Activist Dan Loeb dusts off his poison pen as he seeks a board refresh at CoStar Group

Company: CoStar Group Inc (CSGP)

Business: CoStar Group engages in the provision of online real estate marketplaces, information, and analytics in the commercial and residential property markets. It operates through the following segments: CoStar Portfolio, Information Services Portfolio, Multifamily Portfolio, LoopNet Portfolio and Other Marketplaces Portfolio. The CoStar Portfolio segment consists of two classes of trade receivables based on geographical location: North America and International. The Information Services Portfolio segment includes four classes of trade 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 class of trade receivables. The company was founded by Andrew Florance and Michael Klein in 1987 and is headquartered in Arlington, Va.

Stock Market Value: $26.07B ($61.50 per share)

Ownership: 0.71%

Average Cost: n/a

Activist Commentary: Third Point is a multi-strategy hedge fund founded by Dan Loeb, that will selectively take activist positions. Loeb is one of the true pioneers in the field of shareholder activism and one of a handful of activists who shaped what has become modern-day shareholder activism. He invented the poison pen letter in a time when it was often necessary. As times have changed, he has transitioned from the poison pen to the power of the argument. Third Point has amicably gotten board representation at companies like Baxter and Disney, but the firm will not hesitate to launch a proxy fight if it is being ignored.

What’s happening

On Jan. 27, Third Point sent a letter to the CoStar board calling on them to (i) replace a majority of the board and align management compensation to total shareholder return; (ii) consider strategic alternatives for Homes.com and related residential real estate (RRE) businesses; and (iii) refocus on the core commercial real estate (CRE) business. Third Point was previously bound by standstill restrictions following a settlement for board seats last year, which expired on Jan. 27. The firm now plans to nominate a new slate of directors.

Behind the scenes

CoStar Group (CSGP) is a provider of online real estate marketplaces, information, and analytics in the property market. It manages major brands including CoStar Suite, LoopNet, Apartments.com and Homes.com. Approximately 95% of the company’s revenue is derived from its core commercial real estate (“CRE”) franchises, which largely consists of CoStar Suite and Apartments.com. These businesses benefit from high barriers to entry, strong pricing power, proprietary data and subscription-based business models that drive recurring revenue and highly predictable free cash flow. Because of these dynamics, this business has historically traded at a premium to its Information Services peers but is now trading in line with them.

This regression in the company’s valuation largely stems from CoStar’s aggressive investment into the residential real estate (“RRE”) marketplace, Homes.com, which the company acquired in May 2021. From the beginning, CoStar’s plan to build a dominant online classifieds business in the U.S. RRE industry was deeply flawed. Unlike its core CoStar Suite and Apartment.com businesses, Homes.com lacks clear competitive advantages and meaningful differentiation and faces intense competition from well-established peers like Zillow. Nevertheless, over the past five years, CoStar has invested roughly $5 billion in its RRE segment, $3 billion of which was in the U.S. Despite this massive investment, the U.S. RRE businesses generated only $60 million of revenue in 2024 and $80 million in 2025. Moreover, in addition to these direct financial losses, these initiatives have diverted focus from the core CRE business, limiting its growth potential.

It was this backdrop that initially prompted Third Point to engage with CoStar last year, which ultimately resulted in a support agreement between the company, D.E. Shaw and Third Point. This agreement included (i) the addition of Christine McCarthy, John Berisford and Rachel Glaser as directors to the board; (ii) the retirement of Michael Klein, Christopher Nassetta and Laura Kaplan from the board; (iii) the appointment of Louise Sams as independent board chair; and (iv) the creation of a capital allocation committee. While these governance changes appeared to be a meaningful step in the right direction, progress has been deeply disappointing. Management has continued to move forward with its U.S. RRE initiatives, repeatedly shifting the strategy and missing targets even after they had been revised. In fact, the RRE business has gotten so bad that in 2025, the company cut Homes.com subscription pricing by over 30% and Homes.com is now expected to reduce 2025 adjusted EBITDA by more than 65%. Moreover, these losses are not going away anytime soon, as CoStar’s new medium-term guidance now projects that Homes.com will not break even until 2030. Unsurprisingly, these failures continue to be reflected in the company’s share performance, which has been underperforming the S&P 500 by over 45 percentage points since the date of the agreement and over 120 percentage points over the past five years.

