Compass is worth the same today as it was back in 2018: $4.4 billion. That’s when it had $900 million in revenue versus $5.5 billion (past 12 months), 35,000 transactions versus 145,000 (in 2020), and 8,000 agents versus the 22,000 it has today.
For those keeping track, no, company valuations aren’t necessarily rational.
At first glance, that’s not a great outcome for investors: $1,000 invested in Compass in 2018 would be worth $1,000 today, three years later. All at a time when its peers saw large increases in valuation.
Compass’ stock performance compared to the traditional industry peer, Realogy, is illuminating. Realogy stock is up 36 percent year to date, compared to Compass, which is down 45 percent.
Stock price and valuation come from a combination of a company’s current performance and its future growth prospects.
For Compass, it seems that investors either significantly overvalued the company in its previous fundraising rounds or are pessimistic about its growth prospects going forward (or a combination of the two).
Compass’ declining stock price isn’t just an abstract financial figure; it is especially relevant to agents that participated in its agent equity program.
Compass’ growth over the past three years has been remarkable. It is one of the fastest growing real estate brokerages of all time (it is also the most unprofitable). Revenues have skyrocketed as it has consistently outperformed its industry peers.
Yet investors remain skeptical as the stock price continues to slide. Was the company simply overvalued in 2018? Is the market valuing the company as a brokerage instead of a tech company? Or is the narrative about expanding into ancillary services like mortgage and title falling on deaf ears?
Time will tell — but for now, Compass’ decline in value stands in paradoxical contrast to its massive growth.