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Compass loses money, explores mortgage

The resi brokerage lost $212 million, and announced a move to title and mortgage on its maiden earnings call.

Compass has successfully become a publicly traded company, but the residential brokerage continues to lose money and it has unclear plans to generate more revenue.

In its inaugural earnings call, the eight-year-old, New York City-based brokerage reported Wednesday a net income loss of $212 million in the first quarter of 2021, compared to $133 million in the first quarter of 2020.

The loss is in line with the history of SoftBank-backed Compass, which has swiftly challenged Realogy and Berkshire Hathaway HomeServices of America as the biggest residential brokerage in the country thanks to acquisitions and recruitment of top-producing, talented agents.

Only Realogy reported higher sales volume figures in 2020, and Compass reported on the call that its agent transaction volume jumped 67% between Q1 2021 and the same quarter in 2020.

Compass reported $1.1 billion in revenue for the first three months of 2021. It’s an impressive-looking figure, an 80% leap from the revenue in the first quarter of 2020, when they posted $619 million in revenue.

But that revenue is wrapped up in home sale commission splits to Compass’s real estate agents – money that goes in and out the door. Once the “expense” of “commission and other related expenses” is subtracted, Compass generated $151 million in first-quarter revenue.

Unclear is whether Compass is generating revenue in addition to the about 15% of each agent’s commission.

Compass CEO Robert Reffkin said that the brokerage is “expanding our adjacent service business” into title and escrow, and “plans to provide” mortgage services. Diversifying into title, escrow, and mortgage is the playbook used by HomeServices to maintain profitability, and it is utilized by most brokerages.

Lloyd Walmsley, an analyst at Deutsche Bank, asked what inroads the company has made on title, and how it plans to enter mortgage.

“Adjacent services grew nicely,” replied Kristen Ankerbrandt, chief financial officer at Compass, who added, “We are not going to disclose an exact amount.”

Reffkin said that Compass is exploring either building a mortgage arm, buying a mortgage company or following the lead of other residential brokerages and entering into a joint venture. Compass’s mortgage product, Reffkin said, could be superior to other brokerages because, “Ours is united by one log-in experience.”

Later, Reffkin answered a question about mortgage interest rates by stating Compass is less affected by other brokerages, because of its luxury clientele – which are less likely to need mortgage servicing.

“In the high-end, there’s less use of mortgage,” Reffkin said.

Compass became a publicly traded company on April 1, trading on the New York Stock Exchange. Subsequently, Compass’s stock dropped from $20.15 per share to $14.43 at close of business Wednesday. Its market capitalization is $5.5 billion, more than Realogy’s $2.0 billion, and $3.6 billion for eXp.

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