Compass cuts IPO price range and downsizes deal ahead of public debut

• Compass cut its IPO price range from $23-$26 to $18-$19 and cut the number of shares for sale ahead of its public debut tomorrow.
• The pricing suggests the SoftBank-backed residential brokerage firm will be valued at around $7 billion.
• Stock analyst David Trainer said Compass fails to generate profits and didn't justify its previous $10 billion valuation.
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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.

Compass is the latest firm to face a rocky path to its public debut. Earlier this week, Amazon-backed Deliveroo priced its shares at the bottom of its range, and then tumbled 30% during its first day of trading in London on Wednesday.

In the weeks leading up to Compass' IPO, analysts expressed doubt about the firm's high valuation, tech-startup claims, and path to profitability.

In an IPO research note published Monday before the news of the price cut, New Constructs chief David Trainer said Compass's $10 billion valuation implied it would disrupt the real estate business and generate twice the revenue of the current largest US brokerage, Realogy.

He added that 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."