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Homes.com, Costar‘s (NASDAQ:CSGP) residential real estate listing site, embarked on a billion-dollar spending spree in 2024 to try to take the mantle from established marketplace leaders like Zillow (NASDAQ:Z) and Realtor.com. However, earlier this year, the first signs of trouble emerged amid news of layoffs.

Now, just over a year since the site began earning revenue, two of its hedge fund investors, D.E. Shaw & Co. and Third Point Investors Ltd., have signaled for change.

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“Despite the continued strength of its core business, we believe recent capital allocation decisions have derailed CoStar’s compounding algorithm,” a recent investor letter from Third Point said. “Over the past five years, management has increasingly focused on leveraging CoStar’s dominance in commercial real estate to expand into residential real estate.”

After spending over $1 billion per year with an estimated $3 billion to be spent by the end of 2025, Third Point says so far there is little to show in the way of return.

“This investment has yet to generate meaningful revenue,” the letter states. “Expanding losses at Homes.com have obscured rapid growth in the core business and reduced consolidated EBITDA by approximately 80%.”

Third Star lays bare the financial realities for the listings site following an extravagant launch, saying that after two decades of compounding at an internal rate of return of roughly 25%, CoStar’s stock has remained flat in the last five years.

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“After several years of uncertainty, we believe it is time for CoStar to begin the journey of meaningful self-help,” the letter states.

The self-help plan includes a board shake-up and a capital allocation committee. The committee will include Costar CEO Andy Florence. The team will be tasked with overseeing the Homes.com investment and profitability timeline.

In February, Homes.com made headlines when it announced 100 layoffs from its headquarters in Richmond, Virginia, blaming AI for some of the cuts.



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