Is Compass the next WeWork?

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
It seems like the higher Compass revenue the more money they lose. But they say they will be profitable soon. If they aren't profitable in the current crazy market with huge revenue growth what happens when things cool down?

I am expecting to see them raise various fees to agents and/or cut splits: I haven't seen any of their contracts but we have heard that agents were previously surprised by terms in them.

Compass nearly doubles losses in 2021
The massive net income loss comes amid revenue, market share leaps

How long can this last?
Compass lost $494 million in 2021, a historically robust year for U.S. real estate, as the New York City brokerage continues to burn through money amid its rapid expansion.
The net income loss is 83% greater than Compass’s $270 million loss in 2020, eight-year-old Compass’s final year as a private company.
Compass did report on an earnings call Wednesday another mammoth revenue gain, rocketing to $6.4 billion in yearly revenue from $3.7 billion, a 73% leap.
However, 83% of that is instantly lost to “commissions and other related expenses.” Compass has earned a reputation for paying higher commission splits than other full service real estate brokerages like the conglomerate Realogy or HomeServices of America. After commissions and other expenses, Compass posted $1.1 billion in yearly revenue.
The net income loss was not discussed by CEO and company co-founder Robert Reffkin.
“I am happy to announce that our strategy of achieving strong revenue growth while improving profitability and investing in our business is working exceptionally well,” Reffkin said on the earnings call.
yeah I hear you. Stock price is reflecting this I think. At some point profits will matter, but as you say, when? I think their ultimate goal is to unify all the elements in the real estate transaction process and monetize accordingly so they can offer lower $$ services and compete in different rev sectors outside transactions

Personally, I think they should be doing a few other "labs" type of thing on the side as well
 

David Goldsmith

All Powerful Moderator
Staff member

From Mike DelPrete:​

Growth Machines: Compass, eXp, and the Future of Brokerage​

Wyt1mVPjWDNAPj6xvr81QPhRLfZgw81N4bAzCNwji9PscfsH9xP1-QzAryjVh6b3dDSY1pv_kWvOrjxQwJPUfl81sEh05KB_iGwG19t2dIW5We-SdM7sVj0Lz9Xh9Xe8QtvvIyEODgOQsN63TQTd_h-CdW4_uQ=s0-d-e1-ft

The major, publicly-listed brokerages all posted impressive revenue, transaction, and agent count growth in 2021.

Why it matters: In a notoriously slow-moving industry, these are eye-catching gains. Revenue at Compass beat out Realogy's owned brokerage group for the first time.
  • eXp Realty doubled its U.S. revenue in 2021. For a business already operating at scale, this is a very impressive feat.
By the numbers: eXp Realty rocketed past industry incumbent Realogy in an accelerating growth curve, topping 400,000 transactions in 2021.
Pgs8af1zKN05qexOfrvUQDeq0JN0KrjxNtn-wT1bWHMtXyahWrdec1tsQ81_sIlqH1nOzOmbWrEtZAz4I3aLSJO1ZkaIp6pi--YdoD3TTkiI_vq_Zj3dRz2SlNJ_7lDFna8aNTxg4GJs_eDvD1cF1XeiqCtmIA=s0-d-e1-ft

Agent counts are drivingthis growth. Despite promises of disintermediation, disruption and technological efficiency, the agent is still central to the transaction.
  • Compared to its peers, agent growth at eXp Realty has been jaw-dropping. eXp added more new agents in 2021 than Compass has in total.
HSawLipzQVOXrV2XMYKdEVZzzLSrfKMhZRZsEGmlG8J7HPnW3l1FB5EWLybMhQw9NmROi-w1kK2s6U4o2f_ftExm8fN8hbU5VaRoEgg6YdSy4oLZFN9tooGhx2oShrF7NVDv8kkgHiRBKFPdP8CW5ejMnafhnQ=s0-d-e1-ft

The big picture: Amidst the hyperbole of disruption, the future of brokerage is still being shaped by real estate agents.
  • Brokerages are growing by recruiting more agents. The more agents a brokerage adds, the more that transactions grow.
jx2HnkxHTc30vgPP-B_UEyxXiEqJf3aIs_59R_wg97JONjSuGwWywDWAoQmrwCrtD3c9xV4Q7Nud1x8yoTNHqWdraQSxmS5dRwCZp90Yx25Tx59cdtWN_A1pH9OfzUanq1jgCTGXpBp6hk2CyIU0qaLNj2VOsw=s0-d-e1-ft

