SoftBank-Backed Compass Real Estate Brokerage Files for IPO

(Bloomberg) -- Compass Inc., a SoftBank-backed company that's among the largest real estate brokerages in the U.S., filed for an initial public offering, disclosing growing revenue and shrinking losses.

The New York-based startup in its filing Monday listed the size of the offering as $500 million, a placeholder that will change. Compass will disclose further details of the offering, including the size and target price range, in a later filing.

The company lost $270 million on revenue of $3.7 billion last year, compared with a loss of $388 million on revenue of $2.4 billion in 2019, according to its filing. Last year, Compass was involved in residential real estate transactions totaling $152 billion -- or 4% of the U.S. market, according to the filing.

While the coronavirus pandemic initially pushed Compass to lay off 15% of its workforce, it soon led to a sharp increase in housing market demand, as Americans sought larger living spaces for the work-from-home era. The housing boom boosted the stocks of companies like Zillow Group Inc. and Redfin Corp., which both saw shares roughly triple in the past year. It also paved the way for Opendoor Technologies Inc. and Matterport Inc. to go public through deals with blank-check companies.

Compass was founded in 2012 by Robert Reffkin, a Goldman Sachs Group Inc. alumnus who was once Gary Cohn's chief of staff at the bank, and by Ori Allon, an engineer who had sold previous startups to Google and Twitter Inc. After initially exploring different models, they wound up building a traditional brokerage that invested in tech designed to make agents better. They also spent liberally to poach agents from competitors and roll up smaller brokerages.

SoftBank Stake

By 2019, Compass had raised more than $1.5 billion in capital, including hundreds of millions of dollars from SoftBank Group Corp.'s Vision Fund. The company, valued at the time at $6.4 billion, had also grown into the third-largest U.S. brokerage.

Despite its fast growth, Compass's critics argued it was a traditional real estate brokerage that's valued like a tech company. Those voices were loud enough that the company's chief financial officer sent an eight-point memo to employees and agents in October 2019 detailing the ways the company differed from WeWork, the office real estate company whose IPO plans had collapsed the previous month.

“They say they're a tech company, and they back it up in the sense that they have hired lots of engineers, who are building and releasing technology,” said Mike DelPrete, a real estate strategist who follows the company. “They're talking the talk and walking the walk, no question about that. The question is, does it make a difference?”

Compass contends its technology offers agents better and more time-efficient ways to schedule meetings, design marketing materials and communicate with clients. The company has invested heavily in engineers to build artificial intelligence that pulls those tools together, arguing that its innovation is integration.

Compass said in the filing that the value of its technology is demonstrated by a 19% increase in the number of transactions the company's agents close in their second year with compared with their first. Compass agents also close homes faster than agents at competing firms, according to the filing.

Reffkin's Shares

SoftBank-related funds own about 35% of the Class A shares of Compass, according to the filing. Reffkin, who has 2.4% of the Class A shares, currently owns all of the Class C shares.

As much as 5% of the Class A shares in the IPO will be reserved for licensed real estate agents affiliated with Compass and certain individuals, according to the filing.

The offering is being led by Goldman Sachs, Morgan Stanley and Barclays Plc. Compass plans for its shares to trade on the New York Stock Exchange under the symbol COMP.

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