What happened
Shares of Compass (COMP 1.25%) were soaring today after the company reported mostly disappointing third-quarter earnings results but said it intended to be free-cash-flow positive by the second quarter of next year.
The stock was also likely boosted by falling mortgage rates in the wake of yesterday's lower-than-expected inflation report, which gave the real estate stock a much-needed shot in the arm.
As of 11:53 a.m. ET, Compass stock was up 48.6%.
NYSE: COMP
Key Data Points
So what
Revenue in the quarter fell 14% to $1.49 billion as Compass is getting hit by the slowdown in the real estate market, but that was actually better than estimates at $1.44 billion.
The company said it launched its national agent platform, allowing all of its agents to use one seamless workflow, an important step in its proprietary technology initiative.
On the bottom line, its adjusted loss in earnings before interest, taxes, depreciation, and amortization (EBITDA) was $42 million, which compared with a profit of $12 million in the quarter a year ago. Compass also had $29 million of restructuring charges in the quarter, of which $25 million was severance. Its loss reported under generally accepted accounting principles (GAAP) of $0.36 per share widened from $0.25 and was worse than estimates at $0.34.
CEO Robert Reffkin said the company's earlier cost-cutting actions would trim $1.05 billion to $1.15 billion in annual adjusted operating expenses.
Now what
Compass's fourth-quarter guidance showed the business continuing to retrench as it forecast revenue of $1.15 billion to $1.3 billion, representing a decline of 24% from the quarter year ago and below estimates at $1.41 billion. It also sees an adjusted EBITDA loss of $50 million to $80 million in the quarter.
Despite the weak guidance, investors seemed to respond well to Reffkin's forecast of positive free cash flow next year, as well as falling mortgage rates, which indicate that the real estate market could turn around sooner than expected.
With the stock down more than 80% from the peak shortly after its IPO last spring, investors seem to smell a buying opportunity.
