Is Compass the next WeWork?

David Goldsmith

All Powerful Moderator
Staff member
Compass revenue soars 80% in Q1
Brokerage beat analysts’ revenue predictions for first quarterly earnings report

The bar was set high for Compass’ first quarterly earnings report as a public company.

The brokerage, which went public on April 1, reported $1.1 billion in revenue for the quarter across 40,268 transactions valued at $43.8 billion.

Compass’ revenue is up 80 percent year-over-year from the first quarter of 2020, while the number of transactions increased 67 percent. According to Bloomberg, analysts expected the company to report $968.67 million in revenue.

“This was the best first quarter for transactions in our history and our third largest quarter ever,” said Robert Reffkin, the brokerage’s CEO and co-founder, on the company’s earnings call on Wednesday. “We see this momentum continuing into the second quarter.”

The company reported a net loss of $212 million, with $149 million attributed to a one-time non-cash charge related to stock-based compensation as part of its initial public offering.

Compass lost $270M in 2020, revenue up 56% : IPO filing
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For Compass agents who invested, IPO is watershed moment
Kristen Ankerbrandt, Compass’ CFO, noted that the margin of losses has narrowed compared to a year earlier.

“We’re growing fast on the top line but also showing improving margins and a commitment to financial discipline,” she said during the call.

The company’s net loss margin this quarter was 19 percent, compared to 21 percent in 2020. She pointed to a 15 percent cost reduction in terms of support services provided to agents using the Compass platform as one example. She also said that the firm’s remote work program, Compass Anywhere, allowed the company to expand into new markets at minimal cost.

Compass now operates in 47 markets, and added Delaware, Rhode Island and Tampa, Florida, to its roster during the first quarter.

Reffkin credited the results to Compass’ software platform: The number of sessions on the platform jumped 120 percent year-over-year. The ratio of daily active users to weekly active users — a metric used to track user retention — was 69 percent, up 7 percentage points from the same period last year.

He said the platform would provide agents and customers with “one login experience,” which would give it an advantage over its competitors. That would allow Compass to demand higher-than-market fees for additional services offered through the platform such as title, escrow and mortgage businesses. Reffkin said during the call that Compass was exploring a joint venture to offer mortgage products on its platform.

In its IPO filing, Compass reported losing $270.2 million last year while bringing in $3.7 billion in revenue, a 56 percent jump from $2.4 billion in revenue in 2019. As of Dec. 31, 2020, the firm has lost $1.1 billion.

Since it was founded in 2012, the firm has raised $1.5 billion from investors, including SoftBank, and has made waves in the brokerage industry by aggressively hiring from its competitors. Between 2018 and 2020, Compass spent $300 million acquiring firms such as Pacific Union International and Stribling & Associates.

Compass also grew its total headcount to nearly 21,000 agents, up from 19,000 at the end of 2020. Its total number of principal agents, which it uses to calculate key productivity metrics, is now 9,812.

When Compass stock began trading last month, the opening price was $21.25 per share, up from its IPO price of $18, but still well below the $10 billion valuation the company was initially targeting.

On Wednesday, Compass’ shares were valued at $15.43 at the start of trading, and fell to $14.45 throughout the day. But the stock rallied more than 9 percent to $15.81 per share 10 minutes after the company’s earnings were released.
 

David Goldsmith

All Powerful Moderator
Staff member

Christie’s affiliate in NJ sues Compass for poaching, stealing trade secrets​

Lawsuit accuses Compass, four agents of violating contracts, misappropriating confidential data and soliciting clients​

Compass has been hit with another lawsuit regarding recruitment — this time in northern New Jersey.
The complaint, filed by a Christie’s International Real Estate affiliate based in Ridgewood, New Jersey, accuses Compass of soliciting a team of four agents and unlawfully encouraging them to breach their existing contracts.

The agents — Maryanne Elsaesser and her team members Mathew Chapman, Rhonda Battifarano and Michele Kowal — are also named in the suit, which was filed in civil court in Bergen County, New Jersey. Christie’s accuses them of violating the terms of their contracts, improperly soliciting clients and continuing to use the firm’s confidential information.
Christie’s was seeking a temporary restraining order and permanent injunctive relief against Compass and its former agents, as well as money damages. After publication, a representative for Compass said the request for a temporary restraining order was denied by a judge.
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The suit claims Elsaesser was “the main driver of this scheme” for introducing her team to Compass strategic growth manager Adam Leshaw in March. About a month later, all four agents resigned.
It also claims the agents improperly solicited clients when they attempted to transfer listings from Christie’s to Compass on the New Jersey Multiple Listing Service, and that Elsaesser withdrew three listing agreements that were pending with Christie’s. In court documents, the firm included an email from Elsaesser where she instructed her team to “keep a log” on a deal where she spoke with a client after they’d spoken with a Christie’s agent.

According to the agents’ contracts, they are banned from attempting to hire fellow agents or company employees for a period of two years after they leave, using company information or interfering with former clients while working at Christie’s.

The firm also claimed Compass was fully aware of these terms “but nonetheless solicited [the agents],” the complaint reads. “As reflected by numerous lawsuits filed across the country, Compass has a pattern and practice of poaching.”
Compass’ recruitment strategy has led to numerous lawsuits since 2014 with accusations ranging from price-fixing and collusion to poaching tech talent to stealing $2 million worth of leads. Last month, Howard Hanna sued Compass for allegedly encouraging three of its agents in Pennsylvania to breach their contracts, specifically their non-compete, non-solicitation and confidentiality provisions, by switching brokerages.

