Stock Story -
Real estate technology company Compass (NYSE:COMP) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 13.8% year on year to $1.70 billion. On the other hand, next quarter's revenue guidance of $1.48 billion was less impressive, coming in 2.6% below analysts' estimates. It made a GAAP profit of $0.04 per share, improving from its loss of $0.10 per share in the same quarter last year.
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Compass (COMP) Q2 CY2024 Highlights:
- Revenue: $1.70 billion vs analyst estimates of $1.65 billion (3.3% beat)
- EPS: $0.04 vs analyst estimates of $0.03 ($0.01 beat)
- Revenue Guidance for Q3 CY2024 is $1.48 billion at the midpoint, below analyst estimates of $1.51 billion
- Gross Margin (GAAP): 17.4%, up from 12.5% in the same quarter last year
- Free Cash Flow of $40.4 million, up from $5.9 million in the previous quarter
- Transactions: 60,390, up 6,183 year on year
- Market Capitalization: $2.20 billion
Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE:COMP) is a digital-first company operating a residential real estate brokerage in the United States.
Real Estate ServicesTechnology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Thankfully, Compass's 25.6% annualized revenue growth over the last five years was excellent. This shows it expanded quickly, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Compass's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 12.5% over the last two years.
We can better understand the company's revenue dynamics by analyzing its number of transactions, which reached 60,390 in the latest quarter. Over the last two years, Compass's transactions averaged 9.8% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company's monetization has fallen.
This quarter, Compass reported robust year-on-year revenue growth of 13.8%, and its $1.70 billion of revenue exceeded Wall Street's estimates by 3.3%. The company is guiding for revenue to rise 10.3% year on year to $1.48 billion next quarter, improving from the 10.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 12.8% over the next 12 months.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
While Compass posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Compass's demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin was among the worst in the consumer discretionary sector, averaging negative 1.9%.
Compass's free cash flow clocked in at $40.4 million in Q2, equivalent to a 2.4% margin. The company's cash profitability regressed as it was 1 percentage points lower than in the same quarter last year, but it's still above its two-year average. We wouldn't read too much into this quarter's decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.
Key Takeaways from Compass's Q2 ResultsWe were impressed by how significantly Compass blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter was underwhelming. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock traded up 8.4% to $4.78 immediately following the results.