Agent recruitmentis a key competitive advantage for brokerages; Compass and eXp's growth has been propelled by generous financial incentives offered to agents.
  • Be smart: Perhaps consider Compass' technology platform through the lens of agent recruitment and retention, and its level of investment is understandable.
  • A note on eXp Realty: The numbers above are estimated for the U.S. market. eXp reports global figures, but also gives the percentage of revenue generated outside of the U.S. I've used that to estimate U.S. agent count, transaction volume, and revenue.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

From Mike DelPrete:​

Growth Machines: Compass, eXp, and the Future of Brokerage​


Wyt1mVPjWDNAPj6xvr81QPhRLfZgw81N4bAzCNwji9PscfsH9xP1-QzAryjVh6b3dDSY1pv_kWvOrjxQwJPUfl81sEh05KB_iGwG19t2dIW5We-SdM7sVj0Lz9Xh9Xe8QtvvIyEODgOQsN63TQTd_h-CdW4_uQ=s0-d-e1-ft

The major, publicly-listed brokerages all posted impressive revenue, transaction, and agent count growth in 2021.

Why it matters: In a notoriously slow-moving industry, these are eye-catching gains. Revenue at Compass beat out Realogy's owned brokerage group for the first time.
  • eXp Realty doubled its U.S. revenue in 2021. For a business already operating at scale, this is a very impressive feat.
By the numbers: eXp Realty rocketed past industry incumbent Realogy in an accelerating growth curve, topping 400,000 transactions in 2021.

Pgs8af1zKN05qexOfrvUQDeq0JN0KrjxNtn-wT1bWHMtXyahWrdec1tsQ81_sIlqH1nOzOmbWrEtZAz4I3aLSJO1ZkaIp6pi--YdoD3TTkiI_vq_Zj3dRz2SlNJ_7lDFna8aNTxg4GJs_eDvD1cF1XeiqCtmIA=s0-d-e1-ft

Agent counts are drivingthis growth. Despite promises of disintermediation, disruption and technological efficiency, the agent is still central to the transaction.
  • Compared to its peers, agent growth at eXp Realty has been jaw-dropping. eXp added more new agents in 2021 than Compass has in total.

HSawLipzQVOXrV2XMYKdEVZzzLSrfKMhZRZsEGmlG8J7HPnW3l1FB5EWLybMhQw9NmROi-w1kK2s6U4o2f_ftExm8fN8hbU5VaRoEgg6YdSy4oLZFN9tooGhx2oShrF7NVDv8kkgHiRBKFPdP8CW5ejMnafhnQ=s0-d-e1-ft

The big picture: Amidst the hyperbole of disruption, the future of brokerage is still being shaped by real estate agents.
  • Brokerages are growing by recruiting more agents. The more agents a brokerage adds, the more that transactions grow.

jx2HnkxHTc30vgPP-B_UEyxXiEqJf3aIs_59R_wg97JONjSuGwWywDWAoQmrwCrtD3c9xV4Q7Nud1x8yoTNHqWdraQSxmS5dRwCZp90Yx25Tx59cdtWN_A1pH9OfzUanq1jgCTGXpBp6hk2CyIU0qaLNj2VOsw=s0-d-e1-ft

Agent recruitmentis a key competitive advantage for brokerages; Compass and eXp's growth has been propelled by generous financial incentives offered to agents.
  • Be smart: Perhaps consider Compass' technology platform through the lens of agent recruitment and retention, and its level of investment is understandable.
  • A note on eXp Realty: The numbers above are estimated for the U.S. market. eXp reports global figures, but also gives the percentage of revenue generated outside of the U.S. I've used that to estimate U.S. agent count, transaction volume, and revenue.
This is great thx! Seems like some cheap stocks right now with comp at 7s and rdfn at 19s?
 

David Goldsmith

All Powerful Moderator
Staff member
In other words, if you're a Compass agent, the company's plan for profitability hinges on reducing your commission split over time.

From Mike DelPrete


Big Tech Coming After Agent Commissions in a Big Way​


The biggest real estate tech companies — Zillow, Compass, and Opendoor — have set their sights on agent commissions as a source of revenue and profit growth.

