An activist shareholder has escalated its campaign against CoStar Group – which through a subsidiary owns UK property portal OnTheMarket – accusing the company’s board and chief executive of destroying shareholder value through years of poor governance and heavy spending on a failed residential real estate strategy.
In a sharply worded letter hedge fund Third Point said that it plans to take “concrete actions” to protect its investment, including nominating new directors to CoStar’s board. The firm argues that the company’s leadership has failed to impose discipline on CEO Andy Florance, particularly regarding the costly expansion into residential real estate via the portal Homes.com.
In a £100m deal, CoStar UK Ltd (a wholly-owned subsidiary of CoStar Group Inc) bought OnTheMarket in December 2023 (https://propertyindustryeye.com/newsflash-onthemarket-costar-deal-goes-through/). The purchase agreement had been formally announced to the markets the previous October and stated that:
“Bidco [CoStar UK Ltd] and CoStar believe that the Acquisition represents an attractive strategic entry point for CoStar into the UK residential property market. CoStar has invested billions of dollars into building the world’s leading online property marketplaces, generating hundreds of millions of leads, resulting in millions of successful commercial and residential property transactions for its clients. CoStar’s websites attracted approximately 280 million visits in September 2023, and include Homes.com, the agent-friendly, second largest and fastest growing residential marketplace in the United States.
“OnTheMarket is an asset with an established and differentiated position within the UK market. Its digital platform has strong customer relationships and robust traffic flow that will allow CoStar to continue to accelerate its own international expansion efforts across the UK and Europe.”
Third Point said it first raised concerns with CoStar management last year, citing weak board oversight, misaligned executive compensation, and “disastrous” capital allocation decisions. The firm blamed CoStar’s underperformance—shares are down 27% over the past five years, compared with a 94% total return for the S&P 500—on billions of dollars invested in residential real estate initiatives with little to show in return.
Under a standstill agreement reached last year with Third Point and D.E. Shaw, CoStar agreed to appoint two independent directors and form a Capital Allocation Committee. Third Point said it expected those measures to lead to improved governance, clearer financial targets, and a framework to justify continued investment in Homes.com. Instead, the fund claims progress has been minimal, and a detailed letter sent to the board in December has gone unanswered.
With the standstill now expired, Third Point said it will push for board changes, arguing that most directors have been unable or unwilling to rein in what it described as Mr. Florance’s “empire-building” strategy.
At the center of the dispute is CoStar’s residential real estate (RRE) expansion, which Third Point called a multi-year failure. The firm said the strategy was fundamentally flawed from the outset due to entrenched competitors and a lack of meaningful product differentiation, given the widespread syndication of listings from multiple listing services.
According to Third Point’s estimates, CoStar has invested roughly $5 billion in its RRE segment over the past five years, including about $3 billion in the U.S. residential business. Despite that spending, U.S. residential marketplace revenue reached only about $60 million in 2024 and is expected to be roughly $80 million in 2025. The fund said repeated strategy shifts, abandoned long-term targets, missed guidance, and a more than 30% cut to Homes.com subscription pricing highlight weak customer traction and product-market fit.
Third Point also criticised CoStar’s latest capital allocation plan, which projects continued losses at Homes.com until at least 2030. The fund said the guidance masks ongoing weakness by shifting expenses across business segments and fails to restore consolidated EBITDA to acceptable levels.
The financial impact has been significant, according to the letter. Third Point said RRE losses are expected to reduce CoStar’s 2025 adjusted EBITDA by more than 65%, and consensus EBITDA estimates for 2025 have fallen more than 70% since 2021. It described the company’s stock underperformance as “entirely self-inflicted.”
The fund reserved particular criticism for executive pay. It said Mr. Florance received approximately $37 million in total compensation in 2024, placing him among the top-paid S&P 500 CEOs despite CoStar’s bottom-decile stock performance. Third Point also objected to compensation plans that tie only 25% of long-term incentives to total shareholder return.
Despite its criticisms, Third Point said it remains confident in CoStar’s core commercial real estate (CRE) business, which it described as a “world-class franchise” with strong proprietary data and network effects. The fund believes that divesting or shutting down residential operations and refocusing on CRE could unlock substantial value, enabling double-digit revenue growth, EBITDA margins above 50%, and sustained earnings growth.
Third Point called on CoStar to overhaul its board, align compensation more closely with shareholder returns, eliminate residential real estate losses, and refocus on its core business, warning that immediate action is needed to restore credibility and investor confidence.
It now remains to be seen if changes do take place in CoStar’s governance and how such changes might cause it to reassess its appetite to maintain residential marketing investments outside the United States – including OnTheMarket.
The full letter can be read here: https://www.businesswire.com/news/home/20260127616511/en/Third-Point-Sends-Letter-to-Board-of-Directors-of-CoStar-Group
CoStar response
In response to the activist shareholder’s letter, a CoStar Group spokesperson told EYE:
“Over the past year, CoStar Group has conducted extensive engagement with stockholders to inform our updated strategic vision and capital allocation priorities – which have been unanimously approved by the Board and Capital Allocation Committee including members nominated by Third Point and D.E. Shaw. We enter 2026 with considerable momentum and a clear plan to continue building our core platforms while scaling Homes.com, which is a critical component to our comprehensive digital real estate platform and next chapter of profitable growth.
“Our 2026 and long-term guidance – which represents sustained, accelerated revenue growth and margin expansion – reflected the Board’s confidence in our ability to enhance stockholder value. We intend to continue to engage with our stockholders, including Third Point, to help them better understand our strategic plan, which has already garnered support from many stockholders and analysts.”
OnTheMarket
EYE also approached OnTheMarket for a statement, but they declined to comment.
