Investment firm DE Shaw said CoStar has changed the way it reports Homes.com’s results amid questions about the portal’s future.
CoStar continued its battle with activist investors this week, defending its reporting of performance metrics for Homes.com and other companies it owns and questioning the motives of one of the hedge funds leading a campaign to force CoStar to retire the portal.
Coster also announced that it has hired Claire Locke, a law firm specializing in defamation cases.
The response came a day after DE Shaw, one of the hedge funds leading the campaign to keep Coster from building a fourth major property search portal, sent an open letter to Coster’s board. DE Shaw wrote that CoStar changed its reporting strategy in its latest quarterly earnings report.
DE Shaw’s two managing directors wrote in the letter that the changes “reduce investors’ visibility into the company’s underlying business and, in our view, represent a worrying setback for transparency and accountability.”
“The restructuring of this segment appears to be aimed at overshadowing the performance of CoStar’s consistently underperforming Homes.com business, just six weeks after management made new performance commitments to shareholders of that business,” the letter continued.
Specifically, DE Shaw said CoStar has created a new segment that aggregates the results of its various businesses, including Homes.com and Apartments.com. He also said that CoStar was no longer offering net new bookings to investors on Homes.com, a change that caused CoStar’s stock price to fall the next day.
“When disclosure is reduced at a time when accountability is most needed, investors can’t help but wonder, ‘What is CoStar trying to hide?'” the investors wrote.
Investment firm William Blair also said in a recent analysis that it believes Coster has made changes to its reporting structure that make it less transparent.
“The company has disclosed fewer fundamental details about reservations and has redivided its business in a way that makes it much harder to parse performance between Apartments.com and Homes.com,” William Blair analysts wrote.
Still, analysts said they “remain buyers” of CoStar’s stock.
co-star responds
Andy Florence at ICNY |Credit: AJ Canaria Creative Services
Koster fiercely defended its past investment in Homes.com, arguing that it was a winning business model in residential real estate and followed past investment cycles that led to strong revenue growth for the company.
In a response Wednesday, KoStar suggested there may be an ulterior motive behind DE Shaw’s campaign to thwart the company’s attempt to create a top-four leading real estate search portal.
CoStar said in its response that DE Shaw may own just 0.22% of CoStar’s common stock and nearly four times as much as an unspecified competitor.
“Costar Group shareholders should ask whether DE Shaw’s true purpose is to unlock value through investments in Costar Group and investments in competitors at the expense of Costar Group shareholders,” Koster wrote.
DE Shaw owns stakes in Zillow Group, Rocket Companies, and News Corp, but each appears to be smaller than the company’s CoStar holdings. The co-stars did not immediately respond to requests for clarification.
Koster also said it has never reported Homes.com’s results as its own segment.
“CoStar Group has changed its reporting segments from geography-based to product portfolio-based to align with its business operations,” the company wrote, adding that the change has increased transparency.
“Investors should expect the same disclosures CoStar Group has consistently provided shareholders in Homes.com’s financial results,” the company wrote.
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