However, profitability metrics signal significant headwinds. Net income fell sharply by -62.98% year-over-year to $138.7 million, resulting in a net margin contraction to 5.07% from 15.26% the prior year. Operating income suffered an even more pronounced decline, down from $282.3 million in 2023 to a mere $4.7 million in 2024, slashing operating margins to 0.17% from 11.5%. This drastic drop reflects elevated operating expenses, which climbed to $2.17 billion, a 29% increase year-over-year, driven notably by a surge in selling, general, and administrative expenses to $1.8 billion and a rise in research and development spend to $325.3 million.

These cost escalations have pressured EBITDA to just $151.6 million, down from $389.8 million in 2023, signaling tighter operational leverage despite revenue growth.

Metric	2024	2023	% Change
Revenue	$2.74B	$2.46B	+11.45%
Net Income	$138.7M	$374.7M	-62.98%
Operating Income	$4.7M	$282.3M	-98.33%
Operating Expenses	$2.17B	$1.68B	+29.17%
R&D Expenses	$325.3M	$267.6M	+21.56%
Selling, General & Admin	$1.8B	$1.37B	+31.39%

Balance Sheet and Cash Flow Dynamics#

CoStar maintains a robust balance sheet with total assets of $9.26 billion and a strong liquidity position reflected by $4.68 billion in cash and cash equivalents as of the end of 2024. The company's current ratio stands at an impressive 5.83x, indicating excellent short-term financial health. Total liabilities are modest at $1.7 billion, with long-term debt of $1.1 billion, yielding a low debt-to-equity ratio of 0.12x, which underscores conservative leverage.

However, cash flow trends reveal challenges. Operating cash flow declined by -19.8% year-over-year to $392.6 million, while free cash flow turned negative to -$245.3 million due to substantial capital expenditures of $637.9 million and acquisition outlays of $276.7 million. This aggressive investment pattern suggests CoStar is allocating significant capital toward strategic growth initiatives, possibly including technology development and market expansion, despite near-term profitability pressures.

Cash Flow Metric	2024	2023	% Change
Net Cash from Operations	$392.6M	$489.5M	-19.8%
Free Cash Flow	-$245.3M	$464.2M	-152.8%
Capital Expenditures	$637.9M	$25.3M	+2,421%
Acquisitions Net	$276.7M	$99.6M	+177.8%

Strategic and Competitive Landscape Implications#

The lawsuit against Zillow reflects CoStar's assertive stance to protect its intellectual property amid intensifying competition in the digital real estate data sector. Zillow's alleged unauthorized use of CoStar's listing photos and data threatens to erode CoStar's competitive advantage by enabling a rival to leverage proprietary content without incurring similar development costs.

This legal battle may reshape industry norms around data licensing and intellectual property enforcement, potentially increasing compliance costs for all market participants. For CoStar, the lawsuit serves as a defensive strategic move to safeguard its core data assets, which underpin its subscription-based revenue model.

CoStar's rising R&D expenditure (now over 12% of revenue) indicates a continued investment in enhancing its platform capabilities, analytics, and data accuracy, aiming to maintain differentiation in a competitive landscape where data quality and exclusivity are paramount.

Valuation and Market Perception#

The stock trades at approximately $97.06, with a market capitalization of $41.1 billion. Valuation multiples remain elevated, with a trailing P/E ratio around 373x and a forward P/E expected to moderate gradually from 126.86x in 2025 to 37.09x by 2029, reflecting analysts’ expectations of improving profitability and earnings growth over the medium term.

Price-to-sales stands at 14.11x, signaling strong investor confidence in CoStar’s growth prospects despite recent earnings volatility. The company currently does not pay dividends, consistent with its focus on reinvestment and growth.

What Does This Mean for Investors?#

Revenue growth remains solid, driven by the company’s leading position in commercial real estate data, but profit margins are under pressure due to elevated costs and legal expenses.
The ongoing lawsuit against Zillow is a double-edged sword: it could secure CoStar’s data rights and future revenue but also entails legal uncertainties and potential expenses.
Capital allocation favors strategic investments and acquisitions, which may constrain free cash flow in the near term but could underpin longer-term growth.
Balance sheet strength provides financial flexibility, with ample liquidity and low leverage to support continued innovation and legal defense.

Key Takeaways#

CoStar’s lawsuit against Zillow highlights the critical importance of intellectual property protection in the digital real estate data market, with potential billion-dollar damages at stake.
The company posted strong revenue growth of +11.45% in 2024 but experienced significant profitability declines due to rising operating expenses.
Aggressive capital spending and acquisitions have led to negative free cash flow, reflecting a strategic pivot toward growth investments.
Solid balance sheet metrics, including a current ratio of 5.83x and net cash position, offer a strong financial foundation amid market and legal challenges.
Valuation multiples remain high, signaling market optimism for CoStar’s future earnings growth and industry leadership.

Sources#