Equity markets in 2019 have been unkind to Realogy, the nation’s largest real estate holding company. On Wednesday, on the heels of the company filing a blockbuster lawsuit against rival brokerage Compass for “unfair business practices and illegal schemes to gain market share at all costs,” Realogy’s stock sunk to a new record low, closing the day at $5.87 per share.
The year has seen the company’s market cap wither and its stock drop from around $23 per share a year ago, a far cry from 2015 when it hovered above $40 per share. Analysts, unsurprisingly, took note of Realogy’s falling stock and the lawsuit, with its accusations of price-fixing and computer tampering.
Realogy stock price | Photo credit: Google
“Yesterday, Realogy filed a complaint in New York State court against competitor Compass, Inc,” a team of JP Morgan analysts wrote in a note. “For the past several years, Compass has been in an aggressive expansion mode that when combined with other residential brokers in key major metros in the U.S. has resulted in market share losses and lower profitability for Realogy.”
The analyst note highlighted several key points for investors to consider, including simply that this lawsuit may add to the noise already surrounding the residential brokerage business. One positive to take away from the lawsuit, however, is that it may be Realogy drawing a line in the sand to put an end to the so-called “race to the bottom,” to offer higher splits for agents and leave little room for profitability.
The note further highlights some of the more serious allegations – like CEO Robert Reffkin allegedly soliciting Realogy to enter into a price-fixing agreement to limit agent compensation.
“There are a whole host of other accusations in the complaint that read poorly for Compass as it relates to intellectual property, like accessing Realogy computer systems,” the note reads. “For those of us in the securities industry that is highly regulated when it comes to [intellectual property], it makes the residential brokerage business look like the Wild West – probably not a good thing.”
Despite equity market struggles, Realogy CEO Ryan Schneider is betting on the publicly-traded company turning things around. In early May, Schneider purchased nearly $1 million in shares at $8.38 per share. Those same shares are now worth slightly more than $700,000, although any losses are just paper losses at this point, as Schneider continues to hold onto the share.
Realogy remains the market leader in terms of agent count and yearly sales volume from its own-side brokerage, NRT.
In a market where it seems traditional real estate struggling, RE/MAX the other publicly-traded real estate company with a more traditional tilt, has also faced similar equity market struggles, however, things seem to have leveled off a bit this year. RE/MAX opened 2019 at around $32 per share and sits today at roughly $32 per share – although its down from $56 per share at this time last year.
Zillow, a real estate tech company that’s moving deeper into the home buying space with Zillow Offers, is trending upward after cratering late last year. Zillow’s stock fell below $30 per share in November 2018, but it’s back up over $50 per share, where it was at this time last year.
One could read into these converse trajectories as how the equity market views traditional and non-traditional real estate companies, at least for the time being.
A spokesperson for Realogy declined to comment on the company’s stock price.
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