Tech-focused North Carolina-based brokerage Fathom is aiming to grow leaner as it barrels toward a goal of profitability next year, announcing “deep cost-cutting measures” on a Q3 earnings release yesterday and adjusting Q4 projections downward, even as the company maintains revenue and agent growth.
“Fathom’s revenue grew by more than 10%, and our agent network grew 33% to nearly 10,000 agents, even amidst the backdrop of a challenging residential real estate market,” said Fathom CEO Joshua Harley in a statement. “While Fathom is not immune to current industry challenges, we continue to believe that we built a better mousetrap—one with more resilience and staying power, and with the ability to grow in down markets.”
Revenue for the up-and-coming brokerage, which expanded quickly during the real estate boom, was up 10.2% at $111.3 million, slowing significantly from the 52% year-over-year growth Fathom reported in Q2, but reflecting what nearly every real estate brokerage has encountered over the last few months as housing activity fell off across the country.
Revenue for mortgage, title and other business segments remained roughly flat, with $2.8 million in revenue from mortgage, up from $2.6 million last year.
According to Harley, cost-cutting measures will equal at least $1.5 million per quarter, doubling the company’s commitment (made last quarter) to chop $750,000.
Fathom stock plunged in early trading Tuesday, down around 9%.
Fathom still saw a small growth in transactions, up 5% from last year, with Harley touting a new agent referral program—currently beta testing—as enhancing growth even in a down market. The company still plans to expand into new markets this calendar year.
In the Q3 earnings conference call, Harley also highlighted his company’s attrition rate (averaging 1.5% over the last 12 months) as indicative of a unique fee structure and value proposition that has boosted retention.
But at the same time, Fathom announced that it would be increasing transaction fees and caps, and eliminating stock grants beginning next year as part of the broader push toward positive cash flow. There was also a near-term expense in marketing the new agent referral program.
“None of us have an accurate crystal ball for what’s to come, although we are assuming that we will continue to see some pressure through the end of this year,” Harley said on the conference call. “As such, we’re taking extra precautions to protect ourselves and even leverage the market to our benefit.”
Those fee changes, along with a projected increase in agents is projected to bring gross profit up by $4 to $5 million, according to Fathom President and CFO Marco Fregenal.
“The Fathom team is working hard to generate additional revenue and cut costs, without impacting our ability to grow, by providing the best possible service to our agents, homebuyers and sellers,” said Fregenal in a statement.
A lot of the focus during the conference call was on market conditions, with Harley saying that Fathom is well-structured for a shifting market, stating that “macroeconomic conditions will prove to be much more impactful on our competitors than on us” and even calling conditions a “tailwind” over time.
And despite real estate “pressure” that is likely to extend through the end of the year, Harley expressed optimism about the market at large, particularly around the resilience of buyer demand.
“I see a lot more people sitting on the fence right now, which tells me again, they are not out of the market, they are just on hold, and that gives me a lot of hope,” Harley said.
Editor’s note: An earlier version of this article misstated where Fathom is based.
