Contact Us

Florance Defends CoStar's Culture As Shares Plummet Behind Push Into Residential


CoStar Group has lost more than half of its market value over the last five months as the commercial real estate data giant faces questions over its residential investment strategy and reports of high turnover and a hostile corporate culture. 

These forces collided Tuesday in a hectic day for the company as it held its quarterly earnings call hours after Insider reported on a "mass exodus" of the company's employees that its sources attributed to abusive treatment and invasions of privacy from CoStar executives. 

Wednesday morning, following the firm's earnings call and the Insider report, CoStar's share price opened at $49.42, down more than 20% from its Tuesday afternoon close of $62.94. As of Wednesday's opening bell, its stock had dropped 37% from the start of the year and more than 50% from its 12-month high of $99.29 on Oct. 18.

These drops are well below the dip experienced by the overall market — the S&P 500 has fallen 10.8% since Jan. 1 and about 5% since Oct. 18. 

The D.C.-based data giant had 1,546 employees depart last year, representing 37% of its company and a major increase from prior years — it lost 638 employees in 2020 and 985 in 2019 – Insider reported. The real estate industry at large had a 32.8% turnover rate, according to Bureau of Labor Statistics data reported by Insider. 

CoStar CEO Andy Florance addressed the turnover on Tuesday afternoon's earnings call, providing the same industry-wide figure of 32.8% and saying CoStar's turnover rate was 36.6%, a difference he described as "slightly higher."

Florance sent a company-wide letter Wednesday, which CoStar shared with Bisnow, that addressed the Insider report more directly. He disputed several claims made in the story, but he said CoStar plans to bring in a third party to conduct focus groups with employees and plans to act on the feedback it receives. 

The letter from Florance, who founded the company in 1987, also zeroed in on one former employee who spoke with Insider — and who runs an anti-CoStar Instagram account — and whom Florance said connected the outlet to a "small but vocal group of former disgruntled employees."

"As you may know, one former employee who was fired for cause has developed an unhealthy obsession with CoStar Group," Florance wrote in the letter. "He is neither credible nor informed. Truth, accuracy and perspective are irrelevant to his effort to malign those that work at CoStar. I am sorry he is in such a dark place, and I hope he can find a more positive purpose."

CoStar CEO Andy Florance in the audience at a 2019 Bisnow event.

The Insider report included a series of allegations about the company's culture, largely attributed to anonymous current and former employees.

The company is known for its demanding work regimen, especially for its hundreds of researchers who spend their days calling property owners for information, but Insider reported that the culture changed dramatically during the pandemic as employees worked from home. 

It reported that executives directed the company's IT professionals to make unannounced video calls to employees and to compile information on how promptly an employee answered the call, whether they turned on their camera and if so, a description of their work setting and attire. Its sources in the IT department raised concerns about the ethics of the practices — and said they saw multiple people who didn't answer the calls had left the company. 

Insider also reported that CoStar managers kept close track of the time employees spent logged in, the length of their breaks, and their messages and phone calls.  

CoStar said to Insider that it has not engaged in surveillance under false pretenses. 

The Insider report alleged that Florance and one of his top executives, Senior Vice President Lisa Ruggles, have berated employees on video calls for a variety of reasons, from poor performance to being late from a meeting-wide bathroom break. One anecdote it reported involved Ruggles criticizing employees over difficulties in integrating STR, the hotel data company CoStar acquired for $450M in 2019. 

Other allegations in the report included that Florance favored some young, female employees with disproportionate attention, that the company aggressively pushed people to come back to the office last year, and that the company tried to have Glassdoor remove negative reviews from employees. 

The company denied the characterization of its culture and some of the claims in the Insider report, and Florance addressed the issue in his prepared remarks on Tuesday's earnings call, though he didn't specifically mention the report. 

"Like any company, we have people who decide the demands of our environment is not for them and that’s fine," Florance said. He also said the company has a 99% vaccination rate, allowing it to safely bring employees back to the office.

"We do have a tiny, vocal minority of disgruntled former employees who did not want to return to work," Florance added. "But despite that, we would take the same responsible long-view direction again."

The analysts who cover the company and ask questions on the earnings call didn't press Florance on the turnover or company culture, and they instead focused on another issue that one analyst posited was contributing to the company's falling stock price: its aggressive push into the residential sector. 

The company began its residential push through acquisitions. CoStar in November 2020 acquired Homesnap for $250M, and in May it acquired for $156M. 

It also had multiple acquisition attempts fail during that time period, with the Federal Trade Commission blocking its proposed acquisition of RentPath in December 2020, and with CoreLogic turning down CoStar's $6.7B acquisition offer in February 2021 in favor of a $6B bid from other firms. (CoStar made its bid as an all-stock offer, meaning its share price drop could have reduced the value). 

Florance said on the earnings call that CoStar is still looking for acquisition opportunities, but it is currently focusing on investing internally to grow its residential platform. 

The company plans to increase the investment into its residential business by $200M this year, Florance said on the call, and it is focusing the near-term spending on growing traffic to its residential platforms. Florance said CoStar believes it can grow the revenue from its residential business from $75M last year to $1B over the next five to seven years. 

"We believe that residential is a huge opportunity for CoStar Group, so large in fact that we believe our residential revenue will one day eclipse the revenue we generate in the commercial property sector," Florance said on the call. 

Several analysts asked questions about the firm's residential investments, and one said the strategy has caused consternation among shareholders. 

"On the residential reinvestment cycle, I think that was a pretty common fear factor shared across the investor base," Stevens Inc.'s John Campbell said on the call. "The push and pull around that is I think what’s around the stock at almost a 52-week low here."

Campbell went on to say he thinks CoStar's core business is in a "great spot," and the company seems to sound "pretty convicted" on its residential strategy, but he then questioned whether CoStar should spend some of its $3.8B in cash on share buybacks, a practice that can boost a company's stock price. 

CoStar Chief Financial Officer Scott Wheeler responded by saying the company is still focused on saving that cash for future acquisitions, at least for now. 

"We’re still definitely serious about acquisitions," Wheeler said. "Our initial thesis when we brought in capital was it’s going to take about five years for us to burn through that as we do deals across the platform. I think we’re still committed to that strategy right now. If this continues for another year or two we might have a different conversation, but for now that’s still our direction and we’re focused on putting that money to work on acquisitions, and to the extent we need it on organic [growth], we’d do that as well."