The brokerage saw its stop pop as high as $22 before closing at $19.75, a 9.7 percent jump from the public offering price.
Compass’ first day on the market is finished. After setting their initial price per share at $18, the tech-enabled brokerage (NYSE: COMP) experienced a small first-day pop that saw the stock touch $22.11 before landing at $19.75 per share — a 9.7 percent jump from the public offering price — when the New York Stock Exchange closed for the day at 4 pm EST.
The boost in price per share now puts Compass’ estimated market value at $7.2 billion, placing them in the league with the market caps of tech-enabled brokerages like Redfin ($6.83b as of market close) and eXp ($6.27b). Meanwhile, although business models differ, Zillow and Realogy sit at two extremes of that field, with Zillow’s market cap standing at $32.2 billion and Realogy’s market cap at $1.82 billion.
Venture capitalist Paul Levine tweeted, “Investors are not valuing Compass as richly as high-multiple tech-centric peers like $RDFN, $Z, $EXPI, and $OPEN. As a result, Compass is landing somewhere in between ‘real estate tech’ and traditional brokerage ($RLGY, $RMAX) in terms of multiple/valuation.”
In a live interview with Bloomberg, Compass CEO Robert Reffkin said he wasn’t concerned about the chatter surrounding the lowered offering and valuation as $450 million was still enough to fund the company’s growth goals.
“The goal was never a valuation [and] the goal was never a price,” he said. “The goal was a capital raise and we met that goal and succeeded in that goal.”
“With this IPO, we have hundreds of millions of dollars infused into the company to help us accelerate our investment into our tech platform in creating a one-stop-shop solution and a modern platform for real estate agents that meets all their needs so they can better serve their clients and grow their business,” he added.
Social media has been abuzz with comments about Compass’ offering and what it means for the company in terms of its value in the real estate industry and on Wall Street. Sapphire Ventures Managing Partner Paul Levine posted a sequel to his March 5 IPO thread and explained what may have influenced Compass’ IPO goalpost.
“Last month I posted on this topic and predicted a $15-20 billion valuation if Compass is valued similarly to [Redfin] and other tech-centric brokerages,” he said. “Investors are not valuing Compass as richly as high-multiple tech-centric peers like [Redfin], [Zillow], [eXp], and [Opendoor].”
“As a result, Compass is landing somewhere in between ‘real estate tech’ and traditional brokerage (Realogy and RE/MAX) in terms of multiple [and] valuation,” he added.
Levine also said outside forces were at play, such as public investors’ bearish approach to investing in technology companies.
“The IPO market has cooled overall,” he concluded. “Many recent IPOs have dropped the price, launched weakly, or been shelved altogether. This is a macro factor that affects Compass but is not company-specific.”
Although much of the focus has been on first-day results, Forbes contributor and investing expert David Trainer told Inman it’ll take up to three years to have a full understanding of Compass’ performance and its future on the stock market.
“You know, Wall Street tries to do a really good job of making sure that the IPO looks good and that it has a ‘pop’ that day because it makes it look like the IPO market is healthy,” he said. “There’s not much to say right now, but the first day of the IPO isn’t necessarily representative of the quality of the overall offering.”
“At a minimum we need to wait until we get through the period of time when the insiders are allowed to sell, [which is called] the lockup period,” he added. ” I would wait at least until the lockup period is done to see how much the insiders are willing to hold on to the shares.”
“But normally we’re talking about at least one to three years [to see how they perform.]”
The day leading up to the IPO was filled with speculation as an amended S-1 filed with the U.S. Securities and Exchange Commission (SEC) revealed the company lowered its offering from 36 million shares at $23 to $26 per share to 25 million shares at $18 to $19 per share. As a result, the funding goal dropped from a maximum of $936 million to $450 million while its estimated valuation shrunk from $10 billion to $7 billion.
However, as of market close on Thursday, Compass’ fully-diluted valuation, which includes restricted stock units and options, is approximately $10.3 billion, according to estimates supplied by the company.