What happened
Shares of real estate brokerage Compass (COMP +3.58%) soared today after the company delivered better-than-expected results in its first-quarter earnings report, and said it would be free-cash-flow-positive this year.
The stock closed up 35% on the news.
So what
Compass, which is now the biggest real estate brokerage in the country by sales volume, has struggled since its 2021 IPO as the housing market has slowed down, but the first-quarter results were enough to please investors especially relative to the beaten-down share price.
NYSE: COMP
Key Data Points
Revenue in the quarter fell 31% to $957 million, with transactions declining 24% due to the slowdown in the housing market, while gross transaction value was down 32% to $37 billion. However, that revenue result easily beat estimates of $905 million.
The company's cost-cutting efforts also seemed to be paying off as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss narrowed from $97 million in the quarter a year ago to $67 million.
Its total agent count continued to grow, up 6% to 13,515, and the company increased its national market share by 17 basis points to 4.5%.
On the bottom line, the company's loss per share narrowed from $0.45 to $0.33, which was a penny better than the analyst consensus.
CEO Robert Reffkin said, "Over the past few quarters, our agents and employees have successfully navigated the sharpest decline in residential real estate transactions in U.S. history. During this time, we increased our market share in the fourth quarter of 2022, and we've done so again in the first quarter of 2023."
Now what
Looking ahead, the company forecast revenue of $1.45 billion-$1.6 billion in the second quarter, which was slightly better than estimates and represents a decline of 25% at the midpoint.
However, the company also expects positive adjusted EBITDA of $30 million-$35 million and positive free cash flow.
With the stock still down roughly 80% from its post-IPO peak, investors seemed to think the update signaled a turnaround for Compass.
Keep an eye on free cash flow going forward as growth in that metric should drive a recovery in the stock.
