Third Point Urges CoStar Board To Replace Leadership, Halt $3B Residential Real Estate Losses And Refocus On Core CRE Business To Restore Shareholder Value

Third Point LLC ("Third Point" or the "Firm"), an alternative asset manager with approximately $24 billion in assets under management, today sent the following letter to the Board of Directors of CoStar Group (NASDAQ:CSGP):Board of DirectorsCoStar Group, Inc.1201 Wilson BoulevardArlington, VA, 22209January 27, 2026Dear Board Members:Last year, we approached CoStar management and expressed our concerns about the weak board oversight, misalignment of management incentives, and disastrous capital allocation policies that allowed CEO Andy Florance to sink billions of shareholder dollars into an ill-conceived and hopelessly executed strategy to build an online classifieds business in the residential real estate (RRE) industry. Our dim view of the Company's strategy is plainly shared by other shareholders, underscored by the abysmal stock performance of the past five years – down 27% versus a 94% total return for the S&P 500. We thought then, as we do now, that the Company's anemic performance can be ascribed entirely to the misallocation of billions of dollars into Homes.com, overseen by a feckless board of directors that has failed to protect shareholders from Mr. Florance's quixotic quest while rewarding him with exorbitant pay packages. Like an elementary school child who wins a prize even for finishing last, Mr. Florance's bonuses are perhaps the costliest "Participation Award" our firm has witnessed.We expected that after CoStar entered into a standstill agreement with us and D.E. Shaw that included the appointment of two independent directors and an agreement to form a Capital Allocation Committee, we could steer the Company towards improved governance, better capital allocation, and compensation incentives that are aligned with creating shareholder value. We were promised that the Company would respond to shareholder concerns in good faith and develop a strategic framework and defined financial returns to justify further investment in Homes.com.During the past year, we have had numerous conversations with management and, in December, sent a detailed (as-yet unanswered) letter to the board expressing continued dismay at the lack of progress. In fact, so little progress has been made that we are convinced the Company never intended to do any of the things we discussed when we entered into the agreement.The time for talking is over. Our standstill period expired at midnight, and we will now take concrete actions to protect our investment and ensure that the Company is governed and managed in a manner that will create long-term, sustainable value for all shareholders. Since most board members appear incapable of imposing discipline on Mr. Florance's empire-building gambit, we intend to introduce shareholders to a slate of highly experienced new directors to be voted onto the board to reverse the downward spiral that has become synonymous with this CEO and his supine enablers.Despite years of governance failures, we remain confident in the value of CoStar's world-class core commercial real estate (CRE) business franchise. As outlined below, there is an opportunity to unlock substantial shareholder value by improving governance, divesting or shutting down the RRE businesses, and refocusing on the enormous earnings potential of the core business. There is no time to waste.CoStar's RRE Strategy Has Been a Multi-Year FailureThe strategy was ill-conceived: From its inception five years ago, the Company's plan to build a dominant online classifieds business in the U.S. RRE industry was deeply flawed, with structural problems affecting both sides of management's proposed two-sided marketplace. First, customer demand was dominated by deeply entrenched competitors with strong brands and ample resources. Second, and even more damaging, the Company lacked meaningful differentiation in its supply of properties due to the presence of MLS's freely syndicated listings. While these problems were immediately obvious to any informed observer, management and the board either ignored or failed to understand them.Management has grossly misallocated capital in pursuit of this flawed strategy: Over the past five years, we estimate that CoStar has "invested" roughly $5 billion in its RRE segment (including $3 billion in its U.S. RRE segment) via a combination of organic operating expenses and acquisitions. These direct financial costs have been compounded by broad management distraction which has prevented the core CRE franchise from reaching its full potential.This profligate spending has produced a horrendous return on capital:Despite a cumulative investment of roughly $3 billion over five years, the U.S. residential marketplace businesses have generated negligible returns, with roughly $60 million of revenue in 2024 and $80 million in expected revenue in 2025. Looking ahead, ample feedback from market participants suggests the prospects for improvement remain elusive.Investors are not fooled by management's continued excuses about missed targets: While management may claim that the U.S. RRE initiative is proceeding as planned and will soon bear fruit, this argument overlooks the fact that the Company has repeatedly shifted strategy and reset targets. In 2022, CoStar guided the residential segment to >$700 million of organic revenue and >15% EBITDA margins by 2027 but subsequently abandoned those targets when it became clear they were completely unachievable. Management then introduced annual projections for its RRE business, only then to miss its own mid-year revised 2024 revenue guidance. Finally, in 2025 the Company cut Homes.com subscription pricing by over 30%, further underscoring challenged customer traction and product-market fit. Given this dismal record, it is abundantly clear that management's RRE projections are meaningless. CoStar's RRE fiasco is a textbook case of throwing good money after bad and should be studied at our leading business schools as a cautionary tale of management hubris coupled with non-existent oversight.Shareholders see through management's desperate attempts to buy more time: The Company's latest capital allocation plan, issued earlier this month, perpetuates management's delay tactics and is flatly unacceptable on several fronts. First, the new medium-term guidance implies many years of ongoing losses at Homes.com, which is not projected to break even until 2030. Second, it attempts to create the appearance of cost discipline by simply shifting expenses from Homes.com into other RRE and CRE segments. As a result – and most importantly – it fails to restore CoStar's consolidated EBITDA to acceptable levels within a reasonable period. Said differently, the updated guidance