Activist pushes CoStar to cut residential spending
The bear case argued by activist firm Third Point is that CoStar's massive capital allocation toward residential real estate via homes.com is value-destructive and should be significantly scaled back.
The argument
Third Point's open letter highlighted that CoStar spent $5 billion on residential portals to generate only $60 million in 2024 revenue, abandoning its 2027 targets. The activist argues that competing against Zillow's entrenched network effects requires unlimited capital with highly uncertain returns, and that CoStar should instead focus on its highly profitable core commercial real estate business.
The thesis, stress-tested
✓ What validates it
- ✓CoStar successfully reducing its 2026 residential net investment by the announced $300 million
- ✓Execution of the announced $700 million share buyback program
▸ Risks discussed
- ▸Management may abandon the residential strategy entirely, rendering past capital expenditures wasted
- ▸Zillow's entrenched consumer mindshare may prove impossible to disrupt
Hear it yourself
"The criticisms are that the stock has lost nearly 30% of its value over five years while the S and P gained 94% and management has invested and accumulated $5,000,000,000 in residential real estate across all of its residential portals, but these assets have generated just $60,000,000 in revenue as of 2024."
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