Compass 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 SEC filings.
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.
In an IPO research note published Monday, David Trainer said Compass’s valuation implies it will disrupt the real estate business and generate twice the revenue of the current largest US brokerage, Realogy.
But to Trainer, Compass is simply “a traditional brokerage with flashy marketing, whose only advantage is an unlimited ability to burn cash.”
“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.
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.”