Why it matters: Agents remain the backbone of the industry, generating around $100 billion in commissions annually.
  • That commission pool is a rich target for big tech companies to tap into.
Zillow's new strategy (Zillow 3.0: Back to Basics) is centered on extracting an additional $1.5 billion from agents by 2025, for a total of $2.9 billion annually.
BWz8RVu2r_Pmu_baDECF5ZF0_HTJZkcrJq9ddVaG5_GoztopS-nYDjEacalqqF0zLekMeCnHMuIy6EnkQ04vGfpM802F7p8Bd1B1stHOhfgdIUz1OABHRRsQTuY6Pt1PEDWumQtd1Z2JqRVc4yRhwpMu1uvdag=s0-d-e1-ft

Compass wants to pay agents less. In its own words, Compass has a demonstrated track record of "improving economics with agents" of one percent per year.
  • Compass provides multiple slides that highlight its plans and ability to reduce commission splits paid to its agents over time.
AwfZBZhv07Xg9GV8k6KGH6bUklMidyDBYZd1LFsNcfIJhfMDxFTJRWa78HzRg4vxfoXEjWjRk2C1cOr9lN0tg4pQKxMEL1lwu0hH_ng_8QpPVDinUdVcPakOGqFf_eEHcf6lfyMi39nUCoOR2ghbBjKMy_78NQ=s0-d-e1-ft

In other words, if you're a Compass agent, the company's plan for profitability hinges on reducing your commission split over time. Sorry!
3N7FpqSiZ_2A_VtmcIzNYsHe2iWSIjj43ENmafgebJEIer6jiZviYo8I9EKqaoojMEi87H8Ek1W8s-bv6VVyCBl54MxEzOZVW9wXCUHQ7fmaYEFGlTSy6S0dol0D5BO31qYZRRryfK1Ax5XaM9hZQ1EjiOlGiA=s0-d-e1-ft

Opendoorcontinues to use its scale to push buyer agent commissions -- one of its biggest expenses -- lower.
  • In Atlanta, Opendoor has experimented with buyer agent commissions ranging from 1.5 to 3 percent, having finally settled on 2.25 percent.
  • Interestingly (and I don't think I can take credit for this), Opendoor dropped its lowest 1.5 percent buyer agent commission ten days after I published about the iBuyer War on Real Estate Commissions.
E2qTol9QznOIlPXymUrjma3DNW3EIQuZZiAh4D2MMc9lTWfx5m6XYRysA4OxQUaWYji_1v-ysR7_TtNbgHuawIweMv6kWMi2SoW_psQnGamLuQHGrlHk6-gP4KjMWHXO8OzIa0_tJG_NHwvVh7EPog18cq5Mag=s0-d-e1-ft

Some perspective:
  • Opendoor sold 20,000 houses in 2021. A 0.75 percent savings in buyer agent commissions is about $53 million annually.
  • Compass's medium term goal of a 2.5 percent commission split improvement on its 2021 revenues is $160 million annually.
  • Zillow wants to generate an additional $250–$300 million from agents per year.
Yes, but: These companies aren't simply raising prices; they're offering increased value to agents.
  • Opendoor promises partner agents increased deal flow and less time spent on each transaction.
  • Compass promises its agents increased deal flow and efficiency from its brand and tech platform.
  • Zillow provides agents with exclusive access to pre-qualified buyer leads.
The bottom line: Big Tech has big plans to extract hundreds of millions of dollars from real estate agents in the coming years.
  • Amidst a landscape of new models, disruptors, tech innovation and "super apps," there remains one consistent way to make money in real estate: commissions.
 

David Goldsmith

All Powerful Moderator
Staff member

Robert Reffkin’s net worth plummets as Compass shares tank​

Co-founder and CEO’s equity stake has lost $300M in value since brokerage’s IPO​

Compass agents who invested in the brokerage ahead of its hotly anticipated IPO a year ago can lament the 70 percent plunge in its stock price since then. CEO and co-founder Robert Reffkin has a lot more at stake.
Reffkin exuded optimism when Compass shares debuted at $18 last April, valuing the firm at $7 billion and his stake at more than $460 million.

“This is what I expect will be the lowest valuation we’ll ever see,” he told Forbes at the time.
Less than a year later, Compass shares have plunged 70 percent, the firm has a market capitalization of $2.4 billion and Reffkin’s stake is now worth less than $150 million.

