In a Q4 earnings report Tuesday, Compass announced that between October and December of last year, it brought in $1.11 billion in revenue, down from $1.6 billion during the same period in 2021.

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Amid what it described as a “difficult year” for real estate, Compass on Tuesday revealed that its revenue dropped 31 percent in the fourth quarter of 2022 — though the company did manage to lessen its losses somewhat.

In a newly published earnings report, Compass announced that between October and December of last year it brought in $1.11 billion in revenue. That’s down from $1.6 billion during the same period in 2021. The dip was due to a 25 percent decline in transactions, which in turn “was attributable to lower industry wide transactions,” the company said in the report.

Compass also suffered a net loss of $158 million during the fourth quarter. That’s an improvement compared to the $175 million the company lost during the final three months of 2021.

The report notes that about $82 million of the loss in the final three months of 2022 was due to expenses from stock-based compensation and to depreciation and amortization.

Robert Reffkin

In the report, CEO Robert Reffkin described 2022 as “a difficult year for the residential real estate market and Compass.” He also pointed to an industry-wide decline in transactions, which ultimately led to “one of the worst years for the real estate market and a decline at the same rate as the 2007-2008 housing crisis.”

But Reffkin also said that “despite industry challenges, Compass increased market share year-over-year with transactions being down 6 percent compared to the industry decline of 18 percent year-over-year.”

Tuesday’s report also shows that Compass maintained an average of 13,426 principal agents during the fourth quarter of 2022. That’s up 10 percent compared to the fourth quarter of 2021.

The report also includes numbers for all of 2022 and shows that the company ultimately brought in $6 billion over the entire year. That’s down from about $6.4 billion in 2021. Compass lost $602 million in 2022, up from $494 million one year earlier.

During a call with investors Tuesday afternoon, Reffkin described Compass’ 2022 total revenue haul as a “major accomplishment” in light of the industry-wide decline in transactions.

Reffkin also said during the call that Compass still plans to be free cash flow positive — meaning the company is generating more money than it spends — for all of 2023. He expects the company to first become free cash flow positive in the second quarter of the year.

Shares in Compass were trading for $3.61 when the markets closed Tuesday. That was up for the day and compared to last November when shares in the company dropped to less than $2.

Compass shares dropped in after-hours trading Tuesday following the publication of the company’s earnings report.

When regular trading ended Tuesday, Compass had a market cap of about $1.6 billion.

The brokerage last reported earnings in November. At the time, Compass revealed that it brought in $1.49 billion in revenue between July and September of 2022. That represented a 14 percent year-over-year drop.

Compass also reported a net loss of $154 million in the third quarter, up from a loss of $100 million during the same period in 2021. The company’s third- and fourth-quarter losses were nearly the same, with the latter period only ticking up by $4 million.

Compass’ third-quarter earnings were pivotal for the company because they were the first to follow the decision to stop handing out cash and stock-based incentives to new recruits. Observers subsequently debated the move and whether it would impact Compass’ ability to grow. But the third-quarter earnings report shows that the company did manage to add agents even sans lucrative handouts.

Agent count has been a closely watched metric for Compass, as well as for other newer brokerages, such as eXp Realty. By aggressively recruiting, both companies have managed to become the largest firms of their kind in the U.S. However, the companies’ recruiting biggest victories largely took place during a period in which rates were low, homes sold quickly and funding was readily available.

It now remains to be seen if fast-growing brokerages can maintain their track records even when the market has slowed way down.

In Compass’ case, the company’s fourth-quarter average agent count of 13,426 was not only higher than during the same period in 2021; it also represented a small jump from the third quarter, when the company had an average of 13,314 principal agents.

For all of 2022, Compass had an average of 13,073 principal agents. That’s up 18 percent compared to 2021.

Compass had a 98 percent retention rate for principal agents in the fourth quarter of 2022, according to Tuesday’s report. During his call with investors, Reffkin said that the firm’s technology platform is why “agents tell us they come to Compass and the reason they stay at Compass.”

During Tuesday’s investor call, Reffkin noted that Compass spent recent months cutting costs. Those cuts include the end of the recruiting incentives, as well as other measures, such as layoffs. He described this process as a “reset” of Compass’ cost base and said that it should ultimately help the company become free cash flow positive.

Reffkin additionally revealed during the call Tuesday, that Compass is exploring the possibility of launching some sort of franchise brand, though he provided few additional details.

Reffkin also said in the call that “with so much uncertainty, no one can accurately predict what will happen with revenue.” And while the company has seen some positive signs in the economy, Reffkin added that if the market proves to be worse than expected, Compass is also “prepared to move swiftly to implement additional cost cuts.”

Update: This story was updated after publication with additional information from Compass’ earnings report and with commentary from a call the company held with investors. 

Email Jim Dalrymple II

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