What you need to know about Compass’ IPO this week

National /
Mar.March 31, 2021 05:45 AM
Robert Reffkin and Ori Allon (Getty, iStock)
Robert Reffkin and Ori Allon (Getty, iStock)

Compass’ hotly anticipated IPO is finally (almost) here.

The venture capital-backed residential firm is set to go public in the coming days, after federal regulators on Monday approved its initial public offering, SEC filings show. Compass could start trading under the ticker symbol “COMP” as early as today, according to the New York Stock Exchange.

Founded in 2012 by Robert Reffkin and Ori Allon, Compass jolted the brokerage industry by raising $1.5 billion from investors, including SoftBank, and aggressively hiring top agents from competitors. It later scooped up firms wholesale in an unprecedented growth spurt.

Compass’ impending IPO — the subject of intense speculation over the years — became real when it filed confidentially to go public earlier this year.

Ahead of its stock market debut, Compass indicated it would seek a $10 billion valuation — testing, once and for all, whether investors believe it’s a tech company or simply a gussied-up residential brokerage.

In a March 29 research note, investment firm New Constructs argued the latter. “Currently, the company looks more like a traditional brokerage with flashy marketing, whose only advantage is a virtually unlimited ability to burn cash,” wrote David Trainer, the firm’s founder. (The analysis was republished in Forbes.) “SoftBank needs this IPO more than investors do.”

Here’s what else you need to know about Compass’ IPO.

Who? (Agents)

Compass’ S-1 was all about its agents — 19,000 and counting. The firm said in the IPO filing that 88 percent of agents use Compass tools at least once a week and 66 percent use them daily. No doubt agents who deferred commissions in exchange for Compass equity are looking forward to the IPO, too. In 2018 and 2019, agents invested $70 million into stock and stock options.

What? (NYSE debut)

Compass could raise nearly $1 billion in its IPO, and that cash would fuel its continued growth. The firm’s revenue more than doubled to $2.4 billion in 2019. Last year, boosted by the hot U.S. housing market, it raked in $3.7 billion. But Compass isn’t profitable, and its S-1 revealed $1 billion in cumulative losses. In 2020, losses narrowed to $270.2 million after a $388 million loss in 2019.

Where? (46 markets)

Compass operates in most major U.S. cities and was the No. 1 independent brokerage in the country last year with $151.7 billion in sales, up from $91.3 billion in 2019, according to Real Trends. Between 2018 and 2020, Compass spent $300 million to acquire brokerages such as Pacific Union International and Stribling & Associates, and to beef up its tech offering with companies including Contactually and Modus.

When? (While housing is hot)

The residential brokerage is striking while the housing market is hot. In February, home sales were up 9.1 percent year-over-year, according to the National Association of Realtors. It’s also riding a tech boom: Lemonade, Airbnb and Opendoor have gone public over the past year.

Why? (Tech valuation)

Compass is offering 36 million shares, priced between $23 and $26. It’s aiming for a $10 billion valuation, positioning itself as a tech company, as such firms are valued more highly by investors relative to earnings. For example, Zillow has a market cap of $33.5 billion, or 10 times its 2020 revenue of $3.3 billion. Brokerage giant Realogy’s market cap is $1.7 billion, a fraction of its $6.2 billion in revenue last year.






    Related Articles

    arrow_forward_ios
    Mauricio Umansky, Rainy Hake Austin and Robert Reffkin (Getty)
    The Agency sues Compass for blocking exec from recruiting former colleagues
    The Agency sues Compass for blocking exec from recruiting former colleagues
    Tomer Fridman (Compass, Hilton & Hyland)
    Compass’ Tomer Fridman jumps to Hilton & Hyland
    Compass’ Tomer Fridman jumps to Hilton & Hyland
    Rober Reffkin and J. Gregory Maffei (Getty, Linkedin, iStock)
    Compass poached brokers with bait-and-switch, ex-agent alleges
    Compass poached brokers with bait-and-switch, ex-agent alleges
    Dana Olmes and Jeffery Biebuyck (Getty, Dana and Jeff Luxury Homes)
    This Side up: White label brokerage plucks luxury team from Compass
    This Side up: White label brokerage plucks luxury team from Compass
    Chris Cortazzo (Credit: Marc Piasecki/GC Images via Getty Images)
    One person, three roles: Chris Cortazzo buys $20M Malibu home, serves as agent for both sides
    One person, three roles: Chris Cortazzo buys $20M Malibu home, serves as agent for both sides
    Nile Niami and his Bel Air spec home (Credit: Araya Diaz/Getty Images, Juwan Li and Marc Angeles)
    Compass lending service sues Nile Niami over Bel Air mansion
    Compass lending service sues Nile Niami over Bel Air mansion
    From left: Tami Halton Pardee, Chris Cortazzo, and Kurt Rappaport (Credit: OGUT/Star Max/GC Images via Getty Images, Joshua Blanchard/Getty Images, and Anne Cusack/Los Angeles Times via Getty Images)
    LA’s market makers: A ranking of top resi agents by on-market deals
    LA’s market makers: A ranking of top resi agents by on-market deals
    Real estate brokerages in Los Angeles and elsewhere have made shifts in their business over the last five months that could be for the long-term.
    Survival of the slimmest: TRD looks at the future of the residential brokerage
    Survival of the slimmest: TRD looks at the future of the residential brokerage
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...