Real Estate Took A Drubbing In Q4, But Some Companies Still Surprised

Brokerages, tech companies and mortgage providers all saw massive losses as the market soured at the end of 2022. But some leaders did have a few tricks up their sleeves.

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For one company, revenue dipped 31 percent year over year in the fourth quarter.

For another, adjusted EBITDA dropped more than 72 percent.

For still one more, net losses jumped 1,064 percent compared to the same period one year earlier.

For the last several weeks, Inman has been pouring over major real estate companies’ earnings reports to chronicle losses and profits in the final months of 2022. And if you have a head for numbers, the figures above — all from those reports — may be riveting.

But look, a whole pile of numbers can also be a bit much. Sure losses or revenue or EBITDA [Earnings Before Interest, Taxes, Depreciation and Amortization] may have changed. But what exactly does that mean? And for anyone who isn’t a Wall Street junkie, which numbers actually matter? Fundamentally, why should anyone care about any of this?

To answer those questions, Inman has been combing through the biggest companies’ reports, looking for major themes. The real estate landscape is varied, and many of the reports were all over the map, so there isn’t necessarily a single big message here. It’s also worth noting that a few companies, including Keller Williams, Douglas Elliman, loanDepot and others are yet to report their earnings.

But broadly speaking, there are a few high-level takeaways. First, it was a tough quarter. A lot of companies lost a lot of money. Second, cost-cutting seems to have made a difference for some companies. And finally, there were some surprising big announcements and some instances in which companies grew despite the slower market.

It was a tough quarter

Heading into this earnings season, pretty much everyone expected companies to have lackluster results. That was largely due to the widespread understanding that — thanks to rising mortgage rates — the housing market was way down by the time 2022 wrapped up. On top of that, the final three months of any year are typically a slow time for real estate. So, a market downturn combined with normal seasonality had everyone bracing for the worst.

And the reports delivered. Some of the big numbers in this genre include Anywhere’s loss of $453 million in the fourth quarter, a year-over-year spike of 1,064 percent; Rocket Companies’ loss of $493 million, which was the first time it lost money since going public; Opendoor’s loss of $399 million, which is more than double what it burned through one year prior; Offerpad’s loss of $121.1 million, a record for the company; and Redfin’s $61.9 million loss, up from $27 million during the same period one year earlier.

The two big iBuyers, Opendoor and Offerpad, also revealed that on average they both lost more than $20,000 on every home they sold in the quarter.

The point here isn’t to memorize every single one of these numbers.

Rather, it’s to highlight that losses were big and widespread. Forecasts that this would be a rough earnings season mostly came true. That’s not entirely surprising, but the scale of the losses — for instance, a more than 1,000 percent jump in losses for Anywhere — does put into perspective just how slow the market got in the fourth quarter of 2022.

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Progress on cutting costs was mixed

Prior to this latest batch of earnings reports, the thing virtually every analyst told Inman they were thinking about was cost cutting. The idea here was that revenue was going to be down across the board, so even normally profitable companies would have to trim the fat. For companies that consistently lose money, the mandate to cut was even greater.

This earnings season suggests some companies have in fact made some progress on this front.

Robert Reffkin

Perhaps most notably, Compass described 2022 as “one of the worst years for the real estate market,” but still managed to trim its losses. To be clear, the company did lose $158 million in the fourth quarter of 2022. But that was actually an improvement compared to the same period in 2021, and CEO Robert Reffkin said that thanks to cost cutting, the company is now on track to be free cash flow positive this year.

Zillow also managed to trim its losses; In the fourth quarter it burned through $72 million, an improvement compared to the $261 million it lost in the final three months of 2021.

But not every company notched major success on this front. Redfin, for one, saw its net loss more than double despite cost cutting — though CEO Glenn Kelman said cuts should allow the company to turn a profit in 2024.

Additionally, Rocket lost nearly half-a-billion dollars in the fourth quarter, despite slashing expenses by $202 million from the third quarter.

