Jake Indursky
6 min read
In This Article:
Could Compass be suffering under the weight of its own expectations?
The firm spent much of its first cash-flow positive year buying up competitors and duking it out with major industry players over private listings, generating positive headlines and stock moves for its financial and strategic wins.
Compass reported its first-ever cash flow-positive period in the second quarter of 2023. It was an important milestone after a year-long cost-cutting campaign and a first in its life as a public company. It kept positivity in the following quarter, but fell into losses while finishing the year.
It returned to cash flow positivity in the first quarter of 2024 and marked a full year in its results announced in May. Compass upped its free cash flow in the first quarter to $19.5 million and narrowed its net losses by $82 million to $51 million — only for its stock to fall 19 percent the following day.
While Compass continued to improve many of its key operating metrics, the company’s ability to return on its massive investment remains unclear, while CEO Robert Reffkin’s continues big swings against Clear Cooperation Policy.
Compass put up by far the worst May of its publicly-traded competitors, watching its stock fall to $5.91 from $7.81 to close the month, down 24 percent.
Douglas Elliman was the only other brokerage to see its stock price swing double-digit percentage points, but its value went in the other direction. The beleaguered brokerage saw its price jump over 60 percent, from $1.69 to $2.72, on news that it received a merger offer from Anywhere Real Estate.
The offer for Elliman — which some have speculated could be a target for Reffkin’s firm as well — comes after Compass had added a number of brokerages in the last year, including @properties and Christie’s International Real Estate. In March, there were reports that Compass was nearing a deal for Berkshire Hathaway HomeServices, which were later denied by HomeServices executives.
After arguably exceeding expectations for most of 2024, Compass opened 2025 with a bit of dud, missing consensus estimates on revenue and earnings per share, according to Yahoo Finance. Analysts responded by moving full-year breakeven projection to 2026 from 2025.
“We took down our forecasts pretty massively,” said Needham analyst Bernie McTernan, noting much of that was related to a weak housing market. But in a critical moment for Compass being able to cut its way to profitability and create a flywheel for agent growth with its recent inventory push, “I don’t think the thesis is shaken,” he added.
