Amid what executives described as a “big downturn” in the market, fast-growing brokerage Compass announced Monday that its revenue climbed a modest 4 percent during the second quarter of 2022, while losses jumped considerably during that same period.
In an earnings report, the company revealed that between April and June it brought in more than $2 billion in revenue. That’s up from just under $2 billion during the same period in 2021. That 4 percent rise in revenue is considerably lower than what Compass has achieved in other recent quarters.
In a call with investors Monday afternoon, CEO Robert Reffkin said the Fed’s decision to raise interest rates — something that also drives up mortgage rates for consumers — has had a “direct effect of driving down our revenue.” Reffkin also said there are “other economic headwinds” and that “this has created an enormous amount of uncertainty for the rest of the year.”
“Never in my time at Compass have we seen such a big downturn in such a short time,” Reffkin continued.
The company also revealed in its earnings report that it lost $101.2 million in the second quarter of this year, way up from a loss of just $7.1 million between April and June of 2021. In the report, the company attributed the spike in losses to “higher expenses related to strategic business initiatives, non-cash stock compensation, depreciation and amortization as well as restructuring costs.”
Compass reported that it had an average of 12,979 principal agents during the second quarter, which is an increase of 405 from the prior three month period. Those agents closed 66,846 transactions between April and June, a 2 percent year-over-year increase, and did $76.8 billion in volume. In the report, the company described volume as “relatively flat year-over-year.”
Heading into Monday’s earnings report, shares in Compass were trading for about $4.60. That’s up from an all-time low of less than $4 per share in June, but down from more than $20 a share when the company first went public in April of 2021.
After Compass published its earnings Monday, shares dropped in after hours trading.
When the markets closed Monday afternoon, Compass had a market cap of just under $2 billion.
Recent quarters have seen Compass’ revenue climb significantly. When the company last reported earnings in May, it revealed that during the first three months of 2022 it earned $1.4 billion in revenue — an impressive 25 percent year-over-year jump.
One quarter earlier, in the final months of 2021, Compass brought in $1.6 billion, a 31 percent increase compared to one year earlier.
But surging revenue in past quarters did not lift the company to profitability; in the final three months of 2021, Compass lost $175 million and during the first quarter of 2022 it lost $188 million.
In response to the tougher market conditions, Compass said in its report Monday that it is currently implementing a “cost reduction” program that should ultimately save the company $320 million. Layoffs that took place in June and which involved cutting about 450 jobs were part of the program, and in his call with investors Reffkin said the brokerage is “taking new additional actions to adjust for these market conditions.”
Among other things, Reffkin also said Compass is not currently expanding to new market and will instead focus on investing in its current markets and the agents working in them.
Reffkin went on to say he believes reducing expenses will enable Compass to have positive cash flow in 2023. He also said during Monday’s investor call that Compass is getting rid of financial incentives and stock offerings as part of its recruitment strategies. Going forward, the brokerage will be focused on generating positive cash flow, profitably gaining market share, and “retaining our agents,” Reffkin also said.
Compass’ latest report comes at the tail end of a pivotal and somewhat surprising earnings season for the real estate industry. Thanks to an ongoing market shift that really hit in full force in the spring, companies that performed well in the recent past suddenly had to contend with a landscape that was much more challenging. In other words, higher mortgage rates and slower sales meant that there was potentially less money flowing into the bank accounts of publicly traded firms.
A steady stream of layoffs at real estate companies — mortgage firms were hit first but the losses have since spread to a number of brokerages as well — further hinted that this was going to be a brutal earnings season for the housing industry.
In the end, though, things weren’t so bad and a number of companies, including Zillow and Offerpad, managed to stay profitable.
Compass’ Monday report, with its middling revenue growth and rising losses, caps off this latest earnings season with something of a whimper. But in an email Reffkin sent to members of his company Monday — and which was provided to Inman — Reffkin argued that Compass is continuing to invest in agents and is not at risk of running out of cash.
During his call with investors, Reffkin was also upbeat about Compass’ long-term prospects, even as he was frank about the challenges facing the market right now.
“We expect,” he said, “to come out of this downturn an even stronger company.”
Update: This post was updated after publication with additional information from Compass’ earnings report and investor call.