Christie’s also alleged that its former agents took confidential information with them in the form of both listings and “pricing and pricing strategy,” which will give them the ability to “unfairly” win business from the firm’s existing and future clients.
A Compass spokesperson called the allegations “clearly opportunistic and entirely without merit.”
“Our focus remains on empowering agents to grow their business, and we believe in their right to choose the brokerage that serves them best,” the spokesperson continued in a statement.
In recent years, Compass has taken steps to defend itself against accusations of stolen data by adopting a common practice in Silicon Valley: New hires must sign an agreement that defines what agents cannot bring with them to Compass and threatens disciplinary action if they don’t comply.

Michael Hensely, an attorney representing Christie’s, said his client intends to “vigorously pursue” the matter and declined to comment further.
Contact Erin Hudson
 

David Goldsmith

All Powerful Moderator
Staff member

Real New York sues Compass agents for breach of contract​

The brokerage is seeking $900,000 from its former agents; Compass is not named as a defendant​

Two Compass agents are in hot water with their former brokerage.
Real New York is suing former agents Lyndsey Casagrande and Kenny Fung, alleging breach of contract and misappropriation of its confidential information, according to the complaint filed last week in a New York court.

The firm accuses its former agents of continuing to use leads and confidential information from its company files and data as they do business at Compass — and soliciting Real New York’s clients to move with them.

Real New York also claims that Casagrande and Fung recruited four of its other agents to join them at Compass. The brokerage, which was founded by brokers Louis Adler and Robert Rahmanian in 2013, seeks a $900,000 money judgement from the two agents. Compass is not named as a defendant.
Casagrande, Fung and Compass declined to comment. Neither Adler, Rahmanian nor their lawyer immediately responded to requests for comment.

Though Compass is not directly implicated in the case, several of the complaint’s allegations — particularly breach of contract and stealing trade secrets — have been leveled against the brokerage before. Agents who left other brokerages for Compass are frequently named as co-defendants in these cases.

Last week, a Christie’s International Real Estate affiliate based in Ridgewood, New Jersey sued Compass and four agents for breach of contract and misappropriation of confidential company information. Compass was named in the suit for unlawfully encouraging the agents to violate the terms of their contract.

In April, Howard Hanna sued Compass for allegedly encouraging three of its agents in Pennsylvania to breach their contracts, specifically their non-compete, non-solicitation and confidentiality provisions, by switching brokerages. Days later, The Agency sued Compass over its own non-solicitation clauses, claiming that the brokerage was illegally preventing one of its agents from recruiting her former Compass colleagues to join her.

The accusations are nothing new. Beginning in 2016, Compass began taking pains to defend itself by requiring new hires to sign an agreement defining the proprietary, confidential data that belongs to its competitors and threatening disciplinary action if they bring it with them.
 

David Goldsmith

All Powerful Moderator
Staff member

REBNY fires back at Compass in lawsuit over recruiting​

Trade group says brokerage’s growth undermines claim of being stymied​

Sparks are flying in the legal feud between the Real Estate Board of New York and Compass.
REBNY filed a motion Tuesday to dismiss the brokerage’s federal lawsuit against it, saying Compass’ allegations lack credibility.

Compass sued in March, accusing the trade organization of conspiring with its biggest New York City rivals, the Corcoran Group and Douglas Elliman.
All three brokerages are REBNY members and subject to a REBNY policy that governs how New York agents share listings. Compass’ suit says its growth in New York City was stymied by changes in 2018 to the policy, known as the universal co-brokerage agreement.

Compass claims REBNY has applied the agreement in a “discriminatory manner” that limits its ability to recruit agents. REBNY fined Compass $250,000 in January for repeatedly violating its terms.

For exclusive listings, the agreement bars agents from further contact with their clients if they leave the firm that has the exclusive. In court documents, REBNY argues that the UCBA applies to its members equally and does not prevent brokerages from retaining exclusive listings or from recruiting agents.

“Stripped of its loose use of antitrust buzzwords, bluster, marketing puffery, and invective, [Compass’] complaint does not come close to alleging plausible claims,” wrote REBNY’s lawyer on the case, Claude Szyfer of Stroock.
James Whelan, president of REBNY, called Compass’ allegations “meritless.”

“Compass has grown rapidly despite its hollow claims of anti-competitive behavior and continues to successfully recruit agents,” he said in a statement.
The Real Deal’s annual rankings of the city’s brokerages reflect that growth. In 2018, Compass had 872 agents and closed just over $2 billion in sell-side deals in Manhattan. Last year the brokerage was the city’s top recruiter, finishing the year with 2,485 agents and more than $2.5 billion in sell-side deals closed in Manhattan — and $4 billion if Brooklyn and Queens are included.

Compass, which went public last month, has nearly 21,000 agents across 47 different U.S. markets. The company lost $212.4 million in the first quarter, despite revenue jumping, because expenses ballooned.
A spokesperson for Compass called REBNY’s motion to dismiss “without merit.”

“We intend to oppose it and move forward with our case,” the spokesperson said in an email.


