Third Point Escalates Feud with CoStar Over Multi-Billion Homes.com Investment

Third Point demands CoStar Group overhaul its board and exit Homes.com after a $5 billion investment. While CoStar bets on new AI features, Daniel Loeb criticizes the company's residential strategy and stock performance.

Protestor investor Third Factor has escalated its campaign against CoStar Team, calling for an overhaul of the business’s board and a remarkable pullback– or straight-out departure– from its property system, Homes.com.

In a sharply worded letter sent Tuesday to CoStar’s board of supervisors, Daniel Loeb, the founder and chief executive officer of New York-based bush fund Third Point, charged the company of weak oversight, poor funding appropriation and years of worth devastation connected to what it described as a failed effort to complete in the property home search area.

Investor Backlash Against Residential Strategy

In its letter, Third Factor approximated CoStar has invested about $5 billion in its domestic realty sector over the past 5 years, producing what it identified as minimal returns. Third Factor argued that losses tied to Homes.com have actually depressed CoStar’s combined earnings, distracted monitoring from its core commercial realty company and added to extended stock underperformance, noting that the firm’s stock had dropped more than 25% over a five-year duration.

The company stated it prepares to nominate a slate of brand-new supervisors “to turn around the downward spiral” at CoStar after a standstill arrangement ended, marking a substantial escalation in a long-running dispute over the business’s approach.

Leadership Disputes and Compensation Concerns

“Like a primary school kid who wins a reward also for ending up last, Mr. Florance’s incentives are probably the costliest ‘Engagement Honor’ our company has actually witnessed,” Third Point wrote, keeping in mind that Florance received approximately $37 million in total compensation in 2024 regardless of years of weak supply performance.

Previously this month, CoStar additionally revealed it would lower its net financial investment in Homes.com by greater than a third in 2026, signifying what administration referred to as a shift far from the heaviest phase of spending. The business claimed it intends to proceed scaling back investment over the remainder of the years, while still predicting that Homes.com will certainly not get to breakeven until closer to 2030.

The step comes 9 months after CoStar reshaped its board in action to financier pressure, including independent directors and forming a Capital Allocation Committee intended partially at sharpening oversight of Homes.com and other significant investments. At the time, the business mounted the changes as an action toward improving governance while continuing to develop its property system.

Commercial Real Estate vs. AI Innovation

3rd Point is prompting CoStar to refocus on its commercial realty franchises, which it called “crown jewel” possessions with the possibility for far greater margins and sustained incomes growth, while closing or unloading down residential procedures if significant choices can not be found.

“Over the previous year, CoStar Group has carried out substantial interaction with investors to educate our updated strategic vision and funding appropriation top priorities,” the spokesperson claimed. “We get in 2026 with considerable momentum and a clear strategy to continue developing our core platforms while scaling Homes.com, which is a critical element to our extensive electronic real estate platform and next chapter of profitable development.”

Some analysts said their view of Homes.com moved after seeing online presentations of new AI-driven attributes that CoStar prepares to roll out in the coming months. William Blair, for example, stated the devices were “challenging to convey in words just how different it could be” compared with existing home search experiences, highlighting conversational search, online tours powered by Matterport images and AI-generated understandings that could modify how customers communicate with listings.

Market Outlook and Execution Risks

Several companies, including Goldman Sachs, Deutsche Financial Institution and William Blair, have actually said that although Homes.com has required significant investment and remains unprofitable, recent product demonstrations– especially around brand-new AI-driven features– suggest the system might be approaching a turning factor. Experts highlighted very early indicators of traction, prepared decreases in marketing and operating expenses, and administration’s expectation that losses tied to Homes.com will remain to slim over the following several years.

In a declaration provided to Real Estate Information, a firm agent claimed CoStar’s board– consisting of directors chosen by Third Factor and D.E. Shaw– has with one voice approved its upgraded critical plan and funding appropriation priorities.

At the very same time, also supportive experts have actually recognized that the strategy brings significant execution risk and that earnings stays years away. Some companies, consisting of Wells Fargo, remain to rate CoStar’s shares “underperform,” mentioning the range of property costs and the strength of entrenched competitors in the portal market.

The AI rollout is just one of the few materially new aspects in CoStar’s property approach in recent times– and one that drew minimal focus in Third Factor’s letter, yet appeared to affect exactly how some experts assessed the platform’s longer-term leads.