Homes.com, Costar‘s 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 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.”
$1 Billion Per Year Spent With Little To Show
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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“Meaningful Self-Help”
“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.
Layoffs And AI
In February, Homes.com made headlines when it announced 100 layoffs from its headquarters in Richmond, Virginia, blaming AI for some of the cuts.
“The company expects to eliminate roles in 2025 from efficiencies gained by using AI and reallocate those resources into other areas,” CoStar said in statement. “CoStar Group sees rapidly growing value in leveraging artificial intelligence to improve content creation, drive operational efficiencies, and build the next generation of digital real estate user interfaces.”
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False Traffic Claims
In July, CoStar Group was forced to discontinue some of its Homes.com TV ads after two Fast-Track SWIFT challenges were brought by Move Inc., and BBB National Programs’ National Advertising. Move Inc. operates Realtor.com. Move, a direct rival to Homes.com, is owned by News Corp NWS NWSA)).
In the BBB National Programs National Advertising complaint, Move disputed two claims that CoStar had made in its advertising:
- “Homes.com just reached 156M monthly unique visitors.”
- “Homes.com now has DOUBLE Realtor.com’s traffic.”
Currently, there is a dispute about Homes.com’s page views. The CoStar claimed to average 104 million monthly unique visitors in Q1 2025, placing it ahead of Redfin RDFN and Realtor.com. However, analytical software company SEMRUSH puts Homes.com behind Zillow, Realtor.com, and Redfin RDFN.
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