Compass Needs to Flip the Narrative

Slapping a Silicon Valley ZIP Code on a house from Arizona would be a bit misleading, even if it is a gem.

Compass is the latest example of a business that seemed to try to be something it wasn’t. Much like WeWork, an office-sharing company that was valued like a technology platform, Compass is a real-estate brokerage company that appeared to be in the business of cloud-based software.

The high tech veneer faded quickly. Compass priced shares for its public offering last week at $18, a significant haircut from its initial range of $23 to $26. In the four days it has been on the market, its stock is down 13%.

Traditional full service broker Realogy fetches a modest multiple of 0.83 times enterprise value to trailing sales while true tech firm Zillow Group is in a different neighborhood at 9.5 times. Compass is now near the lower end of that range at 2.1 times.

It deserves some premium to other real-estate brokerages. While not Compass’s main revenue generator, its technology certainly seems to matter. Last year, Compass said its agents sold homes in 21% fewer days on average relative to competitors on homes of comparable value in the same cities.

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