Baillie Gifford, a major shareholder in CoStar, has expressed its support for the real estate data company’s strategy amid an escalating proxy battle with activist hedge funds, including Daniel Loeb’s Third Point and DE Shaw. Both hedge funds have publicly criticized CoStar’s CEO, Andy Florance, for his multibillion-dollar investment in the unprofitable listings site Homes.com, urging for a board overhaul and hinting at presenting a rival slate during the upcoming board nomination period in mid-March.
CoStar’s stock has declined by 38% over the last year and has shown minimal growth since the acquisition of Homes.com in 2020. Currently valued at $21 billion, the company faces pressure to improve its financial performance. Third Point and DE Shaw have suggested that CoStar should consider divesting Homes.com to concentrate on enhancing profitability from its primary commercial real estate data services. They have characterized the investment in Homes.com as distracting and ill-conceived, projecting that the site is unlikely to become profitable until 2029, with annual revenue currently totaling $90 million.
In contrast, Baillie Gifford argues that Homes.com has the potential to serve as a significant growth driver, comparable to other successful platforms like Apartments.com and LoopNet. They believe that recent advancements, particularly in AI capabilities, will further bolster its market position. Baillie Gifford has been a supportive investor in CoStar for nearly a decade, emphasizing their continued backing of Florance’s vision to create a leading real estate data platform.
As the stage is set for a possible contentious proxy battle, the outcome could have significant implications for CoStar’s leadership and strategic direction.
Why this story matters
- The outcome of the proxy battle could determine the leadership and strategic direction of a major player in the real estate data market.
Key takeaway
- Baillie Gifford’s backing of CoStar amid criticisms from activist investors highlights contrasting views on the company’s growth strategy.
Opposing viewpoint
- Activist hedge funds argue that the investment in Homes.com detracts from CoStar’s core business, advocating for refocused efforts to enhance profitability.
