What happened
Shares of Compass (COMP +6.80%) were falling today after the real estate brokerage posted disappointing results in its second-quarter earnings report, missing estimates on the top and bottom lines and showing its turnaround efforts were running out of steam.
As of 1:54 p.m. ET on Tuesday, shares were down 8.2%.
NYSE: COMP
Key Data Points
So what
Compass, which is now the nation's largest real estate brokerage platform, continued to struggle with the slowdown in the housing market.
Revenue in the quarter fell 26% to $1.49 billion, slightly below estimates at $1.51 billion. Transactions in the quarter fell 19% to 54,207, and average home prices in its sales also fell as the sales mix shifted outside of high-value markets like California. Gross transaction value was down 26% to $56.8 billion.
Its market share still improved 13 basis points to 4.6% from the first quarter, and it continued to add agents.
Compass has been cutting costs in order to drive profitability and adapt to the slower housing market, and it has made progress on that front. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from $4 million in the quarter a year ago to $30 million. The company also reported positive free cash flow of $51 million, meeting its goal of being free-cash-flow positive.
On the basis of generally accepted accounting principles (GAAP), its loss per share narrowed from $0.24 to $0.10, but that was worse than estimates for a loss of $0.05.
CEO Robert Reffkin said: "I am pleased to say we are free cash flow positive in the second quarter of 2023. Additionally, national market share in Q2 2023 was 4.6%, which marks the third consecutive quarter of market share gains, increasing 45 basis points over the period."
Now what
Looking ahead, the company guided to revenue of $1.3 billion to $1.4 billion in the third quarter, or a decline of 9%, compared to the consensus at $1.37 billion.
On the bottom line, it expects adjusted EBITDA of $15 million to $35 million.
While Compass deserves credit for improving its cost structure and free cash flow, the real estate market could be slow for several more quarters if interest rates remain high, and investors seem skeptical that the company has a competitive advantage. Given that, it's not surprising that Compass is now trading in penny stock range.
A turnaround will be difficult until revenue starts growing again or it delivers a GAAP profit.