 

David Goldsmith

All Powerful Moderator
Staff member

Compass’ trail of litigation over its business tactics​

The brokerage has been sued nine times in the first half of 2021, the latest in a long line of disputes​

Defrauding agents. Illegal telemarketing. Encouraging breach of contract. Stealing trade secrets from rival firms. These are just some of the allegations leveled against Compass so far this year.

The brokerage, which went public in April, is involved in nearly a dozen active lawsuits dating as far back as 2014. In the majority of these cases, Compass finds itself playing defense. Plaintiffs include local rivals, former agents, concerned citizens and a housing watchdog group. Several cases, both active and settled, are related to the firm’s recruitment tactics.
 

David Goldsmith

All Powerful Moderator
Staff member

Compass shares lost more than $3B of value in three months of trading​

Compass shares ended trading on Wednesday at $12.25​

It took Compass just three months as a public company to lose more than $3 billion of market value.

The stock closed at $12.25 on Wednesday, a new low that gave the company a market value of $4.7 billion. That’s a drop of 39 percent from its starting price of $20.15 at its April 1 debut on the New York Stock Exchange. At that price, the company was worth about $7.8 billion.
 

David Goldsmith

All Powerful Moderator
Staff member
Compass revenue almost triples, but company lost $7M

Reffkin promises investors that Compass’ end-to-end tech platform will be ready by next summer​

Compass’ losses are narrowing as revenue surges, while top executives are focused on explaining how the company will become profitable and why they are in fact a technology company.
The residential brokerage’s quarterly revenue jumped 186 percent year-over-year to $1.95 billion, the company reported Monday in its second-quarter earnings. Compass reported a net loss of $7 million for the quarter, an improvement from a loss of $84 million in the same period a year earlier.

The company’s expenses for the quarter totalled $1.96 billion, up from $767.7 million a year ago. Agent commissions and stock-based compensation totaled $1.59 billion, which was again the biggest expense. Second-biggest was sales and marketing, accounting for $124 million.

The brokerage reported a record number of closed sales, 65,743, during the quarter with a gross value of $77 billion. (Compass counts sales and the value twice if its agents represent both the buyer and seller.)
Pointing to Compass’ record quarterly revenue and closed transactions, Chief Executive Robert Reffkin told investors during Monday’s earnings call that the company would be “profitable on an adjusted EBITDA basis for the full fiscal year of 2022.” He added that was a “year earlier than we previously expected.”

The figure, adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, is an alternative measure companies include on top of the financials that Compass must report according to the U.S. Securities and Exchange Commission’s public disclosure rules. Companies offer such alternatives to net income, arguing that’s how they internally measure their success. Critics say the measure misrepresents earnings.

Compass’ adjusted-EBITDA excluded $78.9 million in expenses, $54.3 million of which was stock-based compensation, showing Compass earned $71.3 million in the quarter, instead of losing $7 million.
Kristen Ankerbrandt, Compass’ CFO, also focused her remarks on the company’s path to profitability. She said the company ramped up its investment in areas of growth that they expect “will drive long-term profitability.”

Two concrete examples included the company’s launch of its mortgage business OriginPoint last month and its expansion into 15 new markets. Ankerbrandt said the mortgage business was originally planned to start next year and that Compass typically only opens in two markets per quarter. She attributed the accelerated time frame to “Q2 outperformance combined with our strong future outlook.”

She said OriginPoint would begin originating mortgages by the end of the year and be operating in all Compass markets by the end of 2022. Compass’ title and escrow services are operating in parts of California, Florida, Washington State, Maryland, Virginia and Washington D.C.
Ankerbrandt said Compass’ ability to expand was most dependent on recruiting and retaining agents and increasing transactions. She told investors she was confident Compass would deliver as “we have done this consistently.”

Compass added 817 principal agents last quarter, bringing its total headcount to 10,629 principals. On average, each principal agent closed 6.2 deals in the quarter. The company also added 15 new markets last quarter; Compass is now operating in a total of 62 markets.
Ankerbrandt said that half of those markets are in the “investment phase” but she said that the company’s rule of thumb is that its markets will become profitable within three years.

Reffkin also spent a considerable amount of time during the call explaining Compass’ technological edge.
“I know that many of you see us as just a brokerage,” he told analysts. “But our strategy at Compass is to be much more than a brokerage. Over time you will see how our platform powers a larger number of adjacent services… creating a long term sustainable financial advantage.”

He also gave himself a deadline to prove it to them.
“By next summer, we expect to be the first company to provide agents with a platform that will allow them to facilitate the full transaction in one place, without having to pay for or log on to any third-party real estate software,” he said.
Compass’ shares closed at $15.28 Monday, up more than 5 percent from the morning’s open. It continued to surge in after-hours trading to $16.30 at 4:43 p.m.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
Compass revenue almost triples, but company lost $7M

Reffkin promises investors that Compass’ end-to-end tech platform will be ready by next summer​

Compass’ losses are narrowing as revenue surges, while top executives are focused on explaining how the company will become profitable and why they are in fact a technology company.
The residential brokerage’s quarterly revenue jumped 186 percent year-over-year to $1.95 billion, the company reported Monday in its second-quarter earnings. Compass reported a net loss of $7 million for the quarter, an improvement from a loss of $84 million in the same period a year earlier.

The company’s expenses for the quarter totalled $1.96 billion, up from $767.7 million a year ago. Agent commissions and stock-based compensation totaled $1.59 billion, which was again the biggest expense. Second-biggest was sales and marketing, accounting for $124 million.

