Compass expands to Indiana amid stock slump

Brokerage predicts big revenue in Q2; experts are looking for profit as expenses mount

National /
Jul.July 15, 2021 02:16 PM
Compass CEO Robert Reffkin (iStock)

Compass CEO Robert Reffkin (iStock)

Stock performance be damned, Compass is sticking to its growth plan.

The nation’s second-largest real estate brokerage by sales volume is dipping into the Indianapolis market, adding 23 top local agents who have produced over $160 million in sales.

Part of Indianapolis’ allure is its luxury sales potential, said Compass regional president Rachael Rohn. She noted that the suburbs north of the city — such as Carmel and Fishers, Indiana and Geist, an affluent neighborhood within the city limits — offer substantial opportunity.

Offerpad, an iBuyer, also expanded into Indianapolis this week, likewise citing the area’s competitive market as a draw.

Compass has tacked on at least nine markets to its national footprint since going public in April, including St. Louis and Kansas City, Missouri; Tampa Bay and Jacksonville, Florida; Raleigh-Durham and Charlotte, North Carolina; Delaware; and Jackson Hole, Wyoming. The brokerage now operates in over 50 markets.

That expansion is in line with the company’s long-term strategy to add established agents in new cities and help them grow their respective market shares, as outlined in its S-1 filing.

Compass’ stock performance has yet to reflect that progress. Shares have trended down in the months following its IPO and bottomed out at $12.25 last week, 39 percent below its $20.15 debut.

The stock has since recovered somewhat. Shares were trading at just below $13 at midday Thursday.

Some analysts have attributed the dip to the lock-up period for trading, which restricts most shareholders from selling until September 28.

“If the stock still cannot work [after the lock-up period ends] then maybe the company will have to figure out a way to cut expenses and push themselves to profitability,” Oppenheimer analyst Jason Helfstein told The Real Deal last week.

But earnings this year have thus far failed to impress as its spending has skyrocketed.

Although Compass posted first-quarter revenue that topped estimates and quarterly sales represented an 80 percent jump year over year, the firm reported $212 million in losses after its expenses nearly doubled, from $754 million in the first quarter last year to $1.3 billion this year.

That profit-to-spending ratio has some experts on edge.

“The top-line growth may be covering up a flawed business model as the company has spent lavishly to attract star agents in a way that seems unsustainable,” The Motley Fool wrote in June. “For now, this stock is best avoided until the valuation becomes more reasonable or the company takes meaningful steps toward profitability.”

The firm is expected to report second-quarter earnings Aug. 9 and has predicted that a hot housing market will boost revenue higher in the second quarter, Bloomberg reported.





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