Real estate brokerage Compass files for IPO on $3.7 billion in sales

Compass, a real estate brokerage firm with more than 19,000 agents across the country, filed to go public on Monday, and told prospective investors that revenue jumped 56% last year as housing prices soared.

Founded in 2012, the New York-based company has sought to bring advanced technology to real estate agents, giving them better data, marketing tools and customer relationship software than they can get from a typical brick-and-mortar brokerage.

Compass is among the many tech-powered real estate companies to benefit from a flood of venture capital money that’s enabled emerging businesses to grow fast while burning cash. Revenue climbed to $3.7 billion last year from $2.4 billion in 2019, but the company spent 82% of its sales on commissions and “other transaction-related expense.”

Net loss for the year narrowed to $270.2 million from $388 million in 2019 and its cash and equivalents shrank by 20% to $440.1 million.

Compass was last valued at about $6.4 billion in a 2019 financing round led by SoftBank’s Vision Fund, which also invested in office-rental company WeWork, home-flipping site OpenDoor and construction-technology company Katerra. OpenDoor went public late last year through a reverse merger and is now worth over $17 billion, while WeWork is still trying to bounce back from a near collapse in 2019. SoftBank owns 35% of Compass’s Class A shares.

Residential real estate has been a booming market over the past year, driven by Covid-19 and the lockdowns that forced people to work from home. With the realization that remote work is here to stay, homeowners have looked to move to more desirable locations, but new supply has been limited, causing prices to jump.

Home prices nationally increased 10.4% in December, compared with a year earlier, according to the S&P CoreLogic Case-Shiller Home Price Indices. That’s the strongest annual growth rate in over six years and one of the largest annual gains in the more than 30-year history of the index.

Like many real estate businesses, Compass faced challenges at the beginning of the pandemic because of stay-at-home orders and uncertainty around the economy. The company cut 15% of its staff in March 2020.

However, business rebounded dramatically in the second half of the year and “total transactions increased to 144,784, a 66% increase from 2019, notwithstanding the effect of the COVID-19 pandemic,” Compass said in the filing.  

Shares of online real estate site Zillow have tripled in the past year, while Redfin’s stock is up almost as much.

Correction: A prior version of this story had an incorrect figure for commission and transaction-related costs.

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