HOUS - eXp World stock drops Compass rises after BTIG initiates brokerage stocks

2023-07-18 14:26:51 ET

eXp World Holdings ( EXPI ) stock dropped 10% in Tuesday afternoon trading after BTIG assigned a Sell rating to the real estate stock when starting coverage of the residential brokerage sector.

By contrast, Compass ( COMP ) stock gained 3.6% after the BTIG issued a Buy rating on the stock. Re/Max Holdings ( RMAX ), Anywhere Real Estate ( HOUS ), and Douglas Elliman ( DOUG ) received Neutral ratings. ReMax ( RMAX ) +0.3% , Anywhere ( HOUS ) +3.1% , and Douglas Elliman ( DOUG ) -1.2% .

"There are three key debates for the space heading into 2H'23: 1) trajectory of existing home sales; 2) agent/count attrition trends; and 3) magnitude of split pressure," which refers to commissions, BTIG analyst Soham Bhonsle wrote in a note to clients. "We think Compass ( COMP ) is well-positioned to address all three debates, while eXp Realty ( EXPI ) could be at risk of seeing agent growth and productivity slow.

Bhonsle expects some agents to drop out of the industry as pandemic real estate frenzy cools. That puts RMAX in better position than EXPI because RMAX agents are on average more productive than EXPI's. Agent retention will be more important for traditional brokers than agent count, as volumes could "shift meaningfuly were teams of high-producing agents to move," he said.

In commission splits, the analyst expects some agents will prefer a high-split model such as eXp's ( EXPI ) to maximize their earnings in a smaller market, "while others will see benefits in the high levels of support, well-known brands and technology, which more traditional brokers can offer," Bhonsle said.

Compass ( COMP ) is poised to see lower split pressure in FY'23/FY'24 due to lower agent incentives and a higher mix of top-50% agents, who are typically paid splits ~900 basis points below top-25% agents, he noted.

More on Real Estate:

• Mortgage rates near 7%, but housing costs remain high
• Compare the key metrics of COMP, HOUS, EXPI, RMAX, DOUG
• Compass: Potential Upside Is Attractive But Needs a Lot of Work
• Opendoor, Offerpad, real estate stocks climb after home prices rise in April
• eXp World Holdings: Good Business Model But Extremely Expensive

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