Investment firm D.E. Shaw said that CoStar had changed the way it reported the performance of Homes.com amid questions about the portal’s future.
CoStar continued its battle against activist investors this week when it defended its reporting of the performance metrics of Homes.com and other companies it owns, and it questioned the motives of one of the hedge funds leading a campaign to get CoStar to drop the portal.
CoStar also said that it had hired Clare Locke, LLP, a law firm that specializes in defamation cases.
The response came a day after D.E. Shaw, one of the hedge funds leading a campaign to move CoStar away from its quest to build a fourth major real estate search portal, sent an open letter to CoStar’s board of directors. D.E. Shaw wrote that CoStar had shifted its reporting tactics during its latest quarterly earnings report.
The change, two managing directors from D.E. Shaw wrote, “provides investors with less visibility into its underlying operating business and, in our view, represents a troubling step backward for transparency and accountability,” D.E. Shaw wrote in its letter.
“The segment reorganization appears designed to obscure the results of CoStar’s persistently underperforming Homes.com business — just six weeks after management made new performance commitments to shareholders for that same business,” the letter continued.
Specifically, D.E. Shaw said that CoStar created a new segment that compiled the performance of various businesses, including Homes.com and Apartments.com. It also said CoStar didn’t provide investors with net new bookings on Homes.com, and that the change resulted in a drop in CoStar’s stock the next day.
“When disclosure is curtailed at a moment when accountability is most needed, investors cannot help but ask: What is CoStar trying to hide?” the investors wrote.
The investment firm William Blair also pointed out in a recent analysis that it believed CoStar had changed its reporting structure and therefore made things less transparent.
“The company did not provide much underlying detail on bookings, and also re-segmented the business in a way that will make it much more difficult to parse out the performance between Apartments.com and Homes.com,” the William Blair analysts wrote.
Still, the analysts said, “we would remain buyers” of CoStar stock.
CoStar responds
Andy Florance at ICNY | Credit: AJ Canaria Creative Services
CoStar has fiercely defended its past investment in Homes.com, saying that it was the winning business model for residential real estate and that it followed past investment cycles that led to strong revenue growth for the company.
In a response on Wednesday, CoStar suggested that D.E. Shaw may have ulterior motives behind its campaign to get the company to stop its attempt to create a top four major real estate search portal.
CoStar said in its response that D.E. Shaw might own as little as 0.22 percent of CoStar’s common stock and nearly four times as much in unspecified competitors.
“CoStar Group stockholders should ask if D. E. Shaw’s real agenda is to unlock value through its investment in CoStar Group or in our competitors at the expense of CoStar Group stockholders,” CoStar wrote.
D.E. Shaw owns shares in Zillow Group, Rocket Companies and News Corp, though the share in each appears to be smaller than the firm’s holdings in CoStar. CoStar didn’t immediately respond to a request for clarification.
CoStar also said that it had never reported Homes.com’s results as its own segment.
“CoStar Group changed our reporting segments from geography-based to product portfolio-based to align with how we run our business,” the company wrote, adding that the change resulted in more transparency.
“Investors should expect similar Homes.com disclosures on our earnings calls that CoStar Group has always provided to stockholders,” the company wrote.
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