This week, Intel examines the financial data behind Compass, Zillow, and The Real Brokerage, three real estate companies that have excited investors amid a stagnant market that stifles competition.
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When real estate returns trend upward, almost everyone will report rosy numbers.
However, in a depressed market, we argue that companies that can grow market share while controlling costs will truly begin to stand out, giving them a greater stake in any future market recovery.
It is home to several real estate giants and some of the industry’s fastest-growing startups today.
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Intel last week identified the real estate companies that investors expect to be the biggest winners of the prolonged market downturn in 2024.
This week, Intel explores how these companies have so far navigated what has been a painfully slow market recovery for the entire industry.
Zillow’s counterattack
In the first half of this year, momentum (and the new version of the NAR rules) seemed to be favoring CoStar’s Homes.com platform, which looks to grab Zillow’s market share in the long run.
But Zillow’s stock price has rebounded significantly in recent months, and that’s on the back of a cold and tough earnings call.
Most recently, Zillow reported that third quarter mortgage income was up 63% from the same period last year, and rental income was up 24% over the same period.
Zillow’s flagship residential division was also left out of the growth, with sales up 12% year-over-year.
Given the broad housing market, which has been essentially flat over the same period, these numbers reflect the reality that Zillow is only expanding its footprint in the world of residential real estate.
Perhaps just as important to investors is Zillow’s ability to pursue these growth initiatives while simultaneously reducing losses both in real terms and as a percentage of earnings.
jirou group
First 9 months of 2023 → First 9 months of 2024
Revenue: $1.5 billion → $1.7 billion Profit margin: -5.8% → -3.6%
The battle between Zillow and CoStar, as well as Zillow’s more established competitors such as Realtor.com and Redfin, is far from over.
But using stock value as a barometer of a healthy growth trajectory, the latest round went to Zillow.
The compass points to true north
Like Zillow, brokerage giant Compass has grown as its competitors have struggled.
And, like its publicly traded portal peers, Compass achieved this while significantly reducing losses as a percentage of total revenue.
compass
First 9 months of 2023 → First 9 months of 2024
Revenue: $3.8 billion → $4.2 billion Profit margin: -6.2% → -2.7%
As we discussed in last week’s report, Compass finally reported a profit in the second quarter of 2024, and nearly broke even in the third quarter.
This new path is an important milestone for the company, which had to absorb large planned losses each year during its early growth stages.
In addition to the financials, investors may also be reacting positively to Compass CEO Robert Refkin’s vision for an expanded private listing platform.
In recent weeks, Mr. Levkin has positioned his company as one of the main opponents of the National Association of Realtors’ explicit cooperative policy, which requires members to list their homes on the MLS within one business day of public availability. It is obligatory to do so.
Compass, a rapidly growing behemoth in the securities industry with a large network of affiliated agents, may be in a unique and improved position to advance this fight.
New Destroyer Verdict: Authentic
Over the past two years, Intel has been monitoring the rise of real brokerage, which continues its ambitious expansion in agent numbers and revenue.
But it wasn’t until the calendar turned to 2024 that investors became fully committed to the future of low-fee brokerages.
In the first nine months of this year, Real has narrowed its losses, nearly doubled its revenue, and more than tripled its share price for shareholders.
genuine brokerage
First 9 months of 2023 → First 9 months of 2024
Revenue: $535 million → $914 million Profit margin: -2.9% → -2.2%
The company’s progress is notable for its strong resemblance to the rapid rise of competitor eXp Realty during the pandemic boom.
Real’s growth is also notable for coinciding with a major housing recession that has forced many real estate companies to pause in achieving their once-ambitious growth goals.
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