Would Costar Really Sell Homes.com? Here’s What Analysts Say

Despite pressure from activist investors at Third Point Investments, Ltd., CoStar Group said it is firmly against divesting of or shutting down Homes.com. 

In response to a letter sent to CoStar on Tuesday in which Third Point asks the company to divest or shutdown its residential real estate arm, including Homes.com, the Andy Florance-helmed firm wrote that “abandoning Homes.com now that the investment phase is tapering would be a certain way to destroy long-term value for stockholders”

While CoStar may be set on holding on to Homes.com, HousingWire consulted with industry analysts and experts to see what, if any, historical precedents exist and what they think the future may hold for CoStar and Homes.com. 

A fit for the business model?

“Typically we see companies in our industry sell off businesses because they no longer fit within their business model or because they need to raise capital,” Steve Murray, the co-founder of RTC Consulting, said. 

According to Murray, while companies could do things like sell off more shares or borrow money to generate needed capital, sometimes selling an asset makes more sense for their overall strategy and their balance sheet. As an example, Murray highlighted Fathom Holdings’ divestiture of Dagley Insurance. In 2024, the parent company of Fathom Realty sold its property and casualty insurance firm to its original founder Nathan Dagley for $15 million. At the time, the company said the proceeds from the transaction would be used to strengthen Fathom’s financial position and support its growth initiatives. 

While Murray said he didn’t recall any previous activist investor campaign leading a housing industry company to sell off an underperforming business, he did note Zillow’s exit from iBuying in November of 2021 in which the company noted that investor concerns about earning and balance-sheet volatility were one of the reasons for its exit from the business. 

“For me there are some similarities between Zillow’s iBuying business and CoStar’s Homes.com as both seem to be taking a lot of attention from company leaders, as well as a lot of capital, which some investors may feel could be better spent on other parts of the business,” Murray said. 

Shared infrastructure would cause friction

Over at Keefe Bruyette & Woods, two of the firm’s analysts Ryan Tomasello and Jade Rahmani noted in a report that despite investor pressure, the shared infrastructure and broader interconnectivity between Homes.com and CoStar’s other businesses would complicate and cause friction with the feasibility of divesting Homes.com or its other residential real estate operations. 

“We agree that the earnings drag from Homes.com and CoStar’s other residential investments has been a meaningful overhang on [CoStar Group’s] shares,” the analysts wrote in a note earlier this week. “However, several considerations complicate a potential activist playbook.”

Additionally, the analysts noted that while the activist investors may have placed a significant amount of blame on Andy Florance, historically shareholders “ascribed meaningful value” to Florance’s leadership. 

“It’s unclear how much weight this consideration will carry when investors evaluate their support of an activist campaign,” the analysts wrote.

CoStar may ramp up Homes.com with AI

Jake Fuller, an analyst BTIG, agrees that there are many internal structural factors that would make the potential sale of Homes.com challenging for CoStar, but while he note the relatively flat stock response to Third Point’s letter, he added that “getting out of the business altogether would likely be welcomed by the market.”

Looking ahead, Fuller believes CoStar will continue to hold on to Homes.com and he expects CoStar to ramp up Homes.com, deliver organic growth and potentially beat projected earnings numbers. 

“[CoStar Group’s] investment is past peak, Homes.com is gaining momentum, and we think an upcoming AI-driven product update could resonate,” Fuller wrote in a report. “After a period of investment-related distraction, [CoStar Group] appears to have the core [commercial real estate] business back on track and it looks to be past the point of peak spend at Homes.com with signs that it is finally gaining some momentum.”