Should You Buy This Company That Crushed Estimates?
eXp World Holdings (NASDAQ: EXPI) declared profits on Nov. 3, 2021, beating Wall Street estimates on the upper and lower lines. Nonetheless, shares were stable after the report.
eXp has grown rapidly in almost every measure of the business and has even exceeded what analysts were hoping for. Here’s what eXp reported and why you should consider adding or starting a position in eXp today.
Image source: Getty Images.
What went well
Much went well for the company in the third quarter. For those who do not know it, eXp is a fast growing online real estate company, both nationally and internationally. The virtual company operates in 16 countries, Puerto Rico and Hong Kong.
eXp has been able to grow so quickly due to its ability to attract so many real estate agents. It does this through its attractive commission splits and stock-based compensation. Agents can earn up to $ 1,000 in inventory in their first year with eXp, and they receive 80% of their gross commissions on the first $ 80,000 in sales, which is well above competitor standards of 70. % on the first $ 140,000. After $ 80,000, eXp agents receive 100% of the commission.
Revenue increased 97% from the last year’s quarter and 10% sequentially to $ 1.1 billion – beating Wall Street estimates of $ 1.0 billion – and the number of eXp agents grew 87% to over 65,000 agents. Residential transaction volume rose 97% to $ 46.6 billion, while homes sold in the third quarter exceeded 130,000.
eXp announced that SUCCESS Lending – the company’s new joint venture mortgage service with Kind Lending – has been approved for launch in Colorado, Illinois and Tennessee. The company also announced that it received a Net Promoter Score (NPS) – a score of -100 to 100 based on customer satisfaction, with 70 being considered “world class” – out of 69.
Third-quarter gross profit increased 70% from last year’s quarter to $ 80 million, and net profit increased 60% to $ 24 million or $ 0.15 per share, exceeding Wall Street estimates by $ 0.11. To reduce stock dilution of stock given to agents for the huge incentives, eXp repurchased $ 53 million of stock in the third quarter. This too declared a dividend, adding to its incredible incentives for agents. This dividend – which shareholders also received in the last quarter – encourages agents to own eXp and remain loyal to eXp as agents due to their partial ownership.
This increase in profits has been particularly impressive given the growing pressure from i-buying, which has been particularly popular over the past six months, although this concept has recently cooled off as companies have realized that i -buying was more difficult than originally thought. Nonetheless, i-shopping has increased dramatically over the past six months among consumers, making it harder for eXp to work. Therefore, the pace of profits and the strong growth are amazing.
What was missing
Quite frankly, there wasn’t much wrong with the eXp revenue. Viewed critically, investors saw that this quarter saw slower revenue and profit growth than in previous quarters. In the second quarter, revenue increased by 183% and gross profit by 133%, which was much faster than in the third quarter. The likely culprit, however, was that the company had easy comparables in the last quarter, given that it was compared to the second quarter of 2020 – a very bad quarter for in-person real estate transactions.
Another potential cause could be that income has declined quarter over quarter. Even though revenue and transaction volume increased sequentially, gross margin remained stable quarter over quarter and net profit fell nearly 35%. This decrease is due to a lack of tax benefits – in the third quarter, eXp received $ 13 million in tax provisions compared to $ 21 million in the second quarter. Nonetheless, net income would have been down $ 5 million, even including tax benefits.
Even taking these factors into account, the growth of the company is still exceptional. While growth may slow, eXp still recorded 97% revenue growth, for which almost any state-owned company would kill. Although some indicators of its growth may have stagnated sequentially, the key factors in the company’s future growth and adoption – revenue, number of agents and volume – all increased sequentially, showing good signs for its continued growth.
eXp also continued its international expansion efforts by entering two new countries during the quarter, another important factor for the company.
Where eXp could go from here
The name of the game for eXp is Broad Growth. Its objective is to find adoption in the international markets in which it is developing while gaining market share at the national level. eXp does this by providing the best incentives for agents – by increasing the number of agents on the platform and thereby increasing the volume and market share of the company.
eXp is an underrated real estate player, trading at less than three times sales while rivals Zillow (NASDAQ: Z)(NASDAQ: ZG) and Red tuna (NASDAQ: RDFN) both are trading nearly five times the sales. That’s 67% more than eXp, but Zillow only had 45% more revenue over the last 12 months in the second quarter than eXp, and Redfin had less than half of the 12-month revenue. last months of eXp.
This company dramatically increases revenue and volume as its competitors begin to lag behind eXp growth. This, combined with its intense international expansion efforts, indicates a company that is poised to continue to grow rapidly for many years to come. eXp is still one of my favorite games in the real estate industry, and this quarter just keeps me excited. That’s why I see today as a buying opportunity after stocks fell 10%.
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Jamie Louko owns shares of Redfin, Zillow Group (C shares) and eXp World Holdings. The Motley Fool owns and recommends Redfin, Zillow Group (A-shares), Zillow Group (C-shares) and eXp World Holdings. The Motley Fool recommends the following options: November 2021 short sale at $ 65 on Redfin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.