The brokerage reported a record number of closed sales, 65,743, during the quarter with a gross value of $77 billion. (Compass counts sales and the value twice if its agents represent both the buyer and seller.)
Pointing to Compass’ record quarterly revenue and closed transactions, Chief Executive Robert Reffkin told investors during Monday’s earnings call that the company would be “profitable on an adjusted EBITDA basis for the full fiscal year of 2022.” He added that was a “year earlier than we previously expected.”

The figure, adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, is an alternative measure companies include on top of the financials that Compass must report according to the U.S. Securities and Exchange Commission’s public disclosure rules. Companies offer such alternatives to net income, arguing that’s how they internally measure their success. Critics say the measure misrepresents earnings.

Compass’ adjusted-EBITDA excluded $78.9 million in expenses, $54.3 million of which was stock-based compensation, showing Compass earned $71.3 million in the quarter, instead of losing $7 million.
Kristen Ankerbrandt, Compass’ CFO, also focused her remarks on the company’s path to profitability. She said the company ramped up its investment in areas of growth that they expect “will drive long-term profitability.”

Two concrete examples included the company’s launch of its mortgage business OriginPoint last month and its expansion into 15 new markets. Ankerbrandt said the mortgage business was originally planned to start next year and that Compass typically only opens in two markets per quarter. She attributed the accelerated time frame to “Q2 outperformance combined with our strong future outlook.”

She said OriginPoint would begin originating mortgages by the end of the year and be operating in all Compass markets by the end of 2022. Compass’ title and escrow services are operating in parts of California, Florida, Washington State, Maryland, Virginia and Washington D.C.
Ankerbrandt said Compass’ ability to expand was most dependent on recruiting and retaining agents and increasing transactions. She told investors she was confident Compass would deliver as “we have done this consistently.”

Compass added 817 principal agents last quarter, bringing its total headcount to 10,629 principals. On average, each principal agent closed 6.2 deals in the quarter. The company also added 15 new markets last quarter; Compass is now operating in a total of 62 markets.
Ankerbrandt said that half of those markets are in the “investment phase” but she said that the company’s rule of thumb is that its markets will become profitable within three years.

Reffkin also spent a considerable amount of time during the call explaining Compass’ technological edge.
“I know that many of you see us as just a brokerage,” he told analysts. “But our strategy at Compass is to be much more than a brokerage. Over time you will see how our platform powers a larger number of adjacent services… creating a long term sustainable financial advantage.”

He also gave himself a deadline to prove it to them.
“By next summer, we expect to be the first company to provide agents with a platform that will allow them to facilitate the full transaction in one place, without having to pay for or log on to any third-party real estate software,” he said.
Compass’ shares closed at $15.28 Monday, up more than 5 percent from the morning’s open. It continued to surge in after-hours trading to $16.30 at 4:43 p.m.
I admit i bought a bunch of $COMP shares on this dip the last few months. I believe in mgmt of this company. They will find and sniff out revenue and cut expenses after they bring in tons of top talent/inventory (listing side). Its all about inventory. Then you monetize every layer of the transaction and monetize your agents. Many ways to create revenue from data/professionals
 

David Goldsmith

All Powerful Moderator
Staff member
Compass west region president Kamini Lane exits

3rd high-profile departure at Compass' West Coast division in recent weeks​

Kamini Lane has left her position as president of Compass’ west region, exiting the brokerage from one of its top executive roles, The Real Deal has learned.
“Compass and Kamini Lane have mutually agreed to part ways,” a Compass spokesperson said Thursday afternoon in an emailed statement. “Compass thanks Kamini for her contributions to Compass and wishes her the best of luck in her future endeavors.”
Rory Golod, Compass’ New York regional president, will take over interim duties as head of the west region, sources said.

Lane joined the brokerage in early 2019 as a general manager, according to her LinkedIn page. She was promoted to president of Compass’ Southern California operations, before landing her latest role in November 2020.
Lane left the job several days ago for personal reasons, sources said. She did not respond to a request for comment.

Prior to joining Compass, Lane served as chief marketing officer for Tradesy, an online women’s fashion marketplace.
The departure is the third high-profile exit at Compass’ West Coast division in recent weeks.
In July, Los Angeles broker Adam Rosenfeld and his eight-person team left the brokerage for The Agency, and last month Mark McLaughlin, Compass’ California president, announced he would be leaving on Sept. 30.

Reached in Wyoming, where he owns a house, McLaughlin called Lane a “dynamo” and said she would “resurface again somewhere soon.”
 

David Goldsmith

All Powerful Moderator
Staff member

Compass picks up another title company​

Acquisition of Denver’s First Alliance Title brings brokerage’s title business to eight states​

Compass said it’s acquiring a Colorado title and escrow company, expanding its reach into eight states just one week after buying a firm in Texas.
The brokerage said on Wednesday that its purchase of First Alliance Title, which has three offices in Denver and a staff of 39, will close by the end of the year. Terms weren’t disclosed.

The company first entered the title and escrow business a year ago when it bought Seattle startup Modus and Washington, D.C.’s KVS Title. Compass said last week that it was buying Dallas-based LegacyTexas Title.

Compass CEO Robert Reffkin told analysts on an earnings call last month that the pace of acquisitions would probably slow in the second half of the 2021 and that costs associated with them will be reported in coming months. Reffkin and CFO Kristen Ankerbrandt spent a large portion of the call explaining how the company will become profitable and build new businesses that will be offered to agents and their clients through its “end-to-end” platform.

