Virtual brokerage Fathom Holdings files for IPO
The firm, which charges agents a flat fee per deal, has grown to 3,600 agents while weathering a string of net losses
Cloud-based brokerage Fathom Holdings, which charges agents a flat fee per deal, wants to raise $14 million through a planned public offering.
The 10-year-old company, which has more than 3,600 agents nationwide, filed a registration statement recently with the Securities and Exchange Commission.
Fathom’s S-1 filing shows it has experienced revenue growth since 2017, but has also seen a streak of net losses. And while its agent base has grown substantially, the firm acknowledged its model of taking a flat fee per deal an agent makes is a value proposition that is “not typical in real estate.” Fathom previously announced
its intention to become a public company.
Roth Capital is the underwriter of the IPO, and Fathom plans to be listed on Nasdaq under the symbol FTHM, according to its S-1 filing. Fathom CEO Joshua Harley, owns 50.7 percent of the shares before the IPO.
The company said it plans to use the proceeds for “general corporate purposes,” including retaining more agents, developing services and funding capital expenditures.
Messages left with Fathom were not immediately returned.
Founded in 2010 and incorporated in North Carolina, Fathom operates in 24 states and districts, including California, New Jersey, Florida and Illinois. It targets cities and regions with at least 50,000 people.
Fathom gets its revenue by charging agents — who receive equity in the company — a flat fee of $450 for their first 12 deals of the year, according to the filing. That drops to $99 per sale for the rest of the year. Agents also pay Fathom $500 on their first sale every year, which covers operating costs for the firm. On leases negotiated with landlords, Fathom’s cut is $85 per deal.
The brokerage brought in $55.4 million in revenue in 2017 and $77.3 million in 2018. For the first nine months of 2019, it raked in $78 million, according to the S-1 filing. Its losses have also been mounting. In 2017, its net loss was about $421,000, which spiked to $1.7 million the following year. For the first nine months of 2019, its losses totaled $2.7 million.
Fathom says it has proprietary technology called IntelliAgent, which manages its brokerage operations. According to its filing, the firm said it may someday use that tech to bring together other independent brokerages. Some of the tools the platform offers include website building for agents, content creation, customer relationship management, marketing and deal tracking, according to the filing.
But not everyone is sold on the business model.
Donovan Jones, CEO of VentureDeal.com, wrote in a commentary on the S-1 filing that Fathom makes “relatively little gross profit,” and its revenue growth, while “significant,” is decelerating. Fathom also charges a flat fee per transaction that drops off, which Jones called a “challenge.”
In its filing, the company acknowledged that its model — allowing agents to earn higher commissions and earning equity in the company — could pose a risk. “If agents do not understand our value proposition we might not be able to attract, retain, and incentivize agents,” it wrote.
Another virtual brokerage, eXp Realty, went public in 2018, trading at a $1 billion market capitalization. By the end of the first quarter of 2019, it had grown to almost 18,000 agents around the country, its growth coming as other traditional brokerages have sought to reduce their physical footprints.
Meanwhile, U.K.-based Purplebricks first offered a $3,200 flat-fee commission to agents but later altered that model. Amid poor performance, it ultimately withdrew from the U.S. market in July, two months after it exited Australia.
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