Reffkin, whom Forbes estimated was worth more than $500 million when the stock debuted, holds about 6.6 percent of the outstanding shares and 49 percent of its voting power, according to a February SEC filing. His equity stake consists of 2.3 percent of Compass’ Class A stock plus all its Class C shares.
It’s a difficult lesson for the CEO, who co-founded Compass in 2012 and built it into one of the country’s largest brokerages with 26,000 agents across nearly 70 markets. It also shows that even a firm’s biggest cheerleaders can bear financial pain when things go south.

“I can sympathize with the emotional roller coaster ride of building a company from idea to liquidity event coupled with all the promises and perils that brings with it,” said David Friedman, co-founder of the wealth intelligence platform WealthQuotient.

Reffkin, who bought a 2,200-square-foot duplex penthouse in Tribeca for $16 million in 2020, a few months before the firm filed to go public, didn’t sell shares in the IPO and told Forbes at the time that he didn’t plan to do so.

“I don’t think I ever thought about selling shares,” Reffkin said in the April 2020 interview.
Less than a year later, on the brokerage’s fourth-quarter earnings call in February, Reffkin took the long view on Compass’ mounting losses, affirming its continued pursuit of market share while acknowledging that free cash flow is “the ultimate arbiter of financial success” and saying he expects the firm to be cash-flow positive by next year.

Compass declined to comment.
 

David Goldsmith

All Powerful Moderator
Staff member


Compass claims top US brokerage spot for 2021 sales​

Brokerage No. 1 in closed sales volume: Real Trends​

After just missing the top spot in a 2021 brokerage ranking, Compass has come out as the largest in the United States in terms of closed sales volume.
Real Trends cited rapid growth in terms of agent count and rising home prices for the brokerage’s debut in the No. 1 spot based on 2021 earnings reports.
“In less than 10 years, we went from nothing — not existing — to #1,” CEO Robert Reffkin wrote in a company-wide email celebrating the ranking.
“You can now tell every past, present, and prospective client that you are part of the largest brokerage in the country. You can have confidence that your referral network is officially the best in the United States,” Reffkin wrote. “And you can take pride in the fact that your success is a vital part of something much, much bigger.”
https://eb2.3lift.com/pass?tl_click...rid=-1&ts=1647834150&bcud=6896&ss=12&cb=68849
Compass has 26,000 agents in 69 markets, according to its fourth quarter earnings. In 2021, the company added nearly 7,000 agents and launched 25 new markets.
Overall, Compass agents closed 225,272 total transactions in fiscal year 2021, up 56 percent from 2020. The gross transaction value reached $254.2 billion, an increase of 68 percent from the year prior.
The company was aided by rising home prices and increased migration, which defined 2021.

Still, Compass last year faced mixed success, reporting a loss of nearly $175 million in the fourth quarter, up from the $100 million lost in the third quarter and $40 million in the same period in 2020. In total, the brokerage, which went public in April, lost nearly half a billion dollars last year.
https://eb2.3lift.com/pass?tl_click...rid=-1&ts=1647834180&bcud=6896&ss=12&cb=60645
Compass shares debuted at $18 last April and the firm was valued at $7 billion. However, in recent months, the stock value has fallen by 70 percent, the firm has a market capitalization of $2.4 billion. At the time of IPO, Reffkin’s stake was at more than $460 million, but is now worth less than $150 million.
Real Trends noted the ranking does not reflect the company’s place in the overall 2022 RealTrends brokerage rankings, which will be released at the end of March.
 

joedavidson

New member
If they aren't profitable in the current crazy market with huge revenue growth what happens when things cool down?

Joe | best tax preparer in Dover
 

David Goldsmith

All Powerful Moderator
Staff member

Compass scales back employee stock awards after shares plunge

Firm to to distribute stock more slowly, meaning longer waits to cash out​


Compass, the residential brokerage that tops all others by closed sales, pumped the brakes on equity compensation for employees after its stock price plunged almost 70 percent since it went public a year ago.
CEO Robert Reffkin announced the shift in an internal email verified by The Real Deal. The changes cut the initial amount of stock that eligible employees receive as they rise through the ranks and make them wait longer to sell the full amount of their awards.

