UPDATED: Feb. 26, 8:45 p.m.: Realogy’s stock plunged 21 percent on Tuesday, as Wall Street reacted grimly to the company’s dismal earnings report.
The stock closed at $14.14 per share after a volatile day of trading, down nearly 42 percent year-over-year, and its lowest mark yet. The New Jersey-based conglomerate reported Tuesday that its 2018 profits dropped 68 percent to $137 million, and it lost $22 million during the fourth quarter. For the full year, Realogy reported $6.1 billion in revenue, $35 million less than 2017.
“Most of the challenge in the 2018 market showed up in the last half of the year,” CEO Ryan Schneider said during an earnings call, in which he attributed the weak earnings to the slow U.S. housing market.
As its share price took a nosedive, Realogy’s market cap dropped to just $1.67 billion, down from $2.1 billion on Monday. Throughout the day, investors also bought and sold 12.7 million shares of the company’s stock, compared to an average daily volume of 1.9 million.
At its peak, Realogy’s market cap was $7.5 billion in May 2013, roughly a year after going public, according to the research firm Macrotrends. But the value of the company has declined precipitously over the past few years, amid heightened competition and the high cost of agent commissions, which increased by $52 million last year. Realogy’s market cap dropped to $3.32 billion in February 2018, according to Macrotrends. By comparison, Realogy’s venture-backed rival Compass was valued at $4.4 billion in 2018, after closing a Series F from SoftBank and the Qatar Investment Authority in September.
On Tuesday, Realogy executives said they’ve been investing in agent recruitment tools and other marketing and technology to improve their value proposition to agents. They’re also looking to cut $70 million in costs in 2019 and reduce the company’s debt load. “In the first half of the year, you will see us focus on debt paydown,” interim CFO Tim Gustavson said.
But analysts zeroed in on Realogy’s lackluster performance compared to the national average. During the fourth quarter, Realogy’s total transaction volume dropped 5 percent year-over-year. Nationwide, sales volume dropped 4 percent, according to the National Association of Realtors.
“Realogy missed analyst expectations on the top and bottom lines — badly,” wrote Matthew Frankel, an investor advisor and founder of Frankel Wealth Management in South Carolina, in a recap of the company’s earnings published on the Motley Fool.
Schneider said the steeper-than-average sales volume was a result of regional weakness. “New York remained pretty weak in Q4. California was incredibly weak, and we’re over-weighted in both of those related to NAR and our competitors,” he told analysts during the earnings call.
Not all analysts were buying it. JPMorgan’s Anthony Palone said Realogy’s financial results weren’t much worse than expected considering the national housing data of late. But he noted that as brokerage companies invest in “agent centric” models, it’s the agents who stand to gain the most — not shareholders.
“With the residential brokerage brands also pushing hard to keep their share of (and grow) agents, the agents are getting a lot out of the deal,” Palone said. “We wonder when will the shareholders of the brands be rewarded?”