Compass CEO plans to double technology investments after IPO

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Compass stock, which is listed under the ticker “COMP”, jumped about 20% immediately after trading started and ended the day up nearly 12% to $ 20.15. The company raised around $ 450 million after selling 25 million shares at $ 18 per share, the low end of its target range.

As a result of the IPO, the company has a diluted valuation, including restricted stock units and employee options, of more than $ 10 billion.

Shortly before listing, Compass, backed by SoftBank Group, reduced the number of shares to sell and lowered its target price range – the company originally planned to sell 36 million shares for between $ 23 and $ 26 . That meant the company had raised about half of what it originally planned, but CEO Robert Reffkin said the IPO accomplished what Compass needed to enter its next stage of growth.

“The goal was never an assessment, the goal was successful fundraising, and it served that goal,” said Reffkin, who co-founded Compass in 2012 after years as a banker at Goldman Sachs, at CNN Business.

“We now have hundreds of millions of dollars that have been pumped into the business to help accelerate our investment in the platform,” he said. “So I am very happy that we were able to achieve this goal.”

Compass is a New York-based brokerage firm that provides a software platform for realtors to help you with everything from listing and developing marketing materials to communicating with clients and arranging home visits. . The company wants to replace “today’s complex paper-based home buying and selling process with a fully digital, end-to-end platform that enables real estate agents to deliver an exceptional experience to every buyer and seller, “he said in his S-1 filing with the Securities and Exchange Commission.

Now is a good time to get started selling homes: Inventories are historically low as the pandemic has increased demand for homes, which has pushed up selling prices.

In 2020, Compass agents represented buyers or sellers of 275,000 homes worth more than $ 300 billion, the company said in its S-1. Its revenue for the year increased 56% from 2019 to $ 3.7 billion.

Compass CEO Robert Reffkin and his mother Ruth Reffkin who inspired the founding of the company and who is now a real estate agent for Compass.

Post-IPO plans

With the new capital injection of the IPO, the company plans to invest in expanding its platform for agents, with the aim of becoming the “Shopify (SHOP) for real estate, “said Reffkin, referring to the fast-growing point of sale platform for online sellers. The average agent has to use nine third-party software solutions as part of their job, a t he said – what Compass wants to change by creating a single end-to-end platform.

“If you’re a merchant, you can access Shopify and meet all of your needs in one place, and at Compass that’s what we’re building for agents,” Reffkin said. “There are 86,000 brokerage firms in the country, but they don’t invest in R&D, they don’t have teams of people … to create this complete solution. I believe agents need and deserve a one stop solution to meet all of their needs in one place. ”

Compass currently has an engineering team of over 700 people led by Joseph Sirosh, the former director of AI technology at Microsoft (MSFT), and Greg Hart, a former Amazon (AMZN) an executive who ran the Prime Video business, among other divisions. Reffkin said the IPO funds will help further develop this team, which is tasked with building the data, analytics, AI and machine learning capabilities underlying its platform.

Investing in technology is key to Reffkin’s strategy to drive Compass to profitability. In 2020, the company recorded a net loss of $ 270 million, according to its S-1 fill.

Compass wondered if this is really a tech company – and should be valued as such – or if it is more of a traditional brokerage firm with good marketing and a great engineering team.

“We’re a company focused on agent productivity and agent success, that’s the kind of company we are,” said Reffkin. “It turns out that for agents to be successful, they need a combination of technology and brokerage firm services … The point is not to be a technology company, the point is to help. agents to develop their business and realize their entrepreneurial potential. ”

Of Compass’ more than 19,000 agents, more than 88% use its platform at least once a week and the company has an agent retention rate above 90%, he said in the filing of the ‘Initial Public Offering.

Another potential risk for the company is competition from “iBuying” real estate companies such as Zillow (OF) and Opendoor which also offers online services for agents and buyers wishing to buy and sell homes. These companies also go a step further by buying houses themselves, turning them over and reselling them.

However, Reffkin said he doesn’t count the agent model – which still accounts for the largest share of homes bought and sold in the United States by far.

“90% of buyers and sellers use an agent, and it has actually grown over time,” Reffkin said. “I wouldn’t bet against the agents’ futures.”

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