Activist Investor Fires Scathing Broadside at CoStar Over Homes.com “Fiasco”

Activist hedge fund Third Point has fired a blistering open letter at the board of CoStar Group, sharply criticising the company’s governance, capital allocation and, most pointedly, its multi-year push into US residential real estate via Homes.com.

The letter, dated January 27th and signed by Third Point's billionaire founder Daniel Loeb, marks a clear escalation in what appears to be a long-running dispute between the $24 billion hedge fund and CoStar’s leadership. Third Point owns just over 2% of CoStar and, alongside investment firm D.E. Shaw, was instrumental in the creation of CoStar’s Capital Allocation Committee in April 2025. This time, however, the gloves are off...

“A Quixotic Quest”

Third Point lays responsibility for what it describes as years of value destruction squarely at the feet of CoStar founder and CEO Andy Florance, and a board it characterises as unwilling or unable to restrain him.

It accuses management of pursuing “an ill-conceived and hopelessly executed strategy to build an online classifieds business in the residential real estate (RRE) industry”, adding that Mr Florance was allowed to “sink billions of shareholder dollars” into Homes.com.

The language is unusually caustic for a public shareholder letter. Florance’s pay package comes in for particular criticism, with Third Point likening his bonuses to “the costliest ‘Participation Award’ our firm has witnessed”, arguing that he was rewarded “like an elementary school child who wins a prize even for finishing last”.

The letter points out that CoStar shares are down 27% over the past five years, compared with a 94% total return for the S&P 500, a gap it says is “entirely self-inflicted”.

The hedge fund argues that CoStar’s residential strategy was flawed from the outset, citing entrenched competitors, freely syndicated MLS listings and a lack of meaningful differentiation.

It estimates that CoStar has invested roughly $5 billion into its residential segment over five years, including around $3 billion in the US, yet says this has produced “negligible returns”, pointing to roughly $60 million of revenue in 2024 and $80 million expected in 2025.

Third Point also highlights repeated changes to management guidance, noting that CoStar once targeted more than $700 million of organic residential revenue and EBITDA margins above 15% by 2027, targets that were later abandoned. It argues that a more than 30% cut to Homes.com subscription pricing in 2025 “underscored challenged customer traction and product-market fit”.

In one of the letter’s more pointed passages, Third Point writes that the Homes.com saga “should be studied at our leading business schools as a cautionary tale of management hubris coupled with non-existent oversight”.

A Break With the Board

The letter makes clear that relations between Third Point and CoStar have deteriorated sharply since a standstill agreement was struck last year. Third Point claims it sent a detailed letter to the board in December that went unanswered, concluding that “the Company never intended to do any of the things we discussed when we entered into the agreement”.

With the standstill now expired, Third Point says it will seek to nominate a new slate of directors, arguing that “most board members appear incapable of imposing discipline on Mr Florance’s empire-building gambit”.

It calls for sweeping changes, including replacing a majority of the board, tying executive compensation much more closely to total shareholder return, and pursuing strategic alternatives for Homes.com, including divestment or shutdown if losses cannot be eliminated.

The timing is notable. Earlier this month, CoStar confirmed plans to materially rein in spending at Homes.com, cutting net investment by more than $300 million in 2026, down from roughly $850 million in 2025, with further reductions planned through to 2030.

Management said Homes.com is expected to exit 2029 with revenue exceeding expenses and reach positive adjusted EBITDA in 2030, a timeline Third Point describes as “flatly unacceptable”.

This all comes against a backdrop of heavy international dealmaking by CoStar, including the acquisition of OnTheMarket in the UK and the nearly $2 billion purchase of Australia’s Domain last year, alongside its still highly profitable commercial and rentals businesses.

CoStar strongly rejected Third Point’s characterisation of events. A company spokesperson told Online Marketplaces Group:

“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.

“Our 2026 and long-term guidance – which represents sustained, accelerated revenue growth and margin expansion – reflected the Board’s confidence in our ability to enhance stockholder value. We intend to continue to engage with our stockholders, including Third Point, to help them better understand our strategic plan, which has already garnered support from many stockholders and analysts.”

Whether that engagement now extends to a proxy fight looks increasingly uncertain. What is clear is that one of the online real estate sector’s most ambitious and expensive strategic bets is now under its most direct and public challenge yet.