The D. E. Shaw Group Releases Open Letter and Presentation to the Board of Directors of CoStar Group

Rhea-AI Summary

D. E. Shaw sent an open letter and presentation to the Board of CoStar Group (NASDAQ: CSGP) on Feb. 4, 2026, urging immediate change after what it calls prolonged underperformance and value-destroying capital allocation.

The letter cites >$3 billion invested in Homes.com, ~$2 billion cumulative losses, just $80 million in annual Homes.com revenue, projected profitability delayed to 2030, and calls for Board and leadership changes ahead of the 2026 annual meeting.

Positive

• Identifies clear target for change: Homes.com separation or reduced spending by 2027
• Quantifies alleged value gap: estimates >$10 billion recoverable with reforms

Negative

• Homes.com investment >$3 billion with approximately $2 billion cumulative losses
• Homes.com annual revenue only $80 million versus $700M–$1B projection by 2027
• CoStar projects Homes.com profitability not expected until 2030
• Company's adjusted EBITDA margin ex-Homes.com forecast implies ~400 basis point decline
• Five-year cumulative stock decline of 32% versus S&P 500 gain of 101%
• CEO compensation paid ~200% of target annually, totaling about $130 million over five years

News Market Reaction

+1.18%

1 alert

+1.18% News Effect

On the day this news was published, CSGP gained 1.18%, reflecting a mild positive market reaction.

Data tracked by StockTitan Argus on the day of publication.

Expresses Disappointment with the Board's Failure to Address the Company's Value Destructive Capital Spending and Longstanding Underperformance

Reiterates the Need for Improved Capital Allocation and Enhanced Board Oversight

Announces Intention to Support Shareholder-Driven Change at the 2026 Annual Meeting

NEW YORK, Feb. 4, 2026 /PRNewswire/ -- The D. E. Shaw group, a global investment and technology development firm with more than $85 billion in investment capital and a history of working with companies to help build long-term value, today sent an open letter and presentation to the Board of Directors of CoStar Group, Inc. (NASDAQ: CSGP) ("CoStar" or the "Company") expressing continued disappointment with the Board's refusal to address the Company's reckless spending of shareholder capital and significant and longstanding underperformance. Investment funds managed or advised by D. E. Shaw & Co., L.P. are shareholders of CoStar and currently hold a significant economic position in the Company.

The full text of the open letter to the Board follows:

Board of Directors
CoStar Group, Inc.
1201 Wilson Boulevard
Arlington, VA 22209

Re:      Urgent Need for Change to Restore Shareholder Value at CoStar Group

Dear Members of the Board:

Over the last year, we have repeatedly expressed to you our belief that change is urgently needed at CoStar to arrest the Company's prolonged stock price underperformance, increase profitability, and position the Company for durable value creation. We were initially hopeful that the appointment of new independent directors and the formation of the Capital Allocation Committee in April 2025 would usher in a new era of more active management oversight, improved capital discipline, and a renewed focus on shareholder value.

Unfortunately, we have been gravely disappointed.

Under the leadership of CEO Andy Florance, CoStar has continued to dedicate disproportionate attention and resources to its unprofitable Homes.com business. This continued investment, despite repeated failures to meet projections, has eroded the Company's once-enviable margins and driven a significant decline in CoStar's stock price, despite positive momentum in the core businesses. As a consequence, today every shareholder who has purchased CoStar's stock in the last five years has lost money.

CoStar's Track Record of Shareholder Value Destruction

CoStar's total shareholder returns have underperformed those of the Company's self-selected proxy peers, information services peers, ISS-selected peers, and the broader market indices over the last two, three, four, five, six, seven, eight, nine, and ten years and, importantly, since both the acquisition and relaunch of Homes.com.

Moreover, CoStar shareholders have endured five consecutive years of absolute stock price declines—resulting in a cumulative loss of 32%, compared to a 101% gain for the S&P 500. This is not a track record of which any board or leadership team should be proud. Yet, the Company has marshaled a defense of its performance by citing rolling five-year total shareholder returns dating back to last century. Sadly, CoStar's purported "track record of stockholder value creation" is, at best, an artifact of history, if not a convenient fiction.

