The Real Brokerage (REAX)

Real estate technology company The Real Brokerage (NASDAQ:REAX) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 93.4% year on year to $350.6 million. Its GAAP loss of $0.03 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ:REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.

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.

The Real Brokerage’s primary competitors include eXp World (NASDAQ:EXPI), Redfin (NASDAQ:RDFN), Zillow (NASDAQ:ZG), and Compass (NYSE:COMP).

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, The Real Brokerage’s 140% annualized revenue growth over the last five years was incredible. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

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. The Real Brokerage’s annualized revenue growth of 82% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, The Real Brokerage reported magnificent year-on-year revenue growth of 93.4%, and its $350.6 million of revenue beat Wall Street’s estimates by 16.8%.

Looking ahead, sell-side analysts expect revenue to grow 24.4% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and indicates the market sees success for its products and services.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

The Real Brokerage’s operating margin has been trending up over the last 12 months, but it still averaged negative 2.1% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q4, The Real Brokerage generated a negative 1.8% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

The Real Brokerage’s earnings losses deepened over the last five years as its EPS dropped 3.8% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, The Real Brokerage’s low margin of safety could leave its stock price susceptible to large downswings.

In Q4, The Real Brokerage reported EPS at negative $0.03, up from negative $0.07 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast The Real Brokerage’s full-year EPS of negative $0.14 will reach break even.

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.

The Real Brokerage has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.4%, lousy for a consumer discretionary business.

The Real Brokerage’s free cash flow clocked in at $4.00 million in Q4, equivalent to a 1.1% margin. Its cash flow turned positive after being negative 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.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

The Real Brokerage is a well-capitalized company with $32.83 million of cash and no debt. This position is 3.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly The Real Brokerage blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 4.7% to $4.34 immediately after reporting.

Updated: May 4, 2025 at 10:06 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own The Real Brokerage, you should also grasp the company’s longer-term business quality and valuation.

The Real Brokerage isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its operating margins reveal poor profitability compared to other consumer discretionary companies. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets.

The Real Brokerage’s EV-to-EBITDA ratio based on the next 12 months is 18.1x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $6.67 on the company (compared to the current share price of $4.49).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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