Compass shares stumbled after the opening bell Tuesday, falling as much as 88 cents before rebounding by mid-morning in what could be a frenzied day of trading amid lifted restrictions on early investors and company insiders.
About 200 million shares of Compass could hit the market following the end of a 180-day lockup period following, which had prevented the firm’s largest shareholders, directors and officers from selling their holdings in the immediate aftermath of its April IPO.
The unrestricted trading will provide insight on the patience of investors and their views of Compass’ business model. The company has been both praised and criticized for its rapid growth, fueled by acquisitions and aggressive recruitment of top agents from competing firms.
Compass insiders subject to the lockup include major shareholders and venture capital investors that contributed to $1.5 billion in pre-IPO funding since the company’s founding in 2012. Shares held by Compass’ board of directors, founders, CEO Robert Reffkin and executive chairman Ori Allon, along with other key executives, were also subject to the six-month lock-up.
The brokerage’s shares opened at $13.38, down 2 percent from Monday’s close. The stock plummeted as low as $12.66 before recovering to hover around $13. The stock surged past its opening price to a high of $13.87 before slipping to $13.44 as of 11:30 a.m. The average daily trading volume so far is 2.75 million shares.
Analysts will be paying special attention to whether any Compass executives, board members and biggest shareholders sell. Analysts are split on Compass’ long-term prospects, though most expected the shares to decline Tuesday as the lockup lifted.
The elephant in the room is Softbank, which owns 33.5 percent of Compass, and hasn’t indicated its plans.
“Softbank owns a third of the company, so the question is what do they do now?” said analyst Jason Helfstein of Oppenheimer.
In July, Softbank, among the world’s biggest tech investors, sold 45 million shares in Uber worth about $2.1 billion in a block trade through Goldman Sachs. Last month, the firm sold 11.4 million shares worth about $2.2 billion of Doordash again via a block trade handled by Goldman Sachs, Bloomberg reported.
The recent selloff came after Softbank’s investment in Chinese rideshare company Didi Global tanked. The company’s shares dropped about 43 percent from its IPO after Chinese regulators banned it from the country’s app store pending a security review for alleged violations in handling personal data.
Softbank owns more than 132 million Compass shares, according to Yahoo Finance. The second largest holder is Discovery Capital Management, with 33.6 million shares or almost 9 percent of the company.
Other investors that backed Compass in its fundraising efforts are also subject to lock-up agreements, according to disclosures. Those include Institutional Venture Partners, which also backs Coinbase and Robinhood, and has a 3 percent stake in Compass. Wellington Management Company possesses 10.6 million shares, or 2.69 percent of the firm, while Winslow Capital Management’s 7.8 million shares and Joshua Kushner’s Thrive Capital’s holdings of 7 million are each just shy of 2 percent.
Fidelity Investments, which led a $100 million funding round for Compass in 2017, is holding about 6 million shares, representing 1.5 percent of the brokerage. The Canada Pension Plan Investment Board owns 3 million shares and hedge funds Zimmer Partners and Alta Park Capital own about 2.3 million shares a piece.
Before trading began on Tuesday, Compass announced another title and escrow acquisition.