Real estate technology company Compass (NYSE:COMP) beat analysts' expectations in Q1 CY2024, with revenue up 10.1% year on year to $1.05 billion. Guidance for next quarter's revenue was also better than expected at $1.65 billion at the midpoint, 1.2% above analysts' estimates. It made a GAAP loss of $0.27 per share, improving from its loss of $0.33 per share in the same quarter last year.

Is now the time to buy Compass? Find out in our full research report.

Compass (COMP) Q1 CY2024 Highlights:

• Revenue: $1.05 billion vs analyst estimates of $1.03 billion (2.2% beat)

• Adjusted EBITDA: ($20.1) million loss vs analyst estimates of ($30.7) million loss (big beat)

• Revenue Guidance for Q2 CY2024 is $1.65 billion at the midpoint, above analyst estimates of $1.63 billion

• Gross Margin (GAAP): 18.2%, up from 10.4% in the same quarter last year

• Free Cash Flow of $5.9 million is up from -$41 million in the previous quarter

• Transactions: 38,449

• Market Capitalization: $1.68 billion

Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE:COMP) is a digital-first company operating a residential real estate brokerage in the United States.

Real Estate Services

Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Compass's annualized revenue growth rate of 34.5% over the last five years was incredible for a consumer discretionary business.

Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Compass's recent history shows a reversal from its five-year trend, as its revenue has shown annualized declines of 13.8% over the last two years.

We can dig even further into the company's revenue dynamics by analyzing its number of transactions, which reached 38,449 in the latest quarter. Over the last two years, Compass's transactions averaged 11.1% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company's monetization of its consumers has fallen.

This quarter, Compass reported robust year-on-year revenue growth of 10.1%, and its $1.05 billion of revenue exceeded Wall Street's estimates by 2.2%. The company is guiding for revenue to rise 10.4% year on year to $1.65 billion next quarter, improving from the 26% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 11.3% over the next 12 months, an acceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

While Compass posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Compass's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 2.5%.

Compass broke even from a free cash flow perspective in Q1. This quarter's result was great for the business as its margin was 6.7 percentage points higher than in the same period last year.

Key Takeaways from Compass's Q1 Results

It was good to see Compass beat analysts' revenue and adjusted EBITDA expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Overall, this was a solid quarter for Compass. The stock is up 6.7% after reporting and currently trades at $3.5 per share.

So should you invest in Compass right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.