Shares of CoStar Group (CSGP) plunged 5.13% in pre-market trading on Wednesday following the company's first quarter 2025 earnings release and subsequent conference call. While the commercial real estate information provider reported strong Q1 results that beat expectations, its guidance for the second quarter fell short of analyst estimates, sparking concerns about near-term growth.

CoStar reported Q1 revenue of $732 million, up 12% year-over-year and at the top end of its guidance range. Adjusted EBITDA came in at $66 million, also exceeding expectations. However, the company's Q2 outlook disappointed investors. CoStar guided for Q2 revenue of $770-775 million and adjusted EBITDA of $50-60 million, implying slower growth and lower margins compared to Q1.

Several factors contributed to the weaker-than-expected Q2 guidance: 1. Slower growth in the core CoStar Suite business, with revenue growth expected to remain at 6% in Q2. 2. Deceleration in Apartments.com revenue growth to 10% in Q2, down from 11% in Q1. 3. Continued investments in expanding the sales force and marketing for Homes.com, which is expected to weigh on near-term profitability. 4. Integration costs and initial dilution from the recent Matterport acquisition.

Despite the near-term headwinds, CoStar's management remained optimistic about the company's long-term prospects, citing improving commercial real estate market conditions and strong momentum in newer initiatives like Homes.com. However, investors appear to be focusing on the near-term challenges, leading to the stock's sharp decline.