BREAKINGVIEWS-Dan Loeb's new clash betrays activism home truths

By Sebastian Pellejero

NEW YORK, Jan 30 (Reuters Breakingviews) - Dan Loeb is calling in bulldozers where a handyman will do. The hedge fund manager's Third Point wants to overhaul CoStar's CSGP.O board and strip its house-listings website. They're overwrought projects that would add limited curb appeal.

The nasty campaign's foundation is Homes.com, CoStar's answer to Zillow ZG.O and Realtor.com. Building it chews up some $800 million a year, and founder and CEO Andy Florance doesn't expect it to break even until 2030. The $26 billion company has lost more than a quarter of its market value over the past five years.

Third Point submitted blueprints a year ago. It agreed, alongside fellow investor D.E. Shaw, to refrain from taking drastic action against the commercial property data cruncher in exchange for three new directors and the creation of a capital allocation committee. Those standstill provisions have expired, and Loeb is ready for demolition. He sent a pugnacious letter to CoStar this week, and his demands were swiftly rejected in kind.

It's a curious site for a showdown. Cutting out Homes.com would at least temporarily spruce up CoStar, with projected EBITDA rising to some $1.3 billion for 2025, using Visible Alpha estimates. Apply the roughly 25 times multiple the enterprise commanded before its housing push gathered pace, and the implied equity value would be $33 billion, an uplift of nearly 30%. Pushy investors typically seek higher returns.

Florance reckons he can follow his own successful model. He built Apartments.com with painstaking data collection and costly advertising to pair residential buildings and landlords. The portal now generates more than $1.2 billion of annualized revenue, accounting for more than a third of CoStar's top line.

Selling houses is a tougher neighborhood. Cooperative real estate databases ensure that competing online marketplaces showcase largely the same homes, denying challengers the advantages that helped CoStar dominate rentals.

Traffic also doesn't translate into paying customers. Third Point estimates that the market in which Homes.com operates generated about $80 million of revenue in 2024, despite billions spent on marketing, acquisitions and technology.

Apartments.com took nearly a decade to blossom, so Florance is justified in preaching patience. CoStar also says it's dialing back spending and that dumping Homes.com would surrender long-term value for short-term gains. It wouldn't be a hedge fund first and the muted upside further suggests it's a credible home truth.

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CONTEXT NEWS

CoStar, which supplies commercial real estate data and operates online housing marketplaces, on January 28 rejected a call from hedge fund Third Point to rethink its ownership of the Homes.com site and replace a majority of its board.

Third Point CEO Daniel Loeb sent a letter to CoStar's board on January 27 arguing that the company's residential real estate strategy has been ill-conceived since its inception five years ago and that management has misallocated some $5 billion in the process.

CoStar, which is being advised by Goldman Sachs, said Third Point's demand to abandon Homes.com "reflects their complete misunderstanding of our business, industry and the strong progress we are making."