CoStar Ready For 'Meaningful Self-Help' After Board Shake-Up, Major Investor Says
New York-based Third Point thinks CoStar is trying to be the master of too many domains, which is holding back the stock.
That was the message from the hedge fund, which owns just under 2 million CoStar Group shares, in a first-quarter note to investors. The April 30 note came the same month as a board shake-up at the commercial real estate conglomerate, and Third Point executives signaled that more changes were ahead.
“After several years of uncertainty, we believe it is time for CoStar to begin the journey of meaningful self-help,” Third Point CEO Daniel Loeb wrote in the note, which disclosed a 3.7% first-quarter loss for the fund.
Loeb said he has long admired CoStar’s suite of data and software products for commercial real estate, calling out LoopNet and Apartments.com specifically, and said the company had extensive growth potential and untapped pricing power. But he said the management team had been distracted by its expansion into the residential sector with its acquisition of Homes.com.
“Despite the continued strength of its core business, we believe recent capital allocation decisions have derailed CoStar’s compounding algorithm” of growth, Loeb wrote.
CoStar acquired Homes.com for $156M in cash in 2021 and has since poured more than $3B into the website in an effort to overtake Zillow as the market leader for online housing data and listings. The massive capital expenditure has “obscured rapid growth in the core business” and weighed on earnings by as much as 80%, Loeb wrote.
"Our 2024 and Q1 2025 performance amid a challenging industry environment reflects the strength and resilience of our business model and demonstrates that our initiatives are taking hold," a spokesperson for CoStar said in an email. "We continue to build momentum and lay the foundation for Homes.com as we optimize our sales force to more effectively focus on each of our platforms, including building out a dedicated Homes.com sales team."
The battle for home listings has been messy and expensive. CoStar was locked in a yearlong legal fight with Move Inc., the parent company of Realtor.com, over claims that a former Realtor.com employee gave trade secrets to CoStar to help boost Homes.com.
The case was settled in early April, with both sides declaring victory. CoStar General Counsel Gene Boxer told Bisnow in a statement at the time that Move Inc. “begged us to agree to permit” the judge to dismiss the case, which Boxer said had collapsed.
In February, CoStar laid off roughly 120 workers around its Richmond, Virginia, office while simultaneously announcing plans to hire 1,000 new workers in different roles.
In his note to investors, Loeb highlighted support agreements that Third Point and investment manager D.E. Shaw & Co. struck with CoStar in the first quarter that included the appointment of three new board members, including a new board chair, the creation of a capital allocation committee and a review of executive compensation to align pay with the creation of shareholder value.
The new committee was likely put in place to rein in marketing investments at Homes.com and to refocus operations on CoStar’s core commercial real estate activities, Craig Huber, an analyst covering the firm, told Bisnow in early April, when the support agreements were announced.
Advertising for CoStar's brands has been star-studded throughout the years, with actor Jeff Goldblum appearing in spots for Apartments.com. A Homes.com ad aired during the Super Bowl featuring actors Heidi Gardner, Dan Levy and Morgan Freeman.
CoStar’s stock went from trading for less than $5 per share in 2010 to a $90-per-share valuation by the end of 2020. The stock has traded relatively flat for the last five years despite the strong performance of the broader equities market, Loeb said.
ThirdPoint has entered into a standstill agreement with CoStar that is set to last for less than one year, and Loeb said that he expected to see meaningful improvement in capital allocation by the end of this year.
Narrowing losses at Homes.com can help CoStar grow earnings more than sevenfold in the next few years, Loeb said, “setting the stage for the stock to regain its star status.”
UPDATE, JUNE 10, 3:30 P.M. ET: This story has been updated to include a statement from a CoStar spokesperson.
