Since launching the campaign to make Homes.com the most-visited home search portal, CoStar Group CEO Andy Florance has been talking a lot about the portal’s potential. But how long can he keep it up?
This is a question that recently surfaced after disgruntled CoStar investors challenged the value of the company’s investments in the residential real estate sector. That investor, Third Point founder Daniel Loeb, published an open letter in which he called KoStar’s huge investment in residential real estate a “colossal failure” and called for a new member of the board to consider leaving Homes.com.
CoStar said in a public response that abandoning Homes.com now would be premature and ultimately detrimental to shareholders.
“One thing we know for sure is that abandoning Homes.com now, as the investment stage winds down, will certainly destroy long-term value for our shareholders,” the company said in a statement.
A second CoStar investor, DE Shaw & Co., then issued another open letter denouncing the board’s “reckless” spending on Homes.com, while also questioning CEO Andy Florance’s generous cash and stock incentive awards.
CoStar again responded to criticism, saying abandoning the portal would cause “irreparable harm” to the company as well as “value destruction.” Koster also addressed investor attacks.[smack] It’s because of the illegal actions of activists. ” The company further said that the investment phase for Homes.com has concluded and that spending on the portal is expected to be reduced by $30 million this year and more than $100 million each year through 2030.
Still, it’s clear that her co-stars are feeling the heat. But exactly how hot is it? How big a threat does CoStar face?
Beth Friedman | Brown Harris Stevens
Inman checked with real estate industry executives and experts who said KoStar would be wise to heed such strong concerns expressed by investors, but noted that the jury is still out on Homes.com.
“I think it’s small potatoes compared to Zillow,” Beth Friedman, CEO of Brown Harris Stevens, told Inman. “If you just look at how much time people spend on which websites and unique visitors, Zillow is better than anyone else.”
“If you ask nine out of 10 of my friends where they go to find a home or search, they’ll say they go to Zillow,” she added in a conversation on the eve of Inman Connect New York.
But Friedman also said that given the speed of change in the industry, there may still be time for Homes.com to gain more traction and become more competitive.
“But today, Zillow is just so far ahead of other companies,” Friedman said. “It seems difficult.”
Ryan Serhant | Serhant. studio
Meanwhile, Ryan Serhant, founder and CEO of SERHANT., suggested that companies that want to succeed in fields where there are already clear front runners need to differentiate themselves through some new type of value.
“To compete with them, you really need to have other significant value offerings in that space,” Serhant said. Said. “I think any business needs to ask the question: What problems are you actually solving? How fast are you solving them? And at a higher quality than your most experienced competitors? If you can’t answer the questions of problem solving, speed, quality, and experience, it’s pointless and you’re wasting your money.”
However, the senior CEO added that he was not familiar with the details of the dispute between investors and CoStar, so he could not speak specifically about the situation.
Michelle Harrington | First Team
Meanwhile, Michelle Harrington, CEO of First Team Real Estate, reminded Inman that Homes.com has been through various business ventures over the years, but was acquired by Coster in 2021. Zillow, on the other hand, was founded in 2005 and took about seven years to become profitable.
“So it’s definitely going to be tough to compete,” Harrington said. “I think it’s hard to move away from the core business model. CoStar, for example, is commercial real estate, and we’re trying to dig into things that are outside of the core.”
Russ Cofano of Alloy Advisors told Inman that while Homes.com has made progress in increasing market share, “its overall revenue from its model pales in comparison to Zillow, especially given the amount of money it spends on that front.”
And when it comes to Florence’s position at Homes.com, Friedman said he might want to think twice about investors’ opinions, as they could pose a threat to him in the future.
Las Cofano
“I think it’s great to be persistent and try to create something,” Friedman said. “Regardless of whether it is successful or not, [Homes.com is] We’re not there yet, but [Florance] He still believes in it…I think he’s saying he can’t give it up. ”
“Anyone who invests money in something [using that money] Even if there are setbacks, even laziness, whatever it is, it’s about being cautious and making progress. But has there been progress, and what is the path to progress? How do we get there? I think that’s the problem. ”
Cofano noted that activist shareholders have been a driving force behind the resignation of publicly traded CEOs in recent years. One notable example is the resignation of former Opendoor CEO Carrie Wheeler last summer after criticism from investors.
However, Cofano added that such a move would be unlikely in Florence’s case because of his deep ties to the Koster Foundation.
“The activists have no right to remove Mr. Florance, and their typical strategy is to seize control of the board and induce his resignation through that means,” Cofano told Inman in an email. “It can be nasty and disruptive. And founding CEOs like Florence are usually more difficult targets, especially if they have had success in the past and have grown the company the way he has. It will be very interesting to see how this drama plays out, the impact it has on the portal wars overall, and whether Homes.com becomes an acquisition target.”
Email Lillian Dickerson
