Real estate franchise company RE/MAX (NYSE:RMAX) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 3.4% year on year to $78.48 million. On the other hand, next quarter’s revenue guidance of $73.5 million was less impressive, coming in 3.5% below analysts’ estimates. Its non-GAAP profit of $0.38 per share was 6.9% above analysts’ consensus estimates.
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RE/MAX (RMAX) Q3 CY2024 Highlights:
- Revenue: $78.48 million vs analyst estimates of $78.22 million (in line)
- Adjusted EPS: $0.38 vs analyst estimates of $0.36 (6.9% beat)
- EBITDA: $27.29 million vs analyst estimates of $25.84 million (5.6% beat)
- Revenue Guidance for Q4 CY2024 is $73.5 million at the midpoint, below analyst estimates of $76.14 million
- EBITDA guidance for the full year is $96.5 million at the midpoint, above analyst estimates of $95.73 million
- Operating Margin: 19.4%, up from -25.9% in the same quarter last year
- EBITDA Margin: 34.8%, up from 32.9% in the same quarter last year
- Free Cash Flow Margin: 20.8%, up from 19.7% in the same quarter last year
- Agents: 145,483, in line with the same quarter last year
- Market Capitalization: $231.9 million
"We continue to drive operational efficiency across the enterprise, which helped generate better-than-forecasted third-quarter financial results," said Erik Carlson, RE/MAX Holdings Chief Executive Officer.
Company Overview
Short for Real Estate Maximums, RE/MAX (NYSE:RMAX) operates a real estate franchise network spanning over 100 countries and territories.
Real Estate Services
Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, RE/MAX’s sales grew at a sluggish 3.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. RE/MAX’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 7.1% annually. 
We can better understand the company’s revenue dynamics by analyzing its number of agents, which reached 145,483 in the latest quarter. Over the last two years, RE/MAX’s agents were flat. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen. 
This quarter, RE/MAX reported a rather uninspiring 3.4% year-on-year revenue decline to $78.48 million of revenue, in line with Wall Street’s estimates. Management is currently guiding for a 4% year-on-year decline next quarter.
Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, an improvement versus the last two years. While this projection illustrates the market believes its newer products and services will fuel better performance, it is still below average for the sector.
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Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
RE/MAX has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.4% over the last two years, slightly better than the broader consumer discretionary sector.
RE/MAX’s free cash flow clocked in at $16.29 million in Q3, equivalent to a 20.8% margin. This result was good as its margin was 1.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.
Over the next year, analysts predict RE/MAX’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 13.2% for the last 12 months will increase to 20.3%, it options for capital deployment (investments, share buybacks, etc.).
Key Takeaways from RE/MAX’s Q3 Results
It was good to see RE/MAX beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, its revenue forecast for next quarter was underwhelming, coming came in below Wall Street’s estimates. Overall, this quarter was mixed. The stock remained flat at $12.24 immediately following the results.
Is RE/MAX an attractive investment opportunity at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.