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Compass cuts IPO price range and downsizes deal ahead of public debut

Published by Business Insider on Wed, 31 Mar 2021

<p><img src="https://static4.businessinsider.com/image/6064a4df6183e1001981987d-2400/robert-reffkin-compass.jpg" border="0" alt="robert reffkin compass" data-mce-source="Brad Barket/Getty Images for Fast Company" data-mce-caption="Robert Reffkin, CEO and cofounder of Compass."></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul><li aria-level="1"><strong>Compass cut its IPO price range from $23-$26 to $18-$19 and cut the number of shares for sale ahead of its public debut tomorrow.&nbsp;</strong></li><li aria-level="1"><strong>The pricing suggests the SoftBank-backed residential brokerage firm will be valued at around $7 billion.&nbsp;</strong></li><li aria-level="1"><strong>Stock analyst David Trainer said Compass fails to generate profits and didn't justify its previous $10 billion valuation.&nbsp;</strong></li><li aria-level="1"><a href="https://newsletter.businessinsider.com/join/4np/10-things-opening-bell'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingest"><strong>Sign up here for our daily newsletter, 10 Things Before the Opening Bell</strong></a><strong>.</strong></li></ul><hr><p><a href="https://www.businessinsider.com/compass-ipo-s1-profit-loss-real-estate-tech-brokerage-2021-3">Compass</a> slashed its IPO price range from $23-$26 to $18-$19 and cut its initial stock offering from 36 million to 25 million shares ahead of its long-awaited public debut on Thursday, according to <a href="https://sec.report/Document/0001193125-21-101664/">SEC filings</a>.<br><br>The new pricing suggests the SoftBank-backed residential brokerage firm will be valued at around $7 billion after its IPO, a drop from the $10 billion expected from the previous stock valuation.</p><p>Compass is the latest firm to face a rocky path to its public debut. Earlier this week, Amazon-backed Deliveroo priced its shares at the bottom of its range, <a href="https://www.businessinsider.com/deliveroo-stock-price-ipo-london-stock-exchange-food-delivery-2021-3">and then tumbled 30%&nbsp; during its first day of trading</a> in London on Wednesday.&nbsp;</p><p>In the weeks leading up to Compass' IPO, <a href="https://www.businessinsider.com/compass-ipo-s1-analysts-profitability-real-estate-tech-softbank-wework-2021-3">analysts expressed doubt about the firm's high valuation, tech-startup claims, and path to profitability</a>.</p><p>In an IPO research note published Monday before the news of the price cut, New Constructs chief David Trainer said Compass's $10 billion valuation implied it would disrupt the real estate business and generate twice the revenue of the current largest US brokerage, Realogy.&nbsp;</p><p>He added that Compass is simply "a traditional brokerage with flashy marketing, whose only advantage is an unlimited ability to burn cash."</p><p>"Compass fails to generate any profits, and with minimal ability to cut costs (and remain competitive), it's hard to make a straight-faced argument that the firm can justify a ~$10 billion valuation given its 'technological advances' are already standard in other real estate businesses and its competition has greater scale and is much more profitable," Trainer said.&nbsp;</p><p>The stock analyst credits Compass' success to its access to large amounts of capital from SoftBank, and added that "SoftBank needs this IPO more than investors do."&nbsp;</p><p><a href="https://markets.businessinsider.com/news/stocks/compass-ipo-price-range-stock-valuation-david-trainer-real-estate-2021-3-1030265386#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/melissa-maker-clean-your-home-quickly-cleaning-expert-2017-4">A cleaning expert reveals her 3-step method for cleaning your entire home quickly</a></p>
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