The day before its long-awaited IPO, Compass filed an amended S-1 with the U.S. Securities and Exchange Commission (SEC) that revealed weakened expectations for its foray into the public markets.
Compass, which will trade under the ticker COMP on the New York Stock Exchange, slashed its initial Class A common stock offering from 36 million to 25 million shares and dropped the price per share from $23 to $26 to a lower $18 to $19 per share price range. As a result, Compass will raise between $450 million and $475 million on IPO day — a steep drop from the previous goal of $828 million to $936 million laid out in the initial S-1 filing.
The company is expected to set a final price for its stock later today, with trading on NYSE expected to begin tomorrow.
The new pricing suggests a valuation of Compass after IPO of just over $7 billion, a drop from the roughly $10 billion expected at the previous stock valuation.
The amended S-1 also notes that Compass CEO Robert Reffkin has indicated an interest in purchasing up to $18.5 million in shares of the common stock at the public offering price, while previous investors including SoftBank are expected to add an additional $140 million in shares at that price as well.
In a March 5 Twitter thread, Sapphire Ventures partner and Side Real Estate board member Paul Levine explained the success of Compass’ IPO hinged on whether institutional investors would believe the company’s story as a tech company or evaluate them as a traditional brokerage alongside Realogy or RE/MAX.
Levine compared Compass to eXp and Redfin, which are currently valued at $6.3 billion (3.5 x 2020 revenue) and $6.8 billion (7.7 x 2020 revenue), respectively. Levine then calculated his own valuation using eXp and Redfin’s multiples, which led to a staggering result far above Compass’ initial $10B valuation.
“If Compass is valued at the same multiple as EXPI, this implies a $13B market cap for Compass,” Levine said in his series of March 5 tweets. “At Redfin’s higher multiple, this implies a $28.7B market cap. I believe $15-20B is the likely range.”
However, Levine said the market cap could be lower if investors ultimately value Compass along the lines of Realogy and RE/MAX, whose market caps are currently at $1.78B and $1.19B, respectively. But, if they’re valued more as peers of Zillow, Redfin, eXp and Opendoor, Levine said it could bode well for Compass’ future.
“Public investors have been very good to category peers Zillow (+165 percent), Redfin (+129 percent), eXp (+854 percent), and Opendoor (+125 percent) over the past year,” he added. “We’ll soon see how Compass fares!”
However, it seems that investors didn’t buy the story during Compass’ roadshow to gauge interest and determine a final price per share.
“During and after the roadshow the underwriters gauge demand for a company’s stock by receiving bids from institutional investors,” an IPOhub explainer read. “This process, known as book building, helps underwriters know how to set the final offering price—the price at which the shares will be sold to institutional investors.”
“The bids will almost always exceed the number of shares available; which is known as oversubscription,” it added. “In fact, if the book is not oversubscribed the company will likely have to drop the offering price to sell all the shares planned in the offering.”
Stay tuned to Inman for a complete guide to what to watch for as Compass completes its IPO, coming later today.