With the standstill period now expired, it’s perhaps no surprise that Third Point is escalating its engagement, issuing a letter to the CoStar board calling on them to (i) replace a majority of the board and align management compensation to total shareholder return; (ii) consider strategic alternatives for Homes.com and related RRE businesses; and (iii) refocus on the core CRE business. While the latter two of these initiatives may feel intuitive given the aforementioned track record, it prompts the troubling question as to why this has not already been put into motion. The answer to that is the board’s failure to hold management accountable. In fact, the company has rewarded CEO Andrew Florance. In 2024, he received approximately $37 million in total compensation, placing him in the top 10% of S&P 500 CEO earners despite the company being in the bottom 10% of performers. The board has done nothing to remedy this going forward as it has proposed tying only 25% of his future long-term incentives to total shareholder return, further disconnecting his pay from shareholder outcomes and particularly concerning for a CEO with de minimis stock ownership. This was done by the new board with three of eight directors recently appointed through the Third Point/D.E. Shaw settlement agreement, which appears to underscore the degree of control the CEO maintains over the company.

While this may seem like a tall task, if Third Point succeeds, the upside potential appears significant. The firm points out that CoStar Suite alone has significant untapped pricing power, with an average selling price of just $350 per month, far below comparable information services products. Third Point also believes that the company has substantial opportunities to expand into adjacent end markets and develop new agentic products. Overall, Third Point believes that the CRE business should be capable of achieving EBITDA margins above 50% in the medium term, with further expansion over time given that peers ultimately achieve margins from 60% to 70%. In addition, the company’s under-levered balance sheet also provides capacity for meaningful share repurchases, creating further opportunities for shareholder value creation. Putting it all together, absent the RRE distraction, Third Point believes that the CRE business could compound revenue at a mid-teens rate and grow earnings power per share in excess of 20% annually.

This engagement is an example of shareholder activism the way it ought to be. Third Point quickly and amicably agreed to a settlement with the company to give it a chance to show Third Point that it can change its ways and start to turn around its poor performance. Had CoStar Group done that, you would not be reading this right now. But the company did the opposite, leaning into the strategy that has been failing it and its shareholders. So, now Third Point knows two things for sure: (i) change is definitely needed and (ii) three new directors is not enough to release the grip that Florance has on the board. We would expect to see Third Point nominate anywhere from three to six new directors. Two of the three directors (Christine McCarthy and John Berisford) appointed in last year’s settlement were selected by Third Point, and we would expect them to not be targeted this year. So, assuming they are on the ballot as incumbents, Third Point could get a majority of the board by winning three seats. The decision whether to go for more than three will be made after consulting advisors on strategy and doing proxy math, particularly in the era of the universal ballot. There is an outside chance that the firm goes for eight if the company does not nominate McCarthy and Berisford. We would hope to see a Third Point executive nominated because in situations like this where substantial change is needed and that change has been met with resistance by a founder/CEO for so many years, it is helpful to have the activist in the room who designed the plan and is most passionate about it. While Third Point does not overtly call for it, it is hard to imagine a scenario where the firm wins meaningful board representation and Florance stays on as CEO – it does not seem like either of them would want that.

Third Point, founded by Dan Loeb, is a true pioneer in shareholder activism, but has used it more sparingly in recent years as dictated by the market environment and available opportunities. He invented the poison pen letter in a time when it was often necessary. As times have changed, he has transitioned from the poison pen to the power of the argument. However, in this campaign we see shades of the old Dan Loeb – using phrases like “feckless board of directors” and “CEO and his supine enablers.” We particularly enjoyed his analogy of a CEO’s compensation to elementary school children who win participation awards for finishing last. CoStar Group saw the new, more amicable Dan Loeb in April when he settled for three new directors. Now, the company may have woken up the Dan Loeb of the past, who has been in a sort of hibernation for years. We will not 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.