A cruel Faustian bargain, the government stimulus designed to backstop the American worker from falling into an economic abyss from the COVID-19 pandemic certainly worked like a charm. In fact, the rousing January jobs report provided the ultimate confirmation.
Still, the injection of monetary support may have contributed to record-breaking housing valuations, pricing out countless would-be buyers. Though this dynamic cynically boosts the debut of HomeSmart Holdings Inc., it also raises concerns about longer-term sustainability.
What is HomeSmart?
An end-to-end online platform for the residential real estate industry, HomeSmart integrates digital technologies with the various systems that agents need to accomplish their daily tasks. From facilitating virtual tours to marketing and document management, HomeSmart connects every party involved in a housing transaction at each stage of the process. For end clients, the platform enables the smoothest deals possible while agents and brokers benefit from a consolidated command center.
Founded in 2000 in a bid to streamline real estate professionals’ workflows with burgeoning digital solutions, HomeSmart’s technology systems suite also includes transaction and business management products for brokers and agents. Featuring a commission-based business model, the company boasts a clientele list of over 23,000 agents across 194 offices in 47 states.
When is the HomeSmart IPO Date?
Following a record-breaking year in private enterprises listing their shares for the first time to retail investors — a process known as an initial public offering (IPO) — it was perhaps inevitable that the fervor for entering the capital market would decline in the new year. Nevertheless, sentiment may be picking back up, auguring well for HomeSmart’s upcoming debut.
At the time of writing, the real-estate technology platform did not disclose a specific date to enter the IPO calendar. What investors do know is that the Scottsdale, Arizona-based firm filed its intention to go public with the U.S. Securities and Exchange Commission (SEC) on Jan. 7, 2022. Under its Form S-1 IPO prospectus, management will be looking to raise up to $100 million.
Since it’s early in the game, HomeSmart could choose to amend its prospectus, as well as reveal key items like per-share pricing terms. For now, the company intends to list its shares on the Nasdaq exchange under the ticker symbol HS. Financial heavyweights JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), Stifel Financial Corp. (NYSE: SF) and Oppenheimer Holdings Inc. (NYSE: OPY) represent the joint bookrunners for the deal.
Assuming HomeSmart launches its IPO within the next several weeks, the timing will certainly raise eyebrows among analysts. On one hand, delaying the pathway to the public arena until this year may have been a strong strategic move because of competitive concerns. As a Reuters article pointed out in December last year, U.S.-based new listings up to that point had totaled over $301 billion.
This tally screamed past the prior year’s record of $168 billion, suggesting a wide array of industries competing for (limited) investor dollars. At the same time, cryptocurrencies — which trade 24 hours a day — vacuumed up plenty of retail capital. And with businesses similar to HomeSmart like Compass Inc. (NYSE: COMP) making their market debut in 2021, it may have been wise for the former to strategically sit on the sidelines.
At the same time, the underlying real estate market is incredibly difficult to navigate because of potential changes in monetary policy. With the Federal Reserve signaling multiple interest rate hikes this year, such actions would almost surely raise borrowing costs. In turn, this circumstance could finally pop the mercurial housing bubble, which may be beneficial for priced-out homebuyers but not so much for HS stock.
HomeSmart Financial History
While HomeSmart may be on the cutting edge of connectivity-based solutions, it doesn’t mean that the company is strictly aspirational. Indeed, a pivotal advantage for HS stock is that the security is connected to a tangible track record. Nevertheless, investors ought to carefully perform their due diligence before moving forward.
On the positive end of the spectrum, HomeSmart delivered strong revenue growth in 2020, with a total sales tally of $392.5 million, representing nearly 21% upside from the $324.6 million posted in 2019. Breaking down this line item, HomeSmart features three sales subsegments:
- Real estate brokerage: $380.9 million in 2020, up 20.6% year-over-year (YOY).
- Franchise: $5.64 million in 2020, up 23% YOY.
- Affiliated business services: $5.98 million in 2020, up 46.6% YOY.
Naturally, with real estate demand blowing through the roof, last year represented a banner period for HomeSmart. In the nine months ending Sept. 30, 2021, the company generated revenue of $477.7 million, up nearly 74% from the year-ago level’s tally of $275.1 million. By subsegment, the financials were as follows:
- Real estate brokerage: $466.8 million in the first three quarters of 2021, up 75% YOY.
- Franchise: $5.28 million in 2020, up 35.6% YOY.
- Affiliated business services: $5.57 million in 2020, up 31% YOY.
Despite the impressive growth rates, HomeSmart accrued operating expenses of $480.5 million in the nine months ending Sept. 30, 2021, resulting in an operating loss of $2.81 million. In contrast, the company posted positive operating income and net profits for full year 2019 and 2020.
Interestingly, in the first three quarters of last year, “commission and other agent-related costs” spiked to $447.1 million from $252.7 million in the year-ago period. This statistic suggests that the employment market for real estate professionals may be oversaturated. In fact, in October 2021, the number of realtors — or licensed agents who are members of the National Association of Realtors (NAR) — hit an all-time high of 1.56 million.
Put another way, too many agents chasing too few listings present a possible sustainability crisis for HS stock.
Generally, the mainstream consensus appears to be that home prices — as ridiculous as they are — may continue to rise even higher. Unlike the last housing bubble and subsequent crash, very few if any of the current home-buying crowd hail from subprime borrowers. Quite a few have their financial ducks in order, with a notable number paying in cash.
Bolstered by financially stable buyers this time around, the real estate sector’s limits mainly revolve around supply and demand. With few homes available for sale in major metropolitan areas, people are willing to spend top dollar. Even the specter of higher borrowing costs doesn’t seem to dent demand. If anything, it’s inspired prospective buyers to grab ultra-low mortgages while they can.
Though the above backdrop bodes well for HS stock, it’s not a guarantee that homes will continue skyrocketing. For instance, the lack of subprime participants implies that current buyers are financially sophisticated. Therefore, the first hint of a housing correction could see new homeowners rush for the exits, mindful of the devastation the last housing crisis caused.
Most troubling of all, few tech-based real estate stocks have performed well over the trailing year. Shares of Compass are down 59% over the past 365 days. Opendoor Technologies Inc. (NASDAQ: OPEN), which specializes in the iBuyer model of leveraging digital solutions to buy and flip homes, is down almost 65% during the same period.
Even Zillow Group Inc. (NASDAQ: Z, NASDAQ: ZG), one of the most conspicuous brands during the new normal, is down over 70%. If the housing market is so robust as the mainstream media claims, why is seemingly everyone leaving?
How to Buy HomeSmart IPO (HS) Stock
Should you decide to acquire HomeSmart on the open market, you must know how to buy stocks. Below is a quick guide.
Step 1: Pick a brokerage.
Because the best brokers compete on similar incentives, focus your time on finding the ideal platform that suits your needs.
Step 2: Decide how many shares you want.
All IPOs entail the risk of the unknown. Therefore, choose a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
HS Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
If you wish to buy HS on a pre-IPO (initial offering price) basis, visit Freedom Finance. You have until Feb. 14, 2022, to apply.
Not Quite an Open-and-Shut Case
With real estate prices continuing to defy gravity and credulity, HomeSmart’s IPO seems like a reasonable place to park your money. However, the narrative might not be that simple, particularly as several housing-related investments have worryingly cratered. Thus, extreme due diligence is necessary prior to closing the deal on HS stock.