Homes.com's Strategic Pivot: Can CoStar's Bold Reforms Revive This Undervalued Asset?

The real estate tech sector is at a crossroads. While giants like Zillow and Redfin dominate the spotlight, CoStar Group's Homes.com platform has been the underdog in desperate need of a turnaround. But recent moves by activist investors D.E. Shaw and Third Point suggest this undervalued asset may finally be on the path to recovery. Let's dissect whether CoStar's self-help measures—board shakeups, cost discipline, and a tech-driven strategy—are enough to unlock Homes.com's potential and deliver outsized returns.

A Crisis in Capital Allocation

Homes.com's $3 billion investment since 2021 has been a mixed bag. While brand awareness surged from 4% to 36% (now surpassing Redfin and Realtor.com), revenue growth lagged, with Q4 2024 sales inching up just 2% to $17.3 million. The core issue? Misallocated capital. CoStar's EBITDA dropped 80% as Homes.com's losses dragged down the parent company. Investors like D.E. Shaw and Third Point demanded accountability—and they're getting it.

The Turnaround Playbook: 3 Critical Moves

1. Leadership Overhaul & Fiscal Oversight
   CoStar's new board—bolstered by executives like ex-S&P Global president John Berisford and former Disney CFO Christine McCarthy—has injected urgency. The Capital Allocation Committee now holds the reins, prioritizing profitability timelines for Homes.com and slashing non-essential spending.

The data shows a bottoming-out: Q1 2025 EBITDA surged 429% year-over-year, signaling core business resilience and early signs of cost discipline.

1. Brand Awareness Meets Profitability
   Homes.com's $1 billion marketing blitz paid off with 36% unaided brand awareness—a critical threshold. Now, the focus shifts from mass marketing to quality engagement. Session duration has doubled, and bounce rates dropped 45 points, proving users stay longer and explore deeper.

“This isn't just hype—it's sticky traffic,” says analyst John Campbell (Stephens). “When marketing spend cools below 50% awareness, Homes.com can reinvest savings into sales teams and tech.”

1. The Tech Edge: Matterport's 3D Revolution
   CoStar's $1.6B acquisition of Matterport isn't just a vanity move. The 3D digital twin technology now powers Homes.com's listings, offering immersive property tours that competitors can't match. This tech differentiation could be the “moat” needed to convert awareness into bookings.

Why Now is the Inflection Point

• Salesforce Expansion: 500 dedicated reps by mid-2025 will capitalize on Homes.com's 36% brand pull.
• Cost Cuts Ahead: CoStar aims to reduce operational expenses, with annualized savings expected by year-end.
• Core Business Momentum: The commercial division (LoopNet, Apartments.com) is roaring back with 60% bookings growth, proving the foundation is strong.

These metrics are the canary in the coal mine—user engagement is rising, and that's where revenue follows.

Risks & Realities
The skeptics have valid concerns:
- Execution Risk: Scaling sales teams without burning cash is a tightrope walk.
- Competition: Zillow's iBuying dominance and Realtor.com's entrenched network won't fade easily.
- Valuation Pressure: CoStar's stock has stagnated for five years—a rebound needs to outpace expectations.

But here's the key: the worst is likely behind Homes.com. The governance reforms and fiscal discipline now in place create accountability that didn't exist before. The $3B investment is a sunk cost; what matters is the path forward.

The Investment Thesis

CoStar (CSTR) trades at just 15x forward EV/EBITDA—a discount to peers like Redfin (RDFN) at 22x. This valuation gap could close rapidly if Homes.com hits its 3–5 year profitability target.

Buy Signal:
- Catalyst: Q2 2025 results will show if cost cuts and salesforce growth are translating to bookings.
- Target: A 30% upside to $250/share over 12 months if EBITDA margins stabilize.

Act Now—Before the Turnaround Becomes Obvious
This is the moment to bet on a company with a proven track record (remember their Apartments.com and LoopNet successes) and a revitalized strategy. The self-help measures are no longer just talk—they're driving data-driven progress. Homes.com's turnaround isn't a gamble; it's a calculated pivot with the tools to win.

The gap is closing—don't miss the jump.

Final Call:
CoStar's reforms are turning the tide. With a fortified balance sheet, tech-driven differentiation, and a salesforce ready to capitalize, this is a rare chance to buy a turnaround story with both execution and valuation on its side. The window won't stay open forever.