The first quarter of 2023 was yet another unprofitable quarter for real estate brokerage Compass. But despite a 31% annual decrease in revenue to $957 million, firm executives were optimistic about the future of Compass.
“We have just experienced two of the worst quarters in residential real estate in the past 20 years,” Greg Hart, Compass’ COO told investors and analysts on the firm’s first-quarter earnings call Tuesday evening. “Against this backdrop, Compass continued to outperform.”
The firm attributed the decline in revenue to a 24% yearly decline in transaction count at 35,886, resulting in a sales volume of $36.6 billion — a 32% year-over-year decrease.
Still, executives’ spirits were buoyed by Compass recording a smaller net loss in Q1 2023 than in Q1 2022 ($150 million vs. $188 million), despite the sizable annual drop in revenue. In addition, executives highlighted that at 4.5%, Compass’ national market share was up 17 basis points from Q4 2022, in addition to the brokerage’s 6% yearly increase in principal agent count to 13,515 agents.
“Over 1,000 agents have come to Compass since August for no cash or equity sign-on bonus,” Robert Reffkin, the firm’s CEO, said. “The majority of these agents have told us they are paying Compass more than their previous brokerage. This demonstrates that agents come to Compass for the benefit of the technology platform.”
One major technology platform upgrade, which Compass rolled out in Southern California during the first quarter of the year, was the integration of its title and escrow offerings into the existing Compass agent platform. According to executives, with this integration, agents can press a button within the platform to order title or open an escrow account for their clients.
“We are adding features to the platform to enhance the revenue and profitability of these transactions,” Reffkin said. “We know from experience that agents are more inclined to use our services when they are directly in the platform, increasing both our attach rate and out take rate per transaction. We expect to continue to roll out this valuable feature across our entire title and escrow coverage area over the course of the next 12 months.”
According to the firm, more than one third of addressable title and escrow orders have been initiated through the platform, and over 50% of agents ordering title and escrow to the platform are using Compass’ title and escrow services for the first time.
Looking ahead, brokerage executives said they plan on eventually integrating the mortgage joint venture with Guaranteed Rate and OriginPoint into the platform.
Despite the yearly drop in revenue, Reffkin and other brokerage executives continued to stand by their assertion that Compass will be free cash flow positive in Q2 2023, as well as for the year as a whole.
Reffkin acknowledged the firm’s cost reduction strategies as a major source of this optimism.
“We are confident that we set the right operating expense target range of $850 million to $950 million,” Reffkin said. “We have taken permanent actions, not temporary ones. We expect to stay within this range over the next two to three years. As a result, when the market improves in the future, we will be well positioned for generating significant long-term profits.”
