Boston Real Estate: Is Compass Real Estate Profitable?
Boston Condos for Sale
Boston Real Estate: Is Compass Real Estate Profitable?
Let’s take a deep dive into Compass Real Estate financials.
In a filing with the Securities and Exchange Commission, the residential giant revealed the most detailed financial information about the Chicago-based brokerage it acquired in December.
The cash paid out closely aligns with the $155 million of shareholder equity in @properties at the end of September, while the stock payout essentially functions as the deal premium, according to Francine McKenna, a former lecturer of accounting at Wharton.
The filing also provides financial statements for @properties for the first nine months of 2024 and the entirety of 2023.
Thad Wong and Mike Golden’s firm, which acquired Christie’s International Real Estate in 2021, has been profitable for much of its existence as an independent company — up through its last reported financial quarter.
The company generated $20.7 million in net income through the first nine months of 2024; Compass generated a $114 million loss during that same period. In 2023, @properties generated $8.2 million in net income, compared to Compass’ loss of $321 million.
Roughly 20 percent of its revenue came from Christie’s International Real Estate Sereno, which @properties acquired in 2022 for $20.8 million and sold back to its founders prior to the deal with Compass.
The deal was, predictably, a hit to the cash balance Compass had slowly been accruing.
The deal did not close until this year, when @properties had a cash balance of $4.4 million.
@properties also had roughly $125 million in long-term debt on its books with a balloon payment for the remaining balance, which it settled prior to the deal.
Compass’ remaining cash balance could come into play for another deal rumored to be around the corner. The Wall Street Journal reported earlier this month the brokerage is in “advanced talks” for HomeServices of America, the real estate arm of Berkshire Hathaway.
The company still maintains a $350 million revolving credit facility that can provide cash for a potential deal. It drew down $50 million from the facility to partially fund the @properties acquisition.
Boston Real Estate: Is Compass Real Estate Profitable?
Stock option programs sound good on paper, but as we can see with Compass, the reality varies. The post-IPO performance of Compass’ stock highlights the primary issue with stock as a recruiting tool.
I just read an interesting real estate article about Compass Real Estate: Here are some excerpts:
Compass is not profitable. Given its massive expenditures — both to support its brokerage acquisitions and to support its growing employee base — there’s simply no way it can be making money. Nor should it be (yet).
Compass is a growth stage business, investing today for a more powerful and profitable tomorrow. The question for all growth-stage businesses is whether they can ever achieve profitability. A number of other real estate industry behemoths are also unprofitable on a GAAP basis: Zillow, Redfin, Opendoor, eXp Realty, and Purplebricks.
Compass, like all private companies, does not need to share its financials.
The company is deploying an aggressive acquisition strategy to acquire agents and brokers to build market share, is positioning itself as a tech company, and sports a sky-high valuation based on its growth rate and future plans — but what are its future plans? How does it plan to turn the existing, unprofitable brokerage business into a mammoth of the real estate industry?
Boston Real Estate and the Bottom Line
Only time will tell. the verdict is still out
