Compass Reports $7M Loss, 186% Revenue Growth

UPDATED Monday August 9, 2021, 8:01 p.m.: Compass’ losses are narrowing as revenue surges, while top executives are focused on explaining how the company will become profitable and why they are in fact a technology company.

The residential brokerage’s quarterly revenue jumped 186 percent year-over-year to $1.95 billion, the company reported Monday in its second-quarter earnings. Compass reported a net loss of $7 million for the quarter, an improvement from a loss of $84 million in the same period a year earlier.

The company’s expenses for the quarter totalled $1.96 billion, up from $767.7 million a year ago. Agent commissions and stock-based compensation totaled $1.59 billion, which was again the biggest expense. Second-biggest was sales and marketing, accounting for $124 million.

The brokerage reported a record number of closed sales, 65,743, during the quarter with a gross value of $77 billion. (Compass counts sales and the value twice if its agents represent both the buyer and seller.)

Pointing to Compass’ record quarterly revenue and closed transactions, Chief Executive Robert Reffkin told investors during Monday’s earnings call that the company would be “profitable on an adjusted EBITDA basis for the full fiscal year of 2022.” He added that was a “year earlier than we previously expected.”

The figure, adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, is an alternative measure companies include on top of the financials that Compass must report according to the U.S. Securities and Exchange Commission’s public disclosure rules. Companies offer such alternatives to net income, arguing that’s how they internally measure their success. Critics say the measure misrepresents earnings.

Compass’ adjusted-EBITDA excluded $78.9 million in expenses, $54.3 million of which was stock-based compensation, showing Compass earned $71.3 million in the quarter, instead of losing $7 million.

Kristen Ankerbrandt, Compass’ CFO, also focused her remarks on the company’s path to profitability. She said the company ramped up its investment in areas of growth that they expect “will drive long-term profitability.”

Two concrete examples included the company’s launch of its mortgage business OriginPoint last month and its expansion into 15 new markets. Ankerbrandt said the mortgage business was originally planned to start next year and that Compass typically only opens in two markets per quarter. She attributed the accelerated time frame to “Q2 outperformance combined with our strong future outlook.”

She said OriginPoint would begin originating mortgages by the end of the year and be operating in all Compass markets by the end of 2022. Compass’ title and escrow services are operating in parts of California, Florida, Washington State, Maryland, Virginia and Washington D.C.

Ankerbrandt said Compass’ ability to expand was most dependent on recruiting and retaining agents and increasing transactions. She told investors she was confident Compass would deliver as “we have done this consistently.”

Compass added 817 principal agents last quarter, bringing its total headcount to 10,629 principals. On average, each principal agent closed 6.2 deals in the quarter. The company also added 15 new markets last quarter; Compass is now operating in a total of 62 markets.

Ankerbrandt said that half of those markets are in the “investment phase” but she said that the company’s rule of thumb is that its markets will become profitable within three years.

Reffkin also spent a considerable amount of time during the call explaining Compass’ technological edge.

“I know that many of you see us as just a brokerage,” he told analysts. “But our strategy at Compass is to be much more than a brokerage. Over time you will see how our platform powers a larger number of adjacent services… creating a long term sustainable financial advantage.”

He also gave himself a deadline to prove it to them.

“By next summer, we expect to be the first company to provide agents with a platform that will allow them to facilitate the full transaction in one place, without having to pay for or log on to any third-party real estate software,” he said.

Compass’ shares closed at $15.28 Monday, up more than 5 percent from the morning’s open. It continued to surge in after-hours trading to $16.30 at 4:43 p.m.

Story was updated to include comments made on Compass’ Monday earnings call.