Third Point, the New York-based hedge fund founded by investor Daniel Loeb, is preparing to mount an activist campaign at CoStar Group that would seek to alter the composition of the company’s board and force operational changes, according to people familiar with the situation and a related document.
The campaign, the fund’s first in roughly three years, would include nominations for several seats on CoStar’s eight-person board. Insiders said Third Point believes a majority of the current directors should be replaced to drive cost reductions - including cuts to the CEO’s compensation - and to prioritize actions that could lift the stock.
At the heart of Third Point’s complaint is CoStar’s expansion into residential online classifieds, where the company operates Homes.com and competes with market leader Zillow Group. The hedge fund wants CoStar to concentrate on its commercial real estate data and analytics franchise - known internally as CoStar Suite - and to either sell or shut down its residential arm, the people said.
CoStar, which the sources described as having a market capitalization of $28 billion, provides proprietary information and analytics used by real estate developers, tenants and other commercial clients. The firm broadened its footprint several years ago by moving into residential listings and classifieds in an effort to take market share from Zillow.
Those plans for a board fight surfaced shortly after a standstill agreement, signed last year and intended to keep Third Point from going public with its grievances, expired at midnight. The expiration removed a contractual barrier to more public and aggressive engagement.
Privately, Loeb has been critical of CEO Andy Florance’s choices, including the sizeable investments made to expand Homes.com. The sources said Loeb has likened Florance to a young child who wins a prize for finishing last and has called the CEO’s bonuses the "costliest participation award" he has ever seen. They added that Loeb attributes much of the company’s underperformance to the board’s support for that strategy.
Third Point argues that CoStar’s stock has suffered under current management and the board’s oversight. In private remarks cited by the people, Loeb pointed to a 27% decline in CoStar’s share price over five years, contrasted with a 94% gain for the broader S&P 500 index over the same period. The fund also highlighted a 14% drop in the stock over the past year, with the shares closing at $65.81 on Monday.
Third Point contends that CoStar Suite could deliver stronger results if management pursued higher pricing and targeted investor and international customers more aggressively. Restoring investor confidence, imposing spending discipline and curbing heavy investment in residential classifieds are central to Third Point’s objectives, the sources said.
The hedge fund is among CoStar’s 15 largest shareholders and has been in talks with the company for some time. Last year, engagements with shareholders produced settlements that reshaped the board: John Berisford, a former president of S&P Global Ratings, joined the board after a settlement with Third Point; Christine McCarthy, former chief financial officer at Disney, became a director following a settlement with DE Shaw; and Rachel Glaser, formerly Etsy’s finance chief, also joined.
Those new directors took part in the creation of a four-person capital allocation committee, a development that had raised shareholder hopes the board and management would explore strategic alternatives for the residential business. But according to the people familiar with Third Point’s thinking, the hedge fund has grown frustrated by what it sees as insufficient progress and by the continuing slide in the stock.
CoStar has recently signaled some retrenchment on the residential front. Earlier this month the company said it expects to reduce its net investment in Homes.com by roughly $100 million a year through 2030. CoStar also announced a $1.5 billion share repurchase program, though it did not provide timing or further details about execution.
A CoStar representative was not immediately available to respond to requests for comment.
For Third Point, which oversees approximately $24 billion in assets, the planned campaign marks a re-entry into activist tactics as investors increasingly push firms to sell or spin off assets or to make other significant strategic changes.
Contextual analysis
From a product- and market-oriented perspective, Third Point’s demands reflect a belief that CoStar’s core commercial data products retain pricing power and untapped potential, while its residential push consumes capital without delivering a clearly differentiated offering. The hedge fund’s approach seeks to force trade-offs: reduce discretionary investment in a lower-return area and redirect focus and capital to higher-margin commercial products.