CoStar CEO Andy Florance Touts AI Push As Stock Hits 7-Year Low

Real estate data giant CoStar Group is positioning itself as a winner in the artificial intelligence-driven disruption to the industry, but thus far, Wall Street is treating it as a loser. 

The company's share price this month fell below $45 for the first time since 2019 as Wall Street pummels CRE firms, software companies and other industries seen as vulnerable to AI disruption. Its stock had rebounded to $49.15 at the close of trading Tuesday but then dropped more than 6% in after-hours trading after releasing its fourth-quarter earnings.

CoStar has also faced blowback from hedge fund investors over its heavy spending on residential real estate with its Homes.com platform. Third Point CEO Daniel Loeb last month wrote in a letter to CoStar's board of directors that the company is in a "downward spiral." 

In the face of this onslaught, CoStar CEO Andy Florance on its earnings call Tuesday focused on the new AI platform launched on Homes.com last week. The product features an AI agent that guides homebuyers through searching, comparing and evaluating homes. 

"Homes AI is like having a conversation with a knowledgeable real estate adviser who knows everything about all the properties, rather than spending your time doomscrolling through a static website searching with filters," Florance said on the call. 

What differentiates its platform from other AI tools targeted at buyers and sellers of homes, he said, is the mountain of nonpublic real estate data CoStar is sitting on.

"AI cannot create data from nothing," Florance said.

"Simple standalone AI can abstract some datasets off the internet, but we have more, we have significantly more, and we will leverage that more," he added.  

Along with the launch of this product, CoStar said it is reducing its net investment in Homes.com by $300M this year, a 35% reduction from 2025, and then will continue cutting its spending in the following years. 

The spending cuts come after a marketing push in which CoStar again bought a Super Bowl commercial for Homes.com and sister website Apartments.com featuring actors Jeff Goldblum and Heidi Gardner. 

One day after announcing its new AI tool, CoStar laid off 200 employees at Homes.com, Inman reported. That came after company executives, including Florance, told analysts last month they had replaced about 500 roles by using AI, according to a note from Stephen Sheldon, a senior research analyst at William Blair.

Sheldon wrote that Florance provided "encouraging live demos" of the new Homes AI tool to analysts ahead of its launch. 

"CoStar is one of the few companies we track with market-ready, differentiated AI solutions, and we are increasingly convinced that it will be an AI winner around property search," Sheldon wrote. 

A CoStar spokesperson said in a statement the deployment of AI would boost revenue and improve its customer experience while also creating “operational efficiencies” and allowing the company to “streamline processes.”

“To align our organization with these strategic objectives and position the company for continued success, we have made the difficult decision to eliminate certain roles within the organization,” the spokesperson said.

While Florance continues to be bullish about Homes.com, it has yet to turn a profit. 

This quarter, CoStar grouped together several of its business lines, for which it had previously reported individual earnings, into two segments: commercial real estate and residential real estate. 

The residential segment — including Homes.com, Apartments.com and Land.com — is cash flow negative. Its earnings before interest taxes depreciation and amortization came to a loss of $16M last quarter and $310M last year. 

Its commercial segment — including CoStar, LoopNet, Ten-X and Matterport — had positive EBITDA of $145M last quarter and $480M last year. 

Overall, the company posted net income of $47M last quarter and $7M last year, which it said was impacted by costs tied to its acquisitions of Matterport and Australian property marketplace Domain. 

CoStar’s commercial segment relies heavily on the big brokerage firms that Wall Street has hammered in recent weeks due to concerns over AI disruption, and an analyst asked Florance whether he thinks that could hurt demand for its products. He said he thinks the market underappreciates the role that personal relationships play in the brokerage business.

“These are really relationship people, and so I’m somewhat puzzled at the level of AI fear in that sector,” he said. “For sure, there are high volumes of people in some of those commercial real estate service companies who will be disintermediated by AI, but they’re not the revenue-driver relationship people. I don’t think they’re going anywhere, and those are the core audience for our CoStar product.”