Amid “volatile” housing market, Realogy’s revenue stagnates
CEO Ryan Schneider defended cannibalization risk of franchise growth
Realogy Holdings’ revenue was flat during the third quarter while transaction volume rose just 1 percent, which executives on Friday attributed to the national housing slowdown.
The New Jersey-based conglomerate, which last week said it planned to double down on its franchise business, reported $1.68 billion in third-quarter revenue, up $2 million year-over-year. Net income rose 8.4 percent year-over-year to $103 million, compared to $95 million.
But shares of Realogy were down more than 10 percent just minutes after the market opened at 9:30 a.m., reflecting concerns about a sustained market downturn. Realogy’s shares are down around 40 percent year-over-year.
“We are clearly in a volatile period for the housing market,” CEO Ryan Schneider said during an earnings call with investors. Offering a preview of the rest of this year, he said Realogy’s companywide transaction volume was down 6 percent in October, although prices were up 5 percent.
“We’re seeing mixed signals,” Schneider conceded, but he stressed that the slowdown does not feel the same as it did a decade ago during the great recession. “We are heartened by the increase in inventory,” he noted, the lack of which has been a key factor in fewer sales.
Companywide, Realogy’s transaction volume during the quarter was $143 billion, up 1 percent year-over-year. Realogy tied the gain to its franchise division, dubbed RFG. Sales volume was flat at NRT, the division that includes the Corcoran Group, Citi Habitats and Sotheby’s International Realty.
Having sworn off acquisitions, Realogy is banking on the franchise business to gain market share (which currently hovers around 16 percent). Last month, the company said it would franchise New York-based Corcoran, which did $21 billion in sales last year, and San Francisco-based Climb. Franchising the brands does come without some danger.
“We could make the choice and not launch franchise brands because of the cannibalization risk,” Schneider said, but we “need to take that risk.”
Realogy carefully selected Corcoran and Climb to franchise because of each brand’s niche focus — Corcoran on the high-end, international clientele and Climb’s forte with mobile-focused and younger agents and buyers.
“One path to market leaders declining is you spend your time worrying about defending what you have and not growing for the future,” he said.
During the third quarter, Realogy said the West Coast saw the “greatest market deterioration,” with sales volume down 2 percent (compared to a 13 percent jump during the first quarter.) The Northeast was down 1 percent, largely because of a slowdown in New York City, but the drop was still better than a 9 percent slide during the first quarter.
Despite softness in New York City, the sale of properties priced above $2.5 million actually rose 4 percent during the quarter. “The high-end is performing very differently than other parts of the market,” said CFO Tony Hull.
Hull, a 15-year veteran of Realogy who helped guide the company through a 2012 IPO, also announced his retirement Friday.