Post Content
A little over a year ago, CoStar CEO Andrew Florance sat in a box overlooking Super Bowl LIX, beaming at his creation.
Florance, holding his phone out in front of his face for those around him to see, played the second of two Homes.com Super Bowl ads airing that night, both directed by Oscar-nominated director Taika Waititi and featuring cameos from Oscar-winning actor Morgan Freeman.
The ads were part of CoStar’s multi-year, billion-dollar push into the residential market after years of minting money on its highly profitable commercial real estate platform.
Florance seemed to soak up the publicity that came with the ads. It didn’t hurt that the stock was trading at a respectable $76, and was on its way up to a 12-month high of over $97 dollars by August 2025.
Just nine months later, the stock is down 65 percent and Florance has been fending off broadsides from institutional investors that claim his spending direction has waylaid a once promising company.
Activist investor Third Point, which had been pressuring CoStar to cut its losses on Homes.com, estimated that the company has spent north of $3 billion on the platform over five years. But in 2025, the platform generated just $100 million in revenue.
The investment has weighed on CoStar’s bottom line as well. In 2024, CoStar generated a $361 million loss in terms of adjusted earnings on its residential business, which includes Homes.com and a UK-based marketplace it acquired in 2023, OnTheMarket.com. The following year, it lost another $230 million.
“Investors in public companies don’t generally give board of directors, companies and management leeway to build a company from scratch and spend billions of dollars to do it,” said Craig Huber, an analyst covering CoStar and the founder of Huber Research Partners.
CoStar will report its first-quarter performance on Tuesday. In January, the company said it expects to hit an adjusted EBITDA range of $95 million to $115 million for the quarter.
A big bet
CoStar made its initial foray in the residential market when it bought Homesnap for $250 million in cash. The next year, it added Homes.com for $156 million in another all-cash deal and later integrated the two platforms under the Homes.com brand.
Halfway through 2023, CoStar claimed it had hit 84 million average monthly unique visitors across its residential platform, pushing it ahead of Realtor.com in terms of traffic, but still well behind Zillow’s 226 million average monthly unique visitors. (Realtor.com has also disputed visitor numbers reported by Homes.com, claiming the site relies on misleading internal traffic data.)
Unlike Zillow, which makes money by directing buyer traffic toward paying “Premier Agents” or charging referral fees on closed transactions, Homes.com has billed itself as a listing agent-friendly destination, instead charging listing agents a flat membership fee for the opportunity to boost listing visibility.
The company has pushed its “Your Listing, Your Lead” model as the industry has faced an upheaval over how listings are marketed, which resulted in Zillow threatening to ban listings not uploaded to its website within 24 hours of public marketing in May 2025. Compass responded by suing Zillow, claiming the practice was anticompetitive.
Florance seized on the opportunity, calling Zillow’s lead-diversion “anti-consumer and anti-agent” in an open letter to agents, and offering to “boost” listings banned on Zillow for free.
In July, CoStar also sued Zillow, claiming that Zillow’s use of more than 46,000 CoStar Group images on its listing website amounts to “mass infringement.” The lawsuit follows a long history of CoStar suing its competitors in the commercial space over its proprietary photo database, resulting in sizable wins, including a $500 million judgment granted in 2019 against Xceligent, which had filed for bankruptcy.
But despite its aggressive entry into the residential sector, CoStar has not turned its growing public profile into significant revenue. In 2023, when it counted hundreds of millions of site visits, Homes.com recorded just $50 million in annual revenue.
But Homes.com’s growing visitor count was not necessarily taking any traffic away from its competition, as consumers appear to be happy to browse different websites on their home search process, according to a 2024 analysis by strategist Mike DelPrete.
“Unlike website visits, there is a finite amount of transactions, commission dollars, and agents willing to spend money online; that’s a zero-sum game,” he wrote.
The investor battle
By 2025, investors in CoStar began to publicly air their concerns with what they saw as the company’s wayward venture.
In an April investor letter, Third Point CEO Daniel Loeb wrote that “Expanding losses at Homes.com have obscured rapid growth in the core business.”
Earlier that month, CoStar had announced the appointment of three new members to the board, an independent board chair and the establishment of a capital allocation committee to review CoStar’s investment in Homes.com and its timeline for profitability.
“We believe it is time for CoStar to begin the journey of meaningful self-help,” Loeb wrote.
CoStar responded in January of this year by announcing it would begin slashing its investment in Homes.com by 35 percent in 2026 to $550 million, and continue cutting $100 million annually until 2030. In February, the company also laid off 200 workers from Homes.com.
That was not enough for Loeb, who issued a scathing letter to CoStar’s board on Jan. 27 in which he called for a board overhaul and an exit from Homes.com. He also took issue with Florance’s $37 million pay package in 2024, despite the company’s “extraordinarily poor stock performance over the last five years.”
“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.
CoStar responded with an open letter claiming Third Point’s claims were “detached from reality” and pointing to the changes instituted over the last year. “Unhappy with the conclusions of the independent Board they helped pick, Third Point, like a child with a board game, wants to throw the pieces off the board,” the letter stated.
In March, D.E. Shaw, which has aligned with Third Point on an activism campaign, criticized a financial reporting change made by CoStar for its fourth quarter earnings, in which CoStar combined its reporting for Homes.com and Apartments.com under a “Residential” segment.
“In our view, CoStar’s ‘hide the ball’ exercise all but ensures that the Board and management cannot be held accountable for Homes.com’s future performance by the owners of the Company and further demonstrates the Board’s disregard for shareholder interests,” the letter stated.
CoStar again responded by claiming it will still provide disaggregated revenue disclosures, and that it has included more transparency by reporting revenue, EBITDA, Adjusted EBITDA and margin disclosures for its “Residential” segment.
The following month, Third Point announced it was ending its activist campaign and liquidating its position in CoStar.
“We no longer believe that our original thesis holds true today and have disposed of our position in its entirety,” Loeb wrote in an investor letter.
This article originally appeared on The Real Deal. Click here to read the full story.
Terms and Privacy Policy