New York (CNN Business)Riding the tailwinds of months of red hot housing and IPO markets, real estate firm Compass made its debut on the New York Stock Exchange Thursday.
Compass’ stock, which is listed under the ticker symbol “COMP,” jumped around 20% immediately after trading began, and ended the day up nearly 12% at $20.15. The company raised around $450 million after selling 25 million shares at $18 per share, the lower end of its target range. Following the IPO, the company has a diluted valuation, including restricted stock units and employee options, of more than $10 billion.
Shortly prior to the listing, SoftBank Group-backed Compass downsized the number of shares to be sold and lowered its target price range — the firm had initially planned to sell 36 million shares for between $23 and $26. That meant the company raised about half of what it had originally planned, but CEO Robert Reffkin said the IPO accomplished what Compass needs to enter its next stage of growth.
“The goal was never a valuation, the goal was successful financing, and this met that goal,” Reffkin, who co-founded Compass in 2012 after years as a banker at Goldman Sachs, told CNN Business. Read More”We now have hundreds of millions of dollars that have been infused into the company to help accelerate our investment in the platform,” he said. “So I’m very happy that we were able to meet that goal.” Compass is a New York-based brokerage that provides a software platform for real estate agents to help with everything from listing and developing marketing materials to communicating with clients and arranging home tours. The company wants to replace “today’s complex, paper-driven home-buying and selling process with an all-digital, end-to-end platform that empowers real estate agents to deliver an exceptional experience to every buyer and seller,” it said in its S-1 filing with the Securities and Exchange Commission.It’s a good time to be in the home-selling business: There is record low inventory as the pandemic has increased demand for homes, driving up sales prices.During 2020, Compass’ agents represented buyers or sellers of 275,000 homes worth more than $300 billion, the company said in its S-1. Its revenue during the year grew 56% compared to 2019 to $3.7 billion.
Compass CEO Robert Reffkin and his mother, Ruth Reffkin, who inspired the company’s creation and is now a real estate agent for Compass.
Post-IPO plans
With the new infusion of capital from the IPO, the company plans to invest in expanding its platform for agents, with the goal of becoming the “Shopify (SHOP) for real estate,” Reffkin said, referring to the fast growing point-of-sale platform for online sellers. The average agent has to use nine third-party software solutions in the course of their work, he said — something Compass wants to change by creating a single, end-to-end platform.”If you’re a merchant, you can go to Shopify and have all your needs met in one place, and at Compass, that’s what we’re building for agents,” Reffkin said. “There are 86,000 brokerage firms in the country, but they’re not investing in R&D, they don’t have teams of people … to build out that complete solution. I believe agents need and deserve a one-stop-shop solution to meet all their needs in one place.” Compass currently has an engineering team of more than 700 headed by Joseph Sirosh, the former chief technology officer of AI at Microsoft (MSFT), and Greg Hart, a former longtime Amazon (AMZN) exec who ran the Prime Video business, among other divisions. Reffkin said the IPO funds will help further grow that team, which is responsible for building the data, analytics, AI and machine learning capabilities underlying its platform. Investing in technology is key to Reffkin’s strategy to drive Compass to profitability. In 2020, the company posted a net loss of $270 million, according to its S-1 filling.Compass has faced some questions about whether it’s really a technology company — and should be valued as such — or if it’s more like a traditional brokerage firm with good marketing and a big engineering team. “We’re a company focused on agent productivity and agent success, that’s the kind of company we are,” Reffkin said. “It just so happens that to make agents successful, they need a combination of technology and brokerage firm services … The goal is not to be a technology company, the goal is to help agents grow their business and realize their entrepreneurial potential.” Of Compass’ more than 19,000 agents, more than 88% use its platform at least once a week and the company has an agent retention rate of greater than 90%, it said in the IPO filing. Another potential risk to the company is competition from “iBuying” real estate firms such as Zillow (Z) and Opendoor which also offer online services for agents and buyers looking to buy and sell homes. Those firms are also taking things a step further by buying homes themselves, flipping and reselling them.
However, Reffkin said he’s not counting out the agent model — which still accounts by far for the largest share of homes bought and sold in the United States. “90% of buyers and sellers use an agent, and it’s actually increased over time,” Reffkin said. “I wouldn’t bet against the future of agents.”
Source: edition.cnn.com
