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Compass didn’t manage to become cash flow positive in 2023 as it had hoped, but it did nevertheless manage to buck a tough market and hold off major revenue losses in the fourth quarter — while also growing its agent count at a time when overall Realtor ranks are shrinking across the industry.
In total, Compass brought in $1.1 billion in revenue between October and December of 2024, according to a newly published earnings report. That represents a 1 percent year-over-year dip. The company also lost $83.7 million in the quarter, which is a 47 percent improvement over the loss of $158.1 million one year earlier.
For all of 2023, Compass brought in $4.9 billion in revenue, down from $6 billion in 2022. Compass suffered a net loss of $321.3 million for all of 2023, compared to $601.5 million in 2022.
In previous earnings reports, company founder and CEO Robert Reffkin repeatedly mentioned a goal of becoming free cash flow positive for 2023. However, Tuesday’s report shows that Compass fell just short of hitting that target; free cash flow was negative $37.1 million for 2023. However, that still represents a significant improvement over the negative $361.8 million in free cash flow Compass had in 2022.
Compass now expects to become free cash flow positive in 2024.
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Robert Reffkin
In the report, Reffkin said his company has “successfully navigated the worst residential real estate market in decades and significantly reset our operating expense levels, positioning Compass for what we believe will be significant upside when the market begins to recover.”
“As we reduced operating expenses, we continued to invest in growth, our agents and our technology platform, the industry’s only proprietary first-contact-to-close platform,” Reffkin added.
During a call with investors Tuesday afternoon, Reffkin said the 2023 market had the “lowest level of home sales since 1995.” But he added that “despite these massive headwinds, we have positioned Compass for significant upsides when the market begins to recover.”
Tuesday’s report further reveals that Compass’ transactions declined 4.9 percent in Q4, which the company framed as a victory compared to the 9.2 percent decline that took place across the broader industry. Compass agents closed a total of 40,621 deals in the fourth quarter.
Compass transactions fell 15.5 percent for all of 2023, compared to 18.7 percent for the broader market, the report notes.
Despite lower revenue and transactions, however, Compass managed to increase its principal agent headcount by 7.7 percent in the fourth quarter compared to the same period a year earlier. Agent count also increased 4.5 percent compared to Q3 of 2023. In total, Compass had an average of 14,689 principal agents in the fourth quarter of 2023.
The company additionally reported an agent retention rate of 97 percent in the final three months of 2023.
Those numbers are significant because Compass’ rapid growth and aggressive recruiting have made it the largest company of its kind in recent years — despite its relatively recent founding just over a decade ago. At the same time, in 2022, the brokerage ditched lucrative stock and cash-based incentives for new agents. The move raised questions about Compass’ ability to sustain growth going forward.
Despite those questions, however, the company has consistently managed to increase its principal agent count, and Tuesday’s new numbers show that the streak continues.
In the report Tuesday, Reffkin noted that Compass has “recruited more than 2,000 principal agents without cash or equity sign-on incentives since eliminating those incentives in August 2022.” He added during the investor call that of the agents who have recently joined the brokerage, “over 80 percent point to our Compass technology platform, which makes them more productive.”
Heading into Tuesday’s earnings, shares in Compass were trading in the mid $3 range. That was up for the day, but roughly even compared to where the company began 2024, as well as where its shares were one year ago.
Shares fluctuated Tuesday in after hours trading following the earning report’s publication, but ultimately trended up — buoyed perhaps by improvements in losses, free cash flow and agent count.
Credit: Google
Compass had a market cap of about $1.65 billion when markets closed Tuesday afternoon.
Compass last reported earnings in early November. At the time, the brokerage revealed that it brought in $1.34 billion in revenue between July and September last year. That was down 10 percent compared to the third quarter of 2022. But despite the dip in revenue, Compass managed to improve Q3 losses significantly.
In addition to financial numbers, Tuesday’s report also shows that Compass’ U.S. market share stood at 4.41 percent in Q4. That’s a year-over-year increase of 9 basis points, according to the report.
During Tuesday’s call, Reffkin briefly mentioned the various commission lawsuits that challenge the way agents get paid. The most famous of these cases, which went to trial in October, is known as Sitzer | Burnett and does not involve Compass. However, subsequent “copycat” cases have named Compass. The lawsuits have been a dominant story in real estate over the last year.
Reffkin declined to comment directly on the cases themselves, but did say Compass is “actively engaged in helping agents demonstrate their value.” He also said Compass has implemented training related to buyers’ agreements that outline agent pay, and that last fall the brokerage developed “buyer’s presentations” that are meant to articulate agents’ value.
Reffkin said the industry’s failure to create buyer presentations sooner is what resulted in many consumers not understanding the value agents bring to a transaction.
Asked if such measures are enough of a response to pressure on the industry — including from the U.S. Department of Justice — Reffkin responded in the affirmative.
“It alleviates my concern,” he said, “on any financial risk on the topic.”
Later on the call, Reffkin weighed in on the market, sharing a relatively optimistic vision of what might unfold in 2024. He said that 2023 was the “bottom of the market,” and noted that fewer people are “locked in” to their current homes due to mortgage rates this year compared to last. He also argued that many people have delayed and deferred moving for a year and half. Now, Reffkin added, there’s pent-up demand and people are ready to act.
“What I believe,” Reffkin said, “is that people are tired of waiting.”
Update: This story was updated after publication with additional information from Compass’ earnings report, and with commentary from the company’s investor call.
