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Company: CoStar Group Inc (CSGP)Business: CoStar Group engages in providing online real estate markets, information and analysis of commercial and residential real estate markets. It operates through the following segments: CoStar Portfolio, Information Services Portfolio, Multifamily Portfolio, LoopNet Portfolio and Other Markets Portfolio. The CoStar Portfolio segment consists of two classes of commercial receivables based on geographic location: North America and International. The Information Services Portfolio segment includes four categories of commercial 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 one category of commercial receivables. The company was founded by Andrew Florance and Michael Klein in 1987 and is headquartered in Arlington, Virginia.
Market value: $26.07 billion ($61.50 per share)
Possession: 0.71%
Average cost: n / A
Comment from an activist: Third Point is a multi-strategy hedge fund founded by Dan Loeb, which will selectively take 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 modern shareholder activism. He invented the poison pen letter at a time when it was often needed. As times have changed, he has moved from the poisoned pen to the power of argument. Third Point has amicably gained board representation from companies like Baxter and Disney, but the company won’t hesitate to launch a proxy fight if it’s passed over.
What is happeningJanuary 27, Third Point sent a letter to the CoStar Board of Directors, directing them to (i) replace the majority of the Board of Directors and align management compensation with total shareholder return; (ii) consider strategic alternatives for Homes.com and associated residential real estate businesses (RREs); and (iii) refocus on the core business of commercial real estate (CRE). Third Point was previously subject to status quo restrictions following an agreement on board seats last year, which expired on January 27. The company now plans to appoint a new slate of directors.
Behind the scenesCoStar Group (CSGP) is a provider of online real estate marketplaces, real estate market information and analytics. It manages major brands including CoStar Suite, LoopNet, Apartments.com and Homes.com. Approximately 95% of the Company’s revenues are derived from its primary commercial real estate (“CRE”) franchises, which largely consist 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 generate recurring revenue and highly predictable free cash flow. Because of this dynamic, this business has historically traded at a premium to its information services peers, but it now trades in line with them.
This decline in the company’s valuation stems largely from CoStar’s aggressive investment in the residential real estate (“RRE”) market, Homes.com, which the company acquired in May 2021. From the start, CoStar’s plan to create a dominant online classifieds business in the U.S. residential real estate 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 well-established peers like Zillow. Nonetheless, over the past five years, CoStar has invested approximately $5 billion in its RRE segment, including $3 billion in the United States. Despite this massive investment, US CRE activities only generated $60 million in revenue in 2024 and $80 million in 2025. Furthermore, in addition to these direct financial losses, these initiatives have diverted attention from the core CRE business, limiting its growth potential.
It was this context that initially prompted Third Point engaging with CoStar last yearwhich ultimately resulted in a support agreement between the company, DE Shaw and Third Point. This agreement provided for (i) the addition of Christine McCarthy, John Berisford and Rachel Glaser as directors to the board of directors; (ii) the retirement of Michael Klein, Christopher Nassetta and Laura Kaplan from the board of directors; (iii) the appointment of Louise Sams as independent chair of the board of directors; and (iv) the creation of a capital allocation committee. Although these governance changes appear to be a significant step in the right direction, progress has been deeply disappointing. Management continued to advance its RRE initiatives in the United States, repeatedly changing the strategy and missing targets even after they were revised. In fact, the RRE business has deteriorated so much that in 2025 the company reduced the price of Homes.com subscriptions by more than 30% and Homes.com is now expected to reduce its 2025 adjusted EBITDA by more than 65%. Additionally, these losses won’t go away anytime soon, as CoStar’s new mid-term guidance now projects that 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 more than 45 percentage points since the deal date and by more than 120 percentage points over the past five years.
With the standstill period now expired, it is perhaps unsurprising that Third Point is stepping up its engagement, sending a letter to CoStar’s board calling on it to (i) replace the majority of the board and align management compensation with total shareholder return; (ii) consider strategic alternatives for Homes.com and associated RRE activities; and (iii) refocus on CRE’s core business. While these latter two initiatives may seem intuitive given the aforementioned track record, they raise the troubling question of why they have not already been implemented. The answer to this question is the failure of the board of directors to hold management accountable. In fact, the company rewarded CEO Andrew Florance. In 2024, he received total compensation of approximately $37 million, placing him in the top 10% of S&P 500 CEOs, although the company is among the bottom 10%. The board has done nothing to address this going forward as it has proposed tying only 25% of its future long-term incentives to total shareholder returns, further disconnecting its compensation from shareholder outcomes, which is particularly concerning for a CEO with de minimis ownership. This was done by the new board with three of the eight directors recently appointed as part of the Third Point/DE Shaw settlement agreement, which appears to underline the degree of control the CEO has over the company.
While this may seem like a daunting task, if Third Point succeeds, the upside potential appears significant. The company points out that CoStar Suite has significant untapped pricing power on its own, with an average selling price of just $350 per month, well below comparable information services products. Third Point also believes the company has substantial opportunities to expand into adjacent end markets and develop new agent products. Overall, Third Point believes the CRE business should be able to achieve EBITDA margins above 50% in the medium term, with further expansion over time as its peers ultimately achieve margins of 60% to 70%. Additionally, the company’s underleveraged balance sheet also provides significant share repurchase capacity, creating new opportunities for shareholder value creation. In summary, without the RRE distraction, Third Point estimates that the CRE business could generate revenue at an average rate of around 15% and grow 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 an agreement with the company to give it a chance to show Third Point that it can change its ways and begin to turn around its poor performance. If CoStar Group had done this, you wouldn’t be reading this right now. But the company did the opposite, relying on a strategy that failed it and its shareholders. So, Third Point now knows two things for sure: (i) change is absolutely necessary and (ii) three new directors are not enough to release Florance’s grip on the board. We expect Third Point to appoint between three and six new directors. Two of the three directors (Christine McCarthy and John Berisford) named in last year’s settlement were selected by Third Point, and we expect they will not be targeted this year. So, assuming they are on the ballot as incumbents, Third Point could gain a majority on the board by winning three seats. The decision to opt for more than three will be made after consulting strategy advisors and performing proxy calculations, particularly in the era of universal voting. There is an outside chance the company gets eight if the company doesn’t appoint McCarthy and Berisford. We hope to see a Third Point leader appointed because in situations like this where substantial change is needed and that change has been resisted by a founder/CEO for so many years, it helps to have in the room the activist who designed the plan and is most passionate about it. Although Third Point isn’t openly calling for it, it’s hard to imagine a scenario where the company gets meaningful representation on the board and Florance remains CEO – it doesn’t seem like either of them want that.
Third Point, founded by Dan Loeb, is a true pioneer of shareholder activism, but has used it more sparingly in recent years, depending on the market environment and available opportunities. He invented the poison pen letter at a time when it was often needed. As times have changed, he has moved from the poisoned pen to the power of argument. However, in this campaign we see shades of the old Dan Loeb – using phrases like “irresponsible board of directors” and “CEO and his cronies”. We particularly liked his analogy of CEO pay being paid to elementary school children who win participation prizes for finishing last. The CoStar Group saw the new, friendlier Dan Loeb in April when it chose three new directors. Today, the company may have woken up lé 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 investments.
