Real estate brokerage eXp World Holdings (NASDAQ: EXPI) has always done things a little differently. It doesn't have physical brokerages and conducts most of its business on the Virbela virtual platform. It has created a richly rewarding system for agents and brokers that has led to aggressive recruiting. And now it's done something truly intriguing: declaring its first cash dividend for the third quarter of 2021. Sure, it's not a lot of money -- just $0.04 per share -- but CEO Glenn Sanford is hoping to make this a regular occurrence.
Why cash, why now?
The brokerage had a blockbuster quarter and bounced up strongly in after-hours trading after it reported. Revenue crested the $1 billion mark, with earnings per share of $0.24 and net income up a whopping 350%-plus to $37.1 million. Gross profit was up 133% to $79.9 million.
When I interviewed Sanford earlier this year, he talked about hitting the 50,000-agent mark. There are now over 58,000 agents with eXp, and these agents did 115,431 in transaction sides. Transaction volume was up 210% year over year to $40.1 billion. All that success means that eXp has over $100 million in cash available.
But it's not just generosity that is motivating the move. Sanford sees it as a way to keep agents happy. As he put it on the company's earnings call, this provides an additional income stream for agents and brokers, who already get commissions as well as a share of the commissions of agents they recruit and access to company stock. In order for that stock to be worth something, the brokerage has to be profitable, and Sanford sees the dividend as a way to demonstrate that.
Keeping the flywheel going
While just paying agents who bring in other agents was a great way to attract a lot of attention, eXp has refined its incentives. By changing the qualification terms, they've been able to put the focus on agent productivity. The company has strongly benefited from a network effect, and the challenge now is to continue that, both in its expansion internationally across the 17 foreign countries it's located in as well as in its foray into commercial real estate.
On the earnings call, eXp's VP of Technology Innovation announced something called the Innovation Hub. At first glance, it seems like a supercharged CRM that plugs in things like ExpressOffers, eXp's answer to iBuying, which gives the user access to a network of cash buyers in all 50 states.
Another aspect of this will be a connection to eXp's joint venture with Kind Lending, SUCCESS Lending. The joint venture was just announced recently, so it's far too soon to know how that will play out. However, on the earnings call, Sanford stated that he and Glenn Stearns will be actively seeking out the best loan officers in each market and then combining that initiative with other eXp products and services.
The Millionacres bottom line
All this sounds great, but eXp has benefitted from a very strong real estate market. As Sanford stated on the call, the company is starting to see an increase in inventory and some moderation in the market. At this point, there's every indication that the desire for homes will remain strong, but we may be at or close to peak price.
One of the things investors in any real estate brokerage stock need to ask themselves is how much they believe that the company can weather a down market. While eXp is developing multiple streams of revenue, it's still strongly dependent on commissions from transactions to keep that flywheel spinning. There's no doubt that eXp's stock has had a strong run over the past year, but that fast runup does mean that the stock could be overvalued.