Company: CoStar Group Inc (CSGP)
Business: CoStar Group is engaged in providing online real estate marketplaces, information and analysis in the commercial and residential real estate markets. The Company operates through the following segments: CoStar Portfolio, Information Services Portfolio, Multifamily Portfolio, LoopNet Portfolio and Other Marketplaces Portfolio. The CoStar Portfolio segment consists of two classes of trade receivables based on geographic location: North America and International. The Information Services Portfolio segment includes four classes of trade receivables: CoStar Real Estate Manager; Hospitality, North America; Hospitality, International; and other information services. The Multifamily Portfolio, LoopNet Portfolio and Other Marketplaces Portfolio segments focus on a class of trade receivables. The company was founded in 1987 by Andrew Florance and Michael Klein and is headquartered in Arlington, Virginia.
Market value: $26.07 billion ($61.50 per share)
Property: 0.71%
Average cost: n/a
Comment from activists: Third Point is a multi-strategy hedge fund founded by Dan Loeb that will take targeted activist positions. Loeb is one of the true pioneers in the field of shareholder activism and one of the few activists who shaped what has become today’s shareholder activism. He invented the poison pen letter at a time when it was often necessary. Over time he has moved from the poison pen to the power of argument. Third Point has amicably secured representation on the boards of companies like Baxter and Disney, but the company will not hesitate to start a proxy fight if it is ignored.
What happens
On January 27, Third Point sent a letter to the CoStar board requesting that it (i) replace the majority of the board and align management compensation with total shareholder return; (ii) consider strategic alternatives for Homes.com and related residential real estate companies (RRE); and (iii) refocus on core commercial real estate (CRE) business. Third Point was previously bound by standstill restrictions after reaching an agreement last year for board seats that expired Jan. 27. The company now plans to appoint a new slate of directors.
Behind the scenes
CoStar Group (CSGP) is a provider of online real estate marketplaces, information and analysis on the real estate market. It manages major brands such as CoStar Suite, LoopNet, Apartments.com and Homes.com. Approximately 95% of the Company’s revenue comes from its core commercial real estate (“CRE”) business, which largely consists of CoStar Suite and Apartments.com. These companies benefit from high barriers to entry, strong pricing power, proprietary data and subscription-based business models that drive recurring revenue and highly predictable free cash flow. Because of these dynamics, this company has historically traded at a premium to its peers in the information services sector, but is now trading in line with them.
This decline in the company’s valuation is largely due to CoStar’s aggressive investments in residential real estate marketplace (“RRE”), Homes.com, which it acquired in May 2021. From the start, CoStar’s plan to build a dominant online classifieds business in the U.S. RRE industry was deeply flawed. Unlike its core businesses, CoStar Suite and Apartment.com, Homes.com lacks clear competitive advantages and meaningful differentiation, and faces intense competition from established rivals such as Zillow. Still, CoStar has invested around $5 billion in its RRE segment over the past five years, including $3 billion in the US. Despite this massive investment, RRE’s U.S. operations generated just $60 million in revenue in 2024 and just $80 million in 2025. Furthermore, in addition to these direct financial losses, these initiatives have diverted focus from CRE’s core business and limited its growth potential.
With this in mind, Third Point initially began working with CoStar last year, which ultimately led to a support agreement between the company, DE Shaw and Third Point. This agreement included (i) the addition of Christine McCarthy, John Berisford and Rachel Glaser to the Board as Directors; (ii) the departure of Michael Klein, Christopher Nassetta and Laura Kaplan from the Board of Directors; (iii) the appointment of Louise Sams as Independent Chief Executive Officer; and (iv) the establishment of a capital allocation committee. Although these governance changes appeared to be a significant step in the right direction, the progress has been deeply disappointing. Management continued to advance its U.S. RRE initiatives, repeatedly changing strategy and missing targets even after they were revised. In fact, the residential real estate business has performed so poorly that the company cut Homes.com’s subscription prices by over 30% in 2025, and Homes.com is now expected to reduce adjusted EBITDA by more than 65% in 2025. Furthermore, these losses won’t go away anytime soon, as CoStar’s new medium-term forecast now assumes Homes.com won’t break even until 2030. Not surprisingly, these failures continue to be reflected in the company’s stock performance, which has underperformed the S&P 500 by over 45 percentage points since the date of the agreement and over 120 percentage points over the past five years.
