Stock Story -
Real estate services firm Newmark (NASDAQ:NMRK) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 8.1% year on year to $633.4 million. It made a non-GAAP profit of $0.22 per share, down from its profit of $50.30 per share in the same quarter last year.
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Newmark (NMRK) Q2 CY2024 Highlights:
- Revenue: $633.4 million vs analyst estimates of $630.3 million (small beat)
- EPS (non-GAAP): $0.22 vs analyst estimates of $0.20 (8.2% beat)
- Gross Margin (GAAP): 36.4%, down from 37.4% in the same quarter last year
- Market Capitalization: $2.20 billion
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. Unfortunately, Newmark's 3.4% annualized revenue growth over the last five years was weak. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Newmark's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 10.9% annually.
Newmark also breaks out the revenue for its three most important segments: Management, Leasing, and Investment Sales, which are 41.5%, 32.9%, and 25.6% of revenue. Over the last two years, Newmark's Management revenue (property management) averaged 4.1% year-on-year growth while its Leasing (sourcing tenants) and Investment Sales (financial advisory) revenues averaged declines of 5% and 14.4%.
This quarter, Newmark grew its revenue by 8.1% year on year, and its $633.4 million of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 7.9% over the next 12 months.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Newmark's operating margin might have seen some fluctuations but has generally stayed the same over the last year, averaging 4.3%. Its profitability was lousy for a consumer discretionary business and caused by its suboptimal cost structure.
This quarter, Newmark generated an operating profit margin of 6.4%, up 2.4 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.
Key Takeaways from Newmark's Q2 ResultsIt was good to see Newmark beat analysts' EPS expectations this quarter. Zooming out, we think this was a decent quarter, showing the company is staying on target. The stock remained flat at $12.65 immediately after reporting.