simply prolongs the weakness in consolidated EBITDA which has been the core driver of CoStar's atrocious business and stock performance for the past several years.CoStar's RRE Expansion Has Destroyed Shareholder Value, with No Board AccountabilityCoStar's earning power is heavily depressed: Mounting losses in the RRE business have had a negative impact on CoStar's reported financial results and are now guided to depress 2025 adjusted EBITDA by more than 65% despite sustained growth in the underlying earning power of its CRE businesses. Similarly, consensus estimates for CoStar's 2025 EBITDA have been cut repeatedly, declining by more than 70% since 2021. These issues are clearly idiosyncratic to CoStar, as we are unable to identify any relevant peers with even remotely comparable EBITDA declines during this period.The stock has woefully underperformed: These precipitous EBITDA declines have had a predictably disastrous impact on CoStar's long-term stock performance. CoStar's stock price has declined by 27% over the past five years. That abysmal performance looks even worse relative to the S&P 500 and Nasdaq 100, which produced a total return of 94% and 98%, respectively, over that period. The fact that this severe stock underperformance is entirely self-inflicted simply adds insult to injury.The board has failed to exercise oversight over the CEO; instead, rewarding his poor performance with outrageous compensation packages: Perhaps the most concerning aspect of CoStar's failed RRE initiative is the complete absence of meaningful board oversight in the face of such profound value destruction. During 2024, CEO Andy Florance received roughly $37 million in total compensation (the "Participation Award") – nearly the maximum payout – despite abysmal results. Incredibly, Mr. Florance's compensation placed him within the top decile of S&P 500 CEOs, despite CoStar's extraordinarily poor stock performance over the last five years, which ranks in the bottom 10% of S&P 500 companies. Looking forward, the board shows no signs of changing tack – as evidenced by the recent proposal to tie only 25% of Mr. Florance's long-term incentive compensation to total shareholder return (thus making him eligible for further Participation Awards). The board's inaction is a clear governance failure which has actively aided and abetted management's disregard for shareholder value.CoStar's RRE Expansion Has Detracted from the Immense Value Creation Opportunity in the Core CRE BusinessCoStar's core CRE businesses comprise a collection of exceedingly strong franchises with valuable proprietary data and powerful network effects which create a long runway for profitable growth as the CRE industry continues to digitize. Absent the RRE distraction, we believe these businesses can compound revenue in the teens and earnings power per share above 20% for many years to come.The core CRE business has significant runway for double-digit revenue growth: We see several levers to drive sustained revenue growth going forward. First, CoStar Suite has significant untapped pricing power as evidenced by its average selling price of just $350/month – a modest amount for such a mission-critical tool, and far below other information services products priced 3-6x higher. Second, CoStar has a clear opportunity to further expand its existing product portfolio into adjacent end markets (e.g., investors, lenders, tenants, international customers) at very high incremental margins. Finally, CoStar's best-in-class proprietary CRE data positions the Company to develop new agentic products which can be cross-sold into the existing installed base.The core CRE business should achieve >50% EBITDA margins in the medium term and sustain further margin expansion over the long term: In 2022, CoStar committed to generating roughly 47% EBITDA margins in the core CRE businesses by 2027 despite absorbing 300bps of investments for international expansion, implying a "run rate" margin around 50%. The Company was well on track to exceed these targets had it not apparently decided to deceivingly shift expenses from Homes.com into its other businesses earlier this month. We believe eliminating these unnecessary expenses should position the core CRE business to generate 50% EBITDA margins in the medium term. And given that CoStar's comparably dominant information services peers have achieved 60-70% EBITDA margins over time, the Company has room to continue to drive meaningful margin expansion over the long term.The core CRE business can support a more efficient balance sheet: While most information services peers operate with moderate net debt (typically around 2-2.5x EBITDA), CoStar has carried a net cash balance for many years. By maintaining balance sheet leverage roughly in line with its peer group, CoStar could support meaningful share repurchases going forward.We believe the combination of double-digit revenue growth, steady margin expansion, and regular share repurchases give the core CRE business a path to sustain >20% growth in earnings power per share for many years ahead. This best-in-class compounding profile, along with CoStar's unmatched proprietary data in one of the world's largest and least digitized asset classes, makes the core business a fantastic long-term investment and an obvious target for multiple potential acquirers.Immediate Action is Required to Restore Credibility and Protect Shareholder ValueThird Point intends to help CoStar capitalize on the continued promise of the CRE division, free from costly distractions, and recover from the past several years of disastrous performance. To do so, the Company must quickly:Improve Governance and Hold Leadership Accountable. The majority of the board must be replaced with more qualified directors. Management compensation must also be linked far more tightly to total shareholder return to improve alignment with shareholders.Eliminate the RRE Losses. The reconstituted board should immediately consider strategic alternatives for Homes.com and related RRE businesses. Where such alternatives do not exist, it should promptly eliminate the losses which have burdened consolidated EBITDA.Refocus on the Core CRE Business. CoStar's core CRE franchises remain best-in-class assets, with the potential to compound earnings power per share above 20% for many years. The reconstituted board should immediately refocus on these "crown jewel" businesses to capitalize on this opportunity.CoStar stands at a critical inflection point. Years of strategic blunders, uncontrolled spending, and board inaction have eroded shareholder trust. Immediate, decisive action is required to halt further value destruction and rebuild investor confidence. We look forward to engaging with our fellow long-term shareholders to save CoStar.Sincerely,Daniel S. LoebAbout Third Point LLC