Compass is now worth less than it raised from investors

Brokerage's market cap drops to $1.8B, compared to $2B raised in VC, IPO funds

New York /
Jun.June 15, 2022 04:05 PM
Compass' market cap is now under the amount the resi brokerage raised from VCs and in its IPO (Masayoshi Son/Getty Images, iStock/Photo illustration by Steven Dilakian)

Compass’ market cap is now under the amount the resi brokerage raised from VCs and in its IPO (Masayoshi Son/Getty Images, iStock/Photo illustration by Steven Dilakian)

Venture capitalists pumped over $1.5 billion into Compass, a startup that promised to use technology to alchemize the residential brokerage business. When the company went public last March, it raised another $450 million, bringing its total investor haul to $2 billion, a record-breaking number for a sector that Silicon Valley has long avoided.

Compass’ market cap has now fallen below that mark. As of Wednesday, it hit $1.8 billion, with its share price hovering around $4, compared to its IPO price of $18. That means the company, which debuted on the Fortune 500 last month, joins the ranks of other private-market darlings such as Blue Apron and View whose public-market valuations have dropped below the total capital they raised from investors.

At its current market cap, Compass’ value is about what it was when it raised $100 million in a November 2017 Series E round, according to Pitchbook. Since then, it raised another $1.2 billion in venture capital, at increasingly higher valuations. Investors in those successive rounds, including SoftBank’s Vision Fund and the Qatar Investment Authority, are almost certainly underwater on their bets. Less clear is the fate of early investors who doubled down in successive rounds, including Wellington, IVP and Fidelity.

“Compass is focused on long-term value. We grow by helping our agents grow their business so that’s where we direct our energy,” a spokesperson for the firm said in a statement. “As the number one residential brokerage by sales volume, our results speak for themselves and we continue to be the industry leader in both agent productivity and agent retention.”

Let’s be clear: Compass, which also announced this week that it was laying off 10 percent of its staff, is far from the only residential brokerage taking a hit. Douglas Elliman’s stock price is down 54 percent year-to-date. Redfin’s share price has fallen fivefold this year, to $8 on Wednesday compared to $39 on Jan. 3. The discount brokerage announced it was laying off 8 percent of its workforce, with Redfin CEO Glenn Kelman citing a dramatic jump in mortgage rates and saying there was potential for “years, not months, of fewer home sales.”

Side, a private startup that has raised more than $250 million and was valued at $2.5 billion last June, said this month it was also laying off 10 percent of its workforce. There are likely other less dramatic cuts taking place across the residential industry, which enjoyed a banner year in 2021 and is now adjusting to a harsher market. And we’re watching this play out during a torrid time for the stock market in general — the S&P 500 is down more than 20 percent this year — and tech stocks in particular. Let’s not even get into proptech stocks.

Compass insiders complain that the firm has a target on its back, accusing the media of bloodlust. But the target didn’t magically appear there — the attention heaped on Compass is because of its spectacular success in fundraising, and its prodigious ability to grow by acquiring rival firms or recruiting their top agents. It unseated Realogy to take the top spot in RealTrends’ 2022 ranking of brokerages by national sales volume, with $251 billion in sales across over 224,000 transactions. In Manhattan, the firm placed third on The Real Deal‘s ranking, based on closed, sell-side deals. Those impressive numbers didn’t translate into profitability, though — the firm lost $188 million in the first quarter of 2022.

The focus on share price is also important because Compass pioneered the use of equity grants and stock options to attract employees and agents. It also allowed agents to swap commission dollars for stock options or restricted stock. (This March, facing a falling share price and mounting quarterly losses, Compass CEO Robert Reffkin announced the firm would scale back its employee stock award program)

After the IPO, Compass agents expressed excitement about the ability to build wealth through stock — rainmaker Vickey Barron even compared it to getting in early on Apple and Amazon stock.

Agents are not sophisticated private-market investors. So it is fair to now expect them to ask hard questions of Compass, and of themselves.

Adam Farence contributed reporting.

Write to Hiten Samtani at [email protected] or @hitsamty on Twitter.


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