Notwithstanding CoStar's significant and prolonged underperformance, our private interactions with the Company and its public commentary suggest there is little willingness among the Board and executive leadership to consider alternative approaches to strategy and capital allocation. To the contrary, the Company's recent full-throated defense of its objectively poor shareholder returns demonstrates that this Board and leadership team are incapable of accepting constructive investor feedback and are adamantly opposed to reform.

Value Destruction Stems From Misguided Homes.com Strategy

The root cause of the long-standing underperformance in the Company's shares stems directly from the Board's decision to repeatedly greenlight the use of the steady, predictable, and growing earnings of the core business to build and subsidize the Company's high-risk, money-losing Homes.com business. By the end of this year, CoStar will have spent more than $3 billion on Homes.com and diverted the majority of core business earnings over the last four years to fund this venture.

Despite this significant and, for CoStar, unprecedented level of investment, Homes.com has generated just $80 million in annual revenue and over $2 billion of cumulative losses, a far cry from the $700 million to $1 billion in revenue and substantial profits that CoStar had projected its investment would generate by 2027, and far less than what is required to generate an acceptable return on investment within a reasonable time frame.

Moreover, the Company's decision to divert resources, including its salesforce and management attention, from the core business to Homes.com directly contributed to the slowdown in sales growth CoStar experienced during 2024 and 2025. Notwithstanding the Company's recent efforts to reallocate its salesforce back to the core business, we believe that management's continued insistence on spending a disproportionate amount of time and money on Homes.com will continue to hinder the core business' ability to recapture previous levels of growth and realize its margin expansion potential. We believe widely held investor concerns over the continued investment of time and resources into Homes.com have caused CoStar's core business to trade at a material discount to its historical premium versus peers, destroying as much as $11 billion in shareholder value in the process.

Business Update Fails to Heed Shareholder Concerns Regarding Homes.com Strategy

Instead of acknowledging Homes.com's failure and sharply curtailing further investment, management appears intent on continuing along its path of reckless spending. CoStar's Jan. 7 press release (the "Business Update") makes it clear that the Company will continue to invest in Homes.com, even though it does not expect the platform to achieve profitability until 2030, several years later than management's initial guidance. To justify its continued aggressive spending on Homes.com, the Company points to the returns on its past investments, claiming that it has "never failed" before and, therefore, "won't now." But telling shareholders, "just trust us," is a poor substitute for a disciplined capital allocation plan that can be expected to generate healthy returns, especially given management's seeming inability to accurately project the Homes.com business.

Furthermore, at the same time the Company claims to be reducing its spending on the Homes.com platform, management now projects a confounding deterioration in CoStar's core margin profile. This abrupt change in forecast defies logic, investor expectations, and the Company's prior commentary. In the information services business, greater scale (with core revenues compounding at 10% or more annually) should naturally drive margin expansion. Yet the Business Update suggests that CoStar's Adjusted EBITDA margins excluding Homes.com will decline by approximately 400 basis points.

We believe this implied margin deterioration reflects a poorly disguised shift of expenses from the Company's left pocket ("Homes.com spending") to its right pocket ("core business spending"), without any material change to the Company's capital allocation policy or moderation of its wasteful spending on Homes.com. As demonstrated by the precipitous share price decline immediately following the Business Update, shareholders are dissatisfied with management's obfuscated guidance and unyielding commitment to Homes.com.

Lack of Genuine Board Oversight Enables Continued Value Destruction

Two weeks ago, we met with the Board to share our perspectives on CoStar's failed strategy and resulting underperformance and presented specific actions we believe would foster greater capital discipline, strengthen Board oversight, and rebuild shareholder trust: 1) develop an alternative strategy for Homes.com that involves exiting, spinning off, divesting, or dramatically reducing spending on the business to breakeven by 2027; and 2) augment the Board with new independent directors. We believe separating Homes.com (or a commitment to a near-term, profitable Homes.com), together with new leadership and enhanced Board oversight, would increase focus, improve performance, and lead to an appropriate valuation for CoStar's strong core businesses. We estimate that these straightforward changes could generate more than $10 billion in shareholder value.

