Two real estate behemoths are trending in opposite directions after reporting Q4 2021 earnings yesterday, as Realogy (RLGY) saw its stock spike on the strength of earnings that beat estimates, with revenue up 4.2% over Q4 2020, reaching $1.97 billion. At the same time, Compass (COMP) saw its value dip in response to the company missing on revenue and reporting $175 million in net losses.
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In early trading Friday, Realogy was up more than 12%, while Compass quickly lost 8% before rebounding slightly. Realogy also announced a $300 million stock buyback in response to the strong earnings.
With a 16.4% growth in market share and a push to reduce debt, Realogy, CEO, Ryan Schneider focused on his company’s strategic growth and partnerships, including a luxury auction venture with Sotheby’s and title writing with Centerbridge. He also pointed to a 30% increase in transaction volume in 2021, saying the company is focused on “organic growth.”
“You’ll see a greater focus from Realogy on selective M&A to drive growth,” Schneider said. “We see opportunities for strategic M&A in our core business, and we also see opportunities for M&A and investments in adjacent businesses and in technology to further accelerate our transformation.”
Both the Realogy Franchise Group and Realogy Brokerage Group saw a 13% increase in home sale prices year-over-year, even as both saw decreases in home sale sides—down 10% and 7% respectively. Both groups combined saw a 29% increase in transaction volume growth year-over-year.
“Having demonstrated above market growth and a transformed balance sheet, we are ready to move Realogy to its next chapter,” Schneider said.
Compass also reported revenue growth at 31% year-over-year, with $1.6 billion coming in Q4 of 2021, which was middling compared to its guidance in Q3 that projected $1.575 to $1.625 billion for Q4. With a $175 million net loss that quarter, and $494 million on the year—which the company attributed to non-cash stock-based compensation expenses of $386 million—the company is still far from positive cash flow.
“We expect to be free cash flow positive in 2023,” said Compass Founder, CEO and chairman, Robert Reffkin. “We also expect that free cash flow will be 8% to 9% of revenue by 2025. We will do this as we continue to develop the most differentiated productivity-enhancing technology for our agents and to significantly grow market share.”
Reffkin also predicated his company’s immediate path on the evolving inventory crisis and projected home price appreciation. The incredible increase in home prices in 2021 serves as “embedded growth” for this year, according to Reffkin, though Compass’s projections for 2022 “assume some market growth moderation.”
In terms of growth, Reffkin highlighted a market share that grew rapidly from 1.1% in 2019 to 5.6% in 2021. With Compass boasting a total of 26,300 agents in Q4 of 2021, the company expects to add a similar number of agents this year as it did last year, according to Reffkin.
“In summary, what we see in the market every day makes us optimistic about revenue growth, but we have haircut certain assumptions to arrive at the 2022 revenue expectation we presented today,” he said. “Our splits are improving, and by summer, our agents will be able to service the entire real estate transaction on the Compass platform, which drives agent productivity.”
Schneider said he expects transaction unit numbers to drop this year even as volume increases via the price side, with low inventory and elevated home costs. But Realogy is still “excited” for the opportunities of that unique market.
“We’ll go a little bit where the market goes up or down,” he said. “But we’re very excited about the market is looking like, our place in it, our share gains.”
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to firstname.lastname@example.org.