deliver the expected range of prices at which a deal would close, such as at the 90th, 50th, and 10 percentiles.
4. Customer Lifetime Value (CLV) would be of paramount importance for CoStar’s financial performance. Direct experience indicates that businesses operating a subscription service have tension between marketing directors to lower subscription prices in an effort to improve retention rates and pricing professionals seeking to improve price capture. As discussed in my online Professional Pricing Society course, and practiced in our client engagements, pricing should seek to first ensure the price structure and pricing metrics align with the value delivered by segment, second set the price levels according to Economic Value to Customer of Conjoint Analysis primary customer research, and third use AI to deliver salespeople pricing guidance before, fourth, refining subscription pricing with hypothesis testing. Failure to follow this prioritization leads to unnecessary organizational strife and uncertainty.
5. CoStar is active in mergers and acquisitions. Pricing professionals are useful for identifying the potential revenue of new acquisitions and, as such, are often deployed within merger and acquisition teams.
6. CoStar’s market is primarily based in North America and Europe, yet its operations hold a larger footprint. Given the large difference in market operations, regulations, and general economic conditions, pricing should work with individual major markets to improve the alignment of pricing to value delivered and competitive dynamics by major market.
7. Economic conditions have a direct impact on CoStar’s operations and as such, applied economists would be valuable both to anticipate the shifts in demand and distinguish between price changes necessary for competitive reasons versus price changes related to industry shifts.

TEAM RESEARCH

Research into the investment by CoStar Group in pricing yielded encouraging but uncertain results.

1. The first 100 people examined in my LinkedIn feed that report “pricing” or “revenue management “ as a skill at CoStar did not identify pricing nor revenue management as their primary job responsibility.
2. Those that were identified and may be heavily engaged in pricing decisions span data analysis, marketing, sales, and finance responsibilities.
3. However, CoStar currently lists an attractive opening for “Director of Revenue Management and Pricing.”

PRICING SPINEOMETER RESULTS

Given the importance and capability of pricing at CoStar Group as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of April 2025.

CoStar Group Pricing Spineometer: 2 out of 5 Vertebrae. The executive team at CoStar is clearly engaged in pricing decisions with the support of many managers from many departments. Hence, they earn at least a 2 for their awareness of the importance of price management. Without the identification of a pricing team, CoStar does not earn a higher rating. Yet give it time. If the job opening for the Director of Revenue Management and Pricing role is a newly created role, we may see greater growth in this dimension in the coming years and a stronger capability to address many of the pricing issues raised in this analysis. As some investors have told me, knowing that a company is about to build a pricing capability creates a strong investment opportunity. Now may be the right time to buy.

CSGP (CoStar Group, Inc.) rose from 74 the day prior to their earnings call to 77 one week later. FY 2024 revenue of $2.7 billion with a 0.2% operating margin and P/E ratio near 73.

For FY 2024, a 1% improvement in price would yield a 547% improvement in operating profits, holding all else constant at CoStar Group.

SIGNY by Wiglaf Pricing, an AI tool for multi-SKU businesses to predict and manage price capture, has launched. Contact me at tsmith@wiglafpricing.com