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Pointing to the “sharpest decline in residential real estate transactions in U.S. history,” Compass on Tuesday announced that its revenue dropped during the first three months of the year, but its losses improved.
In total, Compass brought in $957 million in revenue during the first quarter of this year. That’s down 31 percent compared to the first quarter of 2022 — notably a period before high rates set off a significant cooling trend in the housing market.
Robert Reffkin
The company also suffered a net loss of $150 million. Though a large sum, that number is actually an improvement over the first quarter of 2022, when Compass lost $188 million. The Q1 2023 loss includes about $70 million from stock-based compensation expenses, the paying off of debts and other costs.
In the report, Compass CEO Robert Reffkin said that Compass “had a strong first quarter” that exceeded both company and analyst expectations.
“Over the past few quarters, our agents and employees have successfully navigated the sharpest decline in residential real estate transactions in U.S. history,” he continued. “During this time, we increased our market share in the fourth quarter of 2022, and we’ve done so again in the first quarter of 2023.”
The company had an average of 13,515 principal agents during the first quarter of the year, it also revealed in the report. That’s a net increase of 721 agents, or 6 percent, compared to the same period one year ago. It’s also an increase, albeit a smaller one, over the fourth quarter of 2022, when Compass had an average of 13,426 principal agents.
Agent count is an important metric for Compass; the firm’s ability to recruit agents, particularly top-performing ones, is a major part of its story — and enabled it to dethrone legacy players atop the real estate hill. But Compass also cut its cash and stock-based recruiting incentives last year, leading to questions about its ability to continue growing, particularly as the overall market slowed down.
So far, however, the company has managed to continue adding agents. At least some of the agents Compass has added in recent months include so-called “boomerangs” who previously worked at the company, left and then returned. Inman spoke to a number of boomerang agents in April and found that many returned for Compass’ technology and culture.
During a call Tuesday with investors, Reffkin said that since August Compass has recruited more than 1,000 agents, some of whom have said they’re paying more at Compass than they were at their previous companies. Reffkin pointed to Compass’ platform, culture and referral network as major incentives for agents joining the brokerage.
“We survey our agents on the number one reason they came,” Reffkin added during the call, “and it’s far and away technology.”
Compass shares gained more than 6 percent over the course of regular trading Tuesday. When markets closed, shares were fetching $2.80. That was up almost a dollar compared to last fall when shares hit an all-time low. But the brokerage’s current share price is still down significantly from April 2021 when it went public and when shares were worth more than $20.
After Compass published its earnings report Tuesday, shares spiked in after-hours trading. And by the time Reffkin ended his call with investors, they had hit $3.14.
Credit: Google
Compass had a market cap of about $1.23 billion as of the end of regular trading Tuesday afternoon.
Compass last reported earnings in February, at which time it revealed that revenue dropped 31 percent to $1.11 billion in the fourth quarter of 2022. The company also suffered a net loss of $158 million during the final three months of 2022 — though that was an improvement compared to the $175 million the company lost during the same period one year prior.
Reffkin described 2022 as “a difficult year for the residential real estate market and Compass,” in that February earnings report. He also pointed to widespread declines in real estate transactions and noted that Compass at the time beat the industry average.
In addition to numbers on revenue and agent count, Tuesday’s new earnings report also states that Compass plans to be free cash flow positive in 2023. The report states that the firm is on track to achieve that goal.
During the investor call, Reffkin reiterated that point, saying that he expects the company to be free cash flow positive in the second, third and fourth quarters of this year — and overall for 2023.
Among other things, Reffkin also touted his company’s technology platform during the call, describing it as unique in the industry and “the best way to monetize transactions.” He also said the company is regularly adding features.
“I’m excited to announce that we’ve successfully integrated title and escrow services into the platform,” Reffkin said during the call, adding a moment later that the features will allow agents to “seamlessly order title and escrow from our own affiliates” with the tools they already use.
Reffkin also touted Compass’ adjusted EBITDA, which ended up at a loss of $67 million in the first quarter of this year. That’s an improvement compared to a loss of $97 million in the first quarter of 2022. EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” The figure is a widely used metric by which analysts measure a company’s financial health. Though analysts ideally prefer to see positive EBITDA, shrinking losses at a newer company that has traditionally burned through cash is also generally a good sign.
Ultimately, Reffkin expressed confidence on the call about Compass’ financial discipline, but said the company is prepared to take further steps beyond what it has already done — measures include cutting recruiting incentives and layoffs — if needed.
Speaking of the market, Reffkin went to say during the call that “a future decline in rates means we would likely see more transactions” and unlocked inventory — which remains one of the market’s biggest challenges right now. However, even with tight inventory and “upward pressure on prices,” Compass agents are seeing “more foot traffic at open houses” and the return of bidding wars, Reffkin said.
“It’s not a demand issue,” Reffkin added during the call. “Buyers have accepted 6 percent mortgage rates as normal.”
Reffkin also ultimately expressed optimism about the future of his brokerage.
“I believe,” he concluded as the call wrapped up, “that the golden age of compass is ahead of us.”
Update: This story was updated after publication with additional information from Compass’ earnings report, and with commentary from the brokerage’s investor call with.
