The Real Brokerage (REAX)

Real estate technology company The Real Brokerage (NASDAQ:REAX) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 76.3% year on year to $354 million. Its GAAP loss of $0.02 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 sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, The Real Brokerage’s 152% 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.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. 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 76.3%, and its $354 million of revenue beat Wall Street’s estimates by 6.3%.

Looking ahead, sell-side analysts expect revenue to grow 24.8% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable 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 1.8% over the last two years. This is due to its large expense base and inefficient cost structure.

The Real Brokerage’s operating margin was negative 1.5% this quarter. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

The Real Brokerage’s earnings losses deepened over the last five years as its EPS dropped 9% 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 Q1, The Real Brokerage reported EPS at negative $0.02, up from negative $0.09 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 $0.07 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 3.3%, lousy for a consumer discretionary business.

The Real Brokerage’s free cash flow clocked in at $15.67 million in Q1, equivalent to a 4.4% margin. The company’s cash profitability regressed as it was 6.2 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t put too much weight on this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing short-term swings. Long-term trends are more important.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

The Real Brokerage is a well-capitalized company with $24.71 million of cash and no debt. This position is 2.7% 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 quarter featured some important positives. The stock traded up 4.9% to $4.68 immediately following the results.

Updated: May 16, 2025 at 11:09 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 doesn’t pass our quality test. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, the company’s operating margins reveal poor profitability compared to other consumer discretionary companies.

The Real Brokerage’s EV-to-EBITDA ratio based on the next 12 months is 16.6x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $6.50 on the company (compared to the current share price of $4.29).

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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