What’s Next For Cash-Flow Positive Compass

13 minutes read

Could Compass be suffering under the weight of its own expectations?

The firm spent much of its first cash-flow positive year buying up competitors and duking it out with major industry players over private listings, generating positive headlines and stock moves for its financial and strategic wins.

Compass reported its first-ever cash flow-positive period in the second quarter of 2023. It was an important milestone after a year-long cost-cutting campaign and a first in its life as a public company. It kept positivity in the following quarter, but fell into losses while finishing the year.

It returned to cash flow positivity in the first quarter of 2024 and marked a full year in its results announced in May. Compass upped its free cash flow in the first quarter to $19.5 million and narrowed its net losses by $82 million to $51 million — only for its stock to fall 19 percent the following day.

While Compass continued to improve many of its key operating metrics, the company’s ability to return on its massive investment remains unclear, while CEO Robert Reffkin’s continues big swings against Clear Cooperation Policy.

Compass put up by far the worst May of its publicly-traded competitors, watching its stock fall to $5.91 from $7.81 to close the month, down 24 percent.

Douglas Elliman was the only other brokerage to see its stock price swing double-digit percentage points, but its value went in the other direction. The beleaguered brokerage saw its price jump over 60 percent, from $1.69 to $2.72, on news that it received a merger offer from Anywhere Real Estate.

The offer for Elliman — which some have speculated could be a target for Reffkin’s firm as well — comes after Compass had added a number of brokerages in the last year, including @properties and Christie’s International Real Estate. In March, there were reports that Compass was nearing a deal for Berkshire Hathaway HomeServices, which were later denied by HomeServices executives.

After arguably exceeding expectations for most of 2024, Compass opened 2025 with a bit of dud, missing consensus estimates on revenue and earnings per share, according to Yahoo Finance. Analysts responded by moving full-year breakeven projection to 2026 from 2025.

“We took down our forecasts pretty massively,” said Needham analyst Bernie McTernan, noting much of that was related to a weak housing market. But in a critical moment for Compass being able to cut its way to profitability and create a flywheel for agent growth with its recent inventory push, “I don’t think the thesis is shaken,” he added.

A Compass spokesperson said that the “miss relative to consensus was largely driven by volatility that we began to observe in mid-March as the news around tariffs caused a pause in activity.” They added that the reduced analyst forecasts were driven by lower-than-expected overall market growth.

The company also suffered a blow on a strategic front when Zillow unveiled an updated listing policy that appeared to target Compass’ three-phased marketing strategy, which involves listing homes without publishing them on the MLS. “It definitely seems like Zillow took one of the legs out from under the stool,” McTernan said.

Short-term pain with hopes for long-term gain

Compass, which has taken in over $2 billion in equity investment and has an earnings multiple more in line with a tech company than a brokerage, also has more pressure to perform like a growth stock.

Although Compass managed to hit a profitable second quarter last year, it ended the year with a net loss of over $154 million. The company has splurged on a number of acquisition deals in the past year, which has been a major revenue driver and helped increase its market share to a record 6 percent.

For Reffkin, a housing market boom could be the thing that vaults the company into profitability as its gross profit numbers can finally begin to outstrip its operating expenses — but that bull market appears further and further away, raising questions about how Compass will continue to float its losses in the meantime.

“When they’re growing revenue, fixed costs are great,” McTernan said.

One workaround for the company has been the use of stock-based compensation to incentivize employees and recruit agents, which CFO Kalani Reelitz said he expects to be managed down to $100 million per year. But the company still has over $277 million in unrecognized stock-based compensation, all of which will weigh on the company’s long-term trajectory.

“We have a well-defined path to reducing our annual stock-based compensation over the next three years,” a Compass spokesperson said. “The $277 million is factored into the $100 million target we expect over the long term, so it is not a concern for us.”

The company recognized over $30 million of stock-based compensation in the first quarter of last year, down slightly from the year prior.

While Reffkin has maintained that he will be aggressive in seeking M&A opportunities, the less costly growth trajectory relies on continued organic agent recruitment. On the earnings call, Reelitz said that he continued to hear that Compass’ “inventory strategy, the depth of inventory [and] the three-phase marketing” have helped in agent recruitment.

Last year, Reffkin said that in 2025 Compass would have more off-MLS and make-me-move inventory on Compass.com than any publicly searchable active market, incentivizing buyers and agents to work with the firm. Halfway through this year, that expectation looks all but shot as Zillow and a number of MLSes have challenged Compass’ hegemony play.

Earlier this year, Compass sued Seattle-based Northwest MLS for interfering with the company’s private exclusive model, claiming at one point the listing service shut off its access to the listing service’s data feed until Compass removed all of its private exclusive inventory from the market.

At the Compass’ annual retreat held in early June, Reffkin confirmed to agents that Zillow would “say every private listing is banned” if Compass didn’t remove references to private exclusive listings from its website.

“Does it feel to anyone that we’ve been discouraged from our private listings, or is it just me?” Reffkin asked the audience, claiming that listing services have flouted a National Association of Realtors’ policy that prohibits listing services from discouraging the use of office exclusives.

Last month, the California Regional MLS voted in approval of a NAR amendment that would remove the office exclusive carve-out that currently allows Compass’ private exclusives to exist.

The conversation shift has put Compass on the defensive for the first time since it began waging its battle for the repeal of the Clear Cooperation Policy. Now the company is simply fighting to maintain what existed one year ago.

For Reffkin, the solution remains the same — just keep growing, which is what he told over 1,200 Compass agents at the firm’s annual retreat.

“If every one of you doubles your business, if every one of you doubles your listings, we can’t be bullied anymore,” he said. “That is the path.”