Compass will grant employees a quarter of their stock award each year, and they can sell each grant after one year rather than wait four years for it to fully vest. The changes won’t affect brokers who aren’t employees.
“I hope and believe that we, along with the broader market, will not find ourselves in a similar situation over the coming months and years,” Reffkin said in the email he sent earlier this month. “However, we are here now.”
The 10-year-old company spent lavishly to grow rapidly, leading to escalating quarterly financial losses as equity compensation offerings, once eyed as a recruiting tool, drained its balance sheet, costing it more than $90 million in the fourth quarter. Reffkin’s own net worth plunged by more than $310 million as the stock tanked.
Compass shares were trading at $6.66 as of 11:30 a.m. Friday in New York, up from a record low of $5.66 on Wednesday. The stock hit a high of $21 shortly after debuting last April. Reffkin has blamed inflation as well as rising interest rates as an uptick in housing construction presages a softer housing market. Rival Douglas Elliman’s shares have lost almost a third of their value since the firm went public at the start of the year.

Stock awards are common, especially for startups more willing to record a stock expense than pay out cash. Robust equity programs help companies recruit talent by offering employees stock in addition to a salary.
A slower award rollout provides a way for Compass to stem the financial loss it has taken from its employee equity program. Compass expensed $93.4 million worth of non-cash compensation on its balance sheet in the fourth quarter, making up more than half of its $175 million loss.
 

David Goldsmith

All Powerful Moderator
Staff member

Court declines REBNY move to dismiss Compass antitrust lawsuit​

Judge Alison Nathan dismissed tortious interference claim​

A federal judge denied the Real Estate Board of New York’s request to dismiss an antitrust lawsuit filed by Compass.
The ruling preserves Compass’ suit centered on agents carrying clients when they switch brokerages.

The brokerage sued REBNY in March 2021, alleging the group conspired with Douglas Elliman and the Corcoran Group to collectively modify and enforce the trade group’s rules in a way that would “smother” Compass. Elliman and Corcoran are not defendants in the case, but are cited throughout.

“Instead of adapting and evolving to meet the competitive challenge, REBNY and its co-conspirators sought to smother [Compass], repeatedly acting to preserve the market’s status quo, their business models, and their dominance of New York City residential real estate sales,” the complaint said.
In a March 31 ruling, Southern District Judge Alison Nathan denied REBNY’s motion to dismiss it.

A spokesperson for Compass said the brokerage was “pleased” with the rejection, but remains “prepared to continue demonstrating that REBNY’s anti-competitive behavior negatively impacts buyers and sellers of New York City real estate.”
Central to the long-simmering tension is the universal co-brokerage agreement, a REBNY rule that bars agents from further communications with their clients if they leave the firm where the exclusive listing agreement was signed.

Under the rule, if an agent switches brokerages, the agent cannot contact previous clients without the former brokerage’s consent or a signed statement ensuring the client wants to keep working with the agent. REBNY eventually eliminated the option of having the client sign a statement, allegedly under the pressure of Elliman and Corcoran.

REBNY fined the brokerage $250,000 in January 2021, citing “repeated violations” to the agreement.

The group also filed a motion last May to dismiss the anti-trust suit, claiming the brokerage’s allegations lack credibility.

Compass claims REBNY violated the Donnelly Act, the federal Sherman Antitrust Act and a claim for tortious interference with prospective economic advantage, meaning a third party unlawfully interfered with a business relationship.
Nathan, however, did dismiss the interference claim, saying “Compass’ allegations are too vague to meet the specificity requirement.”

“We appreciate the Court’s dismissal of the case regarding claims of tortious interference and remain confident in the merits of our defense,” REBNY President James Whelan said in a statement. “REBNY’s co-brokering rules, which Compass has helped to shape and enforce as a REBNY member, are based upon state law and legal precedent.”
 

David Goldsmith

All Powerful Moderator
Staff member

Compass reports $188M first-quarter loss, CFO’s resignation​

Brokerage claims top spot for sales volume as CEO describes possible paths to profitability​

Compass reported a first-quarter loss of $188 million and the departure of its chief financial officer as the tech-first brokerage sought to reassure investors about its path to profitability.
The firm recorded $1.4 billion in revenue for the quarter, up 25 percent from the same period a year ago, against $1.6 billion in expenses, for a loss of 45 cents per share — beating Wall Street’s consensus prediction of 48 cents per share. Its $188 million loss was an improvement over its $212 million loss from the same period last year.