With the standstill period now expired, it is perhaps no surprise that Third Point is expanding its commitment and sending a letter to the CoStar board asking them to (i) replace a majority of the board and align management compensation with total shareholder return; (ii) consider strategic alternatives for Homes.com and related residential real estate companies; and (iii) refocusing on the core business of commercial real estate. While the latter two initiatives may seem intuitive given the above track record, it raises the worrying question of why they have not already been put into action. The answer is the board’s failure to hold management accountable. In fact, the company rewarded CEO Andrew Florance. In 2024, he received total compensation of about $37 million, putting him in the top 10% of CEO earners in the S&P 500, even though the company was in the bottom 10% of top performers. The board has done nothing to remedy the situation going forward, proposing to tie only 25% of its future long-term incentives to total shareholder returns, further decoupling its compensation from shareholder outcomes and particularly worrisome for a CEO with de minimis share ownership. This has been carried out by the new board, with three of eight directors recently appointed through the settlement agreement between Third Point and DE Shaw, which appears to underline the level of control the CEO retains over the company.
While this may seem like a tall order, the upside potential appears to be significant if Third Point succeeds. The company notes that CoStar Suite alone has significant untapped pricing power, with an average selling price of just $350 per month, well below comparable information services products. Third Point also believes it has significant opportunities to expand into adjacent end markets and develop new drug products. Overall, Third Point believes the CRE business should be able to deliver EBITDA margins of over 50% in the medium term, with further expansion over time as competitors ultimately achieve margins of 60% to 70%. Additionally, the company’s under-leveraged balance sheet also provides the opportunity for meaningful share buybacks, creating further opportunities to create value for shareholders. Overall, Third Point believes that without the RRE diversion, the CRE business could grow revenue in the mid-teens and increase earnings per share by more than 20% per year.
This commitment is an example of shareholder activism as it should be. Third Point quickly and amicably reached a settlement with the company to give Third Point a chance to show that it could change its ways and begin to improve its poor performance. If CoStar Group had done that, you wouldn’t be reading this now. But the company did the opposite and followed the strategy that failed it and its shareholders. So now Third Point knows two things for certain: (i) change is definitely necessary and (ii) three new directors isn’t enough to loosen Florance’s grip on the board. We expect Third Point to nominate three to six new directors. Two of the three directors (Christine McCarthy and John Berisford) appointed in last year’s comparison were selected by Third Point and we do not expect them to be targeted this year. Assuming they are on the ballot as incumbents, Third Point could gain a majority on the board by winning three seats. The decision whether to vote for more than three votes is made after consultation with strategy consultants and proxy calculations, especially in the era of general voting. There is a possibility that the company could opt for eight candidates if the company does not nominate McCarthy and Berisford. We hope that a Third Point executive is nominated because in situations like this, where significant change is needed and that change has been met with resistance from a founder/CEO for many years, it is helpful to have the activist in the room who designed the plan and is most committed to it. While Third Point doesn’t explicitly request it, it’s hard to imagine a scenario where the company gains significant representation on the board and Florance stays on as CEO – it seems like none of them want that.
Third Point, founded by Dan Loeb, is a true pioneer in shareholder activism, but has used it more sparingly in recent years due to the market environment and available opportunities. He invented the poison pen letter at a time when it was often necessary. Over time he has moved from the poison pen to the power of argument. In this campaign, however, we see echoes of the old Dan Loeb – with phrases like “weak board” and “CEO and his supine enablers.” We particularly liked his analogy of CEO compensation to elementary school children who win last place participation awards. CoStar Group met a new, friendlier Dan Loeb in April when he settled for three new directors. Now the company may have awakened the Dan Loeb of the past, who had been in a sort of hibernation for years. We won’t know for sure until March 13, when the nomination window opens.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist assets.