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Three months after it debuted fundamental changes to its agent incentive programs, Compass announced Thursday that its losses rose and revenue fell in the third quarter of this year — but significantly it did still manage to increase its agent count.
In total, Compass brought in $1.49 billion in revenue between July and September of this year, according to the brokerage’s latest earnings report. That’s down 14 percent compared to one year ago, and in the report Compass attributed the decline to a 12 percent dip in transactions.
The company also reported a net loss of $154 million in the third quarter, up from a loss of $100 million during the same period last year. This year’s third-quarter loss includes $50 million in non-cash stock-based compensation expenses, $21 million in depreciation and amortization, $29 million in restructuring charges and $11 million for litigation, according to the report.
Additionally, Compass had $355 million in cash at the end of the third quarter, which is down from $431 million at the end of the prior three-month period.
Though the falling revenue and rising losses reflect a cooling housing market that has challenged Compass’ rivals as well this quarter, Thursday’s earnings report shows that the company did nevertheless manage to add agents. In total, Compass had an average of 13,314 agents during the third quarter. That’s a 15 percent year-over-year increase and a net jump of 335 agents compared to the second quarter of this year.
Compass’ agent count numbers are likely to be among the most-watched figures this earnings season. When the company last reported earnings in August, it revealed that it was cutting cash and stock-based incentives for new agents. The move was aimed at eventually making Compass profitable but also raised questions about how it might impact growth; Compass has risen quickly in the real estate world and became the largest firm of its kind by luring top-performing agents away from other companies with incentive packages.
The question, then, is if Compass could keep attracting agents without offering such incentives.
Thursday’s report offers the first real look at hard data answering that question. And at least for now, it appears Compass has managed to continue recruiting. The report additionally states that “we continued to experience high levels of retention of our agents with greater than 90 percent.”
For comparison, Compass had a net increase of 405 agents during the second quarter of this year compared to the first quarter. That means the third quarter’s jump in agent count was smaller, but not substantially so. The third quarter’s rise in agent count has also taken place as the housing market became progressively worse, which experts have said will ultimately thin out agent ranks over the long term.
In the report, CEO Robert Reffkin said that he expects the housing industry to “remain challenged during 2023 before returning to stability and growth in the future.” But he also said that “over the longer term, I believe our platform offers important differentiation in the marketplace and it is a conduit to drive incremental revenue lift and cost efficiency.”
Compass stock finished trading Thursday at $2.43 per share. That was up for the day and represented a notable improvement from Wednesday when shares dropped at one point to $1.84, an all-time low.
Shares dipped in after-hours trading following the publication of Thursday’s earnings report.
Compass had a market cap of about $1.05 billion as of the close of the market Thursday.
Compass went public in April 2021. After the first day of trading, shares closed at $20.15. However, along with much of the rest of the real estate industry, the brokerage’s share price has declined steadily since then.
When Compass last reported earnings, it revealed that it brought in $2 billion in revenue during the second quarter of this year, which was a slight year-over-year increase. The company experienced a net loss of $101.2 million in the second quarter.
In a call with investors Thursday, Reffkin painted a gloomy picture of the housing market. He described the current slowdown as “historic” and said that an array of factors, such as a weaker overall economy, a declining stock market and a lack of housing inventory are “keeping many buyers on the sidelines.”
“The past 12 months have been tough and the next 18 motions appear that they could be tougher,” Reffkin said on the call.
Reffkin went on to say that Compass is preparing for the housing market to shrink by as much as 25 percent, though he doesn’t think things will actually get that bad. Either way though and to that end, the company is planning a variety of cost-cutting measures that it will undertake over the next three months. Reffkin didn’t provide details about those measures, though the company has already carried out multiple rounds of layoffs this year.
The end of cash and stock incentives was also part of Compass’ recent cost-cutting efforts.
Asked during the call about which specific markets are slowing the most, Reffkin pointed to California, Florida and areas that “had the fastest price increases” during the pandemic-era boom.
Despite the slowing market, Reffkin said during the call that he expects Compass to become profitable in 2023 and that the brokerage should have a positive cash flow in the second quarter of next year.
Reffkin also said that he doesn’t expect the downturn to impact Compass’ agent count to the extent that it might at other companies. Though Reffkin does “expect a lot of lower producing agents to leave the business,” he also noted that Compass has traditionally recruited from among higher-performing agents who are more resilient in a downturn.
“There’s a sentiment that in down markets,” Reffkin said, “the best keep the business and the worst agents leave the business.”
Update: This post was updated after publication with additional details from Compass’ earnings report and with information from a call the company held with investors.