Investors Blast Costar’s ‘feckless Board,’ And ‘quixotic Quest’ Over Homes.com

Roughly a year after calling on CoStar Group to embark on a journey of “meaningful self-help,” the firm’s activist investors at Third Point Investors Ltd are back again pushing the Andy Florance-helmed firm to reform, including developing “strategic alternatives for Homes.com.”

In a letter addressed to CoStar Group’s board members published on Tuesday, Daniel Loeb, the CEO of Third Point, wrote that he and his firm maintain the same “dim view” of the firm’s strategy as they did a year ago and that this view is shared by other shareholders. Third Point said this view is underscored by CoStar’s “abysmal stock performance over the past five years, which saw the stock drop 27% compared to a 94% total return for the S&P 500. 

“We thought then, as we do now, that the Company’s anemic performance can be ascribed entirely to the misallocation of billions of dollars into Homes.com, overseen by a feckless board of directors that has failed to protect shareholders from Mr. Florance’s quixotic quest while rewarding him with exorbitant pay packages,” Third Point wrote in its letter. “Like an elementary school child who wins a prize even for finishing last, Mr. Florance’s bonuses are perhaps the costliest ‘Participation Award’ our firm has witnessed.”

In an emailed statement from a CoStar spokesperson, “Over the past year, CoStar Group has conducted extensive engagement with stockholders to inform our updated strategic vision and capital allocation priorities – which have been unanimously approved by the board and Capital Allocation Committee including members nominated by Third Point and D.E. Shaw. We enter 2026 with considerable momentum and a clear plan to continue building our core platforms while scaling Homes.com, which is a critical component to our comprehensive digital real estate platform and next chapter of profitable growth.”

CoStar must consider “strategic alternatives for Homes.com”

Third Point also wrote that CoStar must quickly replace the majority of the board with “more qualified directors,” refocus on the firm’s core commercial real estate business and that the reconstituted board needs to consider “strategic alternatives for Homes.com” and CoStar’s other residential real estate businesses. 

“Where such alternatives do not exist, it should promptly eliminate the losses which have burdened consolidated EBITDA,” the letter states.  

There is some industry speculation that this may mean that CoStar will ultimately decide to sell Homes.com, with some believing a large brokerage or a joint venture set up by large regional independent firms or MLSs may try to buy the portal.

Over the past year, Third Point said it has had “numerous conversations” with CoStar Group management and that it sent a thus far unanswered letter to CoStar in December “expressing continued dismay at the lack of progress.” 

“In fact, so little progress has been made that we are convinced the Company never intended to do any of the things we discussed when we entered into the agreement,” the investors wrote. 

Dissatisfied with the results from these talks and the changes made last year, Third Point said it is now taking “concrete actions” to protect its investment and “ensure that [CoStar] is governed and managed in a manner that will create long-term, sustainable value for all shareholders.”

“Since most board members appear incapable of imposing discipline on Mr. Florance’s empire-building gambit, we intend to introduce shareholders to a slate of highly experienced new directors to be voted onto the board to reverse the downward spiral that has become synonymous with this CEO and his supine enablers,” the letter states.

Letter says resi real estate strategy was “ill-conceived”

Also in the letter, Loeb and Third Point argue that CoStar’s residential real estate strategy was “ill-conceived” and “deeply flawed.” In their view, the investors say there were many structural problems preventing CoStar from succeeding with its residential strategy, namely the “deeply entrenched” competitors in the space and its in ability to create a “meaningful differentiation in its supply of properties due to the presence of MLS’s freely syndicated listings.” 

The investors also argue that CoStar’s management “grossly misallocated capital” in their attempt to build out the residential real estate business and that his [Florance’s] spending has “produced a horrendous return on capital.” 

“Despite a cumulative investment of roughly $3 billion over five years, the U.S. residential marketplace businesses have generated negligible returns, with roughly $60 million of revenue in 2024 and $80 million in expected revenue in 2025,” the letter states. 

The investors also claim that they are “not fooled” by CoStar’s “continued excuses” about missed financial targets. 

“CoStar’s [residential] fiasco is a textbook case of throwing good money after bad and should be studied at our leading business schools as a cautionary tale of management hubris coupled with non-existent oversight,” Third Point wrote. 

The letter also argues that CoStar’s venture into residential real estate has resulted in the firm’s “heavily depressed” earning power and “woefully” underperforming stock. Third Point also claims that CoStar’s existing board has enabled this to happen by failing to exercise oversight over Florance and “rewarding his poor performance with outrageous compensation packages.” 

Still remain confident about commercial business

Despite their displeasure with where CoStar currently stands, the investors said that they remain “confident in the value of CoStar’s world-class core commercial real estate business franchise.” They feel that absent the “distraction” from CoStar’s residential venture, the commercial business could “compound revenue in the teens and earnings power per share above 20% for many years to come.” 

In their view, leaning into CoStar’s commercial business could lead it to support a more efficient balance sheet. 

Homes.com’s future

Earlier this month, CoStar provided investors with an update on financial and corporate governance initiatives for 2026, much of which they said was the result of a “robust review” of the company by the Capital Allocation Committee. While the update painted a fairly rosy picture for the firm as a whole in 2026, with estimated 18% year-over-year revenue growth to between $3.78 and $3.82 billion and a net income of $175 million to $215 million for the year, things did not look quite as strong for CoStar’s Homes.com. 

Although Homes.com has recorded a 337% increase in subscribers since Q1 2024, according to CoStar, the firm said it does not expect Homes.com to attain positive adjusted EBITDA until 2030.