More Problems at eXp World Holdings (EXPI)

eXp World Holdings (NASDAQ: EXPI — $1.50 billion) describes itself as “one of the world’s fastest-growing real estate brokerages.” In reality, eXp lost about ~1,500 of its nearly 90,000 agents last quarter and faces robust competition from aggressive low-cost brokerages. In short, The Bear Cave believes that eXp’s earnings results later today will reveal a devastating truth: eXp is losing its highest-producing agents to fast-growing competitor Real Brokerage (NASDAQ: REAX — $723 million).

The Bear Cave first published on eXp in April 2022 and wrote, in part,

“eXp World Holdings was founded by Glenn Sanford in October 2009 as a ‘cloud brokerage’ that saved costs by cutting out physical offices. Today, Mr. Sanford serves as eXp’s CEO, Chairman, and controlling (~54%) shareholder. Before founding eXp, Mr. Sanford started his career helping companies go public through reverse mergers, and in 1998 Mr. Sanford formed eShippers, an outsourced logistics company that went public in a dot-com bubble reverse merger. Today, eShippers is a $2 million penny stock on the TSX Venture Exchange that is going through another reverse merger with an exploratory gold miner.

Like Mr. Sanford’s prior ventures, eXp also went public through a reverse merger with OTC-listed Desert Canadians Ltd in 2013 and uplisted to the NASDAQ in May 2018. eXp earns money by charging its agents a $149 start-up fee, a $50/month technology fee, a $35/month education fee, a 20% cut of initial commission income, as well as transaction fees, errors & omissions fees, risk management fees, broker review fees, and mentorship fees.”

The Bear Cave also raised concerns around eXp’s excessive issuance of stock to incentivize recruitment and wrote,

“The recruitment video highlights three agents who were successful at recruiting others. One agent earned over $1 million in stock over four years. Another agent earned $2.9 million in stock over three years. A third agent earned over $1.5 million in stock over two years. Some agents can also buy eXp stock at a discount and get a bonus $16,000 in stock by teaching an eXp recruiting class online.

Over the last five years, eXp’s diluted shares outstanding have grown from ~106 million to ~158 million. Paying out stock to existing agents in order to earn cash fees from new agents works as long as the market believes your story, and as long as you can keep a strong recruitment pipeline.” (Emphasis ours)

Hours after The Bear Cave’s April 7, 2022 article, Mr. Sanford tweeted,

“I believe most haters spend more time making stuff up about those they hate on then actually doing research to find out why someone is winning. If they did the research, they could be a winner as well rather than sitting in pajamas writing stuff on stuff they’ll never understand.”

Since then, eXp stock has fallen ~50% and last quarter the company disclosed its first ever decline in agent count from 89,156 agents as of September 30 to 87,515 agents on December 31, 2023.

On eXp’s February 2024 Q4 earnings call the first question was:

“Can you discuss what happened to your agent count from the third quarter to the fourth quarter?”

Mr. Sanford partly blamed the decline on eXp’s “decision to offboard a significant number of unproductive agents” and said, in part,

“It was really just trimming the numbers to be our productive agents who are actually focused on being here. Moving forward, we expect our agent count to return to growth over time as we continue to sort of retain our highly productive agents demonstrated really by our strong agent satisfaction.”

The Bear Cave believes the opposite and that in its earnings later today eXp will disclose a record agent loss.

Let’s dig in.