This is for all the people who said it would never work – which includes a shocking number of industry insiders who didn’t give Compass any chance of making it.
Compass says it brought in $51 million more than it spent in the second quarter, the first time the residential brokerage has been cash-flow positive since going public in 2021.
The company still posted a net loss – which includes stock-based compensation and other expenses – of $48 million, according to its second-quarter earnings. That loss, however, was a big improvement from the same period last year, in which it lost $101 million.
Reaching cash-flow positivity was a key target the company had declared for itself last year, and Compass said it met the goal while still growing market share and agent count, according to its earnings report. It posted an adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — of $30 million, up from $4 million a year ago.
“We have made up most of the free cash flow deficit from Q1 2023 and we believe we are in position to achieve our goal of being free cash flow positive for 2023,” said Compass CFO Kalani Reelitz.
Second-quarter operating expenses came in at $1.5 billion, down roughly $600 million from a year ago. Compass has a goal of getting to $900 million in operating expenses, which Reelitz said it will hit in the fourth quarter.
The company’s commissions payable also increased to $98 million last quarter, an increase of $41 million over the prior quarter but in line with the $96 million figure a year ago.
The firm’s revenue fell 26 percent year-over-year to $1.5 billion, with transactions falling by a fifth and fewer deals in luxury home markets such as California.
Compass finished the second quarter with $335 million in cash and cash equivalents, but in July paid back the $150 million draw it had taken on its revolver loan.
The results reflect efforts from a year-long cost cutting campaign announced in the earnings call this time last year, when Compass pledged to cut $320 million from its budget. As part of that pledge, it stopped offering new agents cash and equity incentives, one of its most effective recruiting tools.
Compass was the top residential brokerage in the country by sales volume in 2022, according to RealTrends. As losses mounted — the firm lost over $600 million last year, up from $500 million in 2021 — critics and rivals seemed to relish in the company’s struggles and questioned its viability.
This is a developing story. Check back in for updates.
There are two categories. Those who said Compass isn’t a viable model, and those who bash Compass because of the aggresive recruiting tactics.
Jason Oppenhein said the Compass business model was “unsustainable” and that “there’s no fixing Compass. It’s unfixable.”
Others who complain about recruiting tactics should recognize that everything is on the table now. Five years ago when Compass was a new upstart, money had to get thrown around. Locally, they brought on Brett Combs, which made me and probably a few others take notice. I was #160 hired, and now Compass has 1,200 agents and the #1 brokerage in San Diego.
Now scale back the perks, and keep the rest of the package delightful enough that 98% of the agents don’t leave. Ingenious.
“My prediction is that they’re going to go out of business in 5 years. Sorry, Robert Reffkin.” – Mauricio Umansky, The Real Deal April 2017
“I don’t agree that it’s going to take that long for it to happen,” – Howard Lorber, Douglas Elliman, May 2017
“Asking them to stop burning cash is like asking a Mack truck to stop burning diesel fuel while it rockets down the highway. Can’t do it. It’s how it was built.” – Ryan Serhant, 2022.
“What they’re doing, it doesn’t make sense,” Bess Freedman, CEO of Brown Harris Stevens (Bloomberg, August 2022)
“Just absurd… financial negligence,” – Marcus Lemonis, a real estate entrepreneur/HGTV star.
“If you don’t have the structure we have at our companies here, a lot of people went to the other side and they realized there isn’t much there.” – Douglas Elliman CEO
“The questions are there for a lot of technology companies and a lot of real estate companies, but Compass has a bigger problem than anyone else,” – Mike DelPrete, INMAN writer and board member/investor of Side
There will always be critics. Buy market share and don’t relinquish it. Keep the people you recruit happy and productive. Time will tell.
Re pricing it right, Avenida Cereza in La Costa Valley has been on the market for 81 days – originally coming on the market on 5/19 at 2.149 and then receiving 3 price reductions to 2.099 after 30 days, 2.069 after 51 days, and now 2.049 after 75 days. The model match in a better cul-de-sac location with a bigger yard with similar upgrades closed on 5/9 for 2.0. Your thoughts?
Once sellers get their mind fixed on a price – and their friends and family know it too – they are reluctant to believe that the young couple with 2.2 kids won’t be coming tomorrow.
Is that a Wall Street EBITDA or a warren buffet EBITDA ? I read somewhere he calculates it differently from the Wall Street folks.
I didn’t know brokerage firms were so mean to each other.
Greetings from Italy !!!
I’m spending all the money jim made me on the recent sale of my home !!!