Realogy stock is now cheaper than a
matcha latte

Analysts say market share is now top concern

TRD NATIONAL /
Jul.July 12, 2019 08:29 AM
Realogy CEO Ryan Schneider (Credit: Jhila Farzaneh and iStock)

Realogy CEO Ryan Schneider (Credit: Jhila Farzaneh and iStock/ Illustration by Kevin Rebong for The Real Deal)

You can now buy shares of Realogy stock for roughly the same price as a latte.

The real estate holding company’s turbulent stock ride continued this week after it filed an explosive lawsuit accusing rival Compass of illicit business practices, ranging from “predatory” recruiting to attempts at price-fixing. On Thursday, the already-depressed stock closed at a new low of $5.74 per share — a 75 percent drop from roughly $23 the prior year. That’s just a cent less than a grande matcha latte with almond milk at Starbucks.

To add insult to injury, Barclays cut its price target for Realogy to $5 from $9 — a signal that Wall Street doesn’t necessarily expect the company to bounce back so fast.

For several years, executives at Realogy — which operates the Corcoran Group, Sotheby’s International Realty and Coldwell Banker — have tied profitability to agent commission splits, and the current turnaround plan aims to get those costs under control.

But Barclays’ Matthew Bouley said Realogy’s problem has shifted from a split issue to a market-share issue. That’s a cause for concern as Compass continues to snap up smaller firms — most recently, Stribling & Associates in New York — in its quest to scale as quickly as possible. “Split challenges have been known by investors for a while, and we believe we have already seen the worst of it anyway,” Bouley wrote in a note Thursday. The bigger issue, he said, is lost market share. At 12,000 agents nationwide, “Compass’ agent footprint [is] now more than just a small thorn in [Realogy’s] side,” he said.

According to the research firm Real Trends, Realogy’s NRT division, which includes company-owned firms, not franchises, is the No. 1 brokerage nationwide based on sales volume of $176.4 billion in 2018 — the division lost its top spot on the list when it came to agent count. Berkshire Hathaway’s HomeServices of America was No. 2 with $135.9 billion and Compass was No. 3 with $45.5 billion. Last year, Compass was No. 6.

Other analysts cited Compass’ growth as they tried to make sense of why Realogy’s stock dropped 9 percent on news of the lawsuit this week.

“A takeaway from this lawsuit is that the recruiting efforts by Compass — and perhaps others in the industry — continue to escalate,” JPMorgan’s Anthony Paolone wrote in a note Wednesday. “This bodes poorly for [Realogy] and could signal that it’s off to an even tougher start to 2019 than we thought.”

The company’s stock decline is not new at this point. It’s down 62.9 percent year to date, and down 83.1 percent since July 2017. Realogy’s market cap — once more than $7 billion — fell to $641.1 million as of Thursday.

Over the past year, the stock has seen sharp one-day drops following disappointing earnings reports.

That’s what happened in February, when Realogy disclosed its 2018 profits decreased 68 percent to $137 million. By the end of the day, the stock fell 21 percent.

In May, Realogy’s market cap dropped below $1 billion for the first time after it reported that its sales volume for the first quarter was down 9 percent compared to a national average of 4 percent.

The company is expected to issue its next earnings report in early August, which some see as a referendum on the company’s direction.

This week, Paolone wrote that Realogy’s outlook for the next several years is very uncertain.

“We’re not sure the 9% stock decline yesterday on this lawsuit news made sense,” he wrote, “other than the stock simply doesn’t have any support until there is a clearer path forward over time for the business.”


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