Thanks to the strong housing market, many brokerages are spending heavily to build out new and pre-existing lines of business.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

Compass picks up another title company​

Acquisition of Denver’s First Alliance Title brings brokerage’s title business to eight states​

Compass said it’s acquiring a Colorado title and escrow company, expanding its reach into eight states just one week after buying a firm in Texas.
The brokerage said on Wednesday that its purchase of First Alliance Title, which has three offices in Denver and a staff of 39, will close by the end of the year. Terms weren’t disclosed.

The company first entered the title and escrow business a year ago when it bought Seattle startup Modus and Washington, D.C.’s KVS Title. Compass said last week that it was buying Dallas-based LegacyTexas Title.

Compass CEO Robert Reffkin told analysts on an earnings call last month that the pace of acquisitions would probably slow in the second half of the 2021 and that costs associated with them will be reported in coming months. Reffkin and CFO Kristen Ankerbrandt spent a large portion of the call explaining how the company will become profitable and build new businesses that will be offered to agents and their clients through its “end-to-end” platform.

Thanks to the strong housing market, many brokerages are spending heavily to build out new and pre-existing lines of business.
They are building a tech stack - rdfin style, except they got the brokerage at a more traditional level. So they are buying revenue, teams, and tech stack for all layers of the transaction. Stock is valued at 1x annual revenue..5-6bln. At some point if they figure out how to monetize agents, it could go to a whole new level
 

David Goldsmith

All Powerful Moderator
Staff member

Compass’ lockup period ends Tuesday, doubling tradable shares​

Market reaction to surging supply will show investors’ confidence in the business model​

About 200 million shares of Compass could hit the market on Tuesday when restrictions from the brokerage’s initial public offering lift.
The end of the 180-day lockup period, which prevented Compass’ largest shareholders, directors and officers from selling their holdings, means the companies’ float — shares that can be traded — will more than double.

What happens when all of those shares become tradable tomorrow will depend on the patience of investors and their views of Compass’ business model. The company has been both praised and criticized for its rapid growth, fueled by acquisitions and aggressive recruiting of top agents from competing firms.

“It’s an indication of how much faith they have in the business,” said David Trainer of New Constructs. Trainer’s investment research firm rates the stock “unattractive,’’ the equivalent of “sell,” citing the company’s spending and a failure to “create lasting competitive advantages.”
Certain investors who bought at the pre-IPO price of $18 a share are subject to the lockup. At Monday’s close of $13.54, those shares were down about 25 percent. Investors who bought at the starting price of $20.15 at its April 1 debut on the New York Stock Exchange are down about 33 percent.

Compass insiders subject to the lockup include major shareholders and venture capital investors that contributed to $1.5 billion in pre-IPO funding since the company’s 2012 inception. Compass’ board of directors, founders, CEO Robert Reffkin and executive chairman Ori Allon, and other key executives’ holdings were also subject to the six-month lock-up.

Analysts are split on Compass’ long-term prospects, though most expect the shares to decline when the lockup lifts, at least at first.
New Constructs shorted Compass from its initial public offering until late August and said the short position outperformed expectations by 36 percent. During that period, Compass’ share price dropped 24 percent compared with the S&P 500’s 11 percent gain.

Jason Helfstein at Oppenheimer has given the brokerage an “outperform” rating with a target price for Compass shares of $25. Helfstein said he expects Compass to repeat the pattern that generally plays out when insiders are able to begin trading their IPO holdings: share prices tumble as the lock-up period ends and then subsequently rally.

In July, after Compass’ shares had fallen about 39 percent from their debut, Helfstein said the brokerage stock’s lack of liquidity was the biggest factor keeping investors away, not its business. If that was the case, that problem may be solved by the end of the lockup.
The elephant in the room is Softbank, which owns 33.5 percent of Compass, and hasn’t indicated its plans.

“Softbank owns a third of the company so the question is what do they do now?” said Helfstein.
In July, Softbank, among the world’s biggest tech investors, sold 45 million shares in Uber worth about $2.1 billion in a block trade through Goldman Sachs. Last month, the firm sold 11.4 million shares worth about $2.2 billion of Doordash again via a block trade handled by Goldman Sachs, Bloomberg reported. The recent selloff came after Softbank’s investment in Chinese rideshare company Didi Global tanked. The company’s shares dropped about 43 percent from its IPO after Chinese regulators banned it from the country’s app store pending a security review for alleged violations in handling personal data.

Softbank owns more than 132 million Compass shares, according to Yahoo Finance. The second largest holder is Discovery Capital Management, with 33.6 million shares or almost 9 percent of the company.
Other investors that backed Compass in its fundraising efforts pre-IPO are also subject to lock-up agreements, according to disclosures. Those investors include Institutional Venture Partners, which also backs Coinbase and Robinhood, and has a 3 percent stake in Compass. Wellington Management Company is holding 10.6 million shares, or 2.69 percent of the firm, while Winslow Capital Management’s 7.8 million shares and Joshua Kushner’s Thrive Capital’s holdings of 7 million are just shy of 2 percent.

Fidelity Investments, which led a $100 million funding round for Compass in 2017, is holding about 6 million shares representing 1.5 percent of the brokerage. The Canada Pension Plan Investment Board owns 3 million shares and hedge funds Zimmer Partners and Alta Park Capital own about 2.3 million shares a piece.

