While most national residential players ended the year licking their wounds, Compass capped off 2024 by flexing its muscles.
The brokerage recorded a net loss of $40.5 million in the fourth quarter, a $43.2 million improvement in 2023, according to its latest earnings report.
Revenue grew 26 percent to $1.4 billion in the third quarter, and transactions grew over 24 percent. Compass, which relied heavily on acquisitions to power its growth in 2024, said around 80 percent of its growth was organic in the fourth quarter. For the year, the company recorded $5.6 billion in revenue, up over 15 percent from 2023.
The company’s quarterly market share grew to 5.06 percent from 4.41 percent.
“Despite higher mortgage rates in a volatile environment, the company’s structural advantages and initiatives around [operating expense] containment are working,” said CEO Robert Reffkin.
The company also recorded free cash flow of $26.7 million in the fourth quarter, marking the first full year in the company’s 12 years of operation to be free cash flow positive.
Margin squeeze…for now
Commission expenses as a percent of revenue increased to 82.53 percent from 81.71 percent. Chief financial officer Kalani Reelitz attributed a quarter of the increase to acquisitions, and the remainder to geographic and changes in agent ranks.
Operating expenses were $224.4 million in the fourth quarter, slightly above the same period in 2023. Reelitz said adjusting for M&A-related expenses and transaction costs, operating expenses were down five percent from the fourth quarter of 2023.
Reffkin said he expects margins to improve as the company hires newer agents with lower splits. The company is also poised to expand its title, escrow and affiliate businesses following its acquisition of Christie’s International Real Estate, which is a 30 to 35 percent adjusted EBITDA margin business.
Adjusted EBITDA in the fourth quarter was $16.7 million, an improvement of $40.4 million from the same period in 2023. The measure excludes $31.2 million in stock-based compensation, which was down over $5 million from the fourth quarter in 2023.
The company’s cash balance of $223.8 million was up $12.6 million from the previous quarter.
The brokerage organically recruited 669 principal agents for a net increase of 210 principal agents, after accounting for the managing out of lower-performing agents.
Reffkin said the company’s midpoint revenue guidance of over $1.41 billion represents 25 percent growth year-over-year.
The inventory hustle
Reffkin touted Compass’ exclusive and “coming soon” inventory, which he said now accounts for 7,500 — 35 percent — of all the company’s listings. In February, more than half of new Compass listings started as private exclusives or were available only on Compass.com, which are part of the company’s latest consumer marketing strategy.
The chief executive also spent a majority of his opening remarks criticizing what he called “anticompetitive rules” by the National Association of Realtors.
Reffkin cited a slew of studies and internal analyses in his argument that a repeal of the trade group’s Clear Cooperation Policy benefits consumers, echoing a position that has been roundly criticized by other industry leaders.
Citing a study that found the disparity of commission earnings for brokers based on experience widened by 20 percent in the wake of widespread buyer agreements, Reffkin described the rule as among the tools for NAR to extract revenue from underperforming agents.
“The artificial market restraints and limited market share gains for the best agents and the best brokerages are now gone,” Reffkin said of the rule changes implemented on Aug. 17.