Compass suffered a $601 million net loss during a very difficult year.
Robert Reffkin, CEO of Compass, spoke out Tuesday night to analysts and investors listening to the fourth-quarter earnings call. He said that 2022 would be a “very difficult” year.
This resulted in a 6% decrease in revenue year-over-year to $6.0186billion. Refkin’s company also suffered a net loss $601 million, an increase of $494.1 million from 2021. The fourth quarter of 2022 saw revenue drop 31% year-over-year to $1.11billion and a net loss to $158.0 million.
Reffkin was pleased with his firm’s performance despite these declines. He noted that 2021 was a record-setting year for revenue and that there was only a 6% decrease in transaction volume per annum compared to the industry average of nearly 18%.
Reffkin stated that the 2022 industry’s decline in units was as severe as the Great Financial Crisis when the number fell by 18% from 2007 to 2008. “While 2022 was a difficult year for the housing market, especially in the fourth quarter of the year, we responded to the market challenges by taking the initiative to reset the cost base.”
Compass agents closed 211 538 transactions in 2022, representing a decline of 9% from 2021.
Executives at Compass stated that they are working to address the 2023 housing market and have committed to cutting costs, improving agent experiences, and driving profitable growth in the markets Compass currently operates.
According to Compass’ filing with the Securities and Exchange Commission, Compass cut operating expenses by $374.4 Million in 2022 and 2021, according to the SEC. This was mainly due to four rounds of layoffs that took place since June last year and the end of the firm’s incentives for agent recruitment.
Despite the absence of incentives, Compass’ principal agents grew by more than 2,000 in 2022, bringing its total to 13,073. 1,000 agents joined the firm after it announced that its agent incentives were ending.
Refkin says that Compass’s technology offerings are the main motivating factor for agents joining the company.
Reffkin stated that “We continue to distinguish ourselves through our technology platform.” It is a great asset for Compass as it helps to attract and retain agents. It increases their productivity and allows us to attach other services which will further monetize our platform.
The firm plans to integrate title and escrow services in its agent platform. It is currently testing the beta version of this product within its Southern California markets.
Greg Hart, the firm’s COO, stated that “we are creating a low-friction way for our agents offer these services to an established brokerage transaction, increasing attach rate of adjacent services.”
Compass remains committed to free cash flow and eventually turning a profit this year. Reffkin stated that the company was considering franchising to expand the business while reducing the cost.
Reffkin stated that franchising is a better way to grow in new markets than hiring a lot of people and building out office space before you have the revenue to cover it. “But it is important to remember that we wouldn’t do it in a manner that would negatively impact the experience of our existing agents. We would not franchise in the same area as our own brokerage.
Reffkin is optimistic about the future, despite the fact that the housing market is having a difficult start in 2023 with rising mortgage rates, low inventory in many markets and low supply.
“The market is still challenging. There are both good and bad signs. But, I would say that relative to the past nine months, there is a better ratio of good signs to poor signs than ever before,” Reffkin stated. We have a spring market with multiple offers and more people visiting open houses. It is evident that there are more sellers than buyers in the vast majority of our markets. The current 7% mortgage rate has not slowed down the contract volume.”