Source: Vice —
The real estate company once seemed poised to revolutionize the industry. Now, it looks more like the WeWork of residential real estate.
Not too long ago, the real estate company Compass looked poised to dominate the industry for years to come. With a promise to combine the best of the technology and real estate sectors, it had raised an eye-popping $1.5 billion in funding from investors that included SoftBank, poached or acquired many of the top agents in the business, developed a deep bench of engineers, and made its logo an almost omnipresent feature of high-end neighborhoods.
By CEO Robert Reffkin’s own admission, earning a profit was not top of mind. “Short-term profitability is something that many of the more modern companies are not as focused on,” he told the Wall Street Journal in 2019. Instead, Compass kept aggressively spending to grow. By last year, Compass, which focuses on selling luxury homes in high-end markets with the help of a sleek app, was working with thousands of agents and selling more residential real estate by sales volume than any other brokerage.
Now, Compass looks like something more akin to the WeWork of the residential real estate market—a company that raised and spent money like a tech firm but made money like a brokerage. “What they’re doing, it doesn’t make sense,” one rival CEO recently told Bloomberg. Like a lot of high-growth tech darlings, Compass has still never made an annual profit, but when the housing market started to cool down and the tech industry came back to earth this year, the lack of even a clear path toward profitability was laid bare.
In mid-May, one analyst, Mike DelPrete, published a short analysis of the company to his website saying Compass had a severe “cash burn problem” and was at a “a critical juncture” where it would need to raise money or cut costs after years of operating “more unprofitably than any of its publicly-listed peers.” One month later, the company announced it was laying off 10 percent of its workforce. Then, in August, Compass announced an additional $320 million “cost-reduction program.” Soon after, DelPrete wrote that the move made sense, considering the company needed to “significantly reduce expenses to remain solvent.”
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