Many moons ago, scrappy journalists hung out late into the night in front of the many corporate headquarters buildings located along Park Avenue in midtown Manhattan. If a secretive deal was in the works, a slew of black town cars would double park along the avenue. If lucky, a driver might spill the beans on who their client was.
Recently, I loitered in front of 90 5th Ave. I was sniffing for a scent of eager investment bankers (aged willow bark is purportedly their fave cologne oil). But I only observed a string of Realtors hustling in and out of the Compass headquarters.
Why the spywork?
My gut tells me that Compass might file an IPO sooner than later — this year, even. In doing so, they’d seek to join the gaggle of private tech companies rushing to go public before the bubble (if that’s what this is) bursts. Despite Uber’s cool reception, profits don’t seem to matter to Wall Street right this minute, so the burgeoning realty giant might jump into the suddenly crowded IPO pool.
What got me thinking about a Compass IPO was the announcement that the WeCompany filed its public offering paperwork. It’s the parent of the shared office space company WeWork.
Like Compass, it is losing megabucks. Both are growing faster than the measles outbreak and they are funded by Masayoshi Son’s Vision Fund, which has suddenly seemed anxious about liquifying.
And they both have idiosyncratic leaders — Adam Neumann at WeWork and Robert Reffkin at Compass. These two entrepreneurs would love to ring the opening bell on the NASDAQ.
Is a Compass IPO premature?
Compass is almost six years old with crazy top-line revenue growth.
Zillow went public in its sixth year and was very unprofitable — like Compass.
Realogy went public in its sixth year and was making scads of profits, but the New Jersey franchisor was strapped with billions in debt.
Redfin waited until its 13th year to go public and has lost money since it did in 2014.
It took eXp Realty ten years to get on a mainstream stock exchange (NASDAQ) in 2018 after trading as a penny stock for years. The company has been profitable since it went public.
RE/MAX went public in its 40th year and was profitable from the day it opened its doors in 1973. It did, however, make lots of money for lots of people, including founder Dave Liniger. It gave him the income to race cars, own a private golf course in the mountains of Colorado and do a lot of other crazy stuff on top of that.
A company going public is often celebrated, but that is just the beginning of a marathon slog with lots of new masters including traders, big and small investors (who they do not know) and fierce reporting disclosures and rigorous transparency.
Nevertheless, for savvy investors, IPOs tell you very little about how good or bad the business is really doing.
“In 54 years, Berkshire Hathaway … has never bought a new [public offering],” Warren Buffett once said.
But IPOs turn illiquid wealth into real money (at least after lockup periods expire), and Compass has a lot of people who stand to make a lot when the company goes public. To me, that smells like sooner than later.
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