Unfortunately, during our meeting, the Board demonstrated a troubling disregard for shareholders and the value destruction they have endured. Indeed, the Chair of the Board failed to grasp the objective fact that the Company's stock price was down following the Business Update, insisting both that the stock was up and that shareholders were reacting well to the Company's message. With the sharp decline in CoStar's stock price following the Business Update, the market has, yet again, expressed its view that Mr. Florance's chosen strategy is value destructive. Rather than acknowledging that Homes.com has failed to meet expectations and driven unacceptable shareholder losses, the Board dismissed our concerns and reaffirmed its commitment to Homes.com.

Worse yet, when we requested to meet with the independent directors without Mr. Florance present so that we could provide unvarnished feedback regarding the Company's leadership, the Board refused. In doing so, the independent directors confirmed what we have long suspected: they are far too deferential to Mr. Florance and incapable of providing effective oversight or holding him accountable. In our view, the "independent" directors have surrendered too much authority to the CEO they are tasked with overseeing.

Nowhere has this manifested itself more than in the Board's failure to align management's pay with the Company's performance. Despite persistent underperformance, Mr. Florance has been richly rewarded while shareholders have suffered. Over the last five years, Mr. Florance's annual cash and equity incentive awards have paid out at 200% of target each year (except one year when the cash portion paid out at "only" 150%), allowing him to earn approximately $130 million in compensation, making him one of the highest-paid CEOs in the S&P 500. The Board has also enabled Mr. Florance to avail himself of lavish perquisites at shareholder expense, including the use of the Company's multiple private jets for personal travel at a rate more than three times that of peer company chief executives. CoStar's performance, in our view, does not justify the Board's largesse; the Company's total shareholder returns over the last five years are in the bottom 10% of all S&P 500 companies. Not surprisingly, shareholders have objected to this misalignment of pay and performance, with nearly half of the shares voting at CoStar's 2025 Annual Meeting opposing the Company's say-on-pay proposal, one of the highest levels of opposition of any company in the S&P 500.

An Urgent Need for Change

In our view, there are far superior uses of CoStar's capital and management's attention than attempting to scale Homes.com. It seems clear that business will not be profitable for many years and may never reach Mr. Florance's original projections. A renewed focus on the Company's core businesses would help to accelerate organic growth, drive overall margin expansion, restore investor confidence, and enable CoStar to reclaim its historical valuation premium. Unfortunately, the Business Update and last week's public response to a separate shareholder's view demonstrate that Mr. Florance is anchored to the unsuccessful Homes.com strategy and is unable or unwilling to countenance a more promising, alternative path. And it appears that the Board, in turn, is anchored to Mr. Florance and unable or unwilling to faithfully perform its critical oversight function.

Many of the Company's long-tenured directors seemingly do not share our desire to improve CoStar's capital allocation and performance. They own very little stock—about a third as much as the directors of CoStar's peers—and, despite their limited ownership and ostensible support for the Homes.com strategy, have been net sellers of over the past few years. Mr. Florance, having net sold $27 million of CoStar's stock since November 2022 when CoStar launched Homes.com, is the largest offender on the Board. If Mr. Florance and the independent directors truly believed in the Homes.com strategy, we are left wondering why they haven't been adding to their holdings of CoStar's stock instead of leaving other shareholders to hold the bag.

With the Company's share price sitting at multi-year lows, it is clear to us that only substantial change to capital allocation, executive leadership, and Board composition will address the root cause of CoStar's persistent underperformance and restore investor confidence. Maintaining the status quo, in our view, exposes shareholders to the risk of continued misallocation of capital, misalignment of management incentives, inadequate oversight, and, ultimately, further destruction of shareholder value.

We therefore intend to support shareholder-driven change at CoStar's 2026 Annual Meeting.

Best Regards,

Edwin Jager Managing Director D. E. Shaw & Co., L.P.

Michael O'Mary Managing Director D. E. Shaw & Co., L.P.

