Activist investors pressure CoStar to abandon Homes.com as Trump targets housing costs

His administration also banned large institutional investors from purchasing single-family homes and directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities to lower borrowing costs.

At the same time, hedge funds Third Point and D.E. Shaw have pressured CoStar Group to abandon its investment in Homes.com.

CoStar purchased Homes.com in 2021 for $156 million and relaunched the platform in 2022 to compete with Zillow in the residential real estate listings market.

The companies use different business models.

“Zillow monetizes consumer inquiries by routing them away from listing agents and toward paying ‘Premier Agents’ who bid for lead placement, or by collecting referral fees of up to 40% of the agent’s commission when a transaction closes. Those costs do not vanish,” HousingWire wrote.

Homes.com instead routes leads directly to the listing agent.

CoStar leaders have said the strategy requires long-term investment but expect the platform to become profitable later this decade.

The company has pointed to its broader growth record.

“Its management has delivered 58 consecutive quarters of double-digit growth and built the company into a dominant position in its core market segment,” RealClearMarkets wrote.

CoStar’s most recent earnings report shows 59 consecutive quarters of double-digit revenue growth.

Activist investors have demanded that CoStar abandon the Homes.com strategy and replace the company’s CEO.

CoStar rejected those demands. It said the activists misunderstand the company’s long-term strategy. The investors’ arguments “demonstrate a fundamental misunderstanding” of how the business works, RealClearMarkets reported.

Critics of activist investing say such campaigns often prioritize short-term returns over long-term investments.

“‘Shareholder activism’ too often looks like financial impatience masquerading as strategy,” RealClearMarkets wrote.

Research shows many executives feel pressure to prioritize quarterly results over long-term projects.

“In surveys by McKinsey and FCLTGlobal, roughly half of executives admitted they would delay new projects to hit quarterly earnings targets, even knowing it would sacrifice value,” RealClearMarkets wrote.

Some analysts warn that if CoStar exits the residential listings market, Zillow could face less competition.

“Why are two Wall Street hedge funds trying to shut down a company that is building more competition, more transparency, and more options for the very homebuyers the President is fighting for?” HousingWire asked.

RealClearMarkets added, “Companies such as CoStar, which have produced year after year of double-digit earnings growth, need the room to grow and the space to innovate.”