The brokerage’s lock-up period could have been shorter if its share price had risen 25 percent for five of 10 consecutive trading days compared with its initial offering price of $18. That would mean Compass shares would have had to trade for around $22.50 for at least five days within a 10 day period, which never happened.

Investors are short 4.64 million shares as of August 31, accounting for 2 percent of the traded float and 1.18 percent of all outstanding shares. That’s down from short interest of 6.37 million shares as of the close on July 7.
user-matching
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

Compass’ lockup period ends Tuesday, doubling tradable shares​

Market reaction to surging supply will show investors’ confidence in the business model​

About 200 million shares of Compass could hit the market on Tuesday when restrictions from the brokerage’s initial public offering lift.
The end of the 180-day lockup period, which prevented Compass’ largest shareholders, directors and officers from selling their holdings, means the companies’ float — shares that can be traded — will more than double.

What happens when all of those shares become tradable tomorrow will depend on the patience of investors and their views of Compass’ business model. The company has been both praised and criticized for its rapid growth, fueled by acquisitions and aggressive recruiting of top agents from competing firms.

“It’s an indication of how much faith they have in the business,” said David Trainer of New Constructs. Trainer’s investment research firm rates the stock “unattractive,’’ the equivalent of “sell,” citing the company’s spending and a failure to “create lasting competitive advantages.”
Certain investors who bought at the pre-IPO price of $18 a share are subject to the lockup. At Monday’s close of $13.54, those shares were down about 25 percent. Investors who bought at the starting price of $20.15 at its April 1 debut on the New York Stock Exchange are down about 33 percent.

Compass insiders subject to the lockup include major shareholders and venture capital investors that contributed to $1.5 billion in pre-IPO funding since the company’s 2012 inception. Compass’ board of directors, founders, CEO Robert Reffkin and executive chairman Ori Allon, and other key executives’ holdings were also subject to the six-month lock-up.

Analysts are split on Compass’ long-term prospects, though most expect the shares to decline when the lockup lifts, at least at first.
New Constructs shorted Compass from its initial public offering until late August and said the short position outperformed expectations by 36 percent. During that period, Compass’ share price dropped 24 percent compared with the S&P 500’s 11 percent gain.

Jason Helfstein at Oppenheimer has given the brokerage an “outperform” rating with a target price for Compass shares of $25. Helfstein said he expects Compass to repeat the pattern that generally plays out when insiders are able to begin trading their IPO holdings: share prices tumble as the lock-up period ends and then subsequently rally.

In July, after Compass’ shares had fallen about 39 percent from their debut, Helfstein said the brokerage stock’s lack of liquidity was the biggest factor keeping investors away, not its business. If that was the case, that problem may be solved by the end of the lockup.
The elephant in the room is Softbank, which owns 33.5 percent of Compass, and hasn’t indicated its plans.

“Softbank owns a third of the company so the question is what do they do now?” said Helfstein.
In July, Softbank, among the world’s biggest tech investors, sold 45 million shares in Uber worth about $2.1 billion in a block trade through Goldman Sachs. Last month, the firm sold 11.4 million shares worth about $2.2 billion of Doordash again via a block trade handled by Goldman Sachs, Bloomberg reported. The recent selloff came after Softbank’s investment in Chinese rideshare company Didi Global tanked. The company’s shares dropped about 43 percent from its IPO after Chinese regulators banned it from the country’s app store pending a security review for alleged violations in handling personal data.

Softbank owns more than 132 million Compass shares, according to Yahoo Finance. The second largest holder is Discovery Capital Management, with 33.6 million shares or almost 9 percent of the company.
Other investors that backed Compass in its fundraising efforts pre-IPO are also subject to lock-up agreements, according to disclosures. Those investors include Institutional Venture Partners, which also backs Coinbase and Robinhood, and has a 3 percent stake in Compass. Wellington Management Company is holding 10.6 million shares, or 2.69 percent of the firm, while Winslow Capital Management’s 7.8 million shares and Joshua Kushner’s Thrive Capital’s holdings of 7 million are just shy of 2 percent.

Fidelity Investments, which led a $100 million funding round for Compass in 2017, is holding about 6 million shares representing 1.5 percent of the brokerage. The Canada Pension Plan Investment Board owns 3 million shares and hedge funds Zimmer Partners and Alta Park Capital own about 2.3 million shares a piece.

The brokerage’s lock-up period could have been shorter if its share price had risen 25 percent for five of 10 consecutive trading days compared with its initial offering price of $18. That would mean Compass shares would have had to trade for around $22.50 for at least five days within a 10 day period, which never happened.

Investors are short 4.64 million shares as of August 31, accounting for 2 percent of the traded float and 1.18 percent of all outstanding shares. That’s down from short interest of 6.37 million shares as of the close on July 7.
user-matching
ugly open...nice recovery..these guys are buying every title company...hope they got a plan!
 

David Goldsmith

All Powerful Moderator
Staff member
From:
Mike DelPrete




Compass: 2018 vs. 2021​


Compass is worth the same today as it was back in 2018: $4.4 billion. That's when it had $900M in revenue vs. $5.5B (past 12 months), 35k transactions vs. 145k (in 2020), and 8k agents vs. 22k today. For those keeping track, no, company valuations aren't necessarily rational.
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At first glance, that's not a great outcome for investors: $1,000 invested in Compass in 2018 would be worth...$1,000 today, three years later. All at a time when its peers saw large increases in valuation.

