CoStar begins its journey of ‘meaningful self-help’

Third Point estimates that CoStar will have cumulatively spent more than $3 billion on its residential goals by the end of this year.

“This investment has yet to generate meaningful revenue,” the letter states. “Expanding losses at Homes.com have obscured rapid growth in the core business and reduced consolidated EBITDA by approximately 80%.”

The letter also notes that after two decades of compounding at an internal rate of return of roughly 25%, CoStar Group’s stock has remained flat for more than five years. 

“After several years of uncertainty, we believe it is time for CoStar to begin the journey of meaningful self-help,” the letter states. 

‘Activist’ investors

As part of this journey, at the behest of both Third Point and D.E. Shaw, CoStar underwent a leadership shakeup by adding John Berisford, Rachel Glaser and Christine McCarthy to its board. The new members replaced Michael Klein, Christopher Nassetta and Laura Kaplan, who all retired. 

Additionally, CoStar established a capital allocation committee, which will review CoStar’s capital structure and financial targets. The committee, which includes Berisford, Glaser, McCarthy and CoStar CEO Andy Florance, will also be tasked with overseeing the Homes.com investment and profitability timeline. 

According to equities analysts Ryan Tomasello of Keefe, Bruyette & Woods and John Campbell of Stephens, it’s not unheard of for investors to take active roles if they’re unhappy with how things are going.

“It is certainly not uncommon in the public market,” Tomasello said. “I would say on the magnitude of aggression, this is not necessarily at this point an overly aggressive, hostile campaign. It seems like there was a very amicable discussion between these activist investors and management, but that doesn’t mean that things couldn’t get more aggressive depending on how things play out over the next year.”

Tomasello believes that the investors are very much interested in the success of Homes.com, and that the pressure being exerted by D.E. Shaw and Third Point is tied to the views of the broader shareholder base.

“There is this view that Andy has had kind of unbridled discretion on just pouring gasoline and burning cash on this initiative without many checks and balances,” he said. “This activist campaign is about putting those checks and balances in place, and putting some more definitive guardrails and mile markers in place for management and the board to better grade their progress on this initiative.”

Crunching the numbers

Despite CoStar reporting a net loss of $15 million in first-quarter 2025, even as its revenue rose 12% annually to $732 million, analysts feel that CoStar and Homes.com are headed toward a turning point.

“In Q1, their core bookings were up north of 60% from a low point of last year — that is very meaningful movement,” Campbell said. “So it is just continuing to stack that sequential improvement and I think it is so far, so good. Things seem to have improved a lot from March to April, so it feels like a reboot to some extent.”

When Homes.com first launched, it had only 41 dedicated sales professionals, so CoStar temporarily sent all of its sales force to Homes.com. At the end of Q1 2025, Florance said Homes.com had a dedicated sales team of 370 representatives and that the brand was on track to have 500 reps by the end of June. 

“Their core commercial business last year, on the back of this big debut of Homes.com, suffered some cannibalization, but this year that business is regaining momentum as the company takes a bit more balance on where it’s focusing,” Tomasello said. 

Campbell added that the successful sale of many of CoStar’s products requires a cultivation and sales pipeline with time to win business.

“If you take your eye off the ball for a period of time like they did, then there is going to be a period of catch-up, but I feel like that has now cleared,” he said. 

Both analysts expect CoStar’s financial and stock performances to improve in the coming months. Supporting this belief is the improvement of Homes.com’s unaided brand awareness. 

Who are you again?

Florance said during CoStar’s earnings call late last month that before the relaunch of the site, only 4% of Homes.com’s target audience said it was the site that was top of mind when thinking about shopping for a home. 

“In 14 months of marketing campaign, we have steadily increased our unaided awareness nine times to 36%,” Florance said. “Our unaided intention or the percentage of people surveyed that say they intend to use our site has grown from single digits to 26%. We’ve also crossed Redfin, Realtor.com and Trulia on unaided intent”

Tomasello finds these results promising.

“Of course past success isn’t indicative of future performance, but the path the company is on, that is a pretty solid pace of increasing brand awareness with consumers,” Tomasello said.

Spending money to make money

But gaining this unaided brand awareness has not been cheap.

“I think, by design, they fully intended to come out with a splash,” Campbell said. “To beat Zillow, you have to have a structurally better consumer experience. And you might have to flex your muscle on the marketing side to try to aggressively take traffic just by being notable and having paid celebrities to get people to want to try it.” 

In short, Campbell said, CoStar was hoping its initial media blitz would convince enough people to try out the site and that their positive experience in using the platform would create stickiness. 

But once unaided brand awareness surpasses the 50% threshold, Campbell believes some of that marketing spend will decrease and the company will begin to focus on other metrics, like time on site and bounce rate. 

During the recent earnings call, Florance said it will take three to five years to fully build out the brand. Achieving the level of unaided brand awareness it has in a little over a year is “excellent,” he said.

“I feel that over the next two to four years, we can take a solid and very valuable leadership position in the industry,” Florance said. “With such a wide lead over these two [Redfin and Realtor.com], we’ve shifted our traffic acquisition strategy away from pure volume to targeting quality engaged traffic.

“Our bounce rate has improved 45 percentage points. Our session duration is up 200% and the number of page visits per visit has more than doubled.”

Looking into the crystal ball

Despite the firm “burning through cash” as it invests in Homes.com while missing potential opportunities to invest in better long-term results for its core commercial business, Campbell believes CoStar is making the right choice by entering the residential space. 

“We think the opportunity is worth it because residential is such a big category and there is such a big opportunity for them,” he said. 

But he also believes CoStar is at an inflection point with Homes.com. 

“Our sense is that we are getting to the point where this could be somewhat binary, in the sense that as they decrease marketing spend, you either see bookings and growth come through and everything starts to work, or it doesn’t,” he added.

Either way, Campbell feels things are looking up as CoStar is committed to increasing its annualized savings after operating expenses ballooned over the past year.

“If they continue to reduce spend with each quarter, it is handing out that olive branch to the activist investors every single quarter. And I think by year end we are going to be looking at Homes.com investment levels being meaningfully lower,” he said.