“We are now the number-one real estate brokerage by sales volume,” CEO Robert Reffkin said on an earnings call Thursday.

Compass added 398 principal agents in the first quarter, bringing its total to 12,574, according to its earnings statement. It closed 47,367 transactions, a first-quarter record for the firm.
But as the brokerage gains agents, it will soon lose one of its top executives. Kristen Ankerbrandt said Thursday afternoon that she will step down as CFO in September and leave the brokerage to launch an investment fund. Ankerbrandt arrived at the firm in 2018, replacing former Flywheel executive Craig Anderson, who lasted less than a year in the role.

Compass has not named Ankerbrandt’s successor, but said that Greg Hart, who joined as chief product officer in 2020, is being promoted to COO.
Reffkin told investors that second- and third-quarter earnings would outpace last quarter, thanks to real estate’s inherent seasonality, and committed to not raising more investment. Compass has $476 million in cash and access to a $350 million credit line, it reported Thursday.

“We will do more with less,” said Reffkin of the belt-tightening. “We are managing the business to ensure we will not require additional capital.”
Reffkin floated various ways the brokerage could mitigate its cash burn, including slowing its expansion into new markets and its pace of acquisitions.

The company reduced its revenue projection for the second quarter to between $2 billion and $2.2 billion, citing rising interest rates and lack of supply in California, where it remains heavily concentrated.

“The purchasing power of the average buyer has decreased,” said Ankerbrandt.
Stock-based compensation, a recruiting tool that has helped Compass rapidly gain market share, continued to drag on its earnings and accounted for about a third of its losses. Compass recently scaled back its employee stock awards program, slowing its rollout and making employees wait longer to cash out completely.

Compass stock fell to a record-low $3.86 this week before rallying to $4.47 at the market close Thursday ahead of its earnings call. Its high mark for the quarter was $9.55 on January 3, down from more than $20 shortly after its initial public offering in April 2021.
One of Compass’ primary competitors, Douglas Elliman, also saw its stock trade at record lows this week. Its quarterly report revealed that spending $6.7 million to become a publicly traded company halved its profit from the same period a year ago.
 

David Goldsmith

All Powerful Moderator
Staff member
From Mike DelPrete:

Compass' Cash Burn Problem​

MzaMi7WBBVKwYk1ufZp89omFXzcHmgVIbP0IlRdsUuHFLAEiAI7yqMrYaGBqQhK2ijqvOXccAkdEUAyvrIaTuq3-1Pp0BZB3QXcV0bG7Moe41TJZPydo5zd2R5nHz2ruFysprdOI0WNm_0vVl4O0VYsgiPZP4w=s0-d-e1-ft
Compass' latest financial results reveal a company that burned $142 million in cash during the first three months of 2022, with $476 million left in the bank.

