Real estate brokerage Compass grew quickly thanks to venture capital money and an aggressive agent recruiting plan. But the decade-old company has always bled cash, and now, as the financial markets take a turn for the ugly, may face a reckoning.
On Tuesday, New York-based Compass announced a “workforce reduction plan” laying off 10% of the company’s current employees, or “approximately 450 positions,” according to a filing with the Securities and Exchange Commission.
Compass estimates a $15-$16 million pre-tax charge in severance and termination benefits for the affected employees. Most of the affected employees will be notified later in the day, according to a source close to the company.
The company paused trading on the New York Stock Exchange Tuesday, multiple sources confirmed, but resumed it in the early afternoon.* Compass stock, which debuted at $20.15 per share in April 2021, was trading at $4.51 a share before trading stopped.
In response to questions about layoffs and halting of stock trading, a Compass spokesperson provided a written statement that read in part, “Due to the clear signals of slowing economic growth we’ve taken a number of measures to safeguard our business and reduce costs.”
Compass also Tuesday unveiled that it has shut down Modus Technologies, a Seattle-based company that Compass bought in October 2020, heralding its entry point into the title and escrow space.
“The shutdown of Modus is not a reflection of any plans to depart from the company’s commitment to title & escrow,” the filing reads. “The company continues to plan to offer these services in every market in which the company operates.”
In addition to the layoff and Modus shutdown, the explosive SEC filing also signals a “Transformation Plan” for Compass.
“The Transformation Plan is expected to include, but not be limited to, a series of actions such as a reduction in U.S. hiring and backfills resulting from attrition occurring both in the first half of 2022 and anticipated for the remainder of the year,” the filing reads.
The plan also includes “consolidating offices” and reducing related costs. Compass will make a subsequent SEC filing, the company states, in which it will specify just how many real estate leases it is seeking to get out of.
Additionally, Compass has planned a pause in its typically prolific merger and acquisition activity. And the company, famous for rolling into markets with high-profile agent hires from Los Angeles to Miami to Kansas City, will pause market expansion for the rest of the year.
Fueled by about $1.5 billion in venture capital money, including at least $450 million from Japan-based SoftBank, Compass has disrupted brokerage markets across the country, particularly in expensive locales New York City and San Francisco. The company’s growth trajectory has been so rapid that it eclipsed long-established brokerage conglomerate Realogy in 2021’s RealTrend rankings of the top 500 U.S. brokerages by sales volume.
However, Compass’s growth has come amid widespread skepticism that it lacks a plan toward profitability. The company has freely spent not just on signing bonuses and fat commissions for agents but other features like brick and mortar office space, that brokerages are increasingly doing away with.
Compass lost $494 million in 2021, and $188 million in the first quarter alone of 2022. The company also announced in May that Kristen Ankerbrandt, the Chief Financial Officer who shepherded Compass to an IPO, would resign in September. Compass has not named a replacement.
*UPDATE June 14, 2022: This piece was updated to reflect Compass stock resumed trading Tuesday after a 46-minute pause.