Compass Stock Soars After Raising Q4 and Full-Year Outlooks
Positive News Sends Shares Skyrocketing
Compass, the real estate technology company, gave investors a much-needed boost on Wednesday by raising its fourth quarter and full-year outlooks. The news sent its stock soaring over 20 percent, reversing a month-long decline.
Acquisitions and Growth
Earlier in the week, Compass announced the closure of its $444 million deal for @properties and Christie’s International Real Estate. This acquisition is expected to contribute to the company’s growth, which is evident in its revised full-year revenue projections. Compass now expects to generate $5.61 billion to $5.64 billion in revenue, up from its previous estimate of $5.47 billion to $5.57 billion.
Improved Financial Projections
The company’s full-year adjusted EBITDA projections have also increased to between $124 million and $127 million, up from $109 million to $119 million. Additionally, Compass expects to be below its low-end full-year operating expense projection of $876 million. This improved financial outlook means the company is on track to generate positive free cash flow in the fourth quarter, a historically challenging period.
Agent Recruitment and Retention
Compass has also seen significant growth in agent recruitment, adding over 650 principal agents in the fourth quarter, a 50 percent increase from the same period last year. The company has been successful in attracting top talent, including “Million Dollar Listing” star Tracy Tutor and her 18-person team from Douglas Elliman.
Less Rate-Sensitive Customers
According to CEO Robert Reffkin, Compass’s outperformance can be attributed to its less rate-sensitive customers, who don’t rely on mortgages and instead receive interest income. This puts the company at an advantage in the current interest rate environment.
Market Share and Strategy
Reffkin also highlighted Compass’s progress towards achieving 30 percent market share in its top 30 cities, with the company currently in the 20 percent range. The company’s strategy is focused on acquiring as many listings as possible, with the goal of funneling them into its three-phased marketing strategy. However, this approach is challenged by the National Association of Realtors’ Clear Cooperation Policy, which requires listings to be publicly marketed within one day of being listed on the MLS. Reffkin believes this policy may be scrapped as soon as next month, following the Supreme Court’s ruling on the Department of Justice’s probe into the trade group.
Industry Implications
The potential scrapping of the Clear Cooperation Policy has raised concerns about the impact on small brokerages, which may struggle to compete with larger companies. Reffkin expressed his concerns, stating that agents at small brokerages may be more interested in the value proposition of a large brokerage.
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