Compass' stock performance compared to the traditional industry peer, Realogy, is illuminating. Realogy stock is up 36 percent year to date, compared to Compass, which is down 45 percent.
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Stock price and valuation come from a combination of a company's current performance and its future growth prospects. For Compass, it seems that investors either significantly over-valued the company in its previous fundraising rounds, or are pessimistic about its growth prospects going forward (or a combination of the two).
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Compass' declining stock price isn't just an abstract financial figure; it is especially relevant to agents that participated in its agent equity program.

Compass' growth over the past three years has been remarkable. It is one of the fastest growing real estate brokerages of all time (it is also the most unprofitable). Revenues have skyrocketed as it has consistently outperformed its industry peers.

Yet investors remain skeptical as the stock price continues to slide. Was the company simply over-valued in 2018? Is the market valuing the company as a brokerage instead of a tech company? Or is the narrative about expanding into ancillary services like mortgage and title falling on deaf ears? Time will tell -- but for now, Compass' decline in value stands in paradoxical contrast to its massive growth.

My research and insights on iBuyers have been in the news a lot lately: Are ibuyers manipulating the housing market? on Marketplace, For iBuyers, the Price Is Right in the WSJ, and Opendoor raises billions to buy thousands of homes in the SF Business Journal.

If you were forwarded this email and would like to get my updates directly, click here to join my mailing list.

Thanks,
Mike
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David Goldsmith

All Powerful Moderator
Staff member
More from Mike Delprete:


How Data Can Be Used to Mislead: Compass' Results Told Three Ways​


“In God we trust; all others bring data.” The power of data in evidence-based research is critical, but even data -- used certain ways -- can mangle the truth. As a case study of how data can be manipulated to tell different stories, I examine Compass' recent financial results three different ways.

Method 1: The Annual, Single-Company View​


The first method, which is what Compass uses, compares key metrics to the corresponding period one year ago -- annual growth. Compared to Q3 2020 (and remember, 2020 was a pretty weird year), Compass experienced significant growth in revenue and transaction volumes -- up 47 percent and 36 percent respectively.
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Compass' revenue growth was driven by more transactions, which in turn were driven by more agents (a 31 percent increase in Principle Agents). An annual comparison method accounts for seasonality in the business and is a great metric for companies in a relatively mature state, but falls short without important context.

Method 2: The Quarterly Single-Company View​


An annual comparison is tricky for high-growth companies; the numbers are always huge. A granular look over time reveals deeper trends: Compared to the previous quarter, Compass' revenue actually declined, and its guidance for Q4 is a further decline.
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Compass is subject to the same headwinds as any brokerage: inventory, seasonality, and agent recruitment & retention. It clearly hit a (seasonal?) peak in Q2, and now the business is slowing.

On a quarterly basis, Compass' losses are also stacking up. After approaching profitability last quarter, the company has returned to a net loss this quarter ($71 million of which is stock-based compensation expense).
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A quarterly view over time introduces momentum and trends. It reveals that Compass's growth isn't steady (something that isn't clear with an annual comparison), and that the business appears to be slowing down -- with losses.

Method 3: The Quarterly & Annual Multi-Company View​


This method adds additional perspective with the context of Compass' publicly-listed peers. The numbers above lack context; is Compass under- or over-performing in the market?

It turns out that on an annual basis, revenue is growing at all of Compass' peers. Compass' growth rate is in the middle of the pack, larger than Realogy and Redfin, but lower than eXp Realty.
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On a more granular basis (comparing to the previous quarter), Compass stands out with a revenue drop larger than its peers. As we saw above, something happened in Q3, and Compass' slowdown is more pronounced than any of its peers.
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Finally, it's worth noting that Compass is materially less profitable -- unprofitable, in fact -- when compared to its brokerage peers. Realogy and eXp are generating significant net profits, while Compass continues to burn cash.
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A peer comparison highlights key business model differences and provides another angle on the recent business slowdown. And while Realogy may be viewed as the less exciting, slow-growth industry incumbent, it runs a sustainable, durable, and profitable business model.

Strategic Implications​


There's not one, right way to tell this story. But there's always different angles to consider, and multiple data points to triangulate the truth.

Exploring the complexity of real estate through evidence, context, and storytelling is a passion of mine. It's easy to manipulate the truth, or provide various versions of it, depending on the data presented. The truth is out there -- it just takes a critical eye to find it.
 

David Goldsmith

All Powerful Moderator
Staff member
If they can't turn a profit in the hottest market ever what happens when things return to normal (or worse)?
Compass’ loss ballooned to $100 million in the third quarter from $13.5 million a year ago as operating expenses jumped.
The brokerage reported earning more than $1.7 billion in revenue for the third quarter, a 47 percent increase year over year, but operating expenses grew to more than $1.8 billion, up 53 percent from a year earlier.

The brokerage’s net loss for the period was almost $100 million, compared with $13.5 million during the same period last year.

Compass reported its third quarter earnings Wednesday afternoon just after the market closed with its shares trading at $12.04. The stock dropped 64 cents in the first hour following the release.
But Compass’ C-suite sees the numbers very differently. “Exceptional” and “outstanding” were some of the words CEO Robert Reffkin and CFO Kristen Ankerbrandt used to describe the company’s third quarter performance.

