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Compass failed to achieve positive cash flow in 2023 as it had hoped, but it still managed to overcome tough market conditions and avoid a significant revenue loss in the fourth quarter while also increasing overall real estate agency sales. The number of agents and the ranks of the entire industry is shrinking.
Compass generated a total of $1.1 billion in revenue between October and December 2024, according to the latest report earnings report. This represents a year-on-year decrease of 1%. The company also lost $83.7 million in the quarter, down 47% from a loss of $158.1 million a year ago.
In 2023, Compass’ revenue will be $4.9 billion, down from $6 billion in 2022. In 2023, Compass’s net loss was $321.3 million, compared with a net loss of $601.5 million in 2022.
In previous financial reports, the company’s founder and CEO Robert Reffkin repeatedly mentioned the goal of positive free cash flow in 2023. However, Tuesday’s report showed that Compass is just one step away from achieving that goal; free cash flow in 2023 will be negative $37.1 million. Still, this is a significant improvement over Compass’s negative free cash flow of $361.8 million in 2022.
Compass currently expects to reach positive free cash flow in 2024.
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Robert Revkin
Revkin said in the report that his company “successfully weathered the worst residential real estate market in decades and significantly adjusted our operating expense levels, positioning Compass to be in a position we believe will be in place when the market begins to recover.” Markets that are seeing significant gains.”
“As we reduce operating expenses, we continue to invest in growth, our agents and our technology platform, the industry’s only proprietary first-to-close platform,” Refkin added.
The market in 2023 will see home sales “at their lowest level since 1995,” Refkin said during a call with investors Tuesday afternoon. But he added, “Despite these significant headwinds, we still position Compass as a stock with significant upside when the market begins to recover.”
Tuesday’s report further showed that Compass’ trading volume fell 4.9% in the fourth quarter, which the company considered a win compared with the overall industry’s 9.2% decline. Compass agents completed a total of 40,621 transactions in the fourth quarter.
The report noted that Compass trading volume fell by 15.5% for the full year of 2023, while broader market trading volume fell by 18.7%.
However, despite the decline in revenue and transaction volume, Compass’ agent count increased 7.7% in the fourth quarter compared with the same period last year. The number of agents also increased by 4.5% compared to the third quarter of 2023. In the fourth quarter of 2023, Compass averaged 14,689 primary agents.
The company also reported an agent retention rate of 97% in the final three months of 2023.
The numbers are significant because Compass’ rapid growth and aggressive hiring have made it the largest company of its kind in recent years — even though the company was founded just over a decade ago. Meanwhile, in 2022, the brokerage is giving up lucrative stock and cash incentives for new agents. The move raises questions about Compass’ ability to sustain growth going forward.
However, despite these issues, the company has been managing to increase its number of prime agents, and new data on Tuesday showed that trend is continuing.
Refkin noted in Tuesday’s report that Compass has recruited more than 2,000 key agents without offering cash or equity signing incentives since those incentives were eliminated in August 2022. He added on the investor call that of the agents who have recently joined the brokerage, “more than 80% use our Compass technology platform, which makes them more efficient.”
Compass shares were trading in the mid-$3 range when earnings were reported Tuesday. Shares were up on the day but were roughly flat compared to where the company’s shares were at the start of 2024 and where they were a year ago.
Shares were choppy in after-hours trading Tuesday following the earnings report, but ultimately trended higher, perhaps driven by improvements in losses, free cash flow and agent numbers.
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Compass had a market capitalization of about $1.65 billion at Tuesday afternoon’s close.
Compass last reported earnings in early November. At the time, the brokerage revealed that it had revenue of $1.34 billion between July and September last year. This was a 10% decrease compared to the third quarter of 2022. Despite lower revenue, Compass managed to significantly improve its losses in the third quarter.
In addition to financial data, Tuesday’s report also showed that Compass had a U.S. market share of 4.41% in the fourth quarter. This was an increase of 9 basis points from the same period last year, the report said.
During Tuesday’s conference call, Refkin briefly mentioned the various commission lawsuits challenging the way agents are compensated. The most famous of the cases, titled “Sitzer |”, began in October. Burnett didn’t cover the Compass. However, subsequent “copycat” cases were named Compass. The lawsuits have been a hot topic in real estate over the past year.
Refkin declined to comment directly on the case itself, but said Compass is “actively helping agents demonstrate their value.” He also said Compass has implemented training related to buyer agreements outlining agent compensation, and last fall the brokerage developed a “buyer presentation” aimed at articulating an agent’s value.
Refkin said the industry’s failure to create buyer demos quickly has left many consumers unaware of the value agents bring to the transaction.
Asked whether these measures would be enough to counter the pressures facing the industry, including from the U.S. Department of Justice, Refkin responded in the affirmative.
“This alleviates my concerns about any financial risk on this topic,” he said.
Later in the conference call, Refkin weighed in on the market, taking a relatively optimistic view of what might happen in 2024. He said 2023 is “the bottom of the market,” noting that fewer people are “locked in” to the current state. Homes are on the rise this year due to mortgage rates compared to last year. He also argued that many people have been putting off moving for a year and a half. Revkin added that now there is pent-up demand and people are ready to take action.
“I believe,” Refkin said, “that people are tired of waiting.”
Update: This article was updated after publication to add additional information from Compass’ earnings report and comments from the company’s investor call.
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