Stock Story -
Real estate services firm Newmark (NASDAQ:NMRK) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 11.3% year on year to $685.9 million. The company’s full-year revenue guidance of $2.65 billion at the midpoint came in slightly above analysts’ estimates. Its non-GAAP profit of $0.33 per share was 10.9% above analysts’ consensus estimates.
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Newmark (NMRK) Q3 CY2024 Highlights:
- Revenue: $685.9 million vs analyst estimates of $681.6 million (in line)
- Adjusted EPS: $0.33 vs analyst estimates of $0.30 (10.9% beat)
- EBITDA: $112.6 million vs analyst estimates of $119.3 million (5.6% miss)
- The company lifted its revenue guidance for the full year to $2.65 billion at the midpoint from $2.47 billion, a 7.3% increase
- Adjusted EPS guidance for the full year is $1.14 at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for the full year is $420 million at the midpoint, below analyst estimates of $434 million
- Gross Margin (GAAP): 35.7%, in line with the same quarter last year
- Operating Margin: 6%, up from 4.4% in the same quarter last year
- EBITDA Margin: 16.4%, in line with the same quarter last year
- Market Capitalization: $2.49 billion
Real Estate Services
Technology 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 Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Newmark’s sales grew at a sluggish 3.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, 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 7.9% annually.
Newmark also breaks out the revenue for its three most important segments: Management, Leasing, and Investment Sales, which are 41.2%, 31.3%, and 27.5% of revenue. Over the last two years, Newmark’s Management revenue (property management) averaged 6.6% year-on-year growth while its Leasing (sourcing tenants) and Investment Sales (financial advisory) revenues averaged declines of 3.6% and 8.7%.
This quarter, Newmark’s year-on-year revenue growth was 11.3%, and its $685.9 million of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 10.1% over the next 12 months, an improvement versus the last two years. While this projection shows the market thinks its newer products and services will fuel better performance, it is still below average for the sector.
Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.Newmark has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.7%, subpar for a consumer discretionary business.