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 is engaged in the provision of online real estate marketplaces, information and analysis on commercial and residential real estate markets. It operates in the following segments: CoStar Portfolio, Information Services Portfolio, Multi-Family Portfolio, LoopNet Portfolio and Other Marketplace Portfolio. The CoStar Portfolio segment consists of two classes of trade receivables based on geographic location: North American 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 Multi-Family Portfolio, LoopNet Portfolio and Other Marketplace Portfolio segments focus on one class of trade receivables. The company was founded in 1987 by Andrew Florence and Michael Klein and is headquartered in Arlington, Virginia.

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

Ownership: 0.71%

Average Cost: no

Activist Comment: 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 shaping today’s shareholder activism. He invented the poison pen letter at a time when it was often necessary. As times changed, it moved from the poison pen to the power of argument. Third Point has amicable representation on the boards of companies like Baxter and Disney, but the firm won’t hesitate to launch a proxy fight if it’s being ignored.

what’s going on

Third Point on January 27 sent a letter CoStar’s board of directors called on them to (i) replace the majority of the board and adjust executive compensation based on total shareholder return; (ii) evaluate strategic alternatives for Homes.com and related residential real estate (RRE) businesses; and (iii) refocusing on its core commercial real estate (CRE) business. Third Point was previously subject to restrictions following a deal for board seats last year that expired 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 markets, information and analysis in the real estate market. CoStar Suite manages major brands such as LoopNet, Apartments.com and Homes.com. Approximately 95% of the Company’s revenue is derived from its core commercial real estate (“CRE”) franchises, which primarily consist 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 deliver recurring revenue and highly predictable free cash flow. Due to these dynamics, this business has historically traded at a premium to its Information Services peers but now trades in line with them.

This downturn in the company’s valuation is largely due to CoStar’s aggressive investment in Homes.com, the residential real estate (“RRE”) marketplace that the company acquired in 2010. May 2021. From the beginning, CoStar’s plan to build a dominant online classifieds business in the US 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 established rivals like Zillow. However, over the last five years, CoStar has invested approximately $5 billion in the RRE segment; $3 billion of this was in the USA. Despite this major investment, US RRE businesses only generated $60 million in revenue in 2024 and $80 million in 2025. Moreover, in addition to these direct financial losses, these initiatives shifted focus away from the core CRE business, limiting growth potential.

It was this environment that led Third Point to reach out to CoStar last year, which ultimately resulted in a deal. support agreement Between DE Shaw and Third Point company. This agreement included: (i) the addition of Christine McCarthy, John Berisford and Rachel Glaser to the board of directors; (ii) the retirement of Michael Klein, Christopher Nassetta and Laura Kaplan from the board of directors; (iii) appointment of Louise Sams as independent chairperson; and (iv) the establishment of a capital allocation committee. While these governance changes seem like a meaningful step in the right direction, the progress that has been made has been deeply disappointing. Management continued to push ahead with RRE initiatives in the United States, repeatedly changing strategy and missing targets even after they were revised. In fact, RRE business has deteriorated so much that the company cut Homes.com subscription pricing by over 30% in 2025, and Homes.com is now expected to reduce 2025 adjusted EBITDA by more than 65%. What’s more, those losses won’t go away anytime soon, as CoStar’s new mid-term guidance predicts Homes.com won’t break even until 2030. Unsurprisingly, these failures continue to be reflected in the company’s stock performance, which has outperformed the S&P 500 by more than 45 percentage points since the deal date and more than 120 percentage points over the past five years.

With the standstill period now expired, Third Point sent a letter to CoStar’s board of directors requesting that it (i) replace the majority of the board and adjust management compensation based on total shareholder return; (ii) evaluate strategic alternatives for Homes.com and related RRE businesses; and (iii) refocusing on the core CRE business. While the last two of these initiatives seem intuitive given the aforementioned track record, they raise the uncomfortable question of why this has not already been put into action. The answer is that the board does not hold management accountable. In fact, the company rewarded CEO Andrew Florence. He received total compensation of nearly $37 million in 2024, 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 situation, as it has proposed tying only 25% of its future long-term incentives to total shareholder return, decoupling its pay from shareholder results, and especially alarming for a CEO with de minimis shares. This was achieved by the new board, with three of the eight directors recently appointed through the Third Point/DE Shaw settlement agreement highlighting how much control the CEO has over the company.

While this may seem like a tall order, the upside potential seems significant if Point Three is successful. The firm points out that CoStar Suite alone has significant untapped pricing power, with an average selling price of just $350 per month, well below comparable information services products. Third Point also believes the company has significant opportunities to expand into adjacent end markets and develop new agency products. Overall, Third Point believes its CRE business should be able to achieve EBITDA margins of over 50% in the medium term; It will expand further over time, given that its peers will ultimately achieve margins of 60% to 70%. In addition, the company’s low-leverage balance sheet also provides the capacity for meaningful share buybacks, creating greater opportunities to create shareholder value. Putting it all together, without the distraction of RRE, Third Point believes its CRE business can grow revenue at a mid-teens rate and increase earnings per share power by over 20% annually.

This involvement is an example of shareholder activism as it should be. Third Point quickly and amicably reached an agreement with the company to give Third Point a chance to show that it could change its ways and begin to turn around its poor performance. If CoStar Group had done this, you wouldn’t be reading this article right now. But the company did the exact opposite, turning to a strategy that failed it and its shareholders. So now Third Point knows two things for sure: (i) change is definitely needed, and (ii) three new directors are not enough to relinquish Florence’s control over the board. We expect Third Point to nominate three to six new executives. Two of the three directors appointed in last year’s deal (Christine McCarthy and John Berisford) were selected by Third Point and we expect them not to be targeted this year. So, assuming they are on the ballot as incumbents, Third Point could gain a majority of the board by winning three seats. The decision on whether to hold more than three elections will be made after consulting advisors on strategy and performing representative mathematics, especially in the age of universal voting. If the company does not nominate McCarthy and Berisford, there is a possibility that the company will nominate an eighth candidate. We hope to nominate a Third Point executive because in situations like these, where significant change is needed and has been met with years of resistance from a founder/CEO, it is helpful to have the activist in the room who designed the plan and is most passionate about it. Although Third Point does not explicitly request this, it is difficult to imagine a scenario in which the firm would gain meaningful representation on the board and Florence would remain CEO; It doesn’t seem like either of them would want that.

Founded by Dan Loeb, Third Point is a true pioneer in shareholder activism, but has used it more sparingly in recent years as the market environment and available opportunities dictate. He invented the poison pen letter at a time when it was often necessary. As times changed, it moved from the poison pen to the power of argument. But we’re seeing shades of the old Dan Loeb in this campaign, using phrases like “incompetent board” and “CEO and his placid supporters.” We especially liked the analogy of the compensation given by the CEO to primary school children who won participation awards by finishing last. CoStar Group saw a new, friendlier Dan Loeb when it decided on three new executives in April. Now the company may have awakened the Dan Loeb of the past, who has 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, a corporate research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in a portfolio of activist investments.