What happened
Shares of Compass (NYSE: COMP), one of the nation's largest real estate brokerages, were falling today after the company missed estimates in its fourth-quarter earnings report and offered weak guidance for the current quarter, showing it continues to struggle with contraction in the real estate market.
As of 11:12 a.m. ET, the stock was down 14.8%.
So what
Revenue in the quarter tumbled 31% to $1.11 billion as transactions declined 25% due to industry-wide headwinds as transactions across the residential real estate industry were down 18% for all of 2022. That result missed analyst estimates at $1.19 billion.
Compass posted a slight gain in market share for the year, from 4.5% to 4.6%, and added 2,015 agents, touting its high levels of retention at 98% in the fourth quarter.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) widened from $51 million to $75 million as efforts to cut costs weren't enough to offset the decline in revenue.
On the bottom line, its loss per share narrowed from $0.43 to $0.36, slightly worse than estimates of a per-share loss of $0.33.
CEO Robert Reffkin called 2022 one of the worst years for the real estate market but said, "Despite industry challenges, Compass increased market share year over year, with transactions being down 6% compared to the industry decline of 18% year over year."
Now what
For the first quarter, the company expects revenue of $850 million to $950 million, and adjusted EBITDA of $70 million to $90 million. Both represent a sequential decline into the seasonally slow first quarter.
The revenue guidance was worse than the analyst consensus at $976.9 million and calls for a 36% decline in revenue from the quarter a year ago.
Compass stock is unlikely to recover until the real estate market improves, but the low stock price could offer some upside if the company is able to leverage its proprietary tech platform in a healthier market. However, investors may have to wait at least another year for the real estate market to turn around.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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