CoStar continues to refute ‘false narrative’ about Homes.com
In its latest response to investor criticism, CoStar says demands to offload the portal “demonstrate a fundamental misunderstanding of our business.”
Punxsutawney Phil may have already returned to his burrow, but CoStar Group appears to be having a Groundhog Day moment of its own.
For two consecutive weeks, the commercial and residential real estate giant has been the target of open letters criticizing its Homes.com strategy, and in both cases, the company has responded a day later with vigorous pushback.
On Feb. 4, the hedge fund D.E. Shaw sent a letter to CoStar's board expressing disappointment in the company's continued support of its "unprofitable Homes.com business," claiming that the investment in the search portal has "destroyed" billions in shareholder value. A week earlier, Third Point — another activist investor group — published a similar letter.
Fact vs. fiction? CoStar issued a response to the latest criticisms on Feb. 5, accusing the New York City hedge fund of creating a "false narrative" that CoStar hasn't "substantially engaged with D.E. Shaw or considered their feedback," noting that it has met with investors 14 times over the past nine months.
CoStar also said D.E. Shaw's arguments "demonstrate a fundamental misunderstanding of our business."
"The reality is that CoStar Group's management team and Board have tried to help D.E. Shaw understand the value creation potential for Homes.com and the fact that the Company is on a responsible plan to realize it," according to the letter, which was posted on CoStar's website.
Highlighting recent actions: Much like its reply to Third Point, CoStar's response to D.E. Shaw included a list of steps the company has taken to address investor concerns, including:
Adding three new independent directors, two of whom were recommended by D.E. Shaw and Third Point.
Forming a Capital Allocation Committee to review CoStar's capital structure.
Decreasing investment in Homes.com by $300 million in 2026 and by more than $100 million annually thereafter to achieve "revenue in excess of expenses" by 2030.
The 'irreparable harm' of dropping Homes.com: Emphasizing its future profitability, CoStar wrote that "with the heavy investment phase of Homes.com complete, we are now down the path to monetize the investment."
The push by Third Point and D.E. Shaw to scrap the residential search portal would thus be "wholly impractical and shortsighted," CoStar added, and "cause irreparable harm to our entire business and lead to certain and significant value destruction."
'Activism malpractice'? CoStar concluded its response with a vivid metaphor, stating, "D.E. Shaw and Third Point's attempt to prescribe a break-up, sale or amputation remedy misdiagnoses an imagined patient and smacks of activism malpractice."
CoStar's stock was down by about 1% in late afternoon trading on Feb. 5, with the $51.55 share price hovering around 52-week lows.