This letter reflects the opinions of D. E. Shaw & Co., L.P. ("DESCO LP") on behalf of certain investment funds managed or advised by it that currently beneficially own, or otherwise have an economic interest in, shares of CoStar Group, Inc. (the "Company" or "CoStar"). This letter is for informational purposes only and does not constitute investment advice or convey an offer or solicitation of any type with respect to any securities or other financial products. The views expressed in this letter are expressed as of the date hereof and are based on publicly available information and DESCO LP's analyses. This letter contains statements reflecting DESCO LP's opinions and beliefs with respect to the Company and its business based on DESCO LP's research, analysis, and experience; all such statements are based on DESCO LP's opinion and belief, whether or not those statements are expressly so qualified. DESCO LP acknowledges that the Company may possess information that could lead the Company to disagree with DESCO LP's views and/or analyses. Nothing contained in this letter may be relied upon as a guarantee, promise, assurance, or representation as to future events. The investment funds managed or advised by DESCO LP are in the business of trading (i.e., buying and selling) securities, and it is expected that they will from time to time engage in transactions that result in changes to their beneficial and/or economic interest in the Company.

About the D. E. Shaw Group

The D. E. Shaw group is a global investment and technology development firm with more than $85 billion in investment capital as of December 1, 2025, and offices in North America, Europe, and Asia. Since our founding in 1988, our firm has earned a reputation for successful investing based on innovation, careful risk management, and the quality and depth of our staff. We have a significant presence in the world's capital markets, investing in a wide range of companies and financial instruments in both developed and developing economies. For more information, visit www.deshaw.com.

This press release reflects the opinions of D. E. Shaw & Co., L.P. ("DESCO LP") on behalf of certain investment funds managed or advised by it that currently beneficially own, or otherwise have an economic interest in, shares of CoStar Group, Inc. ("CoStar" or the "Company"). This press release is for informational purposes only and does not constitute investment advice or convey an offer or solicitation of any type with respect to any securities or other financial products. The views expressed in this press release are expressed as of the date hereof and are based on publicly available information and DESCO LP's analyses. This press release contains statements reflecting DESCO LP's opinions and beliefs with respect to the Company and its business based on DESCO LP's research, analysis, and experience; all such statements are based on DESCO LP's opinion and belief, whether or not those statements are expressly so qualified. DESCO LP acknowledges that the Company may possess information that could lead the Company to disagree with DESCO LP's views and/or analyses. Nothing contained in this press release may be relied upon as a guarantee, promise, assurance, or representation as to future events. The investment funds managed or advised by DESCO LP are in the business of trading (i.e., buying and selling) securities, and it is expected that they will from time to time engage in transactions that result in changes to their beneficial and/or economic interest in the Company.

Media Contact:
Prosek Partners
Brian Schaffer / Kiki Tarkhan
Pro-DESCO@prosek.com

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SOURCE The D. E. Shaw Group

FAQ

What did D. E. Shaw allege about CoStar's Homes.com spending in the Feb. 4, 2026 letter (CSGP)?

D. E. Shaw says CoStar has spent more than $3 billion on Homes.com, causing significant losses. According to CoStar, Homes.com revenue is roughly $80 million annually and management projects profitability only by 2030, per the Business Update referenced in the letter.

How much cumulative loss did D. E. Shaw attribute to Homes.com and what impact on shareholder value (CSGP)?

D. E. Shaw attributes about $2 billion of cumulative losses to Homes.com and estimates material lost value. According to D. E. Shaw's analysis, diverting core earnings to Homes.com has eroded margins and may have destroyed over $10 billion in shareholder value.

What governance changes does D. E. Shaw propose for CoStar ahead of the 2026 annual meeting (CSGP)?

D. E. Shaw seeks Board augmentation and executive accountability, including new independent directors. According to D. E. Shaw, separating or sharply curtailing Homes.com and adding independent directors would improve capital allocation and oversight to restore shareholder value.

What financial and operational metrics did D. E. Shaw highlight as evidence of CoStar underperformance (CSGP)?

The letter cites a five-year stock decline of 32%, a projected 400 basis point decline in adjusted EBITDA margin ex-Homes.com, and CEO payouts escalating. According to D. E. Shaw, these metrics signal misaligned incentives and poor capital allocation.

Will D. E. Shaw support changes at CoStar's 2026 annual meeting and why (CSGP)?

Yes — D. E. Shaw intends to support shareholder-driven change at the 2026 annual meeting to address alleged value destruction. According to D. E. Shaw, persistent Homes.com spending, weak returns, and insufficient Board oversight justify pursuing governance and strategy changes.