Calling CoStar’s investments in residential real estate a “fiasco,” a major investor has said that it is done waiting for Homes.com to become a major player in residential real estate.
In its letter, Third Point, a New York-based hedge fund, and founder Daniel Loeb took aim directly at what it called a “feckless board” and a “quixotic quest” by CoStar CEO Andy Florance to spend billions building Homes.com into a top-four real estate portal in recent years. Loeb aired his grievances Tuesday in a widely distributed letter.
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The complaints focus in part on share prices. But at its core is what Loeb said was a “quixotic quest” by Florance to become a major player in the residential real estate space. Loeb effectively called on CoStar to consider abandoning Homes.com.
“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,” Loeb wrote in the letter.
Daniel Loeb | Third Point Founder
The letter comes just weeks after CoStar said it would make drastic cuts to its spending on Homes.com through 2030. The company specifically said it would cut spending by $350 million this year, or over 35 percent compared to 2025, and continue cutting by over $100 million over the coming years until Homes.com reaches profitability.
Loeb said he sent a letter to CoStar’s board in December but has yet to receive a response.
“The time for talking is over. Our standstill period expired at midnight, and we will now take concrete actions to protect our investment and ensure that the Company is governed and managed in a manner that will create long-term, sustainable value for all shareholders,” Loeb wrote in Tuesday’s letter.
“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 continued.
Andy Florance | Credit: CoStar Group
Loeb said that Third Point remained confident in CoStar’s dominance within the commercial real estate market, and it suggested that the company divest or close up its residential real estate (RRE) businesses.
“There is an opportunity to unlock substantial shareholder value by improving governance, divesting or shutting down the RRE businesses, and refocusing on the enormous earnings potential of the core business,” the shareholders wrote. “There is no time to waste.”
CoStar’s response
In response to the letter, CoStar said that it had conducted an outreach and engagement campaign with stockholders.
“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,” the company said Tuesday in a statement.
“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,” the statement continued. “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.”
‘Throwing good money after bad’
With its purchase of and ensuing investment in Homes.com, CoStar was attempting to take on the other three main public-facing real estate search portals: Zillow, Realtor.com and Redfin.
The effort was doomed from the get-go, Loeb wrote.
That’s because consumers were already used to visiting those top three “deeply entrenched” competitors.
“Second, and even more damaging, the Company lacked meaningful differentiation in its supply of properties due to the presence of MLS’s freely syndicated listings,” Loeb wrote. “While these problems were immediately obvious to any informed observer, management and the board either ignored or failed to understand them.”
Loeb wrote that CoStar had invested around $3 billion into its U.S.-based residential real estate businesses, including through acquisitions.
“CoStar’s RRE 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,” Loeb wrote.
CoStar made waves in early 2024 when it rolled out a $1 billion marketing campaign that featured A-list celebrities and Super Bowl appearances.
As it sought new ways to grow revenue, CoStar also undertook unconventional methods. Last summer, the company began sending direct mailers to homesellers asking them to pay Homes.com to receive more visibility for their listing.
In the letter, Loeb gave some insight into why he’s launching the activist campaign even after CoStar announced the deep spending cuts to Homes.com. The company has cut its revenue projections and cut its own pricing.
“Given this dismal record, it is abundantly clear that management’s RRE projections are meaningless,” Loeb wrote.
He added that the spending cuts and 2030 profitability date were too late, and that the company would continue its “atrocious” stock performance in the meantime.
