At long last, Compass' IPO filings have revealed the financials and other key metrics of the business. This Friday I'll be hosting a paid webinar to fully unpack the filing, along with examining key strategic questions and implications for the business. To start, here's a few key takeaways presented around four charts.

Financials

Compass is unprofitable -- a net loss of $270 million in 2020 -- a result of its operating expenses exceeding its gross profit (revenue after paying out agent commissions). Losses were growing into 2019, and contracted in 2020.

Historically there's been a wide gap between these figures, resulting in massive unprofitability. Last year was an outlier due to Covid-19; Compass saw a surge in revenue during Q3 and Q4, while its expense growth dropped significantly (partially driven by a reduction of headcount, operations & support, and sales & marketing).

Annual Growth and Efficiency

Between 2019 and 2020, Compass did 66 percent more transactions with 48 percent more agents (note: I'm using a midpoint total agent calculation, instead of the smaller Principal Agent figure provided by Compass). The result is an improvement in efficiency: on average, each agent did 12 percent more transactions.

Context: the market was crazy hot in 2020; many agents were doing more transactions. The market as a whole was up 5.6 percent for the year, and December alone was up 22 percent compared to last year. At the end of the day, 12 percent is an incremental improvement, and much of it could be driven by the hot market.

The real key is that the number of Compass employees was only up 29 percent. In other words, Compass was able to support 48 percent more agents and 66 percent more transactions with only 29 percent more employees. That's a promising sign of improving operational efficiency.

Improving Operational Efficiency

Another sign of improving operational efficiency is Compass' total Operations and Support expense ($225 million in 2020) relative to the number of agents and transactions the business supports. Over the past three years, it's gone down, a sign of improving efficiency.

Gross Margins

When all is said and done, the Compass financials are bleak if you care about profitability. One of the biggest challenges is Compass' gross margins -- which are total revenues minus agent commissions and other transaction-related expenses. It's the "net revenue" a business makes before all of its indirect expenses are taken into consideration.

Compass' gross margins are low (and have been dropping over the past few years). Its gross margin is on-par with traditional brokerage peers in the industry -- and, interestingly, are the same as aircraft manufacturer Boeing. These are not the 70%+ gross margins of a technology company.

Compass is losing less money per transaction as it scales, but it's still losing a lot of money. The path to profitability, which I'll cover in my webinar, is uncertain. The fundamentals of the Compass business model, anchored by its low, brokerage-style gross margins, coupled with sky-high expenses, paint a particularly interesting challenge for the business -- and the industry -- going forward.