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Compass posted a $601 million net loss in a ‘very difficult year’

The firm remains committed to becoming free cash flow positive this year

Compass CEO Robert Reffkin did not mince words Tuesday evening when he told investors and analysts listening to the firm’s fourth-quarter earnings call that 2022 was a “very difficult year.”

For Reffkin’s firm, this meant a 6% year-over-year decrease in revenue to $6.0186 billion — and a net loss of $601 million, up from a $494.1 million net loss in 2021. Much of the decrease in revenue and the net loss can be attributed to the fourth quarter of 2022, which saw revenue drop 31% year over year to $1.11 billion and a net loss of $158.0 million.

Despite these decreases, Reffkin was still pleased by his firm’s performance, noting that when making comparisons, it is important to remember that 2021 was a record year for revenue, and that the firm saw only a 6% yearly decrease in transaction volume compared to an average of nearly 18% for the industry.

“The 2022 industry decline in units was as bad as the Great Financial Crisis, when the number of units fell by 18% year over year from 2007 to 2008,” Reffkin said. “While 2022 was a tough year for the housing market, particularly in the fourth quarter, we responded to the challenging market conditions by take the initiative to reset our cost base.”

Overall, Compass agents closed 211,538 transactions in 2022 for a sales volume of $230.3 billion, marking a 9% decline from 2021.

As the firm looks to tackle the 2023 housing market, executives said they are committed to cutting further costs while looking at improving agent experiences and driving profitable growth in the markets Compass is currently in.

According to the firm’s filing with the Securities and Exchange Commission (SEC), Compass reduced operating expenses by $374.4 million in 2022 compared to 2021. This decrease was mainly fueled by four rounds of layoffs since last June and the end of the firm’s agent recruitment incentives.

Despite the lack of incentives, Compass’ principal agent count grew by over 2,000 agents in 2022, bringing the total count up to 13,073, with 1,000 agents joining after the firm announced the end of its agent incentives.

According to Reffkin, agents joining Compass most often cite the firm’s technology offerings as their main motivating factor.

“We continue to differentiate ourselves through our technology platform,” Reffkin said. “It is an asset for Compass because it helps attract and retain agents. It makes them more productive and it also gives us the ability to attach other services, which will further monetize the platform.”

Moving forward, the firm is looking to integrate title and escrow services into its agent platform. It is currently testing a beta version of this product in its Southern California markets.

“We are creating a low friction way for our agents to offer these services to an existing brokerage transaction, increasing the attach rate of adjacent services,” Greg Hart, the firm’s COO, said.

As Compass remain committed to becoming free cash flow positive this year, and eventually turning a profit, Reffkin said the firm was considering franchising as a way to further expand the firm while defraying the cost to do so.

“When it comes to new markets, instead of having to hire a bunch of people and build out the office space in advance of having the revenue to cover it, franchising is definitely a more profitable way to grow, so that is something that we are exploring,” Reffkin said. “It is important to keep in mind, however, that we would not do it in a way where it would impair the experience for our existing agents in any way. So, for example, we would not franchise in the same geographic area as our owned brokerage operation.”

While the housing market is off to a rocky start in 2023, with rising mortgage rates and low inventory in many markets, Reffkin remains positive about what is to come.

“The market is still challenging. There are good signs and there are bad signs, but I would say relative to the last nine months, the ratio of good signs to bad signs is better than it has ever been,” Reffkin said. “We have an early spring market, multiple offers and more foot traffic at open houses. It is clear across the vast majority of our markets that there are more buyers than sellers. And the current 7% mortgage rates have not caused a slowed down in the contract volume.”