Compass said it would be making some cutbacks, and the New York-based brokerage firm is making good on that promise as it has axed a crucial cog in its business model.
The “tech-enabled brokerage” recently announced that it fired Chief Technology Officer Joseph Sirosh. Stating that Compass “decided to part ways” with Sirosh, Compass indicated in an email to RISMedia that the firing was connected to a recently announced cost reduction program that Compass is implementing.
“With the successful rollout of the Compass technology platform, Compass now enters its next phase with the largest technology team in our industry, focused on enhancing and building tools that help our over 28,000 agent-entrepreneurs grow their businesses,” says a Compass spokesperson.
According to an emailed statement Compass sent to RISMedia, Chief Operating Officer Greg Hart will lead Compass’ tech team as the company restructures the department.
The statement also indicated that Kendra Shimmell and Shay Artzi would step into head of product and head of engineering, respectively, covering some of Sirosh’s former duties.
Sirosh wasn’t the only member of the tech team that was fired—he was joined by a small group of employees and recruiters—though he was arguably the most prominent. Joining Compass in 2018, Sirosh brought significant Silicon Valley clout to the burgeoning real estate brand, touting high-level positions at Amazon and Microsoft.
Before his unceremonious departure, according to SEC filings, Sirosh unloaded 220,000 shares of company stock—worth nearly $870,000—in the days following Compass’ earnings report.
Sirosh’s firing comes a little over a week after the company announced that it would be tightening its expenses and cutting costs. Compass has had to rethink its gameplan for the remainder of the year amid recent market shifts that have strained the industry—lagging sales, higher mortgage rates and inflation in particular.
During a second quarter call with investors, Compass executives said they plan to cut $320 million in costs for the company to become free-cash-flow positive by next year.
Specifically, Compass announced that it would cut back on its investment in technology while also eliminating the use of financial incentives—equity or cash incentives—to recruit new agents in the future.
While the latter captured headlines at the time, the reduction in tech spending marks a significant deviation from Compass’ track record.
CEO and Co-Founder Robert Reffkin told investors that the company had invested more than $900 million in technology through the years, particularly in developing its agent-facing platform.
News of Sirosh’s firing gained mixed reviews from real estate leaders and pundits who provided their thoughts on Compass’ decision and its potential implications.
“I would say that it’s highly symbolic,” says Bill Fowler, who currently works as a consultant after senior roles in tech and leadership at both Compass and Zillow.
Fowler served as Compass’ senior director of industry relations when the company first brought Sirosh and Hart onboard. In previous interviews with RISMedia about the company’s business model, he acknowledged that Sirosh and Hart had been critical contributors to that effort.
While he refrained from commenting further on the layoff, Fowler says that the move may also indicate that some of Compass’ past tactics “haven’t worked out.”
York Baur, CEO of MoxiWorks, echoed similar sentiments.
“I’ve been consistent in my position that brokerages shouldn’t build their own technology,” says Baur. “Compass is the best example of why this approach makes no financial sense, and they’re now having to unwind it.”
While the layoffs are bleak, some industry pundits say Compass’ recent strategic changes are wise moves in facing its current financial challenges.
“Their expenses extend well beyond reason, and getting their finances in order is a must,” says Josh Harley, founder and CEO of Fathom Realty. “They spent over $900M in tech development, and while their COO has a tech background, they still need someone whose primary focus is on their platform, or things will begin to unravel. They have a smart team, and I have no doubt they will hire or promote someone quickly to fill this role.”
The recent changes in housing market activity as mortgage rates have increased and inflation has strained consumers, have done a number on Compass and other real estate companies.
Compass’ latest earnings report indicated that it earned $2 billion in Q2—up 4% from last year’s second quarter. Despite an increase in earnings, the brokerage’s net losses surged year-over-year, shedding $101.1 million in Q2 2022 compared to $7 million in Q2 2021.
The company also reduced its annual sales forecast by roughly $1.5 billion, with the current forecast calling for revenue of $6.15 billion to $6.45 billion after the previous guidance stated $7.6 billion to $8 billion.
Company executives attributed Compass’ performance to a “big downturn” market. They claimed that the company was preparing for the market to see as much as a 25% decline from what was previously predicted.
While some may view Sirosh’s firing as a foreboding sign for Compass, the company stood by its performance in the market.
“Compass has invested more in the success of real estate agents than any other company in history, and our investment in technology and services has paid off,” says a Compass spokesperson who cited several positive highlights of the company’s second quarter performance this year.
For some onlookers, there are still some unanswered questions surrounding how Compass will fare as the year and market shifts continue.
“Compass is not alone in looking to pare back to pre-pandemic business levels, but now, with higher prices and interest rates, the question might be whether this will limit Compass’ development of their promised differentiator of technology their competitors have been waiting to see materialize,” said Craig Cheatham, president and CEO of The Realty Alliance.