So, it remains to be seen if cost cutting has gone far enough or if it will continue to be a trend going forward in 2023.

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Investors weren’t impressed

The overall markets have had something of a rough year so far, and all the major indexes have fallen over the last month. That downward trend has impacted real estate companies as well, with most seeing their stock prices fall in recent weeks.

However, most real estate companies’ earnings reports haven’t helped their share prices. A day after Compass reported earnings, for instance, its shares fell 15 percent. After CoStar — which turned a profit — reported earnings, its share price dropped by about $6. Zillow’s share price popped slightly the day after its earnings report but then fell over the ensuing days.

This happened again and again this earnings season, with lackluster numbers driving down investor enthusiasm. That doesn’t necessarily impact companies’ day-to-day operations — excluding Offerpad, which is at risk of being delisted from the New York Stock Exchange — but it does represent a kind of vote of low confidence in real estate from Wall Street.

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Companies made big announcements

Sometimes, earnings season includes a few big surprises, such as when in late 2021 Zillow used the occasion to announce its exit from iBuying.

There was nothing quite so huge this time around, but there were still a few blockbuster revelations.

The first came during CoStar’s earnings when the company revealed that it was no longer interested in acquiring Realtor.com. The possibility of such an acquisition had electrified parts of the real estate industry because it would have marked a major escalation in the feud between Zillow and CoStar. The feud has been simmering for a few years now, with CoStar criticizing Zillow’s business model and launching a New York City portal, Citysnap, to compete with Zillow’s StreetEasy. If CoStar had acquired Realtor.com, however, the two companies would have been competing across the entire U.S.

Andy Florance | Photo credit: CoStar

CoStar CEO Andy Florance put the kibosh on such a deal during his company’s earnings report on Feb. 21. However, the rival isn’t disappearing; the reason CoStar isn’t going after Realtor.com, Florance revealed, is because it instead wants to build up its own Homes.com brand. So the rivalry lives to see another day.

The other big news out of this round of earnings came from Compass. In a call with investors Tuesday, Reffkin revealed that his company is exploring the possibility of franchising. Reffkin offered few details about the concept, except to say that Compass franchises wouldn’t operate in the same geographies as company-owned offices. But if Compass does move forward with the concept, it would mark a major shift for the brokerage, which so far has maintained a centralized power structure.

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Growth wasn’t impossible

Though the final months of 2022 were indeed rough for real estate companies, earnings season did include a few surprises. CoStar, for instance, actually saw its profits go up.

Real estate software and analytics company Black Knight Inc. saw its profits slip, but it still managed to stay in the black and sign new clients.

And RE/MAX suffered a $2.6 million net loss, but still managed to grow its total number of Motto Mortgage franchises 23.5 percent year over year to 231 offices nationwide.

The battle for agent count also didn’t fizzle out. Recent years have seen brokerages compete ever more intensely for talent, with eXp Realty and Compass leading the way. Those two companies’ ability to recruit is what propelled them to the top of the real estate heap. With a downturn ongoing, however, the consensus is that the total number of practicing agents in the U.S. would fall. And that, in turn, has raised questions about whether or not fast-growing brokerages can maintain their track records.

But so far, Compass and eXp are still growing.

In eXp’s case, the company reported that agent count grew to 21 percent in 2022 to 86,203. That’s a slower rate of growth than the company is accustomed to, and much of it happened earlier in the year rather than during the fourth quarter, but it’s significant that even in a downturn the company didn’t lose agents.

Compass’ headcount grew 18 percent in 2022, for an average of 13,073 principal agents. In the fourth quarter alone, Compass grew its agent count by just over 100.

Again, these are not huge numbers. And both eXp and Compass suffered net losses in the quarter.

But the key takeaway here is that despite a genuinely brutal market, some companies did manage to grow their agent counts, client bases or even their profits. It was a tough earnings season but also, in the end, a surprising one.