Realogy CEO Ryan Schneider cannot catch a break with Wall Street. The market cap of his company, the largest by sales volume in the U.S. real estate industry, has fallen below $800 million, a tenth the size of Zillow, the latter of which is currently valued at nearly $8.5 billion following a recent stock uptick.
Realogy has lost more than half of its already depressed value in just three months — and nearly 90 percent in the last five years. Today, the company tumbled almost 10 percent, with the stock falling to $6.80 per share, a new record low.
Realogy one-year stock chart from the NASDAQ | Credit: NASDAQ
Once the powerhouse of the residential real estate industry, the company has been severely humbled. It’s a stark reminder how rapid and devastating industry change can be.
One analyst blamed programmatic trading by big investors. But he also asked, is this Wall Street finally recognizing the disruption faced by broker owners industry-wide? “Why buy Blockbuster when you can own Netflix?” he asked cynically.
Realogy stock chart from 2013-2019 | Credit: Yahoo Finance
These setbacks come as Schneider perseveres with his data and tech strategy. Insiders say that despite the recent stock market rout, morale is high at the New Jersey-based company.
Realogy stock summary. Credit: Macrotrends
To give the stock a boost and show confidence from management, Schneider purchased $1million worth of Realogy stock two weeks ago. The stock price has fallen by about 20 percent since then. The management team who allegedly got a new tranch of company equity are feeling the pain.
Realogy stock chart annotated with Schneider purchase | Credit: NASDAQ
One exec said, “I am a Ryan believer, but … Ouch”.
On paper, the market cap comparison with Zillow makes no sense.
Realogy has nearly $6 billion in annual revenue, compared to $1.3 billion for Zillow, which loses money. Realogy earned $600 million last year, with super high margins from its franchise business. But the company has $3.6 billion in debt, compared to $1 billion for Zillow.
Schneider inherited lots of problems, the mess is not his doing. The big stinker is NRT, which is emblematic of problems every broker in the country faces: shrinking margins, high overhead and pressure on commissions. NRT is made up of company-owned brokerages, which do not enjoy the fantastical margins of the franchise business.
One big broker owner told me, “This business sucks if you get the math wrong.”
NRT CEO Ryan Gorman is purportedly heads down, using big data to figure out how to get out from under commercial leases, reducing the biggest expense of most broker-owners: office space provided to house weak agents. They are also shedding more and more poor performing agents — something most brokers have been reluctant to do. The realities of a broken business model are coming home to roost.
At today’s market cap, why wouldn’t someone like Warren Buffett, owner of Berkshire Hathaway HomeServices, the industry leader in transaction sides, swoop in and acquire the company?
Activist short seller Andrew Left said: “That will never happen, Buffett likes businesses with moats around them. Realogy has none — and no pricing power.”
A stock shorter’s sassy talk?
Maybe not.
The industry faces a wave of staggering disruption. Realogy may be the most glaring and colossal example of the consequences.
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