Why it matters: Manufactured profitability metrics aside, cash is the fuel that powers all businesses.
  • Compass has a track record of significant cash burn (over $400 million in the past 15 months), with high fixed operating costs and expensive acquisitions.
TThIhB6tHteWAnQXoPSCscf1Uzzg8CQPC33jWzgnkBUDFRgkvrGg3_KaPpgR_5cFqijsMzceMrFz3fd1HWvCKf4dnFyTh6gdx9gSCtiKHB0uPJprLqUXA7tATJDMDflBYeRnkpy14jeMGlN7btpZj4arr-WLNw=s0-d-e1-ft
There's a widening gap between Compass' gross profit (revenues after commission expense) and its operating expenses.
Qs__xGWvfZMIXSxlJi8BbDm_NBVWVIcdlBAa5p2ZEPI0GIegAmYMiWssST_BYAOqRhgqRZzHG1JA6LcTQ43vm18p9cnvPBfbLKNY7e_iJC7-gdrP63zx5ABXAZyRWEUNvPk995CdJPNEQIx9Ksb2KJ8pGCmpqQ=s0-d-e1-ft
Compass is burning more cashand operates more unprofitably than any of its publicly-listed peers.
  • Realogy, eXp, and Douglas Elliman all have gross profits higher than their operating expenses.
4XzN8XII9y1cZodRlYw3rWnadqWkus9z2Y5izmaWTRsoNJ63Q6dFWr3jHZWi7mD7CfHMEPVudCcDF2pwnpDhzweJUNHNxTC4o68eCVQgX81GsRlPzWtEIfG9sImXvJhXYUcb8t6Ab4RrdGVmIgAI6Dv43GklqA=s0-d-e1-ft
Compass' cost baseis significantly higher than last year; operating expenses are up 50 percent from Q1 2021 (excluding stock-based compensation).
  • But revenue growth is soft; Compass is only projecting eight percent revenue growth in Q2.
  • This is only operating expenses, and doesn't include capital expenditures and acquisitions.
5mLJccyZiCycosUOxjg4vPi5bJnbmwJH_knOJDIay6avj48xdrk6yb9mUAKFCojZQPuyCbAq2wMCzSS607gd4Rxm1tDEKCkeNYkKCSH7NDDRFlOgmM09i1esDkvrJGRkIlKfz-8H6zXFipul3M79Spi93UEfOQ=s0-d-e1-ft
Compass' cash burnover the next 12 months is highly dependent on the overall real estate market.
  • There's not a lot of margin of error; a challenging 2022 market will depress revenue and increase cash burn.
  • Specific projections aside, there is an undeniable downward trend in Compass' available cash balance, which is becoming more difficult to ignore.
XQ4ysYnWJAeINaHALT1t5rpUGoXb4g8J7vOZ-u0V3qoeWdu2HC5BnEZUFn_VGce2sxyRJYvZvjDJdgy7tzJQftsfTwLZS3_sXWeXoTGY64IvQHs9XGcDDF2VAsNHDEIaj6UX6SNJNt5E2USw9sNnfaqzk5S0pA=s0-d-e1-ft
What to watch: Compass is not in immediate peril, but it isapproaching a critical juncture where it will either need to raise more money or reduce expenses.
  • The Compass business model relies on massive amounts of investment capital to subsidize massive financial losses.
  • It's not clear that the business can achieve breakeven on its current trajectory; its cash burn is unsustainable.
  • Compass may be forced to enact significant layoffs to recalibrate its burn rate.
Cash is king: After years of big spending, access to seemingly unlimited amounts of capital, and sustained unprofitability, the time has come for Compass to demonstrate a durable, self-sustaining business model.
A note on projections: This analysis uses the midpoint of Compass' guidance for Q2 revenue ($2.1 billion), and seasonal estimates for Q3 and Q4.
  • Gross margin is assumed to be 18 percent (Q1 2022 actual).
  • Operating expenses remain flat at Q1 2022 levels.
  • Roughly $50 million of capital expenditure and acquisition costs for the year (much lower than historical amounts; there was $190 million in 2021).
CTJW-GJB56zUo7BqsAMAP0mIiKfWvsTQRL9omWbzu0lNfIqLd_HN5uxVP-kk72YK72L01a0D0iy5NqV4VMgYRbmA2UPxG8jjyHqSqW8-f26q9UxZwphS8t8XqgRBBxKJBKCRIMFjNb4MkLqxEPVj3A_xXogIUg=s0-d-e1-ft
 

inonada

Well-known member
Noah, you have mentioned COMP as potentially becoming a generational buying opportunity. What makes you think that, as opposed to going into a death spiral where the brokers jump ship? I have no opinion on the matter (don’t know anything), just curious to hear your reasoning.
 

David Goldsmith

All Powerful Moderator
Staff member
More layoffs at Compass (Redfin as well). Their stock closed at 4.26, down almost 80% from last year's IPO.

Compass, Redfin cut hundreds of employees amid cooling market​

450 to depart Compass, Redfin slashing 470​

Layoffs hit the brokerage world Tuesday, with Compass and Redfin announcing they were cutting hundreds of employees amid a cooling housing market and stock market correction.
Compass’ cuts amount to 10 percent of its staff, or about 450 employees, according to SEC filings. The firm is also winding down Modus Technologies, the title and escrow arm it acquired in 2020.

The company will also pause mergers, acquisition activity and new market expansion for the rest of the year.
Redfin’s layoffs amount to approximately 470 employees, or approximately 8 percent of its total employees, according to SEC filings. The company noted the cuts amount to 6 percent of its workforce including RentPath and Bay Equity. It expects to complete the reduction by the end of June.
In an internal statement, the company cited falling home sales and “a historic jump in interest rates.” The average 30-year fixed mortgage rate is flirting with 6 percent, twice what it was just a few months ago.

In an email to staff, CEO Robert Reffkin similarly cited inflation and increasing interest rates for the cuts.
“As leaders in the real estate industry, you are on the front lines seeing the current economic trends take shape before they hit the rest of the economy, so it’s no surprise to you that the economic environment has consistently worsened over these last few months,” Reffkin wrote.
The chief executive said the affected roles were largely “on teams that do not directly support agents.”
In May 2020, the brokerage giant laid off 375 employees, or 15 percent of its staff, citing the pandemic. Redfin also went through a major furlough that year, with 41 percent of its agents being let go.
In May, Compass reported a first quarter loss of $188 million, with $1.4 billion in revenue for the quarter, up 25 percent from the same period a year ago, against $1.6 billion in expenses.

At the same time, Compass added 398 principal agents in the first quarter, bringing its total to 12,574.
 

David Goldsmith

All Powerful Moderator
Staff member

Compass is now worth less than it raised from investors​

Brokerage's market cap drops to $1.8B, compared to $2B raised in VC, IPO funds​

Venture capitalists pumped over $1.5 billion into Compass, a startup that promised to use technology to alchemize the residential brokerage business. When the company went public last March, it raised another $450 million, bringing its total investor haul to $2 billion, a record-breaking number for a sector that Silicon Valley has long avoided.
Compass’ market cap has now fallen below that mark. As of Wednesday, it hit $1.8 billion, with its share price hovering around $4, compared to its IPO price of $18. That means the company, which debuted on the Fortune 500 last month, joins the ranks of other private-market darlings such as Blue Apron and View whose public-market valuations have dropped below the total capital they raised from investors.

At its current market cap, Compass’ value is about what it was when it raised $100 million in a November 2017 Series E round, according to Pitchbook. Since then, it raised another $1.2 billion in venture capital, at increasingly higher valuations. Investors in those successive rounds, including SoftBank’s Vision Fund and the Qatar Investment Authority, are almost certainly underwater on their bets. Less clear is the fate of early investors who doubled down in successive rounds, including Wellington, IVP and Fidelity.

“Compass is focused on long-term value. We grow by helping our agents grow their business so that’s where we direct our energy,” a spokesperson for the firm said in a statement. “As the number one residential brokerage by sales volume, our results speak for themselves and we continue to be the industry leader in both agent productivity and agent retention.”
Let’s be clear: Compass, which also announced this week that it was laying off 10 percent of its staff, is far from the only residential brokerage taking a hit. Douglas Elliman’s stock price is down 54 percent year-to-date. Redfin’s share price has fallen fivefold this year, to $8 on Wednesday compared to $39 on Jan. 3. The discount brokerage announced it was laying off 8 percent of its workforce, with Redfin CEO Glenn Kelman citing a dramatic jump in mortgage rates and saying there was potential for “years, not months, of fewer home sales.”

Side, a private startup that has raised more than $250 million and was valued at $2.5 billion last June, said this month it was also laying off 10 percent of its workforce. There are likely other less dramatic cuts taking place across the residential industry, which enjoyed a banner year in 2021 and is now adjusting to a harsher market. And we’re watching this play out during a torrid time for the stock market in general — the S&P 500 is down more than 20 percent this year — and tech stocks in particular. Let’s not even get into proptech stocks.
Compass insiders complain that the firm has a target on its back, accusing the media of bloodlust. But the target didn’t magically appear there — the attention heaped on Compass is because of its spectacular success in fundraising, and its prodigious ability to grow by acquiring rival firms or recruiting their top agents. It unseated Realogy to take the top spot in RealTrends’ 2022 ranking of brokerages by national sales volume, with $251 billion in sales across over 224,000 transactions. In Manhattan, the firm placed third on The Real Deal‘s ranking, based on closed, sell-side deals. Those impressive numbers didn’t translate into profitability, though — the firm lost $188 million in the first quarter of 2022.

The focus on share price is also important because Compass pioneered the use of equity grants and stock options to attract employees and agents. It also allowed agents to swap commission dollars for stock options or restricted stock. (This March, facing a falling share price and mounting quarterly losses, Compass CEO Robert Reffkin announced the firm would scale back its employee stock award program)
After the IPO, Compass agents expressed excitement about the ability to build wealth through stock — rainmaker Vickey Barron even compared it to getting in early on Apple and Amazon stock.

Agents are not sophisticated private-market investors. So it is fair to now expect them to ask hard questions of Compass, and of themselves.
 
Top