Why CoStar Group Stock Topped the Market Today
Key Points
An activist investor isn't pleased with the real estate specialist's strategy.
It criticized its approach in a blistering letter to its board of directors.
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CoStar Group (NASDAQ: CSGP), the owner of familiar real estate websites Apartments.com and Homes.com, eked out a slight win on the stock exchange Tuesday. On news that an activist investor is trying to influence company governance, investors bid the stock up by 0.6% on the day. This edged past the S&P 500 index's 0.4% gain.
Third point makes a point
That activist is hedge fund Third Point, headed by well-known veteran investor Daniel Loeb. On Tuesday morning, the firm sent a letter to CoStar's board of directors, urging major changes at the company.
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In a letter made public by Third Point, the hedge fund's management said it will propose several new directors to the board. It also said CoStar should take "immediate action" to improve its operations, including considering strategic alternatives for Homes.com and its associated residential real estate businesses.
Third Point pointed the finger of blame squarely at CoStar's current leadership.
It sharply criticized "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."
Proxy battle, round 1
Pulling no punches, Third Point added that CoStar's stock price has declined 27% over the past five years, while the S&P 500 index's total return was 94%.
As of early Tuesday evening, CoStar has not publicly responded to the letter.
This is the start of a proxy fight for control and influence, and judging by the market's reaction, investors are cautiously optimistic that this will lead to positive changes at the company. I'm not a fan of turmoil at the top of any business, although to some degree, a shift in strategy and approach might be appropriate for CoStar. At any rate, I'd avoid the shares for now.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CoStar Group. The Motley Fool has a disclosure policy.
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