“Compass is in the strongest position we’ve ever been in,” said Reffkin, pointing to the brokerage’s revenue gains and the company’s internal measure of profits through adjusted EBITDA, which showed a $12 million gain. That excludes more than $71 million in stock-based compensation expenses and a $21 million legal charge in connection with the company’s litigation with tech entrepreneur Avi Dorfman and his company RentJolt.

Dorfman sued Compass in 2014, alleging that the company had built its proprietary software off his company RentJolt and then cut him out of profits that he should have been entitled to as a veritable founder. The $21 million charge pertains to a “settlement in principle” according to documents filed with the U.S. Securities and Exchange Commission.

“We are pleased to have resolved this dispute in a manner that is satisfactory to both sides,” a Compass spokesperson said in a statement to The Real Deal. “We acknowledge Mr. Dorfman’s work in the early days of Compass as a founding team member of the company.”
Compass’ share price is down 40 percent since its initial public offering in April.

Oppenheimer analyst Jason Helfstein, who has maintained a buy rating on the company since the IPO, asked Reffkin and Ankerbrandt if they would consider a stock buyback or cutting back more aggressively on operating expenses.
Ankerbrandt said there were no plans for such measures.
“We remain very confident in our strategy here,” she said. “But we are open-minded and always evaluating different alternatives.”

The firm’s headcount grew by 987 principal agents to a total of 11,616 by the end of the quarter. The brokerage also launched operations in five new markets, bringing its total markets to 67.
 

David Goldsmith

All Powerful Moderator
Staff member
Did he settle because he wanted to get out while the check was still cashable?

Avi Dorfman’s legal battle to be named founding member of Compass has ended in a settlement​

Entrepreneur Avi Dorfman, who sued Compass seven years ago for not recognizing him as a co-founder, received a settlement and key acknowledgement today from the now-public real estate company Compass. The result comes just months before an expected trial date for the ongoing lawsuit, in which Dorfman sought a $200 million stake in the company to represent his expertise and role in shaping the business, according to court filings.
“I am pleased to have been recognized as a member of Compass’s founding team and to have resolved this dispute in a manner that is satisfactory to both sides. I wish [CEO] Rob Reffkin and the Compass community only the best,” Dorfman said in a statement to TechCrunch.
In a statement, a Compass spokesperson gave acknowledgement to “Mr. Dorfman’s work in the early days of Compass as a founding team member of the company.”

Compass, today valued at more than $6.4 billion, posted an SEC filing that indicated a charge of $21.3 million in connection with the settlement, but the total sum remains undisclosed.
Dorfman filed the lawsuit in 2014, two days after Compass announced its new $360 million valuation. Today, Compass is worth around $4.4 billion.
“Despite the company’s astronomical success due, in part, to Dorfman’s significant contributions towards conceptualizing, creating, and launching the company, Dorfman was intentionally and wrongfully cut-out,” the original complaint from Dorfman said. The lawsuit also alleged that Compass misappropriated trade secrets from RentJolt, Dorfman’s company before he began working on Compass, in violation of a non-disclosure agreement.
For Compass’s part, the company argued that the entrepreneur’s lawsuit was coming from a more opportunistic place. In its motion for summary judgment, the company wrote: “Having spurned multiple offers of employment to join Reffkin’s new real estate venture, Dorfman now seeks a do-over of that decision, claiming he should be awarded tens of millions of dollars in equity in Compass — far in excess of what he could have earned if he had actually chosen to join that venture and invested his time and energy building it into the successful company it is today.”
 

David Goldsmith

All Powerful Moderator
Staff member

Compass shares drop below $10, another all-time low​

The brokerage’s market cap is now below $4 billion, down over $3 billion from its IPO valuation​

Compass shares fell to a new low, dropping below $10 for the first time on Monday.
The stock opened at $10.39 before dropping to $9.58 by 2 p.m. It’s the lowest the brokerage has traded and is 52 percent below the company’s debut price on April 1 on the New York Stock Exchange after its initial public offering.
Compass dipped down to $10.74 in October, after its lockup period ended in late September, terminating trading restrictions from its IPO on 200 million shares. But the stock had recovered by Nov. 1 and Compass was trading at just over $13.50 before it began to fall.

As the price plummeted this month, the company reported a net loss of $100 million in the third quarter as expenses increased year-over-year by 53 percent. It also wrapped up a long-standing dispute with tech entrepreneur Avi Dorfman, recognizing his role in founding the company and settling out of court last week.

Compass’ biggest backers, SoftBank Group and Discovery Capital, appear to be holding on for the ride. The most recent filings with the U.S. Securities and Exchange Commission show that neither investor has reduced their stake in the brokerage as of Sept. 30.
Jason Helfstein at Oppenheim, which has a buy rating on Compass, said Monday’s drop below $10 was largely a function of President Joe Biden renominating Jerome Powell as chair of the Federal Reserve.
“Rising interest rates [are] bad for real estate and bad for high growth tech companies,” he said. “If you look at the performance today, that’s what’s performing the worst
Redfin is down 4 percent today, while eXp Holdings’ shares were down 4.5 percent. Fathom, another discount brokerage, is trading 3 percent below its last close, while Realogy and Dougla Elliman’s parent, Vector, is up almost 70 and 25 basis points rewspectively after falling earlier in the day.
 
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