Rising home price growth and rising mortgage rates threaten the financial prospects of eXp World Holdings, the parent company of fast-growing brokerage eXp Realty. But executives say they’ve got a plan to overcome the headwinds – and it doesn’t include slowing down its incredible growth targets.
For the three months ending on June 30, eXp recorded revenue of $1.4 billion, a 42% year-over-year increase. And gross income increased 34% compared to the second quarter of 2021, for a total of $107.3 million.
Still, net income dropped 75% year over year to $9.4 million in the second quarter. The brokerage attributed this decrease to a year-over-year tax expense increase of “$22.3 million due to one-time VA allowance release in 2021 and stock compensation. Company executives did note, however, that the quarter’s net income was up 6% compared to the prior quarter.
“In Q2 obviously the headline was the Fed raising interest rates — that changed the game quite a bit and we definitely saw a softening especially toward the end of Q2, June especially we saw a slowdown in transactions, probably primarily around interest rates,” Glenn Sanford, the CEO of eXp World Holdings, said on the call. “The interest rates certainly slowed things down and they slowed them down below what we were expecting at the beginning of the year.”
To manage the slowdown, Sanford said eXp has worked to moderate its expenses and cut back where it can.
Despite the challenges posed by shifting market conditions, eXp agents closed a total 150,032 transactions during the second quarter for a total sales volume of $57.9 billion. Compared to a year prior, these two metrics were up 30% and 44%, respectively.
Brokerage executives attribute these increases to eXp’s rising agent count which came in just shy of 83,000 at the end of the second quarter, up 42% from a year ago.
In other words, the growth hasn’t cut into profits.
“With the key drivers, agent growth is certainly a big part of it,” Sanford said. “We think about the idea that the average agent is going to do X number of transactions based on what is going on in the industry and that is going to be the biggest single predictor of what is going on long term with the company, so that was the biggest driver.”
Sanford told investors that there was “more notable churn” in the lower and non-producing agent categories.
“I think especially as we got toward the second half of the second quarter, the fact that there were fewer transactions due to higher interest rates, some of those agents who were struggling to put deals together, they generally churned out or they may have tried to find some place where they could hang their license that was cheaper,” he said.
The brokerage views an expansion of its technological offerings, as well as its affiliate services as a way to attract more agents and improve the productivity of the agents already at eXp.
“As a company of size, we are poised to take advantage of that big opportunity and create higher attachment rates across the board and create additional monetization that is similar to other players, such as Anywhere or Berkshire Hathaway,” said Leo Pareja, who recently joined as president of affiliated services.
Executives at eXp also told investors that it plans to launch a new digital marketing suite for agents within the next two months. The brokerage is also expanding its agent education offerings in a challenging market.
“We are actually seeing our top producing agents and brokers, and those who have grown large organizations, actually doing more on the education and attraction and retention side of the business,” Sanford said. “So, we are really seeing a doubling down on education and training, as well as we are continuing to look at tools to help agents improve their business.”