SoftBank, Compass’ largest investor, sold $42.3 million worth of the residential real estate brokerage’s stock Thursday.
The sale accounts for nearly 13 percent of the Compass shares held by SoftBank, which invested over $1 billion in the startup before the brokerage’s IPO in 2021.
Major share dumps generally drive down a company’s stock. Compass stock fell 7.7 percent over Thursday and Friday, but the company positioned SoftBank’s move as a plus.
“This is a positive for Compass as it allows an early investor to get liquidity and new investors to begin buying for the long-term future,” said Rory Golod, president of growth and communications at Compass.
SoftBank owned 24 percent of Compass before Thursday and remains its largest investor. But more sales could be on the way, according to Jason Helfstein, managing director and head of internet research at Oppenheimer. Thursday’s sale lowers the Japanese holding company’s stake in Compass to 21.2 percent of outstanding shares, according to Yahoo! Finance and SoftBank’s SEC filing.
The value of SoftBank’s investment has declined steadily as the price of Compass stock has fallen 84 percent since its IPO price of $18 per share in April 2021, reducing the brokerage’s market capitalization from $7 billion to just under $1.4 billion.
The Japanese investment giant’s Vision Fund disclosed in August 2022 that the $1.08 billion it pumped into Compass over three funding rounds was worth just $453 million. As of late September, the value had fallen to $336 million, according to Yahoo! Finance.
SoftBank’s move wasn’t unexpected, though nobody knew when a sale would occur. As an investment fund, its strategy is to invest in companies and then sell at some point after the IPO.
“It seems over the next six months SoftBank may be on track to be a 10 to 15 percent shareholder,” said Helfstein. “That would be good for the perception of the stock.”
When a single outside investor owns a significant amount of a company’s stock, like SoftBank does with Compass, it can make other investors nervous about buying, because the value of the stock will fall whenever that big investor decides to sell.
The more shares a firm has actively trading, the more investors can increase their position in a short period of time without pushing the price up on themselves.
“Typically, when there’s one large shareholder, investors might look at that as an overhang and not want to even research the company,” said Helfstein.
SoftBank Vision Fund CFO Navneet Govil said during a third-quarter earnings call that the firm is focusing its activities on AI, according to a transcript of the call.
Institutional investors have been divesting from Compass over the past year, helping to push the share price to $2.88 at Friday’s close. Robert Citrone’s Discovery Capital Management and Montreal-based Wishbone Management sold large amounts of Compass stock in the fourth quarter of last year, liquidating 25 and 30 percent of their holdings, respectively.
Institutional Venture Partners, a longstanding Silicon Valley private equity investor that led Compass’ $50 million funding round in 2015, sold nearly 13 percent of its Compass holdings at the end of last year, according to data analytics firm Simply Wall St.