Third-quarter earnings for real estate companies began rolling out last week, with eXp World Holdings, Redfin and, perhaps most significantly, Zillow opening up their books to investors.
This week, a super-charged Wednesday lineup of earnings reports will give a good indication about what’s on the horizon for two iBuyers and three brokerages and their holding companies: Opendoor, Offerpad, Compass, Keller Williams and Fathom Holdings.
How will Opendoor and Offerpad respond to Zillow bowing out of iBuying? How is Compass faring as a fledgling public company? And will Keller Williams formally announce intentions to go public?
These are the things to watch for on Wall Street Wednesday.
Reactions from Opendoor and Offerpad on Zillow
The biggest thing shareholders will be wondering during the iBuyers’ earnings calls is how Zillow’s decision to phase out Zillow Offers will impact the companies’ business.
Is there any way Zillow calling it quits on iBuying could hurt Opendoor or Offerpad? What does the move say about the overall stability of the iBuying business?
Offerpad CEO Brian Bair actually attempted to get ahead of these potential shareholder questions in advance of the company’s earnings release when Bair did an interview with MarketWatch last week. Bair characterized the Zillow news as the company’s own failure, and reaffirmed that the iBuyer model is still a strong one when executed correctly.
“When you actually execute, this is a really, really strong model all the way, across the board,” Bair said of iBuying. “And if you don’t execute, it’s like any business — it just doesn’t work.”
Bair is likely to reiterate these arguments again on Wednesday and possibly offer more evidence to back them.
This earnings report will be the first Offerpad releases as a publicly traded company. The iBuyer went public at the beginning of September with a $2.7 billion valuation.
During the second quarter, Offerpad posted its first-ever profitable quarter with a net income of $9.2 million, and shareholders are likely hoping not to see a backslide from there.
Opendoor, likewise, will need to reassure shareholders this quarter about the future of iBuying. But, the company made a strong showing during the second quarter, increasing revenue by more than 46 percent to $1.2 billion.
Though still relatively new to the stock market, Opendoor has faced more earnings calls as a publicly traded company than Offerpad — this week will mark its fourth time reporting earnings as a public company. After last quarter’s report, the company’s shares soared during after-hours trading to about $17. At that time, Eric Wu, Opendoor’s CEO, spoke about imminent and long-term growth, so an update on those growth efforts would be expected during this quarter’s call as well.
Fathom’s profitability and cash flow
Fathom Holdings, parent of cloud-based brokerage Fathom Realty, reported losses of $2.1 million during the second quarter as a result of what the company cited as strategic investments and acquisitions. The company still beat analysts’ expectations by bringing in about $84 million in revenue, much of which was derived from real estate brokerage revenue.
Nonetheless, during that earnings call, CEO Joshua Harley established high expectations, stating he thought the company had the capability to grow five-fold over the course of the next five years. He also said profitability was the company’s top priority, so the cutting down of those losses will be something to watch for.
“Although many companies sacrifice profitability for growth, I believe we can achieve both through our proprietary technology platform, streamlined operations and great value proposition for agents,” Harley said during the second-quarter earnings call.
Fathom President and CFO Marco Fregenal also pledged to increase Fathom’s cash flows, which were down in the wake of their recent acquisitions (of Epic Realty, LiveBy and E4:9 Holdings, to name a few), so whether any progress has been made on that front will also be important for shareholders to note.
Compass’ losses and spending
Compass is still fairly new to Wall Street, but that hasn’t deterred founder and CEO Robert Reffkin from continuing to go big in terms of striving for the best existing end-to-end platform for agents and generally beefing up the company’s tech, in order to achieve status as “the Amazon of real estate,” Reffkin recently said at Inman Connect Las Vegas.
And although the company made great progress during the second quarter by curbing its losses significantly and increasing its revenue by 186 percent year over year to $1.95 billion, it still faces challenges that shareholders may wonder about as it releases its third-quarter earnings on Wednesday.
The company’s continued progress toward cutting down losses and increasing profitability will be one thing to watch, as Reffkin’s general optimism about the industry and Compass specifically remains strong, despite criticisms about the company’s loose spending habits.
On top of that, Reffkin may also need to address the state of the company’s stock price, which saw gradual declines between April and October 2021 yielding a stock price that was down 45 percent year-to-date, real estate tech expert Mike DelPrete noted in an Inman post from early October. DelPrete said that the company’s valuation today remains the same as it was when it first started back in 2018: $4.4 billion.
That said, the company also has made slight gains in the last month, hitting shares of $12.55 as of Tuesday, compared to a low of $10.74 seen on October 11, 2021, according to Yahoo Finance.
“Revenues have skyrocketed as [Compass] has consistently outperformed its industry peers,” DelPrete wrote. “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?”
Keller Williams’ potential IPO
Whispers about a possible IPO have been circling Keller Williams for several months — if not years — by now, and many are wondering if its third-quarter earnings will reveal any more updates on that front.
During an interview in June that Inman conducted with Carl Liebert, CEO of KWx (the holding company that includes Keller Williams), Liebert avoided saying anything specific about whether or not the company was actually preparing for an IPO and when it might occur. But, he did say there is “ample room and opportunity for KWx and Keller Williams to go do something big in the future,” and so the speculation continues.
The company reported a successful second quarter in August, with significant year-over-year gains in transactions, sales volume and agent count. “In Q2, we outperformed the market and have achieved substantial worldwide production and agent count gains in the face of dramatic market pressures,” Liebert said at the time.
Over the past few quarters, the company has reported good news, with agent transactions continuing to show solid annual increases each quarter, so some will be watching to see